Interested Directors – Delaware Docket

DELAWARE COURT OF CHANCERY DENIES MOTIONS TO DISMISS CLAIMS ALLEGING BREACHES OF FIDUCIARY DUTY IN ALLEGED CONTROLLING STOCKHOLDER TENDER OFFER

Nov 03 2020

By: David Forney and Caitlin Velasco

In In Re Coty Inc. Stockholder Litigation, C.A. No. 2019-0336-AGB (Del. Ch. Aug. 17, 2020), the Delaware Court of Chancery (the “Court”) denied a Rule 12(b)(6) motion to dismiss claims brought by stockholders (the “Plaintiffs”) of Coty Inc. (“Coty”) against its directors and de facto controlling stockholder, JAB Holding Company S.à.r.l. and its affiliates (“JAB”), over JAB’s 2019 partial tender offer, whereby it increased its ownership stake in Coty from 40% to 60%. The Plaintiffs alleged that JAB opportunistically timed and priced the tender offer so that it undervalued Coty and structured the tender offer in a coercive manner.

CHANCERY COURT CLARIFIES MFW PROTECTIONS MUST BE IMPLEMENTED PRIOR TO ANY SUBSTANTIVE ECONOMIC NEGOTIATIONS

Sep 30 2020

By: David Forney and Claire Suni

In In re HomeFed Corporation Stockholder Litigation, C.A. No. 2019-0592-AGB (Del. Ch. July 13, 2020), the Delaware Court of Chancery (the “Court”) found that the controlling stockholder of HomeFed Corporation undertook substantive economic negotiations with its minority stockholders in connection with a proposed squeeze-out merger transaction prior to implementing the procedural protections set forth in Kahn v. M&F Worldwide Corp. (“MFW”). As a result, the Court ruled that the appropriate standard of review for the plaintiff’s claims of breach of fiduciary duty against the controlling stockholder and the board of directors was entire fairness, and not business judgment. The Court further found that two of the company’s directors were not independent and therefore could not avail themselves of exculpatory language in the company’s certificate of incorporation. The Court denied in full the defendants’ motion to dismiss under Rule 12(b)(6) for failure to state a claim for relief.

Delaware Court of Chancery holds that directors on a special committee are interested in a going-private merger when the merger effectively extinguishes their personal liability from viable derivative litigation

Jul 15 2020

By: Scott E. Waxman and Chris Fry

In Re AmTrust Financial Services, Inc. Stockholder Litigation, No. 2018-0396AGB (Del. Ch. 2020), George Karfunkel, Leah Karfunkel, and Barry Zyskind, the controlling stockholders of AmTrust Inc. (respectively, the “Controlling Stockholders” and “AmTrust”), teamed up with private equity firm, Stone Point Capital LLC (“Stone Point”), to take AmTrust private through a squeeze-out merger (the “Merger”), which closed in November 2018. Former stockholders (the “Plaintiffs”) challenged the Merger, asserting several claims for breach of fiduciary duty and aiding and abetting against the Controlling Stockholders, Stone Point, and AmTrust’s Board of Directors (the “Board”), among other participants in the Merger (collectively, the “Defendants”). DeCarlo, Gulkowitz, Fisch, and Rivera sat on both the Board and the special committee (the “Special Committee”), which negotiated the Merger and made recommendations to the Board regarding the same. The Delaware Court of Chancery (the “Court”) upheld the claims against the Board finding that the Controlling Stockholders and members of the Special Committee, except Rivera, were, among other issues, interested in the transaction, and therefore the Merger failed to comply with the procedures outlined in controlling precedent to obtain the benefit of a business judgment review, subjecting the Merger to the entire fairness standard of review.

Out of the money: breach of fiduciary duty claim survives motion to dismiss when the board approved an asset sale that left no consideration for the common unitholders

Jan 08 2020

By: Scott E. Waxman and Chris Fry

In JJS, Ltd., et al., v. Steelpoint CP Holdings, LLC, et al., No. 2019-0072-KSJM (Del. Ch. 2019), the Delaware Court of Chancery (the “Court”) held that John Sarkisian, individually and on behalf of JJS, Ltd. and PPS Investors Ltd., L.P. (together, the “Plaintiffs”) successfully stated a claim for breach of fiduciary duty against a venture capital fund and its appointed board members in approving a transaction for the asset sale of Pro Performance Sports, LLC (the “Company”) where the common unitholders receive no compensation, the board members are under common ownership or employment with the venture capital fund, and one board member received an extraordinary severance package. The Court dismissed the Plaintiffs’ remaining claims, which turned on the interpretation of the voting rights provision of the limited liability company (“LLC”) agreement of the Company, finding that the operative language was not ambiguous and that a careful reading of the agreement would have given Plaintiffs notice of the voting rights mechanics.

In a Reckless Re-price, Results are not Realized

Aug 22 2019

By David L. Forney and Tom Sperber

In Howland v. Kumar, C.A. no. 2018-0804-KSJM, the Delaware Chancery Court issued a Memorandum Opinion under Chancery Rule 12(b)(6) denying a motion to dismiss claims of breach of fiduciary duty and unjust enrichment on the basis that the defendants repriced stock options that they held immediately prior to making a public announcement that was sure to increase the stock price. The Court also ruled under Chancery Rule 23.1 that the plaintiff adequately plead demand excusal. Thomas S. Howland, Jr. (“Plaintiff”), a stockholder of Anixa Biosciences, Inc. (“Anixa”), brought two derivative claims against Anixa and its directors and officers. The Anixa board of directors consisted of Chairman, President, and CEO Amit Kumar (“Kumar”), Lewis H. Titterton, Jr. (“Titterton”), Arnold M. Baskies (“Baskies”), John Monahan (“Monahan”), and David Cavalier (“Cavalier”). The officers included Kumar, John A. Roop (“Roop”), Michael J. Catelani (“Catelani”) and Anthony Campisi (“Campisi”, collectively, “Individual Defendants,” and, collectively with Anixa, “Defendants”).

Chancery Court Denies Dismissal of Breach of Fiduciary Duty Claims after Concluding that Stockholder Vote was Not Informed

Jan 14 2019

By: David Forney and Rachel P. Worth

In In re Tangoe, Inc. Stockholders Litigation, C.A. No. 2017-0650-JRS (Del. Ch. Nov. 20, 2018), the Delaware Court of Chancery denied the director defendants’ motion to dismiss the stockholder plaintiffs’ claim for breach of fiduciary duties on the basis that the stockholder vote approving the transaction was not informed and the defendants were therefore not entitled to business judgment rule deference at the pleading stage. The Court also found that the plaintiffs had adequately pled a breach of the fiduciary duty of loyalty against each of the director defendants, which would not be covered by the exculpatory clause in the company’s certificate of incorporation.

CHANCERY COURT VALIDATES A DEFECTIVE MERGER AND REAFFIRMS RELIANCE ON OUTSIDE LEGAL COUNSEL UNDER DELAWARE LAW

Sep 20 2018

By Holly Hatfield and Dean Brazier

In The Cirillo Family Trust v. Aram Moezinia, Lewis Tepper, Mark Walter, and DAVA Pharmaceuticals, Inc., C.A. No. 10116-CB (Del. Ch. Jul. 11, 2018), the Delaware Chancery Court granted the defendants’ motion dismissing certain claims arising from the 2014 merger between DAVA Pharmaceuticals, Inc. (“DAVA”) and an affiliate of Endo Pharmaceuticals, Inc. (such affiliate, “Endo”). The Court held that Section 205 of the Delaware General Corporation Law (the “DGCL”) validated deficiencies in the written consents to the merger (the “Written Consents”) and a director’s reasonable, good faith reliance on the advice of legal counsel hired for specific expertise can exculpate the director for a fiduciary duty breach. The Court also granted part of the plaintiff’s motion to amend the complaint to add a claim against certain directors in their capacities as officers of DAVA.

MULTI-BILLION DOLLAR INVESTMENT MANAGER AND DIRECTORS REMAIN AT RISK

By: Kevin Stichter and Samira Torshizi

In Cumming v. Edens, et al., C.A. No. 13007-VCS (Del. Ch. Feb. 20, 2018), the Court of Chancery denied a motion to dismiss a derivative suit for breach of fiduciary duties brought by a stockholder of New Senior Investment Group, Inc. (“New Senior”) against New Senior’s board of directors (the “Board”) and related parties in connection with New Senior’s $640 million acquisition of Holiday Acquisition Holdings LLC (“Holiday”). The Court made clear that compliance with Section 144 does not necessarily provide a safe harbor against claims for breach of fiduciary duty and invoke business judgment review of an interested transaction. Because the complaint alleged with specificity “that the Board acted out of self-interest or with allegiance to interest other than the stockholders,” the court applied the entire fairness standard of review and concluded that the transaction was not fair to New Senior stockholders. Read More

Court of Chancery Holds That Corwin Defense Is Not Appropriate for the Limited Scope and Purpose of a Books and Records Action Under Section 220

Jan 29 2018

By: David Forney and Tami Mack

In Lavin v. West Corporation, C.A. No. 2017-0547-JRS (Del. Ch. December 29, 2017), the Court of Chancery held that stockholder plaintiff Mark Lavin (“Lavin”) had adequately demonstrated a credible basis from which the Court could infer that wrongdoing had occurred regarding the merger of West Corporation (the “Company”) and Apollo Global Management (“Apollo”) in support of Lavin’s Section 220 demand for inspection, and that a Corwin defense (that the transaction at issue was approved by a majority of disinterested and informed stockholders) is not a bar to an otherwise properly supported Section 220 demand for inspection.

Chancery Court Dismisses Breach of Duty Claim and Denies Quasi-Appraisal Relief Sought by Stockholders after Merger

Jun 27 2017

By Scott E. Waxman and Uri S. Segelman

In In re Cyan, Inc. Stockholders Litigation, C.A. No. 11027-CB (May 11, 2017), the Delaware Court of Chancery dismissed Cyan, Inc. stockholders’ complaint alleging breach of duty by Cyan’s board in merging with Ciena Corp., holding that the plaintiffs had failed to plead sufficient facts to support a reasonable inference that a majority of Cyan’s board was interested in the transaction or acted in bad faith so as to sustain a non-exculpated claim for breach of fiduciary duty. In so doing, the court further denied plaintiffs’ claim for equitable relief of quasi-appraisal, holding that since such relief is typically awarded to redress disclosure deficiencies that are the product of a fiduciary breach, and given that plaintiffs failed to identify any material misrepresentation or omission from Cyan, or to allege any other viable claim for a fiduciary breach, there was no basis to impose a quasi-appraisal remedy.

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