United States: Corporate Governance Litigation & Regulation: A Periodic Review And Predictions For The Remainder Of 2019

Last Updated: June 6 2019
Article by Cadwalader, Wickersham & Taft LLP

Most Read Contributor in United States, July 2019

Since the start of 2018, state and, to a lesser extent, federal courts around the country, as well as state legislatures and Congress, have issued decisions or considered legislation having a substantial impact on corporate governance law.  In this article, we discuss important judicial and regulatory developments in the following areas:

Mergers and Acquisitions Litigation:  For the first time, the Delaware Court of Chancery upheld the termination of a merger agreement based on a material adverse effect.  Vice Chancellor Laster’s decision in Akorn illustrated the high, but not insurmountable, bar a merger party must clear to avoid closing a deal that turns sour.  Recently, the Delaware Supreme Court in Aruba provided further guidance on when the merger consideration is the best evidence of fair value in appraisal litigation.  There also have been notable decisions considering the appropriateness of disclosure-only, non-monetary class action settlements and applying the Delaware Supreme Court’s seminal decision in Corwin.

Intra-Corporate Disputes:  The Delaware Court of Chancery issued decisions touching on a variety of corporate governance issues, including the direct-versus-derivative claim distinction, the question, in the demand-futility context, of whether a decision made by a committee can be imputed to the full board, and the potential for impermissible conflicts between activist hedge funds and “ordinary shareholders.”  The court also provided guidance on contractual issues pertinent to the governance of unincorporated entities, including related to the proper drafting and interpretation of operating agreements.

Corporate Governance Regulation:  The Delaware legislature modified a number of provisions of the Delaware General Corporation Law, including provisions governing defective corporate acts, statutory appraisal rights, and information disclosure requirements for shareholders that dissent from a proposed transaction.  And in a push to improve gender equality, both state regulators and major institutional investors took steps to promote and encourage gender diversity on corporate boards.  On the executive compensation front, 51 of the Russell 3000 companies (2.6%) failed their “say on pay” votes in 2018, which was the highest failure rate among Russell 3000 companies since 2015 and 1.1% higher than 2017.  As of April, 2019, 1.9% of the Russell 3000 Companies have failed their “say on pay” votes, which is 1.3% lower than at this time last year.1

Delaware Judiciary Developments:  Delaware responded to the growing burden on the Court of Chancery by expanding the court from five to seven members, welcoming new Vice Chancellors Morgan Zurn and Kathleen McCormick.

I.  MERGERS AND ACQUISITIONS

A.  Chancery Allows Termination of Merger Agreement Based on Material Adverse Change for the First Time in Akorn

In a landmark ruling, the Delaware Court of Chancery held that Fresenius Kabi AG was within its contractual rights to terminate a merger agreement with Akorn Inc. because:  (i) Akorn suffered, prior to closing, a material adverse effect (“MAE”); (ii) Akorn breached its representations and warranties related to regulatory compliance in a manner that would reasonably be expected to have an MAE; and (iii) Akorn did not comply in all material respects with its covenant to use commercially reasonable efforts to operate in the ordinary course of business following signing of the merger agreement.2  In a 247-page opinion thought to be the longest in the Court of Chancery’s history, Vice Chancellor Laster found that an MAE had occurred for the first time in Delaware, a decision that recently was upheld by the Delaware Supreme Court.3  The sprawling opinion details the disastrous market performance of Akorn following a hard-bargained agreement to be acquired by the German pharmaceutical company Fresenius.  After signing, in addition to Akorn’s market performance falling to well below the forecasts it had presented to Fresenius, the company faced serious regulatory challenges with respect to its data-integrity practices.  Under these circumstances, Vice Chancellor Laster found that Akorn had suffered an MAE under the parties’ agreement and upheld Fresenius’s decision to terminate the merger agreement.

Fresenius and Akorn had entered into the merger agreement in 2017, soon after the announcement of strong first quarter results for Akorn.  Then “Akorn’s business fell off a cliff,”4 including second-quarter performance well below guidance and the failure of performance to recover during the remainder of 2017.  In the fall of 2017, Fresenius received anonymous whistleblower letters alleging that Akorn’s product development processes failed to comply with regulatory requirements.  Fresenius responded by launching an investigation pursuant to reasonable access covenants in the merger agreement.  The investigation uncovered “serious and pervasive data integrity problems that rendered Akorn’s representations about its regulatory compliance sufficiently inaccurate.”5  Making matters worse, Akorn oversold its remediation efforts in a presentation to the FDA, cancelled regular audits of certain of its facilities, failed to maintain its data integrity systems in compliance with FDA requirements, and submitted filings to the FDA based on fabricated data.  Accordingly, Fresenius notified Akorn on April 22, 2018 that it was terminating the merger agreement, and Akorn filed an action in the Court of Chancery seeking to invalidate the termination notice and requesting specific performance compelling Fresenius to consummate the merger.

In finding an MAE, the court hewed to longstanding Delaware principles providing that an MAE will have occurred if its effect would “substantially threaten the overall earnings potential of the target in a durationally-significant manner . . . which one would expect to be measured in years rather than months.”6  Vice Chancellor Laster observed that Akorn’s year-over-year declines in revenue, operating income and earnings per share were 34%, 292% and 300%, respectively, and that these dramatic declines had commenced after the execution of the merger agreement.  The court found that the underlying causes of performance deterioration were durationally-significant because Akorn’s poor performance had continued for over one year with no signs of improvement and Akorn’s stated reasons for the decline — including new competition and the loss of a significant contract – were not short-term phenomena.

The court also held that the determination of whether an issue would reasonably be expected to result in an MAE is an objective determination that must take into account “quantitative and qualitative aspects.”  Vice Chancellor Laster was convinced that the pervasive regulatory violations and compliance issues at Akorn would be material to a long-term acquirer, and was also persuaded by expert testimony that the compliance issues would result in a $900 million decrease in Akorn’s value, a decline of over 20% of the value implied by the merger agreement. 

Finally, the court held that Akorn breached its covenant to use “commercially reasonable efforts” to operate its business “in all material respects” in the ordinary course of business post-signing and pre-closing because of its ineffectual data integrity procedures and insufficient response to allegations of regulatory non-compliance.  In so holding, the court found that “in all material respects” is not equivalent to a material breach, as Akorn argued, but was subject to a lower standard of whether the issues are “significant in the context of the parties’ contract, even if the breaches are not severe enough to excuse a counterparty’s performance under a common law analysis.”7

The Delaware Supreme Court, in an opinion written by Chief Justice Leo E. Strine, affirmed the decision in a three-page order—a conspicuously terse treatment that may have been meant to signal to the State’s corporate residents and deal lawyers that the court does not intend for Akorn to mark a sea-change in Delaware deal jurisprudence.

While the Akorn decision is momentous, it should not cause sellers’ pulses to quicken out of fear of a new emerging trend consisting of courts finding MAEs in surprising circumstances.  As the court made clear, it was influenced by Akorn’s drastic performance decline and significant regulatory issues related to its core business.  The Akorn decision thus confirms that determining whether an MAE has occurred will be a fact-dependent exercise grounded in whether there is substantial and “durationally-significant” performance deterioration or other significant effects on the merger party.

B.  Trulia’s Impact

The Delaware Court of Chancery’s 2016 decision in In re Trulia, Inc. Stockholder Litigation8 changed the landscape for “disclosure-only” settlements in class action suits.  Recognizing a trend that had been building in the Court of Chancery, in Trulia Chancellor Bouchard declared his intent to reject disclosure-only settlements unless the resulting supplemental disclosures are “plainly material” and any releases are “narrowly circumscribed.”9  Based on the most recent data, this has led to a spike in the number of M&A transactions that have been challenged in federal courts.  While there were only 34 cases filed in federal court in 2015 before Trulia, this number increased by fivefold in 2018 with 182 cases filed.  Of these challenges, approximately one-third were brought in district courts in the Third Circuit.10

Trulia appears to have inspired plaintiffs’ firms to bring challenges to merger transactions in federal and state courts outside of Delaware in the hopes of escaping its effect.11  But other jurisdictions are divided about whether to follow the Trulia approach.  This continuing jurisdictional split is likely to encourage plaintiffs to keep forum shopping in the hopes of striking a quick disclosure-only settlement, and thereby receiving a fee from the target company as part of the settlement while expending relatively little effort.

1.  Florida Reverses Course and Follows Trulia

In Griffith v. Quality Distribution, Inc.,12 the Florida Second District Court of Appeal reversed a lower court,13 and held that “the In re Trulia standard is applicable” in Florida.  In Griffith, the plaintiff objected to a settlement agreement that required the defendant, Quality Distribution, Inc., to supplement the disclosures in a proxy statement issued in connection with a merger in exchange for a release of all claims.  As we observed last year,14 the trial court approved the disclosure-only settlement without assessing the value of the supplemental disclosures, holding that “even if the court assumes the incremental disclosure is immaterial, it can still approve the settlement because that is the better choice among the alternatives.”15  The appeals court held that this was error, emphasizing the same concern that motivated the Court of Chancery in Trulia:  plaintiffs’ attorneys can score a fee for relatively little effort or benefit to the class while the defendants receive broad class-wide releases.  Thus, the appeals court held, “when a Florida trial court is asked to approve a disclosure settlement in a class action merger lawsuit, in order for a disclosure settlement to pass muster, the supplemental disclosures must address and correct a plainly material misrepresentation or omission.”16  The court also held that “the subject matter of the proposed release must be narrowly circumscribed to encompass nothing more than disclosure claims and fiduciary duty claims concerning the sale process.”17

2.  New York Continues to Decline to Follow Trulia

In City Trading Fund v. Nye,18 the New York Supreme Court for New York County—bound by the Appellate Division, First Department’s 2017 decision in Gordon v. Verizon Communications, Inc..19—declined to apply Trulia to a disclosure-only settlement, but expressed significant reservations about Gordon’s approach.  The Gordon court declined to follow Trulia and instead approved a more relaxed standard for disclosure-only settlements that permits judicial approval, as long as “some additional benefit” is obtained for stockholders.20  In Nye, a stockholder sought to enjoin a merger between Texas Industries, Inc. and Martin Marietta Materials, Inc. on the grounds that Martin Marietta “breached its fiduciary duties to its shareholders by making material misstatements and omissions in the definitive proxy provided to the shareholders” in advance of the proposed merger.21  The parties eventually settled, with Martin Marietta agreeing to provide additional supplemental disclosures and pay the plaintiffs’ attorneys a fee.  The court noted that the parties settled for what was essentially a “peppercorn and a fee” and expressed concern that the Appellate Division’s refusal to adopt the Trulia standard would encourage litigants to forum-shop, observing that “the federal courts have embraced Trulia and deterred such a ‘race to the bottom,’ but New York has not.”22  In the court’s view, “unless the Court of Appeals reverses the Gordon standard, New York will become celebrated as the jurisdiction of the judicial rubber stamp.”23

3.  North Carolina Has Cited Trulia Favorably without Formally Adopting Its Standard

The North Carolina Business Court has cited Trulia favorably in analyzing disclosure-only settlements, but has stopped short of explicitly adopting its standard.  In In re Krispy Kreme Doughnuts, Inc., court stated that it “is fully in accord with Trulia's enhanced scrutiny to determine whether the release is narrowly circumscribed.”24  Accordingly, the court should conduct “a careful examination of the ‘give’ and the ‘get’ of the class settlement” to “satisfy itself that the supplemental disclosures are ‘material.’”  But the court also held that it must resist “a reflexive rejection of a class settlement on grounds of immateriality or insufficient consideration.”  The court cautioned that “unless the value of the supplemental disclosures are plainly disproportionate to the scope of the proffered release,” the trial court is “less well-equipped to measure a disclosure's worth than are competent and experienced counsel.”25  The court did find, however, that it is “generally well-equipped to conduct a reasoned inquiry into” the reasonableness of a fee award.26  Using this framework, the court approved the requested attorneys’ fees, but denied the request for expenses.27  

4.  Using Forum Selection Bylaws to Counteract Trulia Forum Shopping

One tool corporations have used to avoid forum shopping for jurisdictions that have not followed Trulia is to adopt forum selection bylaws that name Delaware as the exclusive forum for internal corporate disputes.  These bylaws may help to cut down on forum shopping, but they cannot end it entirely.28  First, the provisions are “not automatically executing”29 and must instead be brought “to the attention of the presiding court” by a defendant corporation.30  This effectively “creates a defense-side option” where the corporation can opt to require that the litigation proceed in Delaware or settle in an alternative jurisdiction that is not receptive to Trulia, depending on what is most advantageous to the defendant.31  Second, the provisions can be sidestepped by plaintiffs’ attorneys if they “append a state merger claim” to a federal claim that is subject to mandatory federal jurisdiction, like a proxy disclosure claim under Sections 10(b) and/or 14(a) of the Exchange Act.32  While some federal courts have grafted Trulia’s standard onto Federal Rule of Civil Procedure 23,33 most have yet to consider the question. 

C.  Post-Corwin, the Delaware Supreme Court Has Focused on whether the Shareholder Vote Was “Informed”

A pair of 2018 decisions from the Delaware Supreme Court hammered home the importance of accurately disclosing all material information to stockholders in advance of a vote on a merger or other transaction in order to insulate the directors from post-closing damages actions.  In 2015, the Delaware Supreme Court held in Corwin v. KKR Financial Holdings34 that a transaction that is not subject to entire fairness review, and that is approved by a majority of fully informed and uncoerced stockholders, is entitled to review under the deferential business judgment rule and will be upheld absent evidence of corporate waste.  Stated differently, a vote by stockholders can “cleanse” any supposed breaches of fiduciary duties by directors in connection with the approval of a transaction, provided the voting stockholders were fully informed and uncoerced.  Of late, on a number of occasions the Delaware Supreme Court has refused to accord Corwin “cleansing” to a challenged transaction upon finding material omissions in proxy materials. 

1.  Appel v. Berkman

In Appel v. Berkman,35 a former stockholder of Diamond Resorts brought a post-closing breach of fiduciary duty action against the former Diamond Resorts directors in connection with its sale to Apollo Global Management in a two-step merger (i.e., a tender offer followed by a merger).  In his complaint, Plaintiff alleged that Stephen Cloobeck, the company’s founder, largest shareholder, and Chairman at the time, informed the Board that he opposed the transaction because “mismanagement at Diamond had negatively affected the sale price” and, thus, “it was not the right time to sell the company.”  While Cloobeck’s abstention from the vote was disclosed in Diamond’s Schedule 14D-9, the specific concerns he raised were not.  The Court of Chancery granted the defendants’ motion to dismiss, finding that the stockholders were fully informed and uncoerced despite the non-disclosure of Cloobeck’s reasons for abstaining from the board vote.  

The Supreme Court reversed.  First, the court found unpersuasive defendants’ contention that Cloobeck’s reasons for not supporting the transaction were immaterial because they were his opinions, rather than facts.  Given that the Schedule 14D-9 was replete with opinions, including “all the many reasons” the directors believed the transaction was in the company’s best interests, “it creates confidence that a disclosure that Cloobeck expressed to the board that he believed the company had been managed sub-optimally and that this mismanagement negatively affected the sale price would catch a reasonable stockholder’s attention.”  Second, while acknowledging that Delaware courts have held that a director’s reason for abstaining from a vote is not material information, the court soundly rejected the notion that there is a per se rule in Delaware that such information is never material.  Instead, the court directed a “contextual approach . . . which requires an examination of whether a fact . . . would materially affect the mix of information.”  Third, the court disagreed with the idea that stockholders could have guessed, from what the company did disclose (Cloobeck’s abstention), that Cloobeck did not support the transaction.  According to the court, stockholders should not be expected to speculate about material facts, and “although stockholders are assumed to be skilled readers, proxy statements are not intended to be mysteries to be solved by their audience.”

2. Morrison v. Berry

The Delaware Supreme Court again emphasized the importance of a fully informed stockholder vote in Morrison v. Berry.36  There, the court reversed the Court of Chancery’s decision to apply Corwin and held that stockholders who voted in favor of a going-private transaction were not fully informed because the company’s public filings omitted key facts that could have helped stockholders more accurately assess the value of the deal.  The plaintiff, a former stockholder of The Fresh Market, had challenged the company’s acquisition in a transaction much like the one challenged in Appel, i.e., a two-step merger with Apollo Global Management, arguing that the board failed to disclose numerous “troubling facts” related to the transaction:  (i) the board failed to disclose the portion of a November email from Fresh Market’s founder in which he “agreed, as he did in October” to roll over his equity in any deal with Apollo, which should have alerted the board to the fallacy of previous denials of an agreement with Apollo; (ii) the Schedule 14D-9 gave the impression that the founder was willing to partner with non-Apollo acquirers while omitting statements he made to the contrary; and (iii) the Schedule 14D-9 omitted threatening statements from the founder that he would consider selling his shares if the board failed to initiate a sales process.  The Court of Chancery granted the defendants’ motion to dismiss, finding that it was an “exemplary case” for Corwin protection.  The Delaware Supreme Court reversed, finding that the case “offers a cautionary reminder to directors and the attorneys who help them craft their disclosures” that “‘partial and elliptical disclosures’ cannot facilitate the protection of the business judgment rule under the Corwin doctrine.”37

In reversing, the Supreme Court analyzed each of the purported disclosure deficiencies to determine whether stockholders were fully informed.  First, the court was persuaded that the company’s omission of a portion of the founder’s November email was material because it would have informed stockholders that he had previously lied to the board.  According to the court, a reasonable stockholder “would want to know the facts showing that the founder had not been forthcoming with the Board about his agreement with Apollo . . . as directors have ‘an unremitting obligation to deal candidly with their fellow directors.’”  Second, the court found the Schedule 14D-9 materially misleading because it included statements that implied the founder’s openness to bidders other than Apollo while omitting other statements in which the founder suggested he would consider rolling over his equity only in connection with a transaction with Apollo.  The latter disclosures, according to the court, would allow a stockholder to “infer that the founder’s expression of a clear preference for Apollo and reluctance to engage with other bidders hindered the openness of the sales process.”  Finally, the court found material The Fresh Market’s omission of the fact that its founder told the board he would sell his shares unless the directors pursued a sale at that time.  In the court’s view, while this was not a threat, it was economically relevant information because a reasonable stockholder “would want to know the rationale that the founder gave the Board in encouraging it to pursue a sale.”

Appel and Morrison underscore a reality that public companies and their boards must confront when assessing how to evaluate potential or actual damages actions challenging mergers or other extraordinary transactions, particularly in a post-Trulia world where inexpensive disclosure-only settlements by and large are not available.  With the resulting increase in post-closing damages cases, it is imperative that directors and their advisors carefully assess the adequacy of disclosure to stockholders in connection with votes on merger or comparable transactions.

D.  Transactions with Controllers

There have been several notable decisions from the Delaware courts concerning transactions with controlling stockholders.  First, in a pair of cases, the Delaware Supreme Court provided clarity regarding when a transaction with a controlling stockholder will be entitled to deferential business judgment rule review.  Second, the Court of Chancery’s decision in In re Tesla Motors, Inc. Stockholder Litigation38 underscored that a minority (22%) stockholder—Tesla Inc.’s co-founder and CEO, Elon Musk—can be found to have such a high degree of control over the board as to qualify as a controller.  Finally, in CBS Corp. v. National Amusements, Inc.,39 the Court of Chancery was called upon to resolve a showdown between a board and a controlling group—the Redstone family—and struck a blow in favor of the right of controllers to protect their controlling interests from dilution.

1.  Flood v. Synutra and Olenik v. Lodzinski

In Flood v. Synutra, 40 the Delaware Supreme Court endorsed a practical approach that grants a transaction business judgment rule review as long as the conditions set forth in Kahn v. M & F Worldwide Corp. (“MFW”) are in place before any substantive economic negotiations begin.  In MFW, the court held that the business judgment rule — rather than the exacting entire fairness standard — applies to controlling stockholder transactions if the transaction is conditioned ab initio, or from the beginning, “upon both the approval of an independent, adequately-empowered Special Committee that fulfills its duty of care . . . and the uncoerced, informed vote of a majority of the minority stockholders” (the “MFW Conditions”).41  At issue in Synutra was the question of what the MFW decision meant by the term “ab initio.”

Synutra involved a going-private transaction proposed by Liang Zhang, who controlled 63.5% of Synutra’s stock.  He initially proposed to take Synutra private by acquiring the remaining stock for $5.91 per share by way of a letter to the company’s board that made no mention of conditioning the transaction on the MFW Conditions.  The board set a meeting for one week later, but the directors agreed in advance that they would not use the meeting to “substantively evaluate” the proposal.42  Instead, they formed a special committee to evaluate the proposal and negotiate with Zhang.  One week after that—before the newly formed special committee had convened its first meeting—Zhang sent a second letter, reaffirming his interest and, this time, stipulating that he was willing to condition consummation of the transaction on the MFW Conditions.  After a period of negotiations, the special committee and the controller struck a deal for $6.05 per share, which was approved by a majority-of-the-minority vote.

Minority stockholders filed class actions challenging the transaction, arguing that the transaction price was unfair and alleging breach of fiduciary duty by the board.  The controller and the directors contended that the deal was subject to business judgment rule review given that the controller, in his second letter, agreed to condition the transaction on the MFW Conditions before any substantive economic negotiations had begun.  The plaintiff, seeking an entire fairness review, argued for a strict reading of MFW’s “ab initio” requirement that would withhold business judgment rule review unless the controller indicated a willingness to submit to those conditions in the controller’s “first approach.”43  The Court of Chancery granted defendants’ motion to dismiss and the plaintiffs appealed to the Delaware Supreme Court.

In affirming, the Supreme Court held that the term “ab initio” should not be read to impose “the brightest of lines” and require that a controller include the MFW Conditions in her or his very first proposal.44  Instead, the court adopted a standard whereby the conditions must be in place before any substantive economic negotiations have taken place, or “before there has been any economic horse trading.”45  The court was persuaded that this standard achieves the main objective of the MFW Conditions, which is to ensure that the controller cannot use the conditions as a bargaining chip and “both the controller and Special Committee bargain under the pressures exerted on both of them by these protections.”46  That way, the MFW Conditions “cannot be dangled in front of the Special Committee, when negotiations to obtain a better price from the controller have commenced, as a substitution for a bare-knuckled contest over price.”47  Thus, as long as the conditions are put in place “at the germination stage of the Special Committee process, when it is selecting its advisors, establishing its method of proceeding, beginning its due diligence, and has not commenced substantive economic negotiations with the controller,” the “ab initio” requirement is met.48

The court also rejected plaintiffs’ assertion that they could avoid business judgment review by pleading that the special committee violated its duty of care because it allegedly lacked negotiating skill and achieved an inadequate price.  The court reaffirmed that where the MFW Conditions are validly in place, plaintiffs cannot avoid business judgment rule review absent well-pled allegations that the special committee acted with gross negligence—the standard by which a duty of care claim is measured—which requires more than mere disagreement with a special committee’s tactics or the price the committee achieved.  The allegations in Synutra revealed that the special committee had engaged in extensive negotiations over seven months, sought extensive advice from legal and financial advisors, and negotiated for (and achieved) an increase in consideration—all of which, the court held, failed to support a pleading-stage inference of gross negligence.

The court’s decision in Synutra reflects an appreciation for economic reality:  it is not uncommon for a controller’s initial expression of interest to be made informally, and by eschewing a formalistic approach to the “ab initio” requirement, the court ensured that a controller’s failure to invoke the MFW Conditions at the very first contact will not needlessly deprive a transaction that is structured as an arm’s-length deal of an appropriately deferential standard of review.

In contrast, in Olenik v. Lodzinski,49 decided shortly after Synutra, the Delaware Supreme Court concluded that the MFW Conditions were put in place too late to trigger business judgment rule review of a controller transaction.  In Olenik, the court looked to where the institution of the MFW Conditions fell on the “negotiating continuum”—from the first expression of interest to the consummation of the transaction—and concluded that “substantial economic negotiations” had already taken place “well before” the controller sent the target a formal offer letter that made reference to the MFW Conditions.

The transaction in Olenik involved a merger between two subsidiaries of a common controlling parent.  The court observed that prior to the acquiring subsidiary’s transmission of a formal offer letter, the parent—which deal documents described as a “financial partner” to the acquirer in the transaction50—had provided the acquiring subsidiary with confidential information about the target subsidiary.  Moreover, the acquiring subsidiary and the parent engaged in “multiple substantive economic communications,” during which the acquiring subsidiary floated two specific valuation proposals for the target subsidiary (one at $305 million, and a later one at $335 million)—discussions that, in the court’s view, effectively “set the field of play for the economic negotiations to come by fixing the range in which offers and counteroffers might be made.”51  As it turned out, the final deal price—approximately $333 million—fell within that range.  Aside from those discussions between the parent and the acquiring subsidiary, representatives from all three entities attended “numerous meetings,” which included “meaningful on-site due diligence,” all before any proposal was made to apply the MFW Conditions.  Together, those interactions led the court to conclude that the three companies had already “engaged in substantive economic discussions” before the acquiring subsidiary presented its formal offer containing the MFW Conditions.  As a result, the transaction was subject to an entire fairness review.

2.  In re Tesla Motors, Inc.

Addressing an issue that has arisen repeatedly over the last few years, the Court of Chancery in In re Tesla Motors52 had to determine whether a minority stockholder was a controller for purposes of deciding the appropriate standard of review with respect to a challenged merger.  The plaintiffs sued in connection with the Tesla Motors, Inc. (“Tesla”) $2.6 billion acquisition by of SolarCity, alleging that the Tesla board, as well as its Chairman and CEO, Elon Musk, breached their fiduciary duties by agreeing to a transaction that benefitted SolarCity’s stockholders to the detriment of Tesla stockholders.  The plaintiffs’ theory of the case was that Musk—who was SolarCity’s Chairman and a 21.9% stockholder—used his control over the Tesla board to push through an acquisition that effectively bailed out SolarCity at Tesla’s expense.  In moving to dismiss the lawsuit, defendants argued that Musk—who owned 22.1% of Tesla’s outstanding stock—was not a controlling stockholder of Tesla and that the transaction, which was approved by a majority of Tesla’s stockholders, was eligible for Corwin protection and thus business judgment rule review.  

The Court of Chancery denied the motion to dismiss, holding that the stockholders’ allegations, if proved, made it reasonably conceivable that Musk was a controlling shareholder.  The court identified four primary indicia of control:  (1) Musk’s ability to influence stockholders’ votes, (2) his “domination of the Board during the process leading up to the Acquisition against the backdrop of his extraordinary influence within the Company generally,” (3) certain “Board level conflicts that diminished the Board’s resistance to Musk’s influence,” and (4) “the Company’s and Musk’s own acknowledgements of his outsized influence.”53

Regarding Musk’s voting influence, the court found that, while his 22.1% stake was “relatively low,” other case-specific factors suggested that he potentially had the “ability to exercise the equivalent of majority voting control.”  These included supermajority voting provisions in Tesla’s bylaws that made it easier for Musk to block board proposals even with a minority stake, his unique potential to “rally other stockholders” to his voting position, and the fact that “public investments in Tesla,” according to the stockholders, “actually reflect investments in Musk and his vision.”54

With respect to Musk’s alleged domination of the board’s decision making, the stockholders alleged that “there were practically no steps taken to separate Musk from the Board’s consideration of the Acquisition,” even though Musk allegedly proposed the acquisition three separate times before the board finally acquiesced, “led the Board’s discussions” of the acquisition and “was responsible for engaging the Board’s advisors.”55  More generally, the court took note of the allegation that the board viewed Musk as having a “singularly important role in sustaining Tesla in hard times and providing the vision for the Company’s success” and was aware that Musk had historically “infused his own capital into the Company to keep it afloat.”56

Also supporting an inference of control was the fact that, of the five members of the board who approved the transaction, two were, according to Tesla’s own SEC filings, not independent directors, and a third had substantial business ties to Musk.  Finally, both Musk and Tesla had made public comments suggesting that Musk had a “powerful influence” over the company.57  Tesla’s SEC filings stated, among other things, that the company is “highly dependent on his services,” and, separately, Musk had stated that “Tesla, SolarCity and SpaceX form a ‘pyramid’ on top of which he sits” and that Tesla is “his company.”58

All told, these allegations were sufficient, in the court’s view, to permit a reasonable inference that Musk had a level of influence equivalent to a controlling stockholder.  The Tesla decision also provides helpful guidance for minority controllers in the future, including that the Delaware courts will consider circumstantial evidence, including transaction terms, in determining whether a minority stockholder is a controller.  The Tesla court credited plaintiffs’ allegations that the transaction was so one-sided in SolarCity’s favor that it constituted a “bail-out.”  The Delaware courts also will take into account a stockholder’s past behavior and current status at the company.  The Tesla court cited allegations that Musk had ousted senior management in the past, had a “singularly important role in sustaining Tesla in hard times and providing the vision for the Company’s success,” and had publicly supported the SolarCity transaction on numerous occasions.  Finally, while a minority stockholder must actually exercise control with respect to the challenged transaction in order to be deemed a controller for purposes of triggering entire fairness review, here, Musk actively pursued a SolarCity transaction, pursued no alternative transactions, chose Tesla’s legal and financial advisors in connection with the transaction, and led the board’s deliberations.

3.  CBS Corp. v. National Amusements, Inc.

In CBS Corp. v. National Amusements, Inc.,59 the Court of Chancery was called upon to wade into a dispute between CBS and its controlling stockholder, National Amusements, the media holding company controlled by Sumner Redstone, his daughter, Shari, and their family.  Because of a dual class structure in place at CBS, National Amusements controlled 80% of CBS’s voting power but only 10% of its total equity.  The action touched upon, but did not resolve, a tension in Delaware law about whether a controlling stockholder’s preemptive action to protect its voting power trumps a board’s action to limit the controller, or vice versa, which Chancellor Bouchard called a “first mover advantage.”

According to the CBS board, Shari Redstone posed an existential threat.  In the past, Ms. Redstone had unilaterally removed directors of Viacom, another company controlled by National Amusements, when she was unhappy with them, and the board worried she would recycle this strategy with the CBS board in retaliation for a CBS Special Committee’s rejection of Ms. Redstone’s prior proposals that CBS and Viacom merge.  To protect the company and its stockholders, the CBS board scheduled a special board meeting to vote on issuance of a dividend of Class A voting stock to all Class A and B holders, which would not affect any stockholder’s economic interest, but would have diluted National Amusement’s voting power from 80% to 17%.

Three days before the meeting, the board filed a complaint in the Court of Chancery, seeking an injunction to restrain the Redstone group from interfering either with the board’s composition or its authority to declare dividends under the CBS bylaws until the board could consider the dividend proposal at the scheduled meeting.  National Amusements opposed the injunction, arguing that allegations that it intended to remove directors were speculative, any harm from such an action was not irreparable because relief would be available under 8 Del. C. § 225 (improper removal of directors), and the proposed dividend was a breach of fiduciary duty and impermissible under Delaware authority, allowing controllers to preemptively remove directors who want to dilute the controller’s voting power.

The court promptly scheduled a hearing on plaintiffs’ motion, but, one hour before the hearing was to begin, the Redstone group notified the court that it had executed and delivered consents to amend the CBS bylaws to require 90% supermajority board approval—at two consecutive board meetings—before the board could issue any dividend.  Given that “act of self-help,” the court temporarily restrained the Redstone Group from taking this action until it ruled on the CBS board’s motion.60

Ultimately, Chancellor Bouchard denied the motion, although he found that the directors’ allegations were sufficient to state a colorable claim for breach of fiduciary duty against National Amusements.  The Chancellor stated that the key premise of the complaint was that National Amusements’ attempts to bend the board to its will undermined CBS’s longstanding representations to its shareholders that it was committed to independent governance, which, according to the board, were carefully designed to “assuage stockholder concerns about investing in a company controlled by the Redstones.”61  The court agreed with the board that—if true—National Amusements’ efforts to undermine that commitment (including by reportedly preparing to replace board members in order to force through a Viacom merger, interfering with a board committee, undermining management, and dissuading potential acquirers from making offers for the company) would run afoul of their fiduciary duties as a controlling stockholder. 

However, the court held that such anticipated harms were not irreparable because the directors could bring an action under 8 Del. C. § 225 for improper removal of a director or, if National Amusements attempted to compel a merger, an action for breach of fiduciary duties at that time.  According to Chancellor Bouchard, the board’s proposed dividend was “an extraordinary measure,” and he saw no precedent for the board’s request to, in advance of National Amusement’s doing so, restrain it from exercising its voting power to alter the board or the company’s governing documents.62

Of particular interest for future cases is the court’s conclusion that the balance of equities in this action—“between a controlling stockholder’s right to protect its control position and the right of independent directors . . . to manage ‘the business and affairs of the corporation’”—“weighed heavily” in favor of National Amusements.63  Chancellor Bouchard recognized, on the one hand, a line of cases, including Adlerstein v. Wertheimer,64 that stand for the proposition a controller is “fully entitled” to take action to protect dilution of its control interests; and, on the other, a line of cases, including Mendel v. Carroll,65 that suggest a board might, consistent with its fiduciary duties, “issue a dilutive option in order to protect the corporation or its minority shareholders from exploitation by a controlling shareholder.”66  While observing that the exigency of plaintiffs’ motion precluded the court from definitively resolving the tension between these two theories, it found that Adlerstein was more on point, that the CBS board cited no precedent allowing a board to preemptively restrain a controller from exercising his or her voting power to protect against dilution, and that only a “truly extraordinary set of circumstances” would justify that kind of restraint.67

E.  Section 220 — Books and Records Claims

1.  California State Teachers’ Retirement System v. Alvarez

In a decision with significant implications for shareholders seeking to abide the Delaware courts’ instructions to use the “tools at hand” to gather information from a corporation before filing a derivative suit, the Delaware Supreme Court held, in California State Teachers’ Retirement System v. Alvarez,68 that it does not violate due process principles for one shareholder’s failure to adequately plead demand futility to bind all other shareholders. 

The issue at the heart of Alvarez was whether federal constitutional due process concerns preclude a finding under state law that one shareholder’s failure to adequately plead demand futility has a preclusive effect on all other shareholders, thereby blocking a subsequent shareholder from making an attempt to establish demand futility.  In a unanimous decision, the Delaware Supreme Court found in favor of precluding all other shareholders as long as the first shareholder was not a “grossly deficient” representative of the other shareholders.69

The plaintiffs in Alvarez—who lost the race to be the first to plead and argue that demand was futile—were stockholders of Walmart.  They argued that earlier stockholders were grossly deficient representatives because they filed their complaint alleging demand futility without first taking advantage of Section 220 of the Delaware General Corporation Law to access the company’s books and records.  The court acknowledged that it and the Court of Chancery had “repeatedly urged parties to use Section 220 to seek relevant books and records before filing derivative complaints,” but nonetheless concluded that the shareholder’s “tactical error” to forgo a books-and-records request did not, “in this instance,” mean that the earlier shareholders’ efforts had been grossly deficient.70

The court was careful not to foreclose the possibility that a first-filing shareholder’s failure to utilize Section 220 before launching a derivative suit may, in the right circumstances, mean that other shareholders should be allowed to make a second, better-prepared attempt to establish demand futility.  As the court observed, the first-filing shareholders in Alvarez did have some company documents available to them when they drafted their derivative complaint by virtue of disclosure in the press of relevant internal company memoranda, so their decision not to seek additional books and records through a 220 demand had some legitimacy.

But the upshot of Alvarez is that shareholders who heed the Delaware courts’ advice to use the “tools at hand” to obtain company books and records before filing a derivative suit may find themselves precluded from arguing that demand is futile because of a shareholder who files a derivative suit without conducting that pre-suit diligence.  The possibility of losing the race to be the first to plead demand futility has infused the Section 220 process with a new degree of urgency and has already begun to alter the way that disputes over Section 220 demands are playing out.

For example, in In re UnitedHealth Group Inc.,71 a group of shareholders served a Section 220 demand in anticipation of filing a derivative suit.  After the company resisted the demand, the shareholders sued to enforce their Section 220 rights, and the Court of Chancery granted them access to certain books and records.  The company appealed the decision and, as is common in Section 220 cases, moved to stay its obligation to turn over its books and records pending a decision on its appeal.

Delaware courts have regularly granted such stay applications given that disclosure “cannot be reversed” if the company prevails.72  But the shareholders argued that in light of Alvarez, they should be granted immediate access to the information they sought, lest they be beaten to a ruling on demand futility by shareholders who had initiated a derivative suit in another forum without first seeking access to company books and records.  The Court of Chancery still granted the company’s request for a stay, but suggested to the shareholders that they “seek an expedited schedule with the Delaware Supreme Court” to accelerate a decision on the company’s appeal.73

2. Corwin’s Effect on Section 220 Litigation

Section 220 demands have taken on new importance in the wake of the Delaware Supreme Court’s 2015 Corwin decision.  As observed earlier, shareholders have, in response to Corwin, focused their efforts on challenging the assumptions upon which Corwin’s “cleansing” effect rests: whether stockholder approval of a challenged transaction truly was “fully informed” and “uncoerced.”  In both Morrison v. Berry and Appel v. Berkman, stockholders’ efforts to avoid Corwin were bolstered by information gleaned from Section 220 demands.

In Morrison, stockholders were able to stave off, at the pleading stage, application of the business judgment rule based on Corwin by pointing to “board minutes and a crucial e-mail” they obtained through a Section 220 demand to demonstrate material inconsistencies between the company’s public disclosures and information known to the directors.74  And in Appel, stockholders were able to reveal, through board minutes they obtained via a Section 220 demand, that the company had omitted from its public disclosures the fact that its founder and chairman had abstained from a board vote on a proposed sale of the company because he believed that “mismanagement of the company had negatively affected the sale price and it was therefore not the right time to sell the company.”75

As these two cases demonstrate, one of Corwin’s collateral effects is to give Section 220 demands greater prominence in M&A litigation as shareholders seek ways to avoid business judgment rule review.

3.  The Delaware Supreme Court Expressly Approves of Demands for Emails in Section 220 Proceedings

In KT4 Partners LLC v. Palantir Technologies Inc.,76 the Delaware Supreme Court put to rest any lingering doubt that demands for books and records under Section 220 can reach emails.  As Chief Justice Strine observed, the court had in the past implicitly approved of the practice, and the Court of Chancery has “explicitly” approved of it on a number of occasions.77  Were it otherwise, Section 220 would not keep pace with “companies’ actual and evolving record-keeping and communication practices,” and bringing emails within the scope of Section 220, the Chief Justice said, flows logically from earlier decisions that permitted stockholders “the right to inspect a variety of corporate ‘papers,’ often including letters and memoranda among officers and directors.”78

In recent years, the Court of Chancery had begun to flesh out a framework for determining when emails must be produced, and the court opted to endorse what it viewed as the general principle that has emerged from those decisions:  emails should not be produced “when other materials (e.g., traditional board-level materials, such as meeting minutes) would accomplish the petitioner’s proper purpose, but if non-email books and records are insufficient, then the court should order that emails be produced.”79  While a stockholder need not offer “compelling evidence” that emails are essential, the stockholder must present “some evidence” that they “are indeed necessary,”80 and “if a company observes traditional formalities, such as documenting its actions through board minutes, resolutions, and official letters, it will likely be able to satisfy a § 220 petitioner’s needs solely by producing those books and records.”81

By effectively adopting the consensus position staked out in recent years by the Court of Chancery, KT4 does not work a significant change to Section 220 jurisprudence.  Nonetheless, by putting to rest lingering doubts about the propriety of demands for emails, KT4 should reduce the frequency of the threshold disputes that commonly occur when a stockholder makes an explicit demand for them.  KT4 also reinforces the importance of following corporate formalities and maintaining appropriate written records of corporate action to reduce the risk of having to engage in a potentially expensive—and expansive—production of emails in response to a Section 220 demand.

F.  Appraisal Litigation Post-DFC and Dell

In high-profile 2017 decisions in DFC Global Corp. v. Muirfield Value Partners L.P.82 and Dell Inc. v. Magnetar Glob. Event Driven Master Fund Ltd.,83 the Delaware Supreme Court stressed the potential importance of market-based factors in determining fair value, including the company’s pre-merger announcement share price and the merger consideration paid to stockholders.84  While the Delaware Supreme Court declined to establish a presumption equating fair value to deal price, those decisions suggested that plaintiffs must offer strong evidence concerning material flaws in the sales process or an inefficient market in order to demonstrate an entitlement to a price higher than the merger consideration. 

Following DFC and Dell, the Court of Chancery has continued to grapple with this issue, with some cases underscoring the prominence of market-based evidence of fair value, and others ultimately eschewing market-based indicators after identifying merger-related synergies (which must be subtracted from the fair value conclusion) or flaws in the sales process (which would render merger consideration unreliable evidence of fair value).  But the Delaware Supreme Court’s recent decision in Aruba further emphasized the importance of the agreed-upon merger consideration in determining a company’s fair value.  Given this decision, appraisal arbitrage in Delaware—which depends on a finding of fair value in excess of the merger consideration—is likely to remain at reduced levels.

1.  Verition Partners v. Aruba

The Delaware Supreme Court, in Verition Partners Master Fund Ltd. v. Aruba Networks, Inc., 85 reversed a decision of the Delaware Court of Chancery in a statutory appraisal proceeding.  The lower court had relied on the 30-day unaffected stock price to determine that $17.13 per share was the fair value of Aruba Networks, Inc. at the time of its 2015 acquisition by Hewlett Packard Companies.  This determination was approximately 30.6% less than the merger consideration of $24.67 per share, despite Aruba’s status as a widely held, publicly traded company that was sold in an arm’s-length transaction.   

In the Court of Chancery decision, Vice Chancellor Laster first calculated his own “deal-price-less-synergies” estimate of $18.10 per share after finding that the transaction consideration provided “reliable evidence of fair value.”86  However, noting that a “deal-price-less-synergies” calculation that he performed on his own “could have errors at multiple levels,” and that the calculation of fair market value would also need to exclude “reduced agency costs” (i.e., costs associated with competing interests of shareholders and management), Vice Chancellor Laster arrived at a fair value of $17.13 per share by averaging the unaffected market price of Aruba’s shares in the 30 days before the merger was publicly disclosed.87  Vice Chancellor Laster was satisfied that this calculation struck the proper balance between DFC Global and Dell’s directive that courts consider ‘“the collective judgement of the many’” in determining fair value and mitigating the prejudice derived from the court’s “own fallible determination.88

In a unanimous per curiam ruling, the Delaware Supreme court reversed the decision and held that Aruba’s fair value per share was $19.10, representing the consideration paid by HP in the merger less merger-specific synergies.  In so holding, the Supreme Court remarked that the decision by the trial judge to rely exclusively on the unaffected market price—even though neither party advanced that argument until the judge broached the subject in connection with post-trial briefing—“could be seen” as a “results-oriented move to generate an odd result compelled by his personal frustration at being reversed in Dell.”89  The Supreme Court also reaffirmed its recognition of merger consideration as strong evidence of fair value in statutory appraisal actions involving transactions resulting from a fair and competitive sale process.

The Supreme Court’s decision provides a number of important takeaways for appraisal litigation.  First, transaction consideration can be strong evidence of fair value even in the absence of multiple bids for the target.  The Supreme Court explained that “DFC and Dell recognized that when a public company with a deep trading market is sold at a substantial premium to the preannouncement price, after a process in which all interested buyers had access to confidential information and a fair and viable opportunity to bid, the deal price is a strong indicator of fair value.”90  In Aruba, the fact that the logical strategic buyers that Aruba approached both before and after signing a merger agreement with HP were not interested does not “signal a market failure simply because buyers do not believe the asset on sale is sufficiently valuable.”  In the view of the court, “if that were the jurisprudential conclusion, then the judiciary would itself infuse assets with extra value by virtue of the fact that no actual market participants saw enough value to pay a higher price.  That sort of alchemy has no rational basis in economics.”91

Second, a bidder’s access to non-public information regarding the target supports the reliability of merger consideration as evidence of fair value.  The Supreme Court again affirmed its acceptance of the efficient capital markets hypothesis, whereby when a “market was informationally efficient in the sense that ‘the market’s digestion and assessment of all publicly available information concerning the Company is quickly impounded into the Company’s stock price, the market price is likely to be more informative of fundamental value.”92  Thus, according to the court, the unaffected market price can be “a proxy for fair value” but should not be exclusively relied upon in determining a company’s fair value in an appraisal or fundamental value in economic terms.  Rather, “when that market price is further informed by the efforts of arm’s-length buyers of the entire company to learn more through due diligence, involving confidential non-public information, and with the keener incentives of someone considering taking the non-diversifiable risk of buying the entire entity, the price that results from that process is even more likely to be indicative of so-called fundamental value.”93

Third, due process and fairness concerns are important in appraisal litigation.  By raising the idea of using the unaffected stock price as an appropriate measure of fair value for the first time during the parties’ post-trial supplemental briefing, the Court of Chancery in Aruba did not provide the parties with an opportunity to develop a full factual record during pretrial discovery and at trial as to whether the stock price was, in fact, reliable evidence of fair value.  According to the Supreme Court, “the extent to which the market price approximated fair value was never subjected to the crucible of pretrial discovery, expert depositions, cross-expert rebuttal, expert testimony at trial and cross examination at trial.”94  These issues impacted the substantive rights of the parties because “the reason for pretrial discovery and trial is for parties to have a chance to test each other’s evidence and to give the fact-finder a reliable basis to make an ultimate determination after each side has a fair chance to develop a record and to comment upon it.”95

Fourth, litigants need to carefully consider which arguments to raise regarding appropriate evidence of fair value before trial or risk abandoning them.  The Supreme Court observed that neither party requested supplemental briefing after it issued Dell, nor did any party advocate relying on the unaffected market price as evidence of fair value.  Rather, after the lower court requested supplemental briefing on “the market attributes of Aruba’s stock,” “Aruba pivoted from its previous reliance on its expert’s discounted cash-flow model and the deal price minus synergies to ask for the first time that the court set fair value at the unaffected thirty-day average market price.”96  The court was obviously skeptical of Aruba’s “pivot” at that late stage:  “We chalk up this about-face to a litigant receiving a more favorable outcome than they argued for and trying to cement that unexpected victory on appeal.”97

Finally, agency costs are encompassed by a calculation of synergies when two public companies merge.  The Supreme Court held that the Court of Chancery’s reliance on unaffected market price was erroneous for the additional reason that the Vice Chancellor did so “on the inapt theory” that he “needed to make an additional deduction from the deal price for unspecified ‘reduced agency costs.’”98  Such a reduction had “no basis in the record” or in “corporate finance literature given that all the cost reductions HP expected as a widely held, strategic buyer were likely to be fully accounted for by its expected synergies.”99  The court further noted that “agency costs” are more likely to arise in connection with an acquisition by a private equity buyer by replacing “a dispersed group of owners with a concentrated group of owners,” which could, theoretically, “add value because the new owners are more capable of making sure management isn’t shirking or diverting the company’s profits.”100

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Footnote

1       Semler Brossy, 2019 Say on Pay & Proxy Results, Semler Brossy (Apr. 18, 2018) https://www.semlerbrossy.com/wp-content/uploads/SBCG-2019-SOP-Report-2019-04-18.pdf.

2       Akorn, Inc. v. Fresenius Kabi AG, 2018 WL 4719347 (Del. Ch. Oct. 1, 2018). For an extended analysis of the Court of Chancery’s decision, see Joshua Apfelroth et al., M&A Update: Akorn Falls Far from the Tree: Delaware Chancery Court Finds a “Material Adverse Effect” for the First Time in Akron, Inc. v. Fresenius Kabi AG, et al., Cadwalader Wickersham & Taft LLP (Oct. 25, 2018), https://www.cadwalader.com/resources/clients-friends-memos/ma-update-akorn-falls-far-from-the-tree-delaware-chancery-court-finds-a-material-adverse-effect-for-the-first-time-in-akorn-inc-v-fresenius-kabi-ag-et-al.

3       Akorn Inc. v. Fresenius Kabi AG, ___ A.3d ___, 2018 WL 6427137 (Del. Dec. 7, 2018) (unpublished table decision).

4       2018 WL 4719347 at *1.

5       Id. at *2.

6       Id. at *53.

7       Id. at *86.

8       129 A.3d 884 (Del. Ch. 2016).

9       Id. at 888.

10     Cornerstone Research, Securities Class Action Filings—2018 Year in Review, Cornerstone Research (Jan. 30, 2019) https://www.cornerstone.com/Publications/Reports/Securities-Class-Action-Filings-2018-Year-in-Review.

11        2017 Year in Review: Corporate Governance Litigation & Regulation, Cadwalader Wickersham & Taft LLP (Jan. 9, 2018), https://www.cadwalader.com/resources/clients-friends-memos/2017-year-in-review-corporate-governance-litigation--regulation. “Only 9% of merger transactions valued at over $100 million were challenged in Delaware in the first 10 months of 2017, compared to 34% in 2016 and 60% in 2015.”

12     2018 WL 3403537 (Fla. Dist. Ct. App. Jul. 13, 2018).

13     Griffith v. Quality Distribution, Inc., 2018 WL 3403537 (Fla. Dist. Ct. App. 2018).

14     2017 Year in Review: Corporate Governance Litigation & Regulation, Cadwalader Wickersham & Taft LLP (Jan. 9, 2018), https://www.cadwalader.com/resources/clients-friends-memos/2017-year-in-review-corporate-governance-litigation--regulation.

15     Delman v Quality Distribution, Inc., 2017 WL 2694490, at *1 (Fla. Cir. Ct. 2017).

16     Supra note 5, at *6.

17     Id. at *6.

18     59 Misc. 3d 477 (N.Y. Sup. Ct. 2018).

19     148 A.D.3d 146 (N.Y. App. Div. 2017).

20     Id. at 159.

21     Supra note 18, at 481.

22     Id. at 515.

23     Id. at 482.

24     No. 16-CVS-3101, 2018 WL 264537, at *6 (N.C. Super. Jan. 2, 2018).

25     Id. at *7.

26     Id.

27     In re Krispy Kreme Doughnuts, Inc. S'holder Litig., No. 16-CVS-3101, 2018 WL 3062205, at *12 (N.C. Super. Jun. 20, 2018).

28     Emma Weiss, In Re Trulia: Revisited and Revitalized, 52 Rich. L. Rev. 529, 538 (2017).

29     Id. at 540.

30     Kevin M. LaCroix, More about Litigation Reform Bylaws: Will “NO Pay” Provisions Succeed Where Forum Selection Bylaws Have Failed?, THE D&O DIARY (Jan. 22, 2017), https://www.dandodiary.com/2017/01/articles/securities-laws/litigation-reform-bylaws-will-no-pay-provisions-succeed-forum-selection-bylaws-failed/ .

31     Sean Griffith, Corporate Atty Picked for New Chancery Seats, Harvard Law School Forum on Corporate Governance and Financial Regulation (Dec. 17, 2018), https://corpgov.law.harvard.edu/2017/01/17/private-ordering-post-trulia/.

32     Supra note 29, at 540.

33     In re Walgreen Co. Stockholder Litig., 832 F.3d 718, 723 (7th Cir. 2016) (Posner, J.).

34     125 A. 3d 304 (Del. 2015).

35     180 A.3d 1055 (Del. 2018).

36     191 A.3d 268 (Del. 2018).

37     Id. at 272.

38     2018 WL 1560293 (Del. Ch. Mar. 28, 2018).

39     2018 WL 2263385 (Del. Ch. May 17, 2018).

40     195 A.3d 754 (Del. 2018).

41     Kahn v. M & F Worldwide, 88 A.3d 635 (Del. 2014).

42     Flood, 195 A.3d at 757.

43     Id. at 760.

44     Id.

45     Id. at 756.

46     Id. at 763.

47     Id.

48     Id.

49     ___ A.3d ___, 2019 WL 1497167 (Del. Apr. 5, 2019).

50     Id. at *9.

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