By Merrick Hatcher and Andrew Lloyd

In An Nguyen v. Michael G. Barrett, et al., C.A. No. 11511-VCG (Del. Ch. Sept. 28, 2016), Vice Chancellor Glasscock granted defendants’ motion to dismiss claims brought by a stockholder against members of the board of directors of Millennial Media, Inc., a Delaware corporation (“Millennial”), finding that plaintiff’s allegations failed to state a non-exculpated claim of breach of fiduciary duty with respect to alleged disclosure violations in connection with Millennial Media’s acquisition by AOL, Inc. (“AOL”).

An Nguyen (“Plaintiff”) initially brought suit on behalf of himself and a class of similarly situated stockholders of Millennial challenging the then-proposed (but subsequently completed) acquisition of Millennial by AOL alleging, among other things, that Millennial’s board of directors (the “Board”) breached their fiduciary duties in connection with the approval of Millennial’s acquisition by AOL and that unlevered, after tax cash flow projections used by Millennial’s financial advisor should have been disclosed. After Plaintiff failed to persuade either the Delaware Chancery Court (the “Court”) or the Delaware Supreme Court to award preliminary injunctive relief, AOL proceeded with its acquisition of Millennial. Thereafter, Plaintiff filed an amended complaint that alleged, among other things, three disclosure violations in connection with Millennial’s filings with the Securities and Exchange Commission and included a count for “quasi-appraisal.”

In issuing his Memorandum Opinion, the Vice Chancellor noted that “quasi-appraisal” is a remedy, not a cause of action and that Plaintiff either expressly or implicitly waived all claims but two. Hence, only claims for breaches of fiduciary duty relating to the adequacy of disclosures about Millennial’s projected cash flows and the contingent fee arrangement with Millennial’s financial advisor were considered for purposes of ruling on the motion to dismiss.

Defendants requested that the Court dismiss Plaintiff’s claims for failure to state a claim. In issuing its opinion, the Court highlighted the difference between the requirements to sustain a disclosure claim brought prior to the closing of the transaction (a “Pre-Closing Claim”) and one brought subsequent to the transaction’s closing (a “Post-Closing Claim”). While in a Pre-Closing Claim, a plaintiff must demonstrate a “reasonable likelihood of proving that the alleged omission or misrepresentation is material,” with a Post-Closing Claim a plaintiff “must allege facts making it reasonably conceivable that there has been a non-exculpated breach of fiduciary duty by the board in failing to make a material disclosure.” Since Millennial’s Certificate of Incorporation provided exculpation for duty-of-care claims, Plaintiff was required to show either that a majority of the Board was neither disinterested nor independent or that the Board “was otherwise disloyal because it failed to act in good faith in failing to make the material disclosure.”

The Court first dispensed with the claim based on allegedly deficient disclosures regarding Millennial’s cash flows, finding that, even if the alleged non-disclosure was material, Plaintiff failed to plead facts such that it is reasonably conceivable that such incomplete disclosure was made by the board disloyally or in bad faith. Specifically, Plaintiff argued only that directors were conflicted because they would receive “lucrative” stock option payments as a result of the transaction. The Court noted that it is well-settled that accelerated vesting of shares does not create of conflict of interest when the interests of directors and stockholders are otherwise aligned to maximize value. Further, the Court found nothing in the pleadings to suggest that the board deliberately withheld information or disregarded a manifest duty.

Moving to the claim based on a failure to disclose the amount of the financial advisor’s contingent fee, the Court again found that Plaintiff plead no facts creating a reasonable inference that defendant directors acted deliberately to knowingly withhold material information from stockholders. Further, the Court noted that “absent some indication that the fee was exorbitant or unusual, or otherwise improper,” Millennial’s disclosure that a “substantial portion” of the fee was contingent is sufficient under established law.

In response to Plaintiff’s suggestion that Delaware has recently established a new “regime” that allows plaintiffs to bring disclosure claims before or after closing, Vice Chancellor Glasscock emphasized that claims of incomplete or misleading disclosure should be brought before closing because remedies to preserve a fully informed stockholder vote are “irretrievably lost” after closing when only claims for damages may be remedied.

Here, Plaintiff, after failing to demonstrate before closing that disclosure was materially incomplete or misleading, similarly failed to sustain a disclosure claim for damages after closing by not alleging facts making it “reasonably conceivable” that there was a non-exculpated breach of fiduciary duty by the Board in failing to make a material disclosure. Accordingly, the Vice Chancellor granted the defendants’ motion to dismiss.


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