Archive: March 2020

Court of Chancery Finds Deal Price Exceeded Fair Value, but Company Nonetheless Not Entitled to Refund for Prepayment of Deal Price to Dissenting Stockholders

By: Eric Freedman and Serena Hamann

In a memorandum opinion in the case of In re Appraisal of Panera Bread Company, C.A. No. 2017-0593-MTZ (Del. Ch. Jan. 31, 2020), the Delaware Court of Chancery ruled that deal price, minus the value of synergies, was the correct metric to value the stock of Panera Bread Company (“Panera”), because the process that yielded the deal price bore sufficient objective indicia of reliability. The Court found that under this metric, the dissenting stockholders received more than fair value for each share of Panera stock but that nonetheless, because Panera prepaid the entire deal price to dissenting stockholders without deducting any value for synergies, and did not negotiate a clawback, Panera had no right to a refund under the appraisal statute, Delaware General Corporation Law (“DGCL”) § 262.

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COURT OF CHANCERY RULES ON THE APPLICABILITY OF FORUM SELECTION CLAUSES TO NON-SIGNATORIES TO A CONTRACT AND A PLAINTIFF’S BURDEN IN ALLEGING BREACH OF THE “COMMERCIALLY REASONABLE EFFORTS” STANDARD

By: Scott E. Waxman and Teresa Teng

In Neurvana Medical, LLC v. Balt USA, LLC et al., C.A. No. 2019-0034-KSJM (Del. Ch. Sep. 18, 2019), the Delaware Court of Chancery granted a motion to dismiss by a defendant parent company, whose subsidiary entered into a purchase agreement containing a Delaware forum selection clause. The court applied the “closely related” test in finding that the plaintiff failed to allege sufficient facts to show that the non-signatory parent entity was “closely related” to the underlying purchase agreement and as a result, plaintiff could not bind the parent entity to the agreement’s forum selection clause.

In the subsequent Neurvana Medical, LLC v. Balt USA, LLC et al., C.A. No. 2019-0034-KSJM (Del. Ch. Feb. 27, 2020), the court split its decision in granting the motions to dismiss for lack of personal jurisdiction over one of the defendant officers of the purchaser in the transaction, and for failure to state a claim with respect to all but one count of the plaintiff’s complaint. The court denied the motion to dismiss for lack of personal jurisdiction with respect to another officer of the purchaser who had also served as chairman of the board of the seller. The court also denied such defendant’s motion to dismiss on the cause of action of breach of fiduciary duty.

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CHANCERY COURT FINDS THAT RES JUDICATA BARS PLAINTIFF’S DEMAND FOR INFORMATION RIGHTS UNDER MERGER AGREEMENT

By: Annette Becker and Caitlin Velasco

In the Memorandum Opinion, Fortis Advisors LLC v. Shire US Holdings, Inc., No. 2018-0933-JRS (Del. Ch. Feb. 13, 2020), the Court of Chancery granted Shire US Holdings, Inc.’s motion to dismiss under the doctrine of res judicata because the breach of contract claim brought by Fortis Advisors LLC arises from the same transaction that was the subject of a prior action (the “2016 Action”) between the parties, Fortis Advisors LLC v. Shire US Holdings, Inc., No. 12147-VCS (Del. Ch. Aug. 9, 2017).

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Alleged Scheme to Exercise Partnership Agreement Call Right at Unfair Price Supports Breach, Tortious Interference Claims

By: Scott E. Waxman and Michael C. Payant

In In re CVR Refining, LP Unitholder Litigation, C.A. No. 2019-0062-KSJM (Del. Ch. Jan. 31, 2020), the Delaware Court of Chancery (the “Court”) concluded plaintiffs had pleaded reasonably conceivable breach of partnership agreement and tortious interference with contract claims in connection with an alleged scheme by defendants to exercise a contractual call right and buy out minority partnership unitholders at artificially depressed prices. The Court granted in part and denied in part defendants’ motion to dismiss.

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CHANCERY COURT DENIES PURCHASER’S THEORY OF RECOUPMENT WITH TIME-BARRED CLAIMS TO OFFSET POST-MERGER EARN-OUT PAYMENTS

By: David L. Forney and Marissa Leon

The Delaware Court of Chancery (the “Court”) recently rejected a Purchaser’s theory of recoupment with claims of breach of contract and fraudulent inducement that were time-barred by the statute of limitations. Claros Diagnostics, Inc. Shareholders Representative Committee v. OPKO Health, Inc., C.A. No. 2019-0262-SG, 2020 WL 829361 (Del. Ch. February 19, 2020).

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DEMAND FOR BOOKS AND RECORDS UNDER SECTION 220 TO AID IN PROXY CONTEST IS NOT A PROPER PURPOSE, CHANCERY COURT FINDS

By: C.J. Voss and Adam Heyd

In High River Limited Partnership, Icahn Partners Master Fund LP, and Icahn Partners LP v. Occidental Petroleum Corporation, C.A. No. 2019-0403-JRS (Del. Ch. November 14, 2019), the Delaware Court of Chancery (the “Court”) dismissed a demand by stockholders of Occidental Petroleum Corporation (“Occidental”) under Section 220 of the Delaware General Corporate Law (“Section 220”) for documents and information relating to Occidental’s acquisition of Anadarko Petroleum and related transactions. The Court held that the stockholders’ demand for books and records to aid in a proxy contest did not constitute a proper purpose, and that a broad demand for corporate records was not necessary and essential to the stockholders’ purpose of challenging company management over its decision to enter into a transaction.

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Transactions Involving Controlling Stockholder as a Result of Actual or Inherent Coercion are Subject to Entire Fairness Standard of Review

By: Annette Becker and Rich Minice

In In re Tesla Motors, Inc. Stockholder Litigation, C.A. No. 12711-VC (Del. Ch. Feb. 4, 2020), the Delaware Court of Chancery rejected the defendants’ (Elon Musk and the Tesla, Inc. (“Tesla”) board of directors (“Defendants”)) novel position that “inherent coercion” doctrine–as it relates to a controlling stockholder–evaporates when a case for breach of fiduciary duty moves beyond the pleading stage and stockholder ratification exists, and re-affirmed the Delaware principle that entire fairness is the appropriate standard of review.  The Court rejected motions for summary judgment by both parties finding that there remained issues of material fact to be determined as to whether stockholder ratification was fully informed and uncoerced, and whether a majority of the Tesla board of directors approving the merger was independent.

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Request for Attorneys’ Fees Denied Under Corporate Benefit Doctrine

By: Annette Becker and Zack Sager

In Martin v. Harbor Diversified, Inc., the Delaware Court of Chancery denied the plaintiff’s request for attorneys’ fees under the corporate benefit doctrine because the corporate benefit produced by the litigation was “a mere externality” to the plaintiff’s ultimate, personal goal of achieving a buyout of his interest in the corporation.

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COURT OF CHANCERY DISMISSES BREACH OF CONTRACT CLAIMS AGAINST MANUFACTURER OF BOEING AIRPLANE PARTS

By: Scott E. Waxman and Marissa Leon

In Bradley E. Julius v. Accurus Aerospace Corporation, C.A. No. 2017-0632-MTZ (Del. Ch. 2019), the Delaware Court of Chancery (the “Court”) granted summary judgment on behalf of a target company dismissing the purchaser’s breach of contract claims in connection with an asset purchase agreement and on behalf of the purchaser dismissing the target company’s breach of contract claims in connection with the asset purchase agreement and related escrow agreement. The Court found that the contracts were unambiguous and the language in the contracts was clear and therefore there were no genuine disputes of material fact to litigate.

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Delaware Court of Chancery Allows Direct Claims for Breach of Contract and Fraud to Proceed, Even After Dismissing Related Derivative Claims

By Scott E. Waxman and Frank J. Mazzucco

In MKE Holdings, Ltd. and David Bergevin v. Kevin Schwartz, et al. and Verdesian Life Sciences, LLC, C.A. No. 2018-0729-SG (Del. Ch. Jan. 29, 2020), the Delaware Court of Chancery allowed direct claims for breach of contract and fraud in connection with an equity financing to survive a motion to dismiss, even after having previously dismissed the related derivative claims.  

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Directors Breach Fiduciary Duties in Coercive Self-Tender

By: Annette Becker and Serena Hamann

In Robert A. Davidow v. LRN Corporation, et al., C.A. No. 2019-0150-MTZ (Del. Ch. Feb. 25, 2020), the Delaware Court of Chancery denied a motion to dismiss breach of fiduciary duty claims brought against the founder and two directors (the “Individual Defendants”) of LRN Corporation, a corporation that advises on ethics and compliance (“LRN”) because the plaintiff (on behalf of the former stockholders who tendered shares in the tender offer) (“Plaintiff”) adequately pled facts sufficient to state a claim that the Individual Defendants breached their fiduciary duties by launching a coercive self-tender at an unfair price, providing inadequate disclosure, and authorizing the self-tender notwithstanding the Individual Directors’ interestedness.

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Delaware Holds that Directors May Choose Lower Value All-Cash Deal Over Stock Deal So Long as the Decision is Made in Good Faith and Free of Conflicts

By Lisa R. Stark and Sara M. Kirkpatrick

Recently, the Delaware Court of Chancery dismissed fiduciary duty claims brought by former Essendant, Inc. (“Essendant”) stockholders after Essendant terminated its stock-for-stock merger with Genuine Parts Company (“GPC”) which was valued at $13.20 – $23.90 per share, including synergies, in favor of a lower all-cash offer of $12.80 per share, proposed by private equity fund Sycamore Partners (“Sycamore”), a minority stockholder of Essendant. Plaintiffs argued that Sycamore was a controlling stockholder of Essendant and either breached its fiduciary duties to Essendant’s stockholders or aided and abetted the Essendant directors’ breaches of fiduciary duty. Plaintiffs also argued that a majority of the Essendant directors acted disloyally or in bad faith in connection with the transaction. The Court dismissed the complaint, finding that the plaintiffs failed to adequately plead (1) non-exculpated claims against Essendant’s directors or (2) that Sycamore was a controlling stockholder or aided or abetted any breach of fiduciary duty. The Chancery Court decision, In re Essendant, Inc. Stockholder Litig., C.A. No. 2018-0789-JRS (Del. Ch. Dec. 30, 2019), was appealed to the Delaware Supreme Court on February 20, 2020.

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