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In re ISN Software Corp. Appraisal Litigation, C.A. No. 8388-VCG (April 10, 2014)

Apr 16 2014

This is a dispute about whether attorney-client privilege applies to certain draft documents, and whether a waiver of privilege was made with respect to certain other communications, in connection with an appraisal action. The petitioners are a number of venture capital funds seeking a determination of the fair value of their shares in ISN Software Corp. (“ISN”) following a freeze-outmerger in early 2013.

The petitioners contend that ISN has improperly claimed attorney-client privilege over certain draft documents, including draft board minutes, created by management but sent to legal counsel for review. The draft minutes in question were authored by management for meetings that legal counsel did not attend. ISN claimed privilege over the draft minutes because they were forwarded to counsel for review prior to finalization and are, according to ISN, therefore per se not discoverable. Citing its decision in Jedwab v. MGM Grand Hotels, Inc., 1986 WL 3426 (Del. Ch. Mar. 20, 1986), the Court held that this was incorrect–where drafts were not prepared by a lawyer in a setting in which they were intended to remain confidential and where attorneys did not gather the information contained therein, work-product doctrine does not shield documents from production.

The petitioners also sought to compel the production of documents reflecting otherwise-privileged communications evidencing how the ISN board arrived at its merger price. The petitioners sought to rely on the “at-issue” exception to privilege–that is, that the privileged communications are required in order to arrive at the truthful resolution of an issue injected into the litigation by a party–contending that ISN placed the merger price “at issue.” However, the Court disagreed and noted that the petitioners had adequate information sources to establish whether the merger price was indicative of fair value (including depositions of ISN managers and directors, board resolutions approving the merger agreement, and a valuation opinion obtained by the ISN board).

InreISNSoftware

Kahn et. al. v. M&F Worldwide Corp. et. al., No. 334, 2013

Mar 18 2014

By Kristy Harlan and Porter Sesnon

In a much anticipated decision, on March 14, 2014 the Delaware Supreme Court sitting en banc unanimously affirmed then-Chancellor Strine’s decision in In re MFW Shareholders Litigation to dismiss a stockholder lawsuit related to the 2011 acquisition of M&F Worldwide Corp. (“MFW”) by its controlling stockholder, MacAndrews & Forbes Holdings, Inc. (“Holdings”). In upholding the dismissal, the Delaware Supreme Court confirmed that the business judgment standard of review, rather than an “entire fairness” standard of review, applies to controlling-party buyouts where the transaction is conditioned ab initio upon both: (1) the approval of an independent, adequately-empowered special committee that meets its duty of care and (2) the un-coerced, informed vote of a majority of the minority stockholders.

In May 2011, Holdings, which owned 43.4% of MFW’s common stock, began to explore the possibility of taking MFW private. In June 2011, Holdings delivered a written proposal to purchase the MFW shares not already owned by Holdings for $24 per share in cash, representing a premium to the prior day’s closing price of $16.96. Holdings’ proposal expressly stated that it would be subject to approval by a special committee of MFW’s board made up of independent directors, and included a non-waivable condition that a majority of the minority of stockholders approve the transaction.

In re Answers Corporation Shareholders Litigation, C.A. No 6170 (February 3, 2014) (Noble, V.C.)

Feb 12 2014

By Kristy Harlan and Eric Taylor

In re Answers Corporation involves an allegation that the board of a publicly-traded Delaware corporation, Answers Corporation (the “Company”), breached its fiduciary duties in negotiating and approving a sale of the Company. The plaintiffs alleged that the three conflicted directors controlled the Board, that the four remaining directors breached their duty of loyalty and acted in bad faith, and that the buyer of the Company (“AFCV”) aided and abetted the directors’ breach of fiduciary duty.

In March 2010, the Company received an unsolicited expression of interest from AFCV concerning a possible transaction. Shortly thereafter, the Board discussed the possibility of exploring strategic alternatives, including the recent expression of interest, ultimately deciding to explore potential transactions and engage a financial advisor to assist in the process. As part of this process, the Board’s financial advisor continued discussions with AFCV regarding a potential transaction, in addition to conducting a market check where it approached ten other potential buyers. Despite discussions with at least seven other possible buyers, no potential buyer other than AFCV made an offer. During this time, the Board rejected multiple requests for exclusivity from AFCV in order to preserve the Board’s opportunity to negotiate with other potential purchasers. The Board also rejected several offers from AFCV, deeming them to be inadequate, and pressured AFCV to increase the price offered until the transaction was finally approved. The Board’s financial advisor discussed with the Board the relative merits of pursuing various sales processes, advising the Board that additional bidders were unlikely to come forward, and ultimately provided a fairness opinion with respect to the final price offered by AFCV. During the final stages of negotiation with AFCV, after several quarters of declining revenues, the Company received quarterly results reflecting significant improvements in performance and record revenues. Despite the improved results, the Board was concerned about the future stability and performance of the Company, primarily due to its significant reliance on Google-directed traffic (which was entirely dependent on Google algorithms, subject to change at any time in Google’s discretion) and increasing competitive pressures, and ultimately approved the sale of the Company to AFCV.

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