In Ryan v. Armstrong, et al., C.A. No. 12717-VCG (Del. Ch. May 15, 2017), the Delaware Chancery Court dismissed the derivative action brought by a Plaintiff-shareholder (“Plaintiff”) against specified members of the board of directors (“Defendants”) of nominal defendant The Williams Companies (“Williams”). Plaintiff brought his claim against the Defendants without first demanding that the board pursue an action following Williams’ decision to allegedly undertake defensive measures against a takeover. The court granted Defendants’ motion to dismiss holding that Plaintiff failed to plead facts demonstrating that an exception to the demand requirement of Court of Chancery Rule 23.1 applied.
By Lauren Garraux and Phillip Kardis
In his April 28, 2015 Memorandum Opinion, Vice Chancellor Parsons dismissed a derivative suit brought by ADT Corp. stockholder Walter E. Ryan, Jr. (“Plaintiff”) against the Company’s board of directors, Corvex Management LP (“Corvex”), a hedge fund investor, and Corvex’s principal arising out of the Company’s repurchase of $450 million in stock held by Corvex, a move that led to a drop in the Company’s stock price. Citing Chancery Court Rule 23.1, Vice Chancellor Parsons dismissed the suit because Plaintiff had neither made a pre-suit demand on the Company’s board nor met his burden of proving that demand should be excused as futile under Aronson.
Plaintiff commenced this derivative action on August 1, 2014 and filed an amended complaint on October 3, 2014, asserting claims of breach of fiduciary duties of care and loyalty against ADT’s board of directors, aiding and abetting those breaches against Corvex and unjust enrichment against Corvex and Corvex principal Keith Meister (“Meister”) who, during the time period relevant to the complaint, held a seat on ADT’s board and audit committee. Plaintiff’s claims arose out of what Plaintiff characterized as a self-interested “pump-and-dump” scheme pursuant to which Meister managed to “pump up” the price of ADT’s stock and then convinced his fellow board members to repurchase most of Corvex’s ADT stock in November 2013 at $44.01 per share for an approximate total of $450 million, the alleged “dump.” Following the repurchase, ADT was left in a “far-worse-than forecasted financial condition,” with “diminished future prospects” and a slipping stock price that ultimately settled around $28 per share in the first few days of February 2014.
In In re TriQuint Semiconductor, Inc. Stockholders Litigation, plaintiff stockholders of TriQuint Semiconductor, Inc. (“TriQuint”) moved to expedite their breach of fiduciary duties claims against TriQuint’s board of directors for approving a merger of equals with RF Micro Devices, Inc. (“RFMD”) in which the shares of each company would be exchanged for 50% of the shares of a newly formed entity, Rocky Holding, Inc. (“Rocky Holding”). In this letter opinion, the Delaware Court of Chancery ruled on plaintiffs’ motion for expedited proceedings with regard to plaintiffs’ claims that the TriQuint board (i) engaged in defensive entrenchment tactics, (ii) agreed to preclusive deal protection devices, and (iii) failed to provide all material information to the stockholders in advance of the stockholder vote.
In order to show good cause for expedited proceedings under Delaware law, plaintiffs must articulate “a sufficiently colorable claim” and show “a sufficient possibility” of irreparable injury so as to justify imposing the costs of an expedited preliminary injunction proceeding on the defendants and the public.