SS M&A Litigation Outlook - Flipbook - Page 6
Contours of statutory stockholder rights
The Delaware General Corporate Law provides
and defines a variety of specific stockholder
rights. In 2020, the courts dealt with
developments in the law governing a number
of these rights, including the right to demand
inspection of books and records, the right to seek
appraisal, and the right to bring derivative suits
where a demand on the board is futile or refused.
First, the Delaware courts issued several
decisions on books and records demands.
Delaware courts published 47 opinions on books
and records demands, exceeding the average
of 34 opinions per year for 2015 to 2019. In
Lebanon County Employees’ Retirement Fund
v. AmerisourceBergen, the Court of Chancery,
later affirmed by the Delaware Supreme Court,
rejected the argument that stockholders who
want to investigate mismanagement also must
state upfront what they plan to do with the
materials sought (the “purpose plus an end” test).
Instead, the court held that a plaintiff need only
state a proper purpose for demanding access
to books and records. The court also held that
stockholders seeking records for use in litigation
need only present a credible basis to infer
possible corporate wrongdoing, and did not need
to show actionable wrongdoing (the “actionablewrongdoing” requirement). Delaware courts
previously had applied both the “purpose plus an
end” and “actionable-wrongdoing” requirements
in cases construing Section 220 requests.
The Court of Chancery also granted requests
for email and other electronically maintained
documents in Paraflon Investments, Ltd.
v. Linkable Networks, Inc., confirming that
these types of documents may be deemed part
of a company’s “books and records” where
the stockholder demonstrates that necessary
documents are likely to exist in the form of email.
In Gilead, the Court of Chancery permitted the
stockholders to obtain documents and awarded
attorneys’ fees.
2021, Delaware courts no doubt will continue to
decide important cases affecting stockholder’s
statutory rights.
Second, in In re Appraisal of Panera Bread Co.,
the Court of Chancery found that the deal
price minus synergies was the proper
way to measure fair value in an appraisal
proceeding and that, even though some
aspects of the deal process were “sub-optimal,”
the sales process was reliable enough because,
among other things, the negotiations were arms’
length, Panera’s board was disinterested and
independent, and Panera received no other offers
(even after the deal leaked and was signed).
Ultimately, the court found that the fair value of
the shares was lower than the deal price.
With M&A activity anticipated to increase in
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