SS M&A Litigation Outlook - Flipbook - Page 7
New developments in core M&A and governance doctrines
Delaware courts constantly are refining the
scope of core M&A and governance doctrines
to address new fact patterns, novel legal issues,
and changing economic landscapes. 2020 was
no exception, with Delaware courts addressing,
among other things, (1) the obligations of
minority and controlling stockholders, (2) the
role of the board of directors in complex M&A
transactions, and (3) the continued impact of
Marchand v. Barnhill on Caremark claims.
Several decisions of note, including In re
Essendant, Salladay v. Lev, Gilbert v. Perlman,
and 77 Charters, discussed the roles of
minority and controlling stockholders.
While In re Essendant served as a reminder
of the high standard necessary to claim that a
minority stockholder is a controlling stockholder,
Gilbert found that minority shareholders are not
without potential fiduciary duty obligations to
other minority shareholders if they form a control
group with a controlling shareholder. Salladay
reinforced the rule that, absent a controlling
stockholder on both sides of the transaction,
Corwin cleansing or the use of a special
committee can remove a transaction from entire
fairness review. In 77 Charters, the court held
that an individual who controlled an LLC that
owned a stake in an operating LLC owed fiduciary
duties to the operating LLC’s other members as
a “second-tier controller”, even though he was
not himself a member of the operating LLC,
because of the control he exerted over the assets
of the operating LLC. Finally, Agspring permitted
fraud claims arising from an agreement to sell a
business to proceed against a private equity firm
that operated as a controlling shareholder of the
business where the private equity firm, among
other things, held 98 percent of the company, had
three of five board seats, and regularly obtained
financial information.
Delaware courts also issued a number of decisions
in 2020 addressing different aspects of a board’s
duties in approving M&A transactions.
Nine West found that sell-side directors may
be liable for failing to consider the buyer’s
post-transaction financial viability. Mindbody
addressed conflict of interest allegations,
dismissing some claims on the basis of the
business judgment rule while permitting
others to go forward based on allegations that
two executives influenced the transaction to
serve their own personal financial situation.
Rudd showed the importance of Section 102(b)
(7) exculpatory provisions, which the court
applied to dismiss all fiduciary duty claims
except those for breach of the duty of loyalty
based on allegations that the company’s board
sold the company for too little due to conflicts of
interest, even though enhanced scrutiny was the
appropriate standard to apply to the review of
the transaction.
Finally, Inter-Marketing Group USA, Hughes,
and AmerisourceBergen showed the Chancery
Court denying motions to dismiss Caremark
claims in the wake of Marchand v. Barnhill and
In re Clovis Oncology.
Both 2019 and 2020 produced significant
developments in core Delaware M&A and
governance law. We anticipate this trend to
continue in 2021, both as additional cases arise
in these developing areas and as the Delaware
courts turn to new areas of law that may be
thrust into the spotlight by COVID-19 and other
macroeconomic factors.
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