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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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- Chancery Determines Certain Suits and Investigations Against Amazon Were Insufficient to Meet Credible Basis Standard to Inspect Corporate Books and Records
- Chancery Grants Motion to Dismiss Breach of Fiduciary Duty Claims Against Officers in Controlling Stockholder Transaction Subject to Entire Fairness Review
- Chancery Addresses Acquirer’s Request For Joint Tortfeasor Settlement Credit
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Showing 3 posts from August 2024.
Chancery Grants Motion to Dismiss Breach of Fiduciary Duty Claims Against Officers in Controlling Stockholder Transaction Subject to Entire Fairness Review
Kormos v. Playtika Hldg. UK II Ltd., C.A. 2023-0396-SG (Del. Ch. May 3, 2024)
In this decision involving breach of fiduciary duty claims against two officers, the Court granted the individual defendants’ motions to dismiss for failure to state a claim. In a prior decision, the Court found the transaction, which involved a corporation’s self-tender offer providing non-pro rata benefits to a controlling stockholder, was subject to the entire fairness standard of review. Although the two officer-defendants presumably lacked independence from the controlling stockholder, the Court focused on the complaint’s failure to plead sufficient, non-conclusory facts of wrongdoing by the officers. While the plaintiff alleged conclusorily they had engaged in “unauthorized” communications with the controlling stockholder, the complaint also alleged that the board had directed management to assist the controlling stockholder with exploring potential transactions to sell some of its shares. The alleged communications also did not violate the plain terms of a special committee’s subsequent guidelines on communications with the controlling stockholder. The complaint also alleged that the communications at-issue were reported to the special committee, without suggesting that the committee found any fault with them. The complaint also failed to allege that the officers played a role in structuring the terms of the transaction that allegedly unfairly benefited the controller. In dismissing the claims, the Court explained it was not enough for the plaintiff to allege the officers lacked independence. Rather, to state a claim against them, the plaintiff must also allege facts supporting the officer-defendants actually “worked to advance the controller’s interest in detriment to [the corporation].”
Chancery Addresses Acquirer’s Request For Joint Tortfeasor Settlement Credit
In re Columbia Pipeline Grp. Inc. Merger Litig., Consol. C.A. No. 2018-0484-JTL (Del. Ch. May 15, 2024)
In this post-trial decision, the Court addressed an acquirer’s responsibility for damages suffered by a stockholder class when the acquirer had been found liable for aiding and abetting breaches of fiduciary duties by certain of the target’s officers. The officers had previously settled, and, under the Delaware Uniform Contribution Among Tortfeasors Act, the acquirer was entitled to a credit against its liability equal to the greater of the settlement amount or the proportionate share of the officers’ responsibility. The acquirer blamed the officers for defects in the sale process, arguing that the officers had breached their fiduciary duties and were the primary wrongdoers. The Court disagreed, however, reasoning that both the buyer and officers had committed wrongs causing the damages. The buyer had violated a standstill agreement in several respects and improperly obtained confidential information to secure an advantage over other potential bidders. As a result, the buyer and officers were both equally responsible, and the buyer was entitled to a 50% credit, which was larger than the amount the officers settled for. In regard to responsibility for disclosure violations, the Court noted that the buyer had an affirmative contractual obligation to correct misstatements in the proxy statement. The Court reasoned that, for issues where the buyer knew as much as the sell-side fiduciaries, the buyer’s allocation would be 50%. Where the buyer had no knowledge, it would bear no responsibility. Where the buyer had some knowledge, it would bear one-third of the responsibility. Where the buyer was on inquiry notice, it would bear one-quarter of the responsibility. Ultimately, the Court held that the buyer was entitled to a 58% credit for the disclosure claims, which exceeded the amount paid in settlement. The remedies provided for the sale process and disclosure claims were non-cumulative, so the buyer was only liable for the larger amount.
Chancery Determines Certain Suits and Investigations Against Amazon Were Insufficient to Meet Credible Basis Standard to Inspect Corporate Books and Records
Wong Leung Revocable Tr. v. Amazon.com Inc., C.A. No. 2023-1251-BWD (Del. Ch. May 1, 2024)
In order to inspect books and records under Section 220 of the Delaware General Corporation Law, a stockholder-plaintiff must establish that they have a proper purpose. To establish a proper purpose of investigating suspected corporate wrongdoing, a stockholder must present some credible evidence from which the Court can infer that wrongdoing may have occurred. In this case, after a previous decision denying a prior books and records request to investigate wrongdoing in connection with Amazon.com’s alleged anticompetitive business practices (discussed here), a stockholder-plaintiff again sought books and records based on recent investigations and an FTC complaint against Amazon. However, the Court held that the FTC complaint was insufficient to meet the credible basis standard to establish a proper purpose as it only included allegations, and did not include evidence of wrongdoing, such as exhibits. The Court similarly reasoned that the settlement of an earlier government investigation did not establish any wrongdoing, and the plaintiff provided no basis to suspect that there would be a violation of the settlement agreement. The Court also reasoned that a fine imposed by a European regulator was insufficient to meet the standard, as the fine was still on appeal, the amount was not large in the context of Amazon’s business, and the record contained no details regarding the alleged wrongdoing on which the fine was based. Accordingly, the Court denied the stockholder-plaintiff’s books and records request.
