Albert J. Carroll

Court of Chancery Targets “Deal Tax” Litigation By Increasing its Scrutiny of “Disclosure-Only” Settlements

            M&A lawsuits and so-called “disclosure-only” settlements – where stockholder plaintiffs drop their requests to enjoin a deal and grant defendants broad releases primarily in exchange for supplemental disclosures to stockholders, followed by requests for six-figure attorneys’ fee awards – have proliferated in recent years.  In turn, these lawsuits have faced increasing scrutiny from scholars, practitioners, and members of the judiciary, who assert that these ubiquitous settlements rarely yield genuine benefits for stockholders, threaten the loss of potentially valuable claims that have not been sufficiently investigated, and only serve the interests of opportunistic plaintiffs’ counsel and defendants happy to acquire a form of deal insurance through a broad release of class action claims challenging the merger. More ›

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Court Of Chancery Applies Entire Fairness To Controller Contract

In Re EZCORP Inc. Consulting Agreement Derivative Litigation,  C.A. 9962-VCL (January 25, 2016)

This is an important and useful decision for at least two reasons. First, the Court carefully analyzes past Delaware precedent to conclude that the entire fairness test applies not just to squeeze-out mergers, but also to other transactions where a controller obtains non-ratable benefits, such as contracts with an entity owned by a controller of the company. This is important because prior case law was inconsistent on the test it applied to such contracts.

Second, the opinion has an exhaustive review of Delaware law on how to determine if a director is interested for purposes of the demand futility standard to bring a derivative suit.

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Court Of Chancery Explores The Effect Of Federal Settlements On A Delaware Action And Applies Unocal To Bylaw Amendments

In re Ebix, Inc. S’holder Litig., Consol. C.A. No. 8526-VCN (Jan. 15, 2016)

This is an interesting decision for two reasons.  More ›

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Court Of Chancery Rejects Settlement Because Of Named Plaintiff Conflict

Smollar v. Potarazu, C.A. No. 10287-VCN (January 14, 2016)

This decision points out the hazard in providing a separate benefit to the named plaintiff in connection with the settlement of a derivative suit. In short, that is a bad idea and, as in this case, may cause the Court to reject even an otherwise good settlement because of concerns over the conflict of interest when the plaintiff may have agreed to a deal for his own benefit.

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Court of Chancery Explains When a Stockholder’s Right to Remove Directors May Be Limited to “For Cause” Only Removals

Section 141(k) of the Delaware General Corporation Law (DGCL) contains the default rule that a corporation’s stockholders have the right to vote to remove directors from the board “with or without cause.”  Section 141(k) contains two exceptions to the default rule where the removal of directors may be limited to “for cause” only removals: (1) where the board is “classified” under Section 141(d) (i.e., has multiple classes of directors with staggered terms of service, in contrast to the default “straight” board having a single class of directors), or (2) where the stockholders have cumulative voting rights for director elections under Section 214 (rather than the default plurality voting rights).  In accord with Court of Chancery precedent interpreting Section 141(k), Rohe v. Reliance Training Network, Inc., 2000 WL 1038190 (Del. Ch. July 21, 2000), a recent bench ruling by the Court of Chancery, In re Vaalco Energy Stockholder Litigation, C.A. No. 11775-VCL (Del. Ch. Dec. 21, 2015) (Laster, V.C.) (Transcript Opinion), invalidated a company’s charter and bylaw provisions that purported to limit the stockholders’ right to remove directors to “for cause” only removals where the company had an unclassified board consisting of a single class of directors and the stockholders had plurality voting rights for director elections. More ›

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The Delaware Supreme Court Upholds $76 Million Judgment Against RBC for Rural/Metro Sale

Investment bankers seeking to profit as both adviser to the seller and financier to the buyer in corporate sales processes have faced increased scrutiny by Delaware courts over the last few years.  In a highly-publicized 2011 decision, Vice Chancellor Laster criticized investment banker Barclays PLC for acting both as adviser to the seller and financier to the buyer in the Del Monte Foods Co. sale process.  The following year, now Chief Justice, then Chancellor Strine, criticized Goldman Sachs’ role in the El Paso Corp. sales process for allegedly steering the sale to its favored buyer Kinder Morgan Inc. 

In the latest Delaware decision criticizing bankers guiding corporate sales processes who seek to profit on both sides of a sale, In re Rural Metro Corp. Stockholders Litigation, the Supreme Court affirmed the Court of Chancery’s holding that investment banker RBC Capital Markets LLC (“RBC”) was liable for aiding and abetting the breach of fiduciary duties by the Board of Rural/Metro Corporation’s (“Rural” or the “Company”) in connection with its sale to private equity firm Warburg Pincus LLC (“Warburg”).  (No. 140, 2015, 2015 WL 7721882 (Del. Nov. 30, 2015)).  More ›

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