Posts in M&A

Chancery Construes Notice Provisions Associated With Escrowed Funds Under an Asset Purchase Agreement

Schillinger Genetics, Inc. v. Benson Hill Seeds, Inc., C.A. No. 2020-0260-MTZ (Del. Ch. Feb. 1, 2021)

Delaware courts will apply the plain terms of an unambiguous asset purchase agreement (“APA”), including its provisions governing notices and the release of escrowed funds. More ›

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Party Uniquely Escapes An Arbitration Provision, While The Court Reminds Us That Bootstrapped Fraud Claims Are Impermissible In Delaware

AluminumSource, LLC v. LLFlex, LLC, C.A. No: N18C-07-231-EMD CCLD (Del. Super. Jan. 21, 2021)

Delaware courts commonly enforce (and support) arbitration provisions, submitting disputes under the governing contract to a third-party neutral. Equally common is the dismissal by Delaware courts of fraud claims “bootstrapped” to a breach of contract based on allegations that a contracting party never intended to perform its obligations. This recent decision from the Superior Court’s Complex Commercial Litigation Division is the unique case where, on the first issue, an arbitration provision was found unenforceable due to impossibility of performance. On the second issue, this case confirms settled law that bootstrapped fraud claims are impermissible in Delaware. More ›

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Delaware Supreme Court Adopts Post-Merger Derivative Standing Framework From In re Primedia, Inc. Shareholders Litigation

Morris v. Spectra Energy Partners (DE) GP, LP, No. 489, 2019 (Del. Jan. 22, 2021)

In Delaware corporate law, “the standing inquiry has assumed special significance,” especially in the post-merger context. The Delaware Supreme Court in Morris v. Spectra Energy holds that a plaintiff has post-merger standing if she brings a claim disputing the fairness of a merger and satisfies the three-part framework set forth in In re Primedia, Inc. Shareholders Litigation, 67 A.3d 455 (Del. Ch. 2013), even if the underlying claim seems unlikely to succeed on the merits. More ›

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Chancery Declines to Apply Stockholder Approval Requirement of DGCL § 271 to Agreement to Transfer All Assets in Lieu of Foreclosure

Stream TV Networks, Inc. v. SeeCubic, Inc., C.A. No. 2020-0310-JTL (Del. Ch. Dec. 8, 2020)

In this decision, the Delaware Court of Chancery reviews the history of requirements to approve transfers of all assets both at common law and under the Delaware General Corporation Law, and concludes that Delaware law does not require majority stockholder approval for an insolvent corporation’s transfer of assets to a secured creditor in lieu of a foreclosure. The Court thus rejected an attempt by the corporation’s founders, who owned a majority of its stock, to invalidate the corporation’s agreement in that regard.  More ›

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Chancery Upholds Claim that CEO Breached Her Duty of Care Relating to a Misleading Proxy Statement

City of Warren General Employees’ Retirement System v. Roche, C.A. No. 2019-0740-PAF (Del. Ch. Nov. 30, 2020)

This case illustrates that an officer’s support for a sale of the corporation does not trigger the “entire fairness” standard where a majority of the members of the board of directors are not alleged to have been interested or lacked independence, and the plaintiff’s allegations otherwise do not support that the officer deceived the board. As also illustrated here, however, materially incomplete or inaccurate disclosures in a proxy statement may state a non-exculpated claim against officers for a breach of the duty of care. More ›

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Chancery Sustains Complaint for Breach of Fiduciary Duty against Viacom Controllers

In re Viacom Inc. Stockholders Litig., C.A. No. 2019-0948-JRS (Del. Ch. Dec. 29, 2020), as corrected (Dec. 30, 2020)

This case exemplifies that the Court of Chancery will review a transaction under the entire fairness standard where a controller receives a non-ratable benefit and the controller fails to condition the transaction on the approval of a special committee and of a majority of the disinterested minority stockholders. Plaintiffs, minority stockholders of Viacom International (“Viacom”), sued Shari Redstone, her corporate entities (together with Ms. Redstone, the “Controllers”), and Viacom directors that were allegedly loyal to Ms. Redstone. Ms. Redstone indirectly controls both Viacom and CBS Corporation (“CBS”). Among other things, the plaintiffs contended that the Controllers breached their fiduciary duties in causing the merger between Viacom and CBS on terms beneficial to the Controllers but detrimental to Viacom’s public stockholders.   More ›

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Chancery Declines to Order Specific Performance of $5.8 Billion Luxury Hotel Deal Scuttled by COVID-19 Changes to Hotel Business Operations

AB Stable VIII LLC v. MAPS Hotels and Resorts One LLC, C.A. No. 2020-0310-JTL (Del. Ch. Nov. 30, 2020)

Parties to a sale and purchase agreement (“SPA”) had planned to close a deal to sell fifteen luxury hotels for $5.8 billion. As the COVID-19 pandemic spread across the globe in early 2020 and battered the hotel industry, the buyer terminated the SPA. Seller sought specific performance in the Court of Chancery. After trial, the Court denied seller’s request for relief. More ›

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CCLD Holds Indemnification Provision Does Not Cover First-Party Claims

Ashland LLC v. Samuel J. Heyman 1981 Continuing Trust for Lazarus S. Heyman, C.A. No. N15C-10-176 EMD CCLD (Del. Super. Ct. Nov. 10, 2020)

This case illustrates that Delaware courts will follow the “American Rule” that parties must pay their own legal fees unless they otherwise agree. In this case, the parties’ Stock Purchase Agreement (“SPA”) required defendants to indemnify against “Losses” – which was defined to include reasonable attorneys’ fees and expenses. The Court previously had found that the defendants breached a section of the SPA. Plaintiff then sought to recover as “Losses” its attorneys’ fees and expenses in proving the breach. The Court reasoned that indemnification provisions are presumed not to provide for fee-shifting in claims between the parties (first-party claims) absent a clear and unequivocal articulation of that intent. While there is no specific language that must be used, the SPA here contained a separate, relatively straightforward and narrower prevailing party fee-shifting provision, which did not apply to the claims at issue. Because the indemnification provision did not clearly support fee-shifting for first-party claims, and because the plaintiff was not entitled to attorneys’ fees based on the straightforward fee-shifting provision to which the parties had agreed, the Court granted defendants’ motion for summary judgment that plaintiff was not entitled to recover its attorneys’ fees and expenses under the indemnification provision.

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Chancery Addresses Fiduciary Duty Claims Related To Financial Statements Created For Merger

In re Baker Hughes Inc. Merger Litigation, C.A. No. 2019-0638 AGB (Del. Ch. Oct. 27, 2020).
This decision arose out of a merger involving Baker Hughes and the oil and gas segment of General Electric (GE). Stockholders of Baker Hughes brought post-closing breach of fiduciary duty claims against certain officers of Baker Hughes and aiding and abetting claims against GE, with the allegations focused on certain financial statements provided by GE in connection with the merger. GE did not maintain separate statements for its oil and gas business line in the ordinary course. The parties accounted for this by having GE prepare unaudited financial statements for that business line and conditioning closing obligations on GE providing audited financial statements that did not differ materially in an adverse manner.  More ›

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Chancery Applies Contractual Shortening of Limitations Period for Breaches of Representations, Finds it Inapt to Fraud Claims and Enforces Clear Anti-Reliance Clause

Pilot Air Freight, LLC v. Manna Freight Systems, Inc., C.A. No. 2019-0992-JRS (Del. Ch. Sept. 18, 2020)

In a familiar fact pattern, an acquirer of a business brought suit against sellers claiming, inter alia, that the representations and warranties in the asset purchase agreement were untrue and, indeed, fraudulent when made. The sellers moved to dismiss on the basis of a provision they claimed shortened the limitations period for breaches of representations and warranties and an anti-reliance clause they claimed eliminated any potential claims for misrepresentations or omissions outside of the written agreement. More ›

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Chancery Addresses Contract and Fraud Claims Relating to M&A Post-Closing Price Adjustments

Roma Landmark Theaters, LLC v. Cohen Exhibition Co., LLC, C.A. No. 2019-0585-PAF (Del. Ch. Sept. 30, 2020)

In Roma Landmark Theaters, the parties’ purchase agreement contained a framework for post-closing price adjustments and set forth the pre-closing duties of the buyer (but not the sellers) relating to certain calculations and financial information. The agreement included a dispute mechanism, which provided for an independent accounting firm to make a binding determination as to the distribution of escrowed funds in connection with a dispute over post-closing price adjustments. The accounting firm decided the dispute largely in sellers’ favor. Sellers then filed suit in the Court of Chancery to confirm the accounting firm’s decision, and require buyer to release the escrowed funds. Buyer filed counterclaims, alleging that the sellers committed financial disclosure misrepresentations amounting to fraud and bad faith. More ›

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Chancery Confirms that, Without More, Threat of Proxy Contest from Activist Investor is Insufficient to Render Director Defendants Conflicted in Sale Transaction

Rudd v. Brown, C.A. No. 2019-0775 MTZ (Del. Ch. Sept. 11, 2020)

The Court of Chancery recently confirmed that the threat of a proxy contest from an activist investor alone was insufficient to render director defendants conflicted in a post-closing challenge to a sale of the company. Here, an activist investor that acquired a significant stake in the corporation expressed dissatisfaction with the board of directors for not exploring a potential sale of the company. Thereafter, the company announced that it would explore strategic alternatives. The company then entered into a cooperation agreement permitting the investor to appoint three members of the nine member board in exchange for not mounting a proxy fight. The strategic process resulted in a sale to a financial acquirer. The plaintiff then brought suit against the company’s board of directors and an officer alleging that that board’s acceptance of an inadequate offer was motivated by self-interest to avoid a proxy contest. More ›

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Chancery Awards No Damages to Either Party After the Break-Up of the Anthem/Cigna Merger

In re Anthem-Cigna Merger Litigation, C.A. No. 2017-0114- JTL (Del. Ch. August 31, 2020)

This action arose out of a failed merger transaction involving the second and third largest health insurers in the United States, Anthem, Inc. and Cigna Corporation (“the Merger”). The parties had entered into a merger agreement on July 23, 2015 (“Merger Agreement”). Either party could terminate if the transaction did not close by January 31, 2017, a date later extended to April 30, 2017. The parties each agreed to covenants to cooperate and to use their best efforts to accomplish the Merger (“Efforts Covenants”). Specifically, they agreed to take all reasonable steps to consummate the Merger (the “Reasonable Best Efforts Covenant”) and to take “any and all actions” necessary to avoid impediments to the Merger from government entities (the “Regulatory Efforts Covenant”). The parties authorized Anthem to take the lead in working with government entities to facilitate the Merger, but the parties were required to cooperate to obtain regulatory approval (the “Regulatory Cooperation Covenant”). The parties’ obligations to close the Merger were subject to the condition that no governmental entity or court had acted to enjoin the consummation of the Merger (the “No Injunction Condition”).  More ›

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Alleged Third-Party Beneficiary’s Contract and Alternate Unjust Enrichment Claims Survive Dismissal at the Pleadings Stage Based on Ambiguous Contract Language

CHS/Cmty. Health Sys., Inc. v. Steward Health Care Sys. LLC, C.A. No. 2019-0165-JRS (Del. Ch. Aug. 21, 2020)

A claim for unjust enrichment will not lie where there is a contract that governs the relationship between parties. Both types of claims may survive a motion to dismiss, however, if there exists a contractual ambiguity that prevents the Court of Chancery from interpreting the meaning of contract at the pleadings stage. More ›

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Chancery Denies Sellers’ Request for Dismissal, Finding That Fraud Claims Were Timely Filed and Properly Pled

Agspring Holdco, LLC v. NGP X US Holdings, L.P., C.A. No. 2019-0567-AGB (Del. Ch. July 30, 2020)

This opinion concerns a buyer’s attempt to plead fraud in connection the acquisition of a business. The Court denied in the main the defendants’ motion to dismiss the fraud claims brought in connection with private equity firm American Infrastructure Partners’ (the “Buyer”) $300 million acquisition of Agspring LLC (the “Company”), which was then almost entirely owned by NGP X US Holdings, LLP (“NGP”), another private equity firm.  More ›

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