Camera maker GoPro Inc and some of its officers and board members have won dismissal of a shareholder derivative lawsuit saying they concealed problems with new products in 2016, including a drone that was eventually recalled.
Full Answer
Can sophisticated stockholders contractually limit or waive appraisal rights?
Finally, in Manti Holdings, LLC v. Authentix Acquisition Company, Inc., the Court of Chancery held that sophisticated stockholders could contractually limit or waive their appraisal rights as long as the waiver was clear and unambiguous, and the stockholders were fully informed and represented by counsel at the time they signed the agreement.
Can minority stockholders challenge a merger with the same controlling stockholder?
Minority stockholders challenged a merger between two companies with the same controlling stockholder, alleging that the controller conceived of the transaction and actively participated in negotiations before a special committee was established, thereby precluding application of MFW ’s more favorable standard of review.
Can a Special Litigation Committee gather corporate books and records?
In In re Oracle Corporation Derivative Litigation, the Court of Chancery found that documents gathered by a company’s special litigation committee (“SLC”) may constitute corporate books and records for purposes of a Section 220 demand.
What happens to attorney-client communications after a merger?
SIG Growth Equity Fund I, LLP, which established that although privilege over pre-merger communications ordinarily passes to the surviving corporation, parties may use their “contractual freedom . . . to exclude from the transferred assets the attorney-client communications they wish to retain as their own.”
What is the Corwin v. KKR case?
What is the purpose of the High River Limited Partnership v. Occidental Petroleum Corp.?
What is the Delaware rule for a merger?
What is fair value in Verition Partners Master Fund?
What was the case in Marchand v. Barnhill?
Who replaced Justice Strine?
Is Saba Capital's nomination invalid?
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Why did the Delaware Court of Chancery grant a motion to dismiss derivative claims asserted against the board of directors?
In this memorandum opinion, the Delaware Court of Chancery granted a motion to dismiss derivative claims asserted against the board of directors of GoPro, Inc. because the plaintiffs failed to adequately plead demand futility under Court of Chancery Rule 23 .1. In so holding, the Court found that the plaintiffs failed to plead with particularity that a majority of the board was unfit to consider a demand.
Did GoPro violate securities laws?
Amid GoPro’s 2016 difficulties, stockholders filed suit in federal court alleging that certain GoPro fiduciaries violated federal securities laws because, as of October 2015, they knew the Company would fall short of its annual revenue guidance, which they failed to timely disclose to stockholders. Based on similar allegations, stockholders filed complaints in the Court of Chancery alleging certain GoPro officers and directors breached their fiduciary duties and seeking to hold certain fiduciaries liable under Brophy for trading in GoPro stock in a manner that exploited their knowledge of non-public information.
What is the Corwin v. KKR case?
KKR Financial Holdings LLC —which applies the business judgment rule to arm’s-length transactions that are subsequently ratified by a non-coerced, fully informed majority of disinterested stockholders —has served as a powerful defense for directors in post-closing money damages cases. In 2019, the Delaware courts further refined the Corwin doctrine, examining, in particular, when disclosure deficiencies prevent application of the defense.
What is the purpose of the High River Limited Partnership v. Occidental Petroleum Corp.?
Occidental Petroleum Corp., the Court of Chancery declined a stockholder’s invitation to hold that a books and records demand in aid of a proxy contest constitutes a proper purpose under Section 220. After Occidental agreed to an allegedly bad deal with Anadarko, entities affiliated with Carl Icahn mounted a proxy challenge and made a Section 220 demand for information that might support the proxy contest. The court observed that Delaware law on whether stockholders have an inspection right in these circumstances “is, at best, murky.” Although the court said that it “might endorse a rule that would allow a stockholder to receive books and records relating to questionable, but not actionable, board-level decisions so that he could communicate with other stockholders in aid of the potential proxy contest” in the right case, the sought-after records in this case were not “necessary and essential” for the proxy contest because documents sufficient to support the proxy contest were already available, given that the transactions at issue were highly publicized and plaintiffs had enough information to file their preliminary proxy materials. Therefore, any additional documents made available through the Section 220 demand would not be necessary or essential.
What is the Delaware rule for a merger?
Since the seminal 2014 MFW decision, Delaware courts have applied the business judgment rule to a merger proposed by a controlling stockholder as long as two procedural safeguards are established “ ab initio ,” or from the beginning: the merger is conditioned on the approval of an independent special committee and a majority vote by the minority stockholders. In Olenik v. Lodzinski, the Delaware Supreme Court further clarified when MFW ’s “dual protections” must be put in place to qualify a take-private transaction for deferential business judgment review. Minority stockholders challenged a merger between two companies with the same controlling stockholder, alleging that the controller conceived of the transaction and actively participated in negotiations before a special committee was established, thereby precluding application of MFW ’s more favorable standard of review. The Court of Chancery dismissed the claims, finding that negotiations did not start until the acquirer sent an offer letter. The Delaware Supreme Court reversed. Applying the guidance it articulated in its 2018 Synutra decision, the court found that the complaint pleaded facts “support [ing] a reasonable inference” that the controlled companies and the controlling stockholder had effectively engaged in “substantive economic negotiations” several months before the dual protections were in place, including by engaging in a joint exercise to value the two companies. As a result, the court held that the complaint “should not have been dismissed on MFW grounds.” Olenik highlights the risks that deal participants face by engaging in merger-related activity—beyond truly “preliminary discussions”—ahead of putting MFW ’s dual procedural protections in place.
What is fair value in Verition Partners Master Fund?
Aruba Networks, Inc ., the Delaware Supreme Court reversed the Court of Chancery’s controversial 2018 ruling setting fair value at the “thirty-day average unaffected market price,” or $17.13, which was 30% lower than the $24.67 deal price. In that decision, Vice Chancellor Laster acknowledged the precedent finding that deal price holds “substantial probative value” when a widely-held, publicly-traded company is sold in an arm’s-length transaction, but decided that difficulties in quantifying and deducting synergies—specifically, “reduced agency costs” arising out of the merger—made the “deal price minus synergies” measure a less reliable indicator of fair value. On appeal, the Supreme Court reversed, finding that the Court of Chancery’s concerns about “reduced agency costs” were unsupported by the record because, among other things, the buyer’s “synergies case likely already price any agency cost reductions it may have expected.” Further, while the Delaware Supreme Court stated that estimating synergies may inherently involve “imprecision,” the calculation was “no more [imprecise] than other valuation methods.” Finding that the record created a reliable estimate of deal price minus synergies that the Court of Chancery should have followed, the court directed that judgment be entered for the petitioners awarding them $19.10 per share, which was about 20% below the deal price. Thus, although successful on appeal, the stockholder petitioners ultimately secured a pyrrhic victory.
What was the case in Marchand v. Barnhill?
The lawsuit followed a listeria outbreak at Blue Bell in 2015, which caused the deaths of three customers, a total recall of its products, and a temporary shutdown of its manufacturing plants. Plaintiffs alleged that the directors and executives breached their duties of care and loyalty by knowingly disregarding contamination risks and failing to make a good faith effort to oversee the safety of the company’s food-making operations. Disagreeing with the Court of Chancery, the Delaware Supreme Court held that the complaint sufficiently alleged particularized facts supporting a reasonable inference that the board failed to implement any system to monitor food safety, which is a central compliance issue for a company that only makes ice cream. The Delaware Supreme Court found that the directors’ Caremark duties required them to make a “good faith effort to oversee the company’s operations,” which included establishing an “information and reporting system [that] is in concept and design adequate to assure the board that appropriate information will come to its attention in a timely manner.” Here, the complaint alleged that the board had no committee overseeing food safety, no board-level process to address food safety issues, and no protocol by which the board was expected to be advised of food safety reports and developments. Thus, the Delaware Supreme Court concluded that there was a reasonable inference that the directors consciously failed to attempt to assure that a reasonable information and reporting system existed.
Who replaced Justice Strine?
Chief Justice Strine’s retirement in 2019 also marked the end of an era and resulted in some reshuffling on the Delaware courts. Justice Seitz was selected to replace Chief Justice Strine, and Vice Chancellor Montgomery-Reeves was elevated to become the first person of color and the third woman to serve on the Delaware Supreme Court.
Is Saba Capital's nomination invalid?
On appeal, the Delaware Supreme Court reversed and held that Saba’s nominations were invalid under the funds’ bylaws. The court held that because at least some of the questionnaire sought information related to director qualifications, the five business day deadline applied under the unambiguous language of the bylaws. The court stated that, if Saba Capital had objections to the scope of the questionnaire, it should have raised those objections with the funds before the deadline passed. The court further explained that it was “reluctant to hold that it is acceptable to simply let pass a clear and unambiguous deadline contained in an advance-notice bylaw,” particularly where the bylaw had been adopted on a “clear day” and there was no evidence of any manipulative conduct by the funds. The court concluded that “ [a] rule that would permit election-contest participants to ignore a clear deadline and then, without having raised any objection, proffer after-the-fact reasons for their non-compliance with it, would create uncertainty in the electoral setting” and frustrate the purpose of advance notice bylaws. The decision affirms that advance notice bylaws requiring stockholders to provide information about their nominees are a valid and effective way to ensure an orderly election process, and that stockholders wishing to nominate directors must pay very careful attention to any deadlines as they will be strictly enforced.
What is the Corwin v. KKR case?
KKR Financial Holdings LLC —which applies the business judgment rule to arm’s-length transactions that are subsequently ratified by a non-coerced, fully informed majority of disinterested stockholders —has served as a powerful defense for directors in post-closing money damages cases. In 2019, the Delaware courts further refined the Corwin doctrine, examining, in particular, when disclosure deficiencies prevent application of the defense.
What is the purpose of the High River Limited Partnership v. Occidental Petroleum Corp.?
Occidental Petroleum Corp., the Court of Chancery declined a stockholder’s invitation to hold that a books and records demand in aid of a proxy contest constitutes a proper purpose under Section 220. After Occidental agreed to an allegedly bad deal with Anadarko, entities affiliated with Carl Icahn mounted a proxy challenge and made a Section 220 demand for information that might support the proxy contest. The court observed that Delaware law on whether stockholders have an inspection right in these circumstances “is, at best, murky.” Although the court said that it “might endorse a rule that would allow a stockholder to receive books and records relating to questionable, but not actionable, board-level decisions so that he could communicate with other stockholders in aid of the potential proxy contest” in the right case, the sought-after records in this case were not “necessary and essential” for the proxy contest because documents sufficient to support the proxy contest were already available, given that the transactions at issue were highly publicized and plaintiffs had enough information to file their preliminary proxy materials. Therefore, any additional documents made available through the Section 220 demand would not be necessary or essential.
What is the Delaware rule for a merger?
Since the seminal 2014 MFW decision, Delaware courts have applied the business judgment rule to a merger proposed by a controlling stockholder as long as two procedural safeguards are established “ ab initio ,” or from the beginning: the merger is conditioned on the approval of an independent special committee and a majority vote by the minority stockholders. In Olenik v. Lodzinski, the Delaware Supreme Court further clarified when MFW ’s “dual protections” must be put in place to qualify a take-private transaction for deferential business judgment review. Minority stockholders challenged a merger between two companies with the same controlling stockholder, alleging that the controller conceived of the transaction and actively participated in negotiations before a special committee was established, thereby precluding application of MFW ’s more favorable standard of review. The Court of Chancery dismissed the claims, finding that negotiations did not start until the acquirer sent an offer letter. The Delaware Supreme Court reversed. Applying the guidance it articulated in its 2018 Synutra decision, the court found that the complaint pleaded facts “support [ing] a reasonable inference” that the controlled companies and the controlling stockholder had effectively engaged in “substantive economic negotiations” several months before the dual protections were in place, including by engaging in a joint exercise to value the two companies. As a result, the court held that the complaint “should not have been dismissed on MFW grounds.” Olenik highlights the risks that deal participants face by engaging in merger-related activity—beyond truly “preliminary discussions”—ahead of putting MFW ’s dual procedural protections in place.
What is fair value in Verition Partners Master Fund?
Aruba Networks, Inc ., the Delaware Supreme Court reversed the Court of Chancery’s controversial 2018 ruling setting fair value at the “thirty-day average unaffected market price,” or $17.13, which was 30% lower than the $24.67 deal price. In that decision, Vice Chancellor Laster acknowledged the precedent finding that deal price holds “substantial probative value” when a widely-held, publicly-traded company is sold in an arm’s-length transaction, but decided that difficulties in quantifying and deducting synergies—specifically, “reduced agency costs” arising out of the merger—made the “deal price minus synergies” measure a less reliable indicator of fair value. On appeal, the Supreme Court reversed, finding that the Court of Chancery’s concerns about “reduced agency costs” were unsupported by the record because, among other things, the buyer’s “synergies case likely already price any agency cost reductions it may have expected.” Further, while the Delaware Supreme Court stated that estimating synergies may inherently involve “imprecision,” the calculation was “no more [imprecise] than other valuation methods.” Finding that the record created a reliable estimate of deal price minus synergies that the Court of Chancery should have followed, the court directed that judgment be entered for the petitioners awarding them $19.10 per share, which was about 20% below the deal price. Thus, although successful on appeal, the stockholder petitioners ultimately secured a pyrrhic victory.
What was the case in Marchand v. Barnhill?
The lawsuit followed a listeria outbreak at Blue Bell in 2015, which caused the deaths of three customers, a total recall of its products, and a temporary shutdown of its manufacturing plants. Plaintiffs alleged that the directors and executives breached their duties of care and loyalty by knowingly disregarding contamination risks and failing to make a good faith effort to oversee the safety of the company’s food-making operations. Disagreeing with the Court of Chancery, the Delaware Supreme Court held that the complaint sufficiently alleged particularized facts supporting a reasonable inference that the board failed to implement any system to monitor food safety, which is a central compliance issue for a company that only makes ice cream. The Delaware Supreme Court found that the directors’ Caremark duties required them to make a “good faith effort to oversee the company’s operations,” which included establishing an “information and reporting system [that] is in concept and design adequate to assure the board that appropriate information will come to its attention in a timely manner.” Here, the complaint alleged that the board had no committee overseeing food safety, no board-level process to address food safety issues, and no protocol by which the board was expected to be advised of food safety reports and developments. Thus, the Delaware Supreme Court concluded that there was a reasonable inference that the directors consciously failed to attempt to assure that a reasonable information and reporting system existed.
Who replaced Justice Strine?
Chief Justice Strine’s retirement in 2019 also marked the end of an era and resulted in some reshuffling on the Delaware courts. Justice Seitz was selected to replace Chief Justice Strine, and Vice Chancellor Montgomery-Reeves was elevated to become the first person of color and the third woman to serve on the Delaware Supreme Court.
Is Saba Capital's nomination invalid?
On appeal, the Delaware Supreme Court reversed and held that Saba’s nominations were invalid under the funds’ bylaws. The court held that because at least some of the questionnaire sought information related to director qualifications, the five business day deadline applied under the unambiguous language of the bylaws. The court stated that, if Saba Capital had objections to the scope of the questionnaire, it should have raised those objections with the funds before the deadline passed. The court further explained that it was “reluctant to hold that it is acceptable to simply let pass a clear and unambiguous deadline contained in an advance-notice bylaw,” particularly where the bylaw had been adopted on a “clear day” and there was no evidence of any manipulative conduct by the funds. The court concluded that “ [a] rule that would permit election-contest participants to ignore a clear deadline and then, without having raised any objection, proffer after-the-fact reasons for their non-compliance with it, would create uncertainty in the electoral setting” and frustrate the purpose of advance notice bylaws. The decision affirms that advance notice bylaws requiring stockholders to provide information about their nominees are a valid and effective way to ensure an orderly election process, and that stockholders wishing to nominate directors must pay very careful attention to any deadlines as they will be strictly enforced.