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Eugene Choi

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Eugene Choi is an associate in the Corporate Practice Group in the firm's Orange County office.

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In Anderson v. Magellan Health, Inc., No. 2021-0202, — A.3d —-, 2023 WL 4364524 (Del. Ch. July 6, 2023) (McCormick, C.), the Delaware Court of Chancery addressed the circumstances under which the Court will award a shareholder plaintiff attorneys’ fees in disclosure-based deal litigation. In particular, Anderson analyzed the history of disclosure-based deal litigation in Delaware and the Court’s evolving standard for awarding fees where shareholder action has caused a company to issue additional pre-merger disclosures “mooting” pending deal litigation. Prior to the decision in Anderson, the state of the law was unsettled. The first line of cases would award fees as long as the shareholder plaintiff secured additional disclosures that were “helpful” such that they provided “some benefit” to shareholders. The second line of cases, however, adopted a stricter standard requiring that the supplemental disclosures be “plainly material.” In an effort to combat the so-called “deal tax” associated with disclosure-based merger litigation, Anderson comes out in favor of the stricter standard. Going forward, the Court will only award disclosure-based mootness fees when the complaining shareholder obtains additional disclosures that are “plainly material” to the shareholders. Companies, boards and advisors engaging in M&A transactions should pay attention to this decision as it will weigh on the proper strategy for approaching a shareholder challenge to an M&A transaction. …

Continue Reading Delaware Court of Chancery Clarifies Heightened Standard for Recovery of Attorneys’ Fees in Disclosure-Based Deal Litigation

This article was originally published in Law360 on April 14, 2023.

Providing legal advice to business entities raises important issues regarding the application of attorney-client privilege between the entity and its directors. Delaware’s approach to corporate privilege springs from the recognition that corporate directors and the corporation they control are deemed “joint clients” of legal advice received while the directors form part of the board.…

Continue Reading Protecting Privilege in Case of a Dispute with Former Director

In In re McDonald’s Corp. Stockholder Derivative Litigation, No. 2021-0324 (Del. Ch. Jan. 26, 2023), the Delaware Court of Chancery (Laster, V.C.) held that officers of a Delaware corporation are subject to a fiduciary duty of oversight as articulated in In re Caremark International Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996). In doing so, the Court allowed stockholder derivative plaintiffs to proceed with oversight claims against the company’s former Global Chief People Officer, who allegedly presided over a corporate culture that condoned sexual harassment. The decision builds on Delaware jurisprudence to extend the duty of oversight to officers, not just directors, who will in most instances form part of the vanguard with respect to company efforts to implement effective reporting systems and/or to report on and respond to red flags regarding potential misfeasance at the company.…

Continue Reading Delaware Court of Chancery Holds that Officers of a Delaware Corporation Are Subject to Fiduciary Duty of Oversight

In In re GGP Stockholder Litigation, 2022 WL 2815820 (Del. July 19, 2022), an M&A transaction split the merger consideration into two parts: an oversized pre-closing dividend totaling over $9 billion, followed by a nominal post-closing payment of about 31 cents a share. In this case, a majority of the Delaware Supreme Court concluded that divvying up merger consideration in this manner does not defeat a dissenting stockholder’s appraisal rights. The majority held that a pre-closing dividend (at least one dependent upon the consummation of the transaction) is part and parcel of the total “merger consideration,” and therefore will be taken into account when determining the fair value of a stockholder’s shares prior to the transaction. However, the Court added, the proxy materials must be clear that the merger consideration subject to an appraisal action includes not only the post-closing per share payment, but also any pre-closing dividend—no matter how large it might be. Otherwise, a stockholder could (incorrectly) believe that the fair value of her shares will be appraised only after deducting the padded dividend from the value of the company, thus depleting the fair value of her shares and making the pursuit of an appraisal action highly unsavory. Here, the Court held that the proxy statement was less than clear in this regard, and upheld plaintiffs’ breach of fiduciary duty claims on a motion to dismiss. In reaching its decision, the Delaware Supreme Court provides important guidance to practitioners structuring deals with an eye towards diminishing the usual deluge of appraisal actions—shoehorning the lion’s share of merger compensation into a pre-closing dividend will not do the trick, nor can the accompanying proxy materials make that suggestion (no matter how subtly or perhaps unintentionally).…

Continue Reading Delaware Supreme Court Holds Novel Pre-Closing Dividend Transaction Structure Does Not Thwart Appraisal Remedy

This December, the Delaware Supreme Court penned two decisions that shined the spotlight on purchase agreement provisions that are often afterthoughts in negotiations.  In Golden Rule Financial Corporation v. Shareholder Representative Services, No. 61, 2021, 2021 WL 5754866 (Del. Dec. 3, 2021) (ORDER), the Court reviewed the post-closing “true up” language and determined that “consistently applied” accounting principles in the post-closing true up does not necessarily mean “in the same manner as had been applied prior to closing.”  And in AB Stable VIII LLC v. MAPS Hotels and Resorts One LLC, –A.3d–, 2021 WL 5832875 (Del. Dec. 8, 2021), the Court confirmed what it means to operate a business in the ordinary course between signing and closing during a pandemic.  The Golden Rule and AB Stable decisions provide an insightful frame of reference for practitioners to rethink what these provisions mean and how they may want to recraft them to allocate risk as intended.
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Continue Reading Delaware Supreme Court Shines Spotlight on Boilerplate Purchase Agreement Provisions

In United Food & Commercial Workers Union & Participating Food Industry Employers Tri-State Pension Fund v. Zuckerberg, No. 404, 2020, — A.3d –, 2021 WL 3433261 (Del. Sept. 23, 2021), the Delaware Supreme Court adopted a new three-pronged test for determining whether pre-suit demand by a stockholder plaintiff would have been futile.  This new test builds up and refines the Aronson and Rales demand futility tests for derivative claims.  The Court’s decision comes on the heels of Brookfield Asset Mgmt. v. Rosson, where the Court clarified derivative standing by overruling the oft-criticized direct-and-derivative “dual-natured” claim under Gentile v. Rossette (see blog article here).  This decision is another step toward simplifying Delaware law with respect to derivative claims.
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Continue Reading Delaware Supreme Court Adopts New Three-Prong Test for Demand Futility

In Manti Holdings, LLC v. Authentix Acquisition Co., Inc., No. 354, 2020, 2021 WL 4165159 (Del. Sept. 13, 2021), the Delaware Supreme Court issued an important opinion affirming the use of stockholders agreements by and among Delaware corporations and its stockholders to waive stockholders’ rights of appraisal under Section 262 of the Delaware General Corporation Law.  The Manti Holdings decision further solidifies Delaware’s strong policy preference of freedom of contract and private ordering, and confirms that Delaware corporations can have its stockholders waive appraisal rights.  Note, however, that not every appraisal waiver may be valid.  It also raises the question of what other seemingly “mandatory” stockholder rights may be waived in documents that are not a charter or bylaw.
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Continue Reading Delaware Supreme Court Affirms the Use of Stockholders Agreements to Waive Appraisal Rights

In Shareholder Representative Services LLC v. Albertsons Companies, Inc., 2021 WL 2311455 (Del. Ch. June 7, 2021), the Delaware Court of Chancery (Slights, V.C.) provided key guidance on mergers and acquisitions (“M&A”) earnout disputes regarding contractual earnout language, the applicability of the implied covenant of good faith and fair dealing, extra-contractual discussions and promises and post-closing behavior of the acquirer.  This opinion serves as a reminder to M&A transaction parties on important drafting concepts in earnouts, as well as how to conduct themselves during the negotiations and earnout period.
Continue Reading Delaware Court of Chancery Decision Provides Guidance on M&A Earnouts