In Frechter v. Zier, C.A. No. 12038-VCG, 2017 WL 345142 (Del. Ch. Jan. 24, 2017) (Glasscock, V.C.), the Delaware Court of Chancery granted plaintiff’s motion for summary judgment on a declaratory relief claim and held that 8 Del. C. § 141(k) prohibits company bylaws from requiring more than a majority vote to remove directors from a company’s board. The Frechter decision confirms that company bylaws may not impose requirements or implement procedures that conflict with 8 Del. C. § 141(k).
Continue Reading Delaware Court of Chancery Rejects Bylaw That Required Supermajority Stockholder Vote to Remove Directors in Violation of 8 Del. C. § 141(k)

Robin Achen
Delaware Court of Chancery Dismisses Post-Closing Disclosure Claims for Damages, Cautioning That Such Claims Are Best Pursued Pre-Closing
In Nguyen v. Barrett, C.A. No. 11511-VCG, 2016 WL 5404095 (Del. Ch. Sept. 28, 2016) (Glasscock, V.C.), the Delaware Court of Chancery dismissed an amended complaint seeking damages for alleged disclosure violations in connection with a tender offer that had already closed. The Chancery Court’s opinion demonstrates the challenges plaintiffs face when they pursue non-exculpated disclosure claims for damages post-closing. It also shows that these challenges increase when the disclosure claims were previously pled but not pursued at the preliminary injunction stage — a time when the Chancery Court is still in a position to ensure stockholders are provided sufficient information to cast an informed vote. The Court confirmed that the preferred practice is for plaintiffs to pursue disclosure claims at that earlier stage.
Continue Reading Delaware Court of Chancery Dismisses Post-Closing Disclosure Claims for Damages, Cautioning That Such Claims Are Best Pursued Pre-Closing
Delaware Court of Chancery Addresses the “Cleansing Effect” of Stockholder Approval In Post-Closing M&A Damages Actions
In two recent decisions, City of Miami General Employees’ & Sanitation Employees’ Retirement Trust v. Comstock, C.A. No. 9980-CB, 2016 Del. Ch. LEXIS 133 (Del. Ch. Aug. 24, 2016) (Bouchard, C.) (“Comstock”), and Larkin v. Shah, C.A. No. 10918-VCS, 2016 Del. Ch. LEXIS 134 (Del. Ch. Aug. 25, 2016) (Slights, V.C.), the Delaware Court of Chancery addressed the salutary effect of stockholder approval on the standard of review to be applied when evaluating damages claims in post-closing merger litigation. The Delaware Supreme Court first recognized this effect in Corwin v. KKR Financial Holdings, LLC, 125 A.3d 304, 309 (Del. 2015), holding that “[w]hen a transaction not subject to the entire fairness standard is approved by a fully informed, uncoerced vote of the disinterested stockholders, the business judgment rule applies.” But, since Corwin, the precise meaning of the phrase “not subject to the entire fairness standard” — and thus the scope of Corwin’s holding — had not been addressed. Comstock and Larkin do so, with Larkin extending Corwin’s holding the furthest. Larkin declares that fully informed, uncoerced stockholder approval changes the standard of review in post-closing litigation to the more deferential business judgment rule in all instances save one: when the presence of a controlling stockholder triggers entire fairness review, in which case the entire fairness standard remains applicable.
Continue Reading Delaware Court of Chancery Addresses the “Cleansing Effect” of Stockholder Approval In Post-Closing M&A Damages Actions
California Court of Appeal Confirms that Corporations Code § 1601 Does Not Require Corporations to Ship Records Maintained Out of State to California
In Innes v. Diablo Controls, Inc., Case No., A145528, 2016 Cal. App. LEXIS 475 (Cal. App. June 16, 2016), the California Court of Appeal, First District, affirmed that California Corporations Code § 1601, which permits shareholders to demand inspection of “[t]he accounting books and records and minutes of proceedings of the shareholders and the board and committees of the board” of corporations in California, does not require a corporation to make those records available at any particular location. The records need only be made available for inspection at the office where the records are usually maintained. This holding confirms that corporations are not required to ship records normally stored out of state to California in response to a demand under Section 1601.
Continue Reading California Court of Appeal Confirms that Corporations Code § 1601 Does Not Require Corporations to Ship Records Maintained Out of State to California
Second Circuit Narrowly Applies Supreme Court’s Decision in Omnicare
In In re Sanofi Securities Litigation, No. 15-588-cv, 2016 U.S. App. LEXIS 4107 (2d Cir. Mar. 4, 2016), the United States Court of Appeals for the Second Circuit affirmed the dismissal of class action complaints alleging that the defendants had made materially false or misleading statements or omissions in their registration statement. The Court examined the impact of the United States Supreme Court’s intervening decision in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 135 S.Ct. 1318 (2015) (previously covered here), which held that a statement of opinion which omits material facts about the issuer’s knowledge may be misleading if the omitted facts conflict with what a reasonable investor would infer from reading the statement in context. The Second Circuit in Sanofi held that statements of opinion were not misleading under Omnicare where they omitted a fact that did not conflict with what a reasonable investor would take from the statement. The court further noted that statements of opinion are not misleading simply because they omit facts cutting the other way.
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“Dead Hand Proxy Puts” Garner Increased Stockholder Scrutiny In Delaware
A ruling last fall by the Delaware Chancery Court has prompted a wave of 8 Del. C. § 220 books and records inspection demands on (and threatened litigation against) Delaware corporations that have entered into credit agreements containing so-called “dead hand proxy put” provisions. A “dead hand proxy put” provision allows the corporation’s lenders to demand immediate payment of all outstanding debt if, within a specified measuring period, a majority of incumbent board members is replaced in a threatened or actual contested election. In Pontiac General Employees Retirement System v. Healthways, Inc., C.A. No. 9789-VCL (Del. Ch. Oct. 14, 2014) (transcript ruling), the Court declined to dismiss a breach-of-fiduciary-duty challenge to a “dead hand proxy put,” even where the exercise of the provision was not imminent. The Court held that the complaint adequately alleged facts showing the provision had caused a present injury to the corporation’s stockholders by deterring a possible stockholder-led proxy contest. Other than the facts alleged, the ruling left uncertain the attendant circumstances needed to state a mature “dead hand proxy put” claim. As a result, all public company boards with credit agreements containing “dead hand proxy puts” now face Section 220 books and records inspection demands, and potential litigation.
Continue Reading “Dead Hand Proxy Puts” Garner Increased Stockholder Scrutiny In Delaware
Second Circuit Narrows Scope of SLUSA Preclusion
In In re Kingate Management Ltd. Litigation, No. 11-1397, 2015 U.S. App. LEXIS 6725 (2d Cir. Apr. 23, 2015), the United States Court of Appeals for the Second Circuit held that in order for the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”), 15 U.S.C. § 78bb(f), to preclude state law claims that fall within the anti-falsity provisions of the Securities Act of 1933 and Securities Exchange Act of 1934, (1) the claims must allege that the defendant, not some third party, engaged in the requisite false conduct and (2) the allegation of false conduct must be necessary to liability under the state laws alleged. The Court also held that SLUSA does not require that an entire complaint be dismissed if only certain claims or parts of claims are precluded. Those claims which are not covered by SLUSA must be allowed to proceed. This decision clarifies the scope of SLUSA preclusion.
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Delaware Supreme Court Holds That a Stockholder Plaintiff Must Plead a Non-Exculpated Claim to Avoid Section 102(b)(7)-Based Dismissal When Seeking Damages From Independent and Disinterested Directors
In the consolidated appeal In re Cornerstone Therapeutics Inc., Stockholder Litigation and In re Zhongpin Stockholders Litigation, Nos. 564, 2014 and 706, 2014, 2015 Del. LEXIS 231 (Del. May 14, 2015), the Delaware Supreme Court considered for the first time the pleading burden a stockholder plaintiff must meet when seeking to recover monetary damages from an independent and disinterested director who is protected by an exculpatory charter provision authorized under 8 Del. C. § 102(b)(7). The Court held that to survive a motion to dismiss by that director, the complaint must plead a non-exculpated claim against that director, even if the underlying standard of review is entire fairness. Cornerstone confirms the need for the Chancery Court to analyze exculpation on a director-by-director basis in all cases at the earliest practical time, including at the pleading stage, in order to fulfill Section 102(b)(7)’s legislative purpose.
Continue Reading Delaware Supreme Court Holds That a Stockholder Plaintiff Must Plead a Non-Exculpated Claim to Avoid Section 102(b)(7)-Based Dismissal When Seeking Damages From Independent and Disinterested Directors
United States Supreme Court Resolves Circuit Split Regarding Section 11 Claims Predicated Upon Allegedly Misleading Statements of Opinion
In Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, No. 13-435, 2015 WL 1291916 (U.S. Mar. 24, 2015), the United States Supreme Court addressed the circumstances under which a claim alleging that an issuer made a false statement of opinion in a registration statement suffices to state a claim for relief under Section 11 of the Securities Act of 1933 (“1933 Act”), 15 U.S.C. § 77k. The Court held that (1) a statement of opinion does not constitute an “untrue statement . . . of fact” in violation of Section 11 merely because it is ultimately proven incorrect and (2) a statement of opinion which omits material facts about the issuer’s knowledge may be misleading if the omitted facts conflict with what a reasonable investor would infer from reading the statement in context. The Court’s decision resolved a split in the Circuits and may spawn a new wave of “omission” litigation under the 1933 Act.
Continue Reading United States Supreme Court Resolves Circuit Split Regarding Section 11 Claims Predicated Upon Allegedly Misleading Statements of Opinion
Sixth Circuit Narrows Scope of Liability Under ICA Sections 36(a) and (b)
In Laborers’ Local 265 Pension Fund v. iShares Trust, No. 13-6486, 2014 U.S. App. LEXIS 18627 (6th Cir. Sept. 30, 2014), the United States Court of Appeals for the Sixth Circuit affirmed the dismissal of claims alleging violations of the fiduciary duties imposed by Sections 36(a) and 36(b) of the Investment Company Act of 1940 (ICA), 15 U.S.C. § 80a-35(a), (b). The Court held that (1) a plaintiff may not aggregate a lending agent’s fees with an affiliate’s fees in order to find the affiliate breached Section 36(b), and (2) that there is no implied private right of action in Section 36(a). The Court’s holding effectively limits the ability of plaintiffs to bring Section 36 claims.
Continue Reading Sixth Circuit Narrows Scope of Liability Under ICA Sections 36(a) and (b)
United States Supreme Court Resolves Circuit Split and Narrows Scope of SLUSA
In Chadbourne & Parke LLP v. Troice, Nos. 12-79, 12-86 and 12-88, 2014 U.S. LEXIS 1644 (U.S. Feb. 26, 2014), the Supreme Court of the United States resolved a split in the circuits regarding whether alleged misrepresentations were made “in connection with the purchase or sale of a covered security” for purposes of the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”), 15 U.S.C. § 78bb(f)(1)(A). The Court held that a “misrepresentation or omission of a material fact” is made “in connection with the purchase or sale of a covered security” only if the misrepresentation is “material” to the plaintiff’s decision to buy or sell that covered security. This decision narrows the scope of removal and preclusion of state law securities fraud class actions by the federal courts under SLUSA.
Continue Reading United States Supreme Court Resolves Circuit Split and Narrows Scope of SLUSA