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In Gordon v. Verizon Communications, Inc., No. 653084/13, 2017 WL 442871 (N.Y. App. Div. Feb. 2, 2017), the Appellate Division of the Supreme Court of the State of New York, First Judicial Department (the “First Department”), reversed an order denying plaintiffs’ motion for final approval of a proposed non-monetary settlement in a shareholder class action litigation related to Verizon Communication Inc.’s (“Verizon”) acquisition of Vodafone Group PLC’s (“Vodafone”) stake in Verizon Wireless (“VZW”).  With its decision, the New York Appellate Division breathed new life into beleaguered disclosure-only class action settlements, and modernized what it believed had become an outdated analytical framework for approving class action settlement agreements.  It also appeared to accord special weight to provisions in such agreements whereby corporations promise to obtain fairness opinions in connection with future transactions in determining the overall fairness of the agreements.  Thus, while non-monetary class action settlements are increasingly disfavored in other courts — most notably, in the Delaware Court of Chancery — New York courts remain receptive to their utility.
Continue Reading New York Appellate Division Revives Non-Monetary Class Action Settlement in M&A Class Action with Revised Standard of Review

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

In Ray v. Spirit Airlines, Inc., No. 15-13792, 2016 WL 4578347 (11th Cir. Sept. 2, 2016), the United States Court of Appeals for the Eleventh Circuit held that a defendant corporation is not distinct from its own officers and employees for purposes of forming an “enterprise” under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961, et seq. (“RICO”).  The Eleventh Circuit thus joins the Second, Seventh and Tenth Circuits in holding that a corporation cannot form an enterprise with its own agents, as the only way the corporation can act is through those agents.
Continue Reading Eleventh Circuit Holds That a Corporation Is Not Distinct From Its Agents For Purposes of a RICO Enterprise, Following Sister Circuits

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

In In re Walgreen Co. Stockholder Litigation, No. 14 C 9786, 2016 WL 4207962 (7th Cir. Aug. 10, 2016) (Posner, J.), the United States Court of Appeals for the Seventh Circuit issued a highly charged opinion critical of an unopposed settlement of a stockholder class action “strike suit” which provided “nonexistent” benefits to class members yet “sweet fees for class counsel.”  In this case, a putative stockholder class action was filed immediately after Walgreen Co. (“Walgreens”) issued a proxy statement seeking approval of its reorganization as a new Delaware corporation to be called Walgreens Boots Alliance, Inc.  (As the Seventh Circuit noted, this was hardly unusual, as an astounding 94.9% of public company strategic transactions involving $100 million or more in recent years have triggered “strike suits” or “deal litigation.”)  Echoing criticisms of similar types of disclosure-only settlements by the Delaware Court of Chancery (see In re Trulia, Inc. Stockholder Litigation, 129 A.3d 884 (Del. Ch. 2016); blog article here], the Seventh Circuit reversed the district court’s approval of the settlement.  This decision from an influential federal jurist will put additional pressure on plaintiffs in these types of cases to forego or abandon litigation over public company strategic transactions (or, perhaps ironically, to litigate these cases more aggressively).
Continue Reading Seventh Circuit Criticizes Disclosure-Only M&A Litigation Settlements, Holding That Supplemental Proxy Disclosures Must Address and Correct a Plainly Material Misrepresentation or Omission

In In re Zagg Inc. Shareholder Derivative Action, No. 15-4001, 2016 U.S. App. LEXIS 11095 (10th Cir. June 20, 2016), the United States Court of Appeals for the Tenth Circuit held that stockholders of a Utah-based, Nevada corporation, who failed to make pre-suit demand that the corporation’s board of directors cause the corporation to file claims against past and present directors (including one-half of the corporation’s board of directors), could not litigate those claims derivatively.  The Court rested its decision on Nevada’s exculpation statute, Nev. Rev. Stat. § 78.138(7), which protects directors and officers of Nevada corporations from personal liability to the corporation when the statute’s requirements are met.  According to the Court, the complaint did not plead a non-exculpated claim, and so did not show that the current directors faced a risk of liability sufficient to render them self-interested such that a pre-suit demand on the board would have been futile.  Hence, the lack of pre-suit demand required dismissal.  The decision confirms the extensive personal liability protection Nevada affords officers and directors of Nevada corporations.  It also illustrates how, by broadly limiting director and officer liability, Nevada further allocates to boards of directors (as opposed to stockholders) the power to control the corporation’s decision to litigate.
Continue Reading Tenth Circuit Upholds Nevada Law By Denying Stockholders Standing to Bring Claims on Behalf of Nevada Corporation

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

Two recent decisions, one from the Delaware Court of Chancery and one from the California Court of Appeal, Fourth Appellate District, refused to apply bylaws that impaired a shareholder/member plaintiff’s ability to pursue his or her claims against the corporation where the the relevant bylaw was adopted after the plaintiff’s claims accrued.
Continue Reading California and Delaware Courts Agree: Amendments to Corporate Bylaws Do Not Apply Retroactively to Impair Pursuit of Previously Accrued Claims

The Delaware Court of Chancery issued companion opinions clarifying Delaware’s standing requirements for appraisal petitions under 8 Del. C. § 262.  In In re Appraisal of Ancestry.com, Inc., C.A. No. 8173-VGC, 2015 WL 66825 (Del. Ch. Jan. 5, 2015), and Merion Capital LP v. BMC Software, Inc., C.A. No. 8900-VCG, 2015 WL 67586 (Del. Ch. Jan. 5, 2015), the court denied respondents’ motions for summary judgment and refused to read a “share-tracing” requirement into the appraisal statute’s standing procedures.  These cases clarify that, to perfect appraisal rights, beneficial holders of shares must show that the bulk record holder refrained from voting in favor of the merger at issue more shares than the petitioner seeks to have appraised.
Continue Reading Delaware Court of Chancery Rejects Share-Tracing Standing Requirement for Appraisal Petitioners

In United Technologies Corp. v. Treppel, No. 127, 2014, 2014 Del. LEXIS (Del. Dec. 23, 2014), the Delaware Supreme Court held that the Delaware Court of Chancery is authorized regulate how stockholders use information obtained through books and records inspections under Section 220 of the Delaware General Corporation Law (“Section 220”).  The defendant corporation, in opposing a stockholder’s Section 220 proceeding, had sought to bar the stockholder from using any obtained information in any legal action brought outside of Delaware.  The Vice Chancellor, however, expressed the belief that the Chancery Court lacked the statutory authority to impose such a restriction.  The Delaware Supreme Court reversed and identified the factors the Chancery Court should consider in exercising its discretion to impose the restriction on remand.  United Technologies reaffirms the Chancery Court’s important role in regulating books and records inspections in a manner that avoids inflicting unnecessary costs and burdens on corporations and their stockholders.
Continue Reading Delaware Supreme Court Confirms Chancery Court’s Broad Authority to Impose Use Restrictions on Information Obtained From Section 220 Books and Records Inspections