Q4 2023 Quarterly Corporate / M&A decisions updates

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Q4 2023 Quarterly Corporate / M&A decisions updates

28 February 2024

This quarter, Delaware courts issued several notable opinions in unique contexts. For example, in a rare reversal, the Delaware Supreme Court rejected the Court of Chancery’s use of “judicial notice” of another court’s ruling to grant a motion to dismiss Caremark claims. In another case, the Court of Chancery rejected an attempt to apply a lower standard for pleading Caremark claims against officers, affirming that Caremark claims (against both directors and officers) require alleging extraordinary cases of bad faith. The Court of Chancery concluded in another case that an investor’s books and records request was legitimate despite his apparent rancor toward a company executive. Finally, we discuss a Court of Chancery decision that denied investors’ attempt to vote against a company proposal, as the court enforced contractual limits on shareholder voting rights using certain extrinsic evidence.

Brief summaries of these key decisions appear below with links to our additional commentary.

Lebanon County v. Collis: Delaware Supreme Court Reverses Dismissal of Caremark Claims

In Lebanon County Employees’ Retirement Fund v. Collis, the Delaware Supreme Court reversed the Delaware Court of Chancery’s dismissal of Caremark claims against the directors of AmerisourceBergen Corporation that arose from the company’s distribution of opioids. The Delaware Supreme Court found that the Court of Chancery erred when it took judicial notice of another court’s factual findings at the pleading stage. The Delaware Supreme Court found that the Court of Chancery “effectively adopt[ed] the factual findings of another court in another case,” which was “a departure from the principles that animate the concept of judicial notice.” This opinion provides important guidance on the scope of judicial notice under Delaware Rules of Evidence 201 and 202 as well continued development of the Caremark doctrine.

Please click HERE for a more detailed discussion of this case.

Segway, Inc. v. Cai – Delaware Chancery Court reaffirms Caremark bad faith requirement

In Segway, Inc. v. Cai, the Delaware Court of Chancery dismissed a breach of fiduciary duty claim for failure to allege “sufficient facts to support a reasonable inference that the fiduciary acted in bad faith.” The plaintiff alleged that Segway’s former president ignored customer issues, which caused Segway’s accounts receivables to increase and profitability to decline. The Court found that these allegations related to “generic financial matters” and fell short of “the sort of red flags that could give rise to Caremark liability if deliberately ignored. The Court rejected Segway’s “misimpression” of the Court’s recent decisions regarding Caremark liability for officers and reaffirmed that the high bar for pleading a Caremark claim remains the same whether the defendant is an officer or director.

Please click HERE for a more detailed discussion of this case.

Pietrasik v. Kraus Hamdani Aerospace: Despite Plaintiff’s “Rancor,” Delaware Court Grants 220 Demand

After a de novo review of the record following a Magistrate in Chancery’s final report, Vice Chancellor Fioravanti of the Delaware Court of Chancery declined to accept the Magistrate’s recommendation to deny a plaintiff-stockholder’s books and records requests for documents beyond those the company already had provided. The magistrate found that the plaintiff’s “primary purpose” was to bring a personal lawsuit against the co-founder of the company, which is not a proper purpose under Section 220. Upon review, Vice Chancellor Fioravanti disagreed and instead concluded that the plaintiff also had legitimate objectives supporting the inspection requests sufficient to be a “proper purpose” under Section 220 as well as a credible basis to suspect wrongdoing.

Please click HERE for a more detailed discussion of this case.

Texas Pacific: Following Trial, Delaware Court Rules Investors Violated Stockholders Agreement

In Texas Pacific Land Corporation v. Horizon Kinetics LLC, the Delaware Court of Chancery ruled in a post-trial opinion that investors violated a stockholders agreement by failing to vote in favor of a board proposal to increase the number of authorized shares of Texas Pacific Land Corporation (the Company). The defendant investor group argued that certain exceptions to a “Voting Commitment” allowed the group not to vote in favor of the board’s proposal. After finding that the exceptions to the Voting Commitment were ambiguous—and that the stockholder agreement’s prohibition on considering negotiation and drafting of the agreement as extrinsic evidence was enforceable—the court considered other extrinsic evidence and concluded that the provisions did not exempt the investors from complying with the Voting Commitment. The court also held that the Company’s disclosure failures in the proxy statement did not constitute “unclean hands” and the Company was entitled to judgment in its favor.

Please click HERE for a more detailed discussion of this case.

Authored by Jon Talotta, Allison M. Wuertz, Ann Kim, Christopher Pickens, Jordan Teti, Sean MacDonald, and Tyler Waywell.