M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Monday, November 26, 2018

Corwin, not a 'get out of jail free' card

I've seen some hand-wringing among my fellow corporate law scholars that Corwin represents some sort of free pass for bad directors in the context of a sale - a 'get out of jail free' card as it were. Last week before the Thanksgiving holiday, VC Slights gave us a reminder that Corwin may be many things, but it is not that. No 'get out of jail free' cards.

Remember, under Corwin, the Delaware Supreme Court held that "[t]he business judgment rule is invoked as the appropriate standard of review for a post-closing damages action when a merger that is not subject to the entire fairness standard of review has been approved by a fully informed, uncoerced majority of the disinterested stockholders.” 

So, where the litigation involves a challenge to an arm's length sale of the corporation, Corwin is in play, but it requires a fully-informed stockholder vote. In many other situations, including the preliminary injunction phase, courts have shown great deference to the power of an uncoerced, fully-informed stockholder vote to forgive director sins. No difference in the Corwin context. If shareholders know all the facts and accept them by way of an uncoerced 'yes' vote to a deal, courts are loathe to step in and tell shareholders they are wrong. 

That said, there are limits. In Tangoe, the court refused to apply Corwin where the stockholders vote was not fully-informed due to inadequate board disclosures prior to the vote. In Tangoe, the board sought to sell the company following a financial restatement and subsequent delisting by NASDAQ. Shareholders challenged and sought post-closing damages. In refusing the board's motion to dismiss, VC Slights made it clear that getting Corwin protection isn't going to be as easy as all that:

"But, to earn pleading-stage business judgment deference by invoking stockholder approval of a challenged transaction, the directors must demonstrate that they carefully and thoroughly explained all material aspects of the storm to stockholders—how the company sailed into the storm, how the company has been affected by the storm, what alternative courses the company can take to sail out of the storm and the bases for the board’s recommendation that a sale of the company is the best course."

Absent a fully-informed stockholder vote, there is no Corwin protection. And, the burden is going to be on the board to demonstrate that shareholder vote was fully-informed and thus effective. So, fear not. At least for now.


November 26, 2018 in Cases, Mergers | Permalink | Comments (0)

Monday, April 22, 2013

Shine settlement and News Corp Governance Changes

In 2011, we blogged about the derivative litigation in Delaware challenging News Corp's acquisition of Shine ("I just bought my daughter's company", and "More troubles for Murdoch") and now that case has been settled.  It's not often these days that you get litigation challenging actions by the buyer's boards. Typically, it's sellers' boards who are going to be on the hook.  This case, though, provided a nice opportunity for plaintiffs to chase a big fish while also have the burdens of proof on their side.  

You'll remember, the acquisition of Shine Group Ltd involved the acquisition of Mr. Murdoch's daughter's production company for $675 million.  Sure, why not? Except there are public shareholders.  Oh, them... 

Now, the case has been settled (Settlement MOU).  Here's what the plaintiffs got:

1. a $139 million settlement payment (including attorney fees) 

2. Corporate governance and compliance enhancements as follows, including

    • Creation of a Compliance Steering Committee for the corporation
    • The independent directors will approve the hiring of a Chief Compliance Officer for the corporation
    • Creation of an anonymous whistleblowing hotline
    • Annual public disclosure of direct political contributions made to candidates, parties, or PACs
    • Designation of a lead independent director
    • Reforms to board nomination process
    • Adoption of specific policies with respect to related party transactions [Really?  They didn't have that already!? I'm shocked.]
    • Board appointment of CEO, CFO, COO, and GC

I wonder which of these is going to hurt more?  The cash or the governance changes? One question and I suppose it's already been contemplated by the parties, do they have to disclose the cash equivalent value of FoxNews as a political contribution?  I guess not.



April 22, 2013 in Cases | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 10, 2013

Forum selection bylaws in court today

The challenge to Chevron's forum selection bylaw is before Chancellor Strine today.  Here's the complaint.  I've blogged about these challenges before (here).  Although, I have advocated for forum selection provisions in corporate charters, forum selection bylaws are easier to adopt.  In part the ease of adoption exaplains why a number of firms put them in place in recent years. The ease of their adoptino is, however, their biggest weakness.  In a challenge before a federal district court in California (Galaviz v Berg), the judge ruled that forum selection provisions adopted as bylaws lacked "sufficient indicia of consent."  This wouldn't be a problem with forum selection provisions adopted at charter provisions.

Although other boards have dropped their bylaws in the face of legal challenges, Chevron has stuck to its guns.  Today we will get some sense whether the Delaware courts agree with the California federal court about the sufficiency of a bylaw for the purpose of narrowing possible forums.  Looks like the plaintiffs are hoping that the recent Delaware Supreme Court opinion in Pyott v La. Mun. will be enough to keep Chancellor Strine in line.  Maybe. 


April 10, 2013 in Cases, Delaware | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 19, 2013

GD&C on Chancellor Strine's rejection of disclosure only settlement of M&A stockholder lawsuit

This client alert from Gibson Dunn discusses Chancellor Strine's bench ruling rejecting a disclosure-only, negotiated settlement of an M&A stockholder lawsuit. According to the authors,

The decision, in In re Transatlantic Holdings Inc. Shareholders Litigation , Case No. 6574-CS, signals that the Chancery Court will carefully scrutinize the terms of negotiated settlements to ensure that named stockholder plaintiffs are adequate class representatives and that the additional disclosures provided some benefit to the purported stockholder class. At the same time, the decision represents an unmistakable warning to plaintiffs’ firms that they cannot continue to count on paydays through the settlement of meritless lawsuits filed in the wake of announced deals.


March 19, 2013 in Cases, Deals, Delaware, Litigation, Mergers | Permalink | Comments (0) | TrackBack (0)

Friday, January 25, 2013

Governing Law Clauses

For many years, lawyers with too much time on their hands have debated whether there is a difference in effect between these two governing law clauses:

"This contract shall be governed by New York law."

"This contract shall be governed by New York law, without regard to conflict-of-laws principles."

Some believe that the first clause, which does not address conflict-of-laws rules, requires application of New York’s conflict-of-laws principles. As a result a court might apply the substantive law of a jurisdiction other than New York--despite the clear intent of the provision.

As this client alert from Shearman & Sterling notes, the debate is finally over. Now we can all get back to arguing about the permissibility of splitting infinitives.


January 25, 2013 in Cases, Contracts | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 4, 2012

Gibson Dunn on "Don't Ask, Don't Waive" Standstill Provision

The typical M&A confidentiality agreement contains a standstill provision, which among other things, prohibits the potential bidder from publicly or privately requesting that the target company waive the terms of the standstill.  The provision is designed to reduce the possibility that the bidder will be able to put the target  "in play" and bypass the terms and spirit of the standstill agreement.

In this client alert, Gibson Dunn discusses a November 27, 2012 bench ruling issued by Vice Chancellor Travis Laster of the Delaware Chancery Court that enjoined the enforcement of a "Don't Ask, Don't Waive" provision in a standstill agreement, at least to the extent the clause prohibits private waiver requests.

As a result, Gibson advises that

until further guidance is given by the Delaware courts, targets entering into a merger agreement should consider the potential effects of any pre-existing Don't Ask, Don't Waive standstill agreements with other parties .  . .. We note in particular that the ruling does not appear to invalidate per se all Don't Ask, Don't Waive standstills, as the opinion only questions their enforceability where a sale agreement with another party has been announced and the target has an obligation to consider competing offers. In addition, the Court expressly acknowledged the permissibility of a provision restricting a bidder from making a public request of a standstill waiver. Therefore, we expect that target boards will continue to seek some variation of Don't Ask, Don't Waive standstills.


December 4, 2012 in Cases, Contracts, Deals, Leveraged Buy-Outs, Litigation, Lock-ups, Merger Agreements, Mergers, State Takeover Laws, Takeover Defenses, Takeovers, Transactions | Permalink | Comments (0) | TrackBack (0)

Tuesday, November 20, 2012

Bingham on Big Boy Language

Bingham just issued this interesting Legal Alert on Pharos Capital Partners, L.P. v. Deloitte & Touche.

In that case, on Oct. 26, 2012, the United States District Court for the Southern District of Ohio granted summary judgment in favor of Credit Suisse, holding that, under New York or Ohio law, plaintiff Pharos Capital Partners failed to prove it justifiably relied on Credit Suisse in connection with its private equity investment in National Century Financial Enterprises  (a business that was later found to be fraudulent) because Pharos expressly disavowed any such reliance in a letter agreement with Credit Suisse.

According to Bingham:

The decision is significant for the financial industry because it enforces a party’s representations in an agreement that it was relying on its own due diligence investigation in connection with its investment, rather than any alleged representations made by a placement agent. Prior to the decision in Pharos, many courts have been reluctant to enforce such agreements to defeat claims for fraud and negligent misrepresentation.


November 20, 2012 in Cases, Contracts, Deals, Litigation, Private Transactions | Permalink | Comments (1) | TrackBack (0)

Friday, August 24, 2012

Navigating Conflicts in Change of Control Transactions

Peter D. Lyons, David P. Connolly and Zhak S. Cohen of Shearman & Sterling analyze a series of recently decided high-profile cases involving conflicts of interest in change of control transactions and conclude that these cases

have not changed our guidance for handling conflicts: identify them early, disclose them appropriately, determine whether they are disqualifying or can be mitigated and, when mitigation is possible, mitigate them effectively.

You can read the whole thing here.


August 24, 2012 in Cases, Deals, Delaware, Management Buy-Outs | Permalink | Comments (0) | TrackBack (0)

Saturday, August 18, 2012

Shnader on Squeeze-out Mergers in Pennsylvania

Standard learning has long held that a minority shareholder of a Pennsylvania corporation who was deprived of his stock by a "cash-out" or "squeeze-out" merger had no remedy after the merger was completed other than to take what the merger gave or demand statutory appraisal and be paid the "fair value" for his shares. No other post-merger remedy, whether based in statute or common law, was thought to be available to a minority shareholder to address the actions of the majority in a "squeeze-out." Now, after the Pennsylvania Supreme Court’s holding in Mitchell Partners, L.P. v. Irex Corporation, minority shareholders may pursue common law claims on the basis of fraud or fundamental unfairness against the majority shareholders that squeezed them out.

The full client alert can be found here.


August 18, 2012 in Cases, Corporate, Deals, Going-Privates, Leveraged Buy-Outs, Management Buy-Outs, Mergers, Transactions | Permalink | Comments (0) | TrackBack (0)

Monday, June 4, 2012

Supreme Court Protects Credit Bid in Cramdown Bankruptcy Plan

On May 29, 2012, in RadLAX Gateway Hotel LLC v. Amalgamated Bank,the U.S. Supreme Court unanimously held that a debtor-owner of a hotel encumbered by a mortgage lien securing over $120 million of indebtedness could not obtain confirmation of a chapter 11 plan proposing to sell the hotel free of the lien to a stalking horse bidder offering $55 million cash, or to any bidder offering more, unless the mortgagee were allowed to credit bid up to its full claim.

Justice Scalia called it "an easy case" of statutory construction of Bankruptcy Code section 1129(b)(2)(A).

As this Ropes & Gray client alert notes, "[t]his decision resolves a split among the Circuits that caused uncertainty for lenders and encouraged forum shopping among debtors."


See this Proskauer client alert for some of the implications of the ruling.


June 4, 2012 in Cases | Permalink | Comments (0) | TrackBack (0)

Friday, February 17, 2012

TransUnion to be sold by Pritzkers

TransUnion, of Smith v Van Gorkom fame, is to be sold by the Pritzker family and Madison Dearborn Partners to Advent International and Goldman Sachs for $3 billion.  This sale will mark the exit of the Pritzker's from TransUnion.  

Somewhere ... a corporate law geek just shed a tear.


February 17, 2012 in Cases, Delaware, Going-Privates, Private Equity, Takeovers | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 18, 2011

Grupo Mexico Rundowns

There are a couple of good rundowns of the In re Southern Peru/Grupo Mexico decision out there worth reading.  This case has been working its way through the Delaware courts since 2004.  That's a long time in coming, but not unusual for cases where parties are not seeking an injunction, but rather a damages remedy.  The Sourthern Peru opinion is worth taking a look at because Chancellor Strine issued a $1.2 billion (billion, not million) judgment against the controlling shareholder. Richards Layton & Finger have posted a useful summary of the issues as well as the opinion here.  Steven Davidoff at The Deal Professor has a very good summary of the issues at stake in the case as well.  You can find it here.

 Me?  I'm still working my way through the 106 page opinion.  


October 18, 2011 in Cases, Delaware, Going-Privates | Permalink | Comments (0) | TrackBack (0)

Thursday, October 6, 2011

Proposed Del Monte Settlement

In an example that not all transaction-related litigation is created equally, Reuters is reporting Del Monte and Barclays have agreed to a settlement in the pending challenge to the Del Monte transaction.  You'll remember that Vice Chancellor Laster's earlier opinion in this case raised eyebrows when he pointed out the deficiencies in the Del Monte board's sale process.  The proposed settlement includes a payment of $84.3 million, including a whopping $23.7 million payment in attorney fees.  Vice Chancellor Laster still has to approve the settlement and the fees, but he previously approved an interim $2.75 million fee in this case and he has hinted that he is not opposed to large fee awards in cases where it is deserved.  This may be one of those cases.


October 6, 2011 in Cases, Delaware, Going-Privates | Permalink | Comments (0) | TrackBack (0)

Saturday, September 24, 2011

Arbitration for merger agreements

This just popped up on the PR Newswire:

SANTA CLARA, Calif., Sept. 23, 2011 /PRNewswire/ -- Advanced Analogic Technologies, Inc. (the "Company" or "AnalogicTech") (Nasdaq: AATI) today announced that it has filed a Petition for Arbitration in the Delaware Chancery Court (the "Court") seeking specific performance of the Company's merger agreement with Skyworks Solutions, Inc. ("Skyworks") (Nasdaq: SWKS) and to order Skyworks to close the transaction.  AnalogicTech is seeking declaratory judgment from the Court that (1) AnalogicTech has not breached the merger agreement, (2) no "material adverse effect" has occurred with respect to AnalogicTech, and (3) Skyworks has breached its obligations under the merger agreement.

When these new aribtration rules were first announced in January, I hoped that it wouldn't be too successful.   It looks like parties are starting to take advantage of the arbitration procedures.  While that's not the end of the world, it might be cause for concern with respect to a particular aspect of deal litigation - contractual interpretation.  In the case of AnalogicTech for example it looks like one of the issues is whether a MAC has been triggered.  Now there's still enough ambiguitiy with respect to the MAC issue that it would be beneficial to have additional law on the question.  If arbitration becomes more common, then there might be negative spillovers for the maintenance of the corporate law over time and that would be a problem.

This is an issue worth paying attention to, and perhaps re-visiting at some point.


September 24, 2011 in Cases, Delaware | Permalink | Comments (0) | TrackBack (0)

Wednesday, July 20, 2011

Is this unlawful?

According to this story from Bloomberg, the SEC

sued a Michigan man, claiming he traded on information he learned from a houseguest about the impending acquisition of Brink’s Home Security

Apparently, the

investment banker for Tyco International Inc., the buyer, inadvertently left behind a draft presentation on the deal.

According to the SEC, months later, the homeowner discovered the draft. Another month or so after the discovery, the homeowner intuited from changes in the banker’s travel schedule that the transaction was imminent.

According to the SEC, the homeowner profited from trading in Brink’s stock after the public announcement of the deal caused its price to jump 30 percent.

The homeowner's lawyer said his client has settled the case and will turn over his profits and pay a fine.

Obviously the facts are incomplete, but I wonder if Professor Bainbridge would have advised the homeowner to fight the case.


July 20, 2011 in Cases, Current Affairs, Current Events, Deals, Federal Securities Laws, Insider Trading, Litigation, Mergers, SEC | Permalink | Comments (3) | TrackBack (0)

Wednesday, June 1, 2011

Massey/Alpha and derivative claims

Care of our friends over at Courtroom View Network, I've been catching up on the arguments before Vice Chancellor Strine in the Massey Shareholder Litigation.   Plaintiffs were seeking an injunction to block a merger between Massey Energy (of Upper Big Branch mine infamy) and Alpha Natural Resources.  Alpha is proposing to acquire Massey for approximately $7.1 billion.  

The plaintiffs here are plaintiffs in a derivative suit that predates the merger (here's the Massey-Derivative-Complaint).  The plaintiff's suit seeks to hold the directors liable for Caremark-like failures related to the Upper Big Branch mine disaster.  While Caremark claims are typically extremely difficult to win, the facts in this case a very friendly to the plaintiffs.  If ever there was an opportunity to win on a Caremark/good faith claim, it would be with these facts - a rescidivist mine safety violator, a CEO who is on record essentially telling his subordinates to ignore safety rules if it were to slow production ("ignore them and run coal"), and the like.   

All of this sounds good from the plaintiff's perspective.  Of course, the proposed merger throws a wrench into the works for this derivative case.  Under well settled law (e.g. Lewis v Anderson), plaintiffs in derivative claims will lose their standing in the case once the transaction closes and the plaintiffs are no longer shareholders of Massey.  The only party with standing for a derivative claim following the closing of the transaction will be the then stockholder of Massey - Alpha.  Of course, the plaintiffs and their attorneys desperately want to avoid that outcome.  I''ll let you decide why.

The plaintiff's basic claim is that if the merger is allowed to close without carving out the derivative claims related to the Upper Big Branch mine and placing them into a trust to be litigated (presumably by the same attorneys now litigating the matter), then the corporation/shareholders will suffer a loss.

The Vice Chancellor was not at all convinced that Alpha would not pursue the derivative claims on its own, or at the very least use them to negotiate some sort of settlement with the former directors of Massey. Indeed, at one point during the plaintiffs argument Strine noted that Massey is facing potential liability from many different angles relating to the UBB disaster - victims' families, government regulators, etc. and that if the plaintiffs pursued their derivative case with vigour they might in fact cause more damage to the corporation by proving the case for third parties.  He suggested that it might be better for the corporation - and intimated that Alpha might already be thinking this way - to wrap up all the third party litigation to get a sense of the total liabilities before coming back to the former directors for a settlement. That seems sensible.  

I think the plaintiffs are characterizing their claim as an "easy" Caremark claim.  Although the facts are good for them, I think it's best to approach any Caremark claims with real modesty.  Few of them are "easy" claims to win. 

 At one point, counsel for the plaintiffs tried a "the whole world is watching Delaware" argument, but that didn't go over well and generated a mild rebuke and statement from Strine that the world shouldn't feel sorry for Massey shareholders.  If anything they are the least sympathetic victims in this matter.  If - as the plaintiffs argue - it was well known that Massey regularly skirted safety rules in the chase for profits, then why should the court show people who invested in "loathesome activities" much by way of protection?  

Not surprisingly, Strine declined to issue the requested injunction.  I'll post the 79-page opinion when it is available.  (Here's the Massey/Alpha opinion.)


Vice Chancellor Strine, not looking convinced.


Some random Strinisms

"Anyone named Leahy Judge has to be rich ..."

"Delaware directors cannot be exculpated from violations of the law.  Our law is very clear."

"The least sympathetic victims here are the stockholders, on whose behalf the directors may have violated the law."

 "If a jury finds you're a doofus ..., then the derivative claims are worth nothing."  

 VCS: "... I'm still wondering about what to do with the extra four and half months I have ... because I was told I wouldn't have to even worry about this argument..."
Counsel: "I'm sorry, I don't follow."
VCS: "Well the world was supposed to end...rapture...now we've got another four months or so..."

"Why would Alpha stockholders not kick the booty of their board if their board doesn't go after [former Massey directors]?"

"Let's not act like this is about miners not be able to file tort suits against Blankenship or Bobby Inman, because it's not.  It's about the corporate law."


June 1, 2011 in Cases | Permalink | Comments (0) | TrackBack (0)

Thursday, March 17, 2011

I just bought my daughter's company...

...and what are you going to do about it?

Well, sue you ... of course!  Reuters and Bloomberg are reporting that shareholders have filed a suit challenging News Corp's recent acquisition for $675 million of Shine, a company owned by Rupert Murdoch's daughter.   The complaint alleges that Murdoch treated News Corp like the "family candy store" in doing the deal.  "Paying for nepotism" is a pretty hefty charge and not a run-of-the-mill merger challenge.  Typically, challenges are brought against the target board.  Here, the challenge is brought against the acquiring board.  Acquirers in merger transactions generally get the protection of business judgment.  The sets of facts that generate more intense scrutiny from the courts of acquiring boards are extremely limited and really the stuff of law school exams.  For example, let's say you controlled a company and you used your control position to have the company acquire a firm that belongs to your daughter at an above market price ... wait a minute ...

Entire fairness.  Look it up.

Oh, and because this is a loyalty question, there's no protection from 102(b)(7) if this goes the wrong way for directors.  They could be on the hook personally for this.


Update:  Here the complaint.

March 17, 2011 in Cases | Permalink | Comments (0) | TrackBack (0)

Friday, December 3, 2010

Chancellor Chandler and Airgas...

I don't know, but I think Chancellor Chandler isn't all that impressed with the Supreme Court reversing his decision in the Airgas case.   He sent a letter to the parties yesterday (Letter here) with a number of questions seeking supplemental information relevant to the next part of the case - the redemption of Airgas' pill.  To give you a sense of how he is feeling, here's question number 7:

Please identify specific evidence in the record bearing upon the Airgas stockholder profile that suggests that the Airgas stockholders are unable to  make a decision for themselves or that suggests that Airgas stockholders are vulnerable to mistakenly rejecting the Airgas board’s advice about the firm’s  alleged higher intrinsic value.  In other words, what evidence in the record developed during the trial in this case indicates or suggests that Airgas stockholders are likely to accept an inadequate offer? 

I recognize that the Delaware Supreme Court apparently has concluded that stockholders may be simultaneously intelligent enough to decide whether to oust directors from office but not intelligent enough to decide whether an offer to purchase their property is in their best economic interest,[...] but exactly what is it about the Airgas stockholders (or about the Airgas business strategy, or about the Air Products tender offer) that would make the Airgas stockholders uniquely incapable of properly making an economic judgment in their own self- interest?

I guess he's not all that impressed with the Supreme Court's opinion.  In another question, Chandler suggests asks for arguments why, if the only issue is price, shouldn't shareholders be permitted to decide on their own whether to take the offer, particularly since Airgas hasn't offered them an alternative.  Interco anyone?  [But see Time.]

OK, OK, I've learned my lesson about prognosticating too much with this case.  But, could Chandler, in a pique, order Airgas to pull its pill?   I know it's a low probability, OK, a really low probability and highly unlikely, sure.  Still ... who predicted that the Supremes would reverse the trial opinion?  I'm assuming nothing.  But yet, it's another reason to keep paying attention to this case.


December 3, 2010 in Cases, Delaware | Permalink | Comments (0) | TrackBack (0)

Monday, November 29, 2010

Airgas: Potato, potahto.

The Deal Prof has a run-down on the Airgas decision.  He has it about right: 

The signal this reversal sends is that it basically says don’t worry about the language of your contracts so long as everybody “knows” what it means.

Potato, potahto, tomato, tomahto. Let's call the whole thing off ...  But you know, for the life of me, I can't figure out what motivated the court to take this path with the decision. 



November 29, 2010 in Cases, Delaware | Permalink | Comments (0) | TrackBack (0)

Tuesday, November 23, 2010

Airgas bylaw reversed by Supreme Court

See that there?  That's egg on my face (ARG-DelSupCtOpinion).  It's a total victory for Ted Mirvis and Wachtell.  The Supreme Court even cited approvingly to the ABA's form book.  

The Supreme Court overturned the Chancery Court, basically holding that since everyone has always assumed the language "in the third year following the year of their election" means a "three year term" for directors, then four months between annual meetings is too truncated to count as an annual meeting.  So a  bylaw that moves the annual meeting to a date that isn't near the "traditional" date, but still "in the third year following the year of their election" is invalid.  That seems like a victory for poor (or sloppy) drafting: "in the third year following the year of their election" or "three year term" ... whatev's.  

Of course, the court leaves unanswered the next question - okay, so what's the minimum amount of time between annual meetings?  Five months?  Six months?  More?  

So the good news?  By ruling against the bylaw, the Supreme Court has given new life to Air Products challenge to Airgas' "just-say-no" defense.   Could it be that we might finally get "just-say-no" litigated?  We'll see.  Air Products' challenge to Airgas' poison pill is next up in the docket.



November 23, 2010 in Cases, Delaware, Hostiles, Transaction Defenses | Permalink | Comments (0) | TrackBack (0)