The recent decision of Nguyen v. Barrett, C.A. No. 11511-VCG (Del. Ch. Sept. 28, 2016) provides a useful discussion of pre- and post-close disclosure claims.  The action involved a challenge to a merger agreement, brought pre-close, alleging inadequate price and process, as well as some thirty disclosure violations.  However, in plaintiff’s motion for preliminary injunctive relief, the Plaintiff pursued only his “serious” disclosure violation, involving lack of disclosure of purportedly material financial information. The Court denied the preliminary injunction motion.

The stockholders overwhelmingly chose to tender into the merger, which closed; and Plaintiff moved forward with a claim for damages for breach of duty in regard to two alleged mal-disclosures; one, the financial disclosure claim the Court found not reasonably likely to succeed at the preliminary injunction stage; and a second, involving incentives of the financial advisor, which the Plaintiff plead pre-close but elected not to argue in the motion for preliminary injunctive relief.

Defendants moved to dismiss the complaint, which the Court granted.  The Court distinguished between the standard employed for pre-close and post-close disclosure claims:

In order to sustain a pre-close disclosure claim, heard on a motion for preliminary injunctive relief, a plaintiff must demonstrate “a reasonable likelihood of proving that the alleged omission or misrepresentation is material;” by contrast, when asserting a disclosure claim for damages against directors post-close, a plaintiff must allege facts making it reasonably conceivable that there has been a non-exculpated breach of fiduciary duty by the board in failing to make a material disclosure.

The Court went on to state that: “[t]his Court’s jurisprudence makes clear that it is preferable to bring disclosure claims before closing.” (Slip op. n. 56). Given the more difficult standard applied to post-close disclosure claims, the Court granted the motion to dismiss.

If you would like to speak to a litigator in Fox Rothschild’s Delaware office, please reach out to Sid Liebesman (302) 622-4237 or Seth Niederman (302) 622-4238.