In a 77-page Memorandum Opinion issued by Vice Chancellor Fioravanti in Cindy Harcum v. John Lovoi et al., C.A. No. 2020-0398-PAF (Del. Ch. Jan. 3, 2022), the Delaware Court of Chancery dismissed a shareholder suit challenging a $1 billion sale of Roan Resources, Inc. (the “Company”) to a private equity-based buyer, Citizen Energy Operating, LLC (“Citizen”).
Plaintiff Cindy Harcum, individually and on behalf of a purported class of former stockholders of the Company, asserted claims against four Company directors, two officers and two investing businesses to recover damages for alleged breaches of fiduciary duties arising from a 2019 going-private merger, wherein Citizen acquired the Company in an all cash transaction through which Company stockholders received the right to payment of $1.52 per share of their Company common stock. Specifically, through the Amended Complaint Plaintiff contended that Defendant John Lovoi, and persons and entities affiliated with Lovoi, controlled the Company, stood on both sides of the transaction, and received unique benefits not shared with the remaining stockholders of the Company. Plaintiff further asserted that several of the Company’s Board members made material misrepresentations and omissions in the proxy statement issued to obtain stockholders’ votes for the Merger.
Vice Chancellor Fioravanti rejected Plaintiff’s allegations and dismissed all claims against Defendants. The Memorandum Opinion held that Defendants JVL Advisors, LLC, its founding and managing director John Lovoi, Roan Holdings LLC and two Company directors (Paul B. Loyd and Michael B. Raleigh) were not conflicted controlling stockholders because Plaintiff failed to show that they stood on both sides of the transaction or obtained a unique benefit to the detriment of other stockholders. Specifically, the Court found that Plaintiff set forth no support for her position that Paul Loyd and Michael Raleigh were controlling stockholders of the Company. With regard to Lovoi (who Defendants conceded was a controlling stockholder of the Company) and JVL Advisors and Roan Holdings (who the Court made no determination as to whether they were controlling stockholders), the Court rejected Plaintiff’s claim for breach of fiduciary duty on the bases that: (1) Plaintiff made no allegations that Lovoi, JVL Advisors and Roan Holdings “had any financial interest in Citizen” but rather, Plaintiff’s assertion that they stood on both sides of the transaction was based upon “unsupported” theories; and (2) Plaintiff failed to demonstrate that Lovoi, JVL Advisors and Roan Holdings received any benefits not shared with other stockholders through the resolution of a pending arbitration action and repayment of a loan under the terms of the transaction.
The Court further examined Plaintiff’s arguments under Corwin v. KKR Financial Holdings LLC, 125 A.3d 304, 312 (Del. 2015). Under Corwin, when a transaction is approved by a fully formed, uncoerced vote of the disinterested holders, the business judgment rule applies. After fully evaluating the disclosures made in the Proxy to the stockholders, Vice Chancellor Fioravanti rejected Plaintiff’s claims that the stockholders’ votes on the transaction were uninformed. Accordingly, the Court held that any Revlon claims were cleansed under Corwin.
The Court also rejected Plaintiff’s claims against two of the Company’s officers in connection with the proxy statement disclosures.
The Court’s Memorandum Opinion can be read in full here.