In the recent decision of Ehlen v. Conceptus, Inc., C.A. No. 8560-VCG (Del. Ch. May 24, 2013), the Court of Chancery ruled on a motion to expedite filed by Plaintiff Ehlen, in connection with his request to preliminarily enjoin a merger. Through the Complaint, Plaintiff alleged that the Conceptus directors breached their fiduciary duties of care, loyalty, and candor in approving a merger and in filing the accompanying 14D-9 with the SEC. The Complaint alleges three types of claims: a Revlon claim, a challenge to the merger agreement’s package of deal protections, and numerous disclosure claims.
The Court recited the standard of review for a motion to expedite, stating that the plaintiff has the burden of demonstrating that good cause exists to “justify imposing on the defendants and the public the extra (and sometimes substantial) costs of an expedited preliminary injunction proceeding.” The Court further explained that a plaintiff meets this burden if he is able to demonstrate “a sufficient possibility of threatened irreparable injury” and a “colorable claim.”
In denying Ehlen’s motion to expedite, the Court found that Ehlen failed to state a colorable claim and improperly delayed in filing his motion. While Ehlen initially asserted numerous causes of action through the Complaint, between the filing of the Complaint and the motion to expedite (8 days), Plaintiff determined that only the disclosure counts were colorable, and therefore only advocated those counts before the Court at the hearing on the motion to expedite.
The Court was not persuaded by Ehlen’s disclosure claims in connection with the merger. In analyzing the claims, the Court reiterated that Delaware directors have a duty of candor, under which they must fully and adequately disclose all material information to stockholders when seeking stockholder action. Under Delaware law, an omitted fact is material “if a reasonable stockholder would consider it important in a decision pertaining to his or her stock.” The Court determined that each of Ehlen’s disclosure claims were not colorable, and therefore denied the motion to expedite.
Of significance, the Court also found that Plaintiff’s 8 day delay in filing his motion to expedite after filing the Complaint added to Plaintiff’s burden in demonstrating the necessity in expediting the proceedings. The Court found that with only three weeks before the filing of the Complaint and the closing of the merger, an eight day delay is significant. The Court went on to state that while it did not deny the motion based on this delay, it added to the burden of expedition, an added burden created by the Plaintiff which he must overcome through the strength of his allegations of wrongdoing.
This decision demonstrates the importance of immediately seeking a motion to expedite a proceeding. Here, the Court found that Plaintiff’s 8 day delay was significant given the timing of the closing of the merger, and that such delay added to Plaintiff’s burden in seeking expedited consideration of the lawsuit. Accordingly, a plaintiff should take all steps necessary to file a motion to expedite contemporaneously with its complaint.