In the recent decision of Morrison v. Berry, No. 445, 2017 (Del. July 9, 2018), the Delaware Supreme Court issued an opinion of import in connection with the Corwin doctrine.  In Morrison, the High Court reversed a dismissal by the Delaware Court of Chancery on the grounds that the disclosures at issue did not fully reflect all material facts of the transaction at issue to the company’ stockholders, thus preventing the directors from being afforded the benefit of the Corwin doctrine.

By way of background, in Corwin v. KKR Financial Holdings LLC, No. 629, 2014 (Del. Oct. 2, 2015), the Delaware Supreme Court held that in a merger transaction with a party other than a controlling shareholder, the business judgment standard of review will apply where the voluntary, fully-informed and uncoerced judgment of the majority of the disinterested shareholders to approve the transaction was obtained.  To review a prior blog post discussing this decision, click here.

In Morrison, the complaint alleged, among other things, that the sale process procedure may have been influenced by a founder’s interactions with the private equity buyer, coupled with pressure on the board to approve the transaction.   Aided by documents obtained through a pre-suit Section 220 books and records investigation, plaintiff alleged that the recommendation statement provided to stockholders omitted information that “would have helped the stockholder to reach a materially more accurate assessment of the probative value of the sale process.”  The Supreme Court found the omissions included “troubling facts regarding director behavior,” of the kind that the Corwin court reasoned would prevent ratification if omitted.  The Supreme Court stated that Corwin business judgment review will not apply to stockholder-approved transactions when “partial and elliptical” disclosures leave stockholders less than fully informed.

Key Takeaway:

The Court stated front and center on page one of the memorandum opinion that the decision should serve as a “cautionary reminder to directors and the attorneys who help them craft their disclosures” that disclosures to stockholders must reflect all material facts in order for transaction parties to benefit from the standard established by the Delaware Supreme Court in Corwin.

Carl D. Neff is a lawyer with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes.  You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

In the recent decision of Louisiana Municipal Employees’ Retirement System v. Black, C.A. No. 9410-VCN (Del. Ch. Feb. 19, 2016), the Delaware Court of Chancery awarded a mootness fee for disclosures and changes to deal protection measures in a failed merger.

By way of background, Plaintiff Louisiana Municipal Police Employees’ Retirement System (“Plaintiff” or “LAMPERS”) moved for an award of fees and expenses to its attorneys for their efforts in challenging Defendant Comcast Corp.’s attempt to acquire Defendant Time Warner Cable Inc. (“TWC”). LAMPERS accused TWC’s board of directors (the “Board”) of breaches of fiduciary duty based on the potential merger between Comcast and TWC that ultimately failed (the “Comcast Deal”); other defendants were sued for aiding and abetting those breaches.

Before the Comcast deal fell through, the parties had negotiated a settlement agreement, conditioned on the deal’s consummation, that purported to resolve among other things the issue of attorney’s fees.

Because the Comcast Deal never happened and the settlement does not control, LAMPERS requested a “mootness” fee award to its attorneys for securing some benefits of disputed value for the putative class of TWC shareholders before the deal collapsed under the weight of regulatory concerns.

The Court found that in light of the “small tweaking of the deal protection measures and the providing of some additional disclosures, which the Court accepts as material, even if not much more than material, the Court is persuaded that a fair and reasonable fee for this kind of effort to moot the litigation would be, especially at the time the mootness was achieved, a comprehensive fee in the range of $325,000 to $500,000.”

The opinion is useful precedent post-Trulia (discussed here), demonstrating the Court’s willingness to approve mootness fee applications  for adjudicating disclosure claims.  In granting fees to Plaintiff’s counsel, the Court found that the benefits counsel achieved for the putative class justified a fee award.  However, Vice Chancellor Noble diminished the fees to an amount commensurate with the benefits achieved.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.