Justia Corporate Compliance Opinion SummariesArticles Posted in Delaware Supreme Court
BlackRock Credit Allocation Income Trust, et al. v. Saba Capital Master Fund, Ltd.
The issue this case presented for the Delaware Supreme Court’s review centered on whether, under their respective bylaws, two closed-end investment funds, BlackRock Credit Allocation Income Trust (“BTZ”) and BlackRock New York Municipal Bond Trust (“BQH”, and with BTZ, the “Trusts”), properly excluded their shareholder, Saba Capital Master Fund, Ltd. (“Saba”), from presenting its slate of dissident trustee nominees for election at the respective annual meetings. The Court of Chancery held that such exclusion was improper, reasoning that the supplemental questionnaires that Saba’s nominees were asked to complete, exceeded the bylaws’ scope and, thus, the Trusts were “not permitted to rely on the five-day deadline for Saba’s compliance with that request.” It also held that laches did not bar Saba’s claims for equitable relief. On appeal, Appellants-Trusts contended the Court of Chancery erred by issuing an injunction requiring the Trusts to count the votes for Saba’s nominees at the respective annual meetings, since they claimed that Saba’s nominees were ineligible for election because of their failure to timely provide supplemental information in accordance with the clear and unambiguous bylaws. Appellants also contended the court erred in holding that Saba’s claims for equitable relief were not barred by laches. On appeal, the parties continued to dispute whether the Questionnaire was the type of “necessary” and “reasonably requested” subsequent information that falls within the meaning of Article I, Section 7(e)(ii) of the Trusts’ bylaws. The Delaware Supreme Court agreed with the Vice Chancellor that Section 7(e)(ii) was clear and unambiguous, but disagreed that Saba should have been excused from complying with the Bylaws’ clear deadline. Further, the Court affirmed the Vice Chancellor’s holding as to laches. View "BlackRock Credit Allocation Income Trust, et al. v. Saba Capital Master Fund, Ltd." on Justia Law
Sheldon, et al. v. Pinto Technology Ventures, L.P., et al.
Appellants Jeffrey Sheldon and Andras Konya, M.D., Ph.D., alleged in the Delaware Court of Chancery that several venture capital firms and certain directors of IDEV Technologies, Inc. (“IDEV”) violated their fiduciary duties by diluting the Appellants’ economic and voting interests in IDEV. Appellants argued their dilution claims were both derivative and direct under Gentile v. Rosette, 906 A.2d 91 (Del. 2006) because the venture capital firms constituted a “control group.” The Court of Chancery rejected that argument and held that Appellants’ dilution claims were solely derivative. Because Appellants did not make a demand on the IDEV board or plead demand futility, and because Appellants lost standing to pursue a derivative suit after Abbott Laboratories purchased IDEV and acquired Appellants’ shares, the court dismissed their complaint. On appeal, Appellants raised one issue: that, contrary to the Court of Chancery’s holding, they adequately pleaded that a control group existed, rendering their claims partially “direct” under Gentile. Therefore, according to Appellants, their complaint should not have been dismissed. The Delaware Supreme Court agreed with the Court of Chancery’s determination that Appellants failed to adequately allege that the venture capital firms functioned as a control group. Accordingly, the Supreme Court affirmed dismissal of the complaint with prejudice. View "Sheldon, et al. v. Pinto Technology Ventures, L.P., et al." on Justia Law
KT4 Partners LLC v. Palantir Technologies, Inc.
Stockholder-plaintiff KT4 Partners LLC appealed the Court of Chancery’s post-trial order granting in part and denying in part KT4’s request to inspect various books and records of appellee Palantir Technologies Inc., a privately held technology company. The Court of Chancery found that KT4 had shown a proper purpose of investigating suspected wrongdoing in three areas: (1) “Palantir’s serial failures to hold annual stockholder meetings”; (2) Palantir’s amendments of its Investors’ Rights Agreement in a way that “eviscerated KT4’s (and other similarly situated stockholders’) contractual information rights after KT4 sought to exercise those rights”; and (3) Palantir’s potential violation of two stockholder agreements by failing to give stockholders notice and the opportunity to exercise their rights of first refusal, co-sale rights, and rights of first offer as to certain stock transactions. The Court ordered Palantir to produce the company’s stock ledger, its list of stockholders, information about the company’s directors and officers, year-end audited financial statements, books and records relating to annual stockholder meetings, books and records relating to any cofounder's sales of Palantir stock. The Court otherwise denied KT4's requests, including a request to inspect emails related to Investors' Rights Agreement amendments. Both sides appealed, but the Delaware Supreme Court was satisfied the Court of Chancery did not abuse its discretion with respect to all but two issues: (1) denying wholesale requests to inspect email relating to the Investors' Rights Agreement; (2) and requests to temper the jurisdictional use restriction imposed by the court. "Given that the court found a credible basis to investigate potential wrongdoing related to the violation of contracts executed in California, governed by California law, and among parties living or based in California, the basis for limiting KT4’s use in litigation of the inspection materials to Delaware and specifically the Court of Chancery was tenuous in the first place, and the court lacked reasonable grounds for denying the limited modifications that KT4 requested." View "KT4 Partners LLC v. Palantir Technologies, Inc." on Justia Law
Oxbow Carbon & Minerals Holdings, Inc., et al. v. Crestview-Oxbow Acquisition, LLC, et al.
Two of Oxbow Carbon LLC’s minority Members, Crestview Partners, L.P. and Load Line Capital LLC, attempted to force a sale of Oxbow over the objection of Oxbow’s majority Members, William Koch and his affiliates (the “Koch Parties”). This dispute centered on the proper interpretation of the governing Third Amended and Restated Limited Liability Company Agreement (the “LLC Agreement”). Although the Court of Chancery found that the minority investors affiliated with Koch, Ingraham Investments LLC and Oxbow Carbon Investment Company LLC (collectively, the “Small Holders”), could block the sale unless it met certain payment conditions, the court nonetheless found a contractual gap in the LLC Agreement because the Board did not specify the terms and conditions under which the Small Holders acquired their units. Using the implied covenant of good faith and fair dealing, the Court of Chancery filled that gap by implying a “Top-Off” option for the Small Holders’ units, effectively stripping them of the right to block the proposed transaction. On appeal, Oxbow claimed that: (1) the trial court improperly applied the implied covenant; (2) there was no contractual gap; (3) Oxbow did not breach the LLC Agreement; and (4) the court’s rulings on remedies were made in error. The Delaware Supreme Court determined the Court of Chancery correctly interpreted the LLC Agreement’s plain language, but erred by finding a contractual gap concerning the admission of the Small Holders. Thus, the Court affirmed in part, reversed in part, and remanded the Court of Chancery’s February 12, 2018, decision, and vacated its August 1, 2018, decision on remedies. View "Oxbow Carbon & Minerals Holdings, Inc., et al. v. Crestview-Oxbow Acquisition, LLC, et al." on Justia Law
Flood v. Synutra International, Inc., et al.
The question before the Delaware Supreme Court in this case was whether the Court of Chancery properly applied Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014) (“MFW”) by reading it as: (1) allowing for the application of the business judgment rule if the controlling stockholder conditions its bid on both of the key procedural protections at the beginning stages of the process of considering a going private proposal and before any economic negotiations commence; and (2) requiring the Court of Chancery to apply traditional principles of due care and to hold that no litigable question of due care exists if the complaint fails to allege that an independent special committee acted with gross negligence. In the Supreme Court's previous affirmance of the Court of Chancery in Swomley v. Schlecht, 128 A.3d 992 (Del. 2015), the Court held that an interpretation of MFW based on these principles was correct. Accordingly, the Court affirmed. View "Flood v. Synutra International, Inc., et al." on Justia Law
Morrison, et al. v. Berry, et al.
In March 2016, soon after The Fresh Market (the “Company”) announced plans to go private, the Company publicly filed certain required disclosures under the federal securities laws. Given that the transaction involved a tender offer, the required disclosures included a Solicitation/Recommendation Statement on Schedule 14D-9 which articulated the Board’s reasons for recommending that stockholders accept the tender offer from an entity controlled by private equity firm Apollo Global Management LLC (“Apollo”) for $28.5 in cash per share. Apollo publicly filed a Schedule TO, which included its own narrative of the background to the transaction. The 14D-9 incorporated Apollo’s Schedule TO by reference. After reading these disclosures, as the tender offer was still pending, plaintiff-stockholder Elizabeth Morrison suspected the Company’s directors had breached their fiduciary duties in the course of the sale process, and she sought Company books and records pursuant to Section 220 of the Delaware General Corporation Law. The Company denied her request, and the tender offer closed as scheduled on April 21 with 68.2% of outstanding shares validly tendered. This case calls into question the integrity of a stockholder vote purported to qualify for “cleansing” pursuant to Corwin v. KKR Fin. Holdings LLC, 125 A.3d 304 (Del. 2015). In reversing the Court of Chancery's judgment in favor of the Company, the Delaware Supreme Court held "'partial and elliptical disclosures' cannot facilitate the protection of the business judgment rule under the Corwin doctrine." View "Morrison, et al. v. Berry, et al." on Justia Law
Appel v. Berkman, et al.
Diamond Resorts International’s board of directors recommended to its stockholders that they sell their shares to a private equity buyer, Apollo Global Management, for cash in a two-step merger transaction involving a front-end tender offer followed by a back-end merger. The proxy statement had a detailed recitation of the background leading to the merger, and the reasons for and against it. But notably absent from that recitation was that the company’s founder, largest stockholder, and Chairman, had abstained from supporting the procession of the merger discussions, and from ultimately approving the deal, because he was "disappointed with the price and the Company’s management for not having run the business in a manner that would command a higher price, and that in his view, it was not the right time to sell the Company." On a motion to dismiss, the Court of Chancery held that the complaint challenging the merger should have been dismissed because the stockholders’ acceptance of the first-step tender offer was fully informed, rejecting the plaintiffs’ argument that the omission of the Chairman’s reasons for abstaining rendered the proxy statement materially misleading. The issue this case presented for the Delaware Supreme Court's review was whether that ruling was correct. The Supreme Court agreed with the plaintiffs that it was not, and that the defendants’ argument that the reasons for a dissenting or abstaining board member’s vote can never be material was incorrect. "Precisely because Delaware law gives important effect to an informed stockholder decision, Delaware law also requires that the disclosures the board makes to stockholders contain the material facts and not describe events in a materially misleading way." Here, the Court found the founder and Chairman’s views regarding the wisdom of selling the company were ones that reasonable stockholders would have found material in deciding whether to vote for the merger or seek appraisal, and the failure to disclose them rendered the facts that were disclosed misleadingly incomplete. View "Appel v. Berkman, et al." on Justia Law
Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd, et al.
The remaining petitioners in this matter were former stockholders of Dell, Inc. who validly exercised their appraisal rights instead of voting for a buyout led by the Company’s founder and CEO, Michael Dell, and affiliates of a private equity firm, Silver Lake Partners (“Silver Lake”). In perfecting their appraisal rights, petitioners acted on their belief that Dell’s shares were worth more than the deal price of $13.75 per share, which was already a 37% premium to the Company’s ninety-day-average unaffected stock price. The Delaware appraisal statute allows stockholders who perfect their appraisal rights to receive “fair value” for their shares as of the merger date instead of the merger consideration. Furthermore, the statute requires the Court of Chancery to assess the “fair value” of such shares and, in doing so, “take into account all relevant factors.” The trial court took into account all the relevant factors presented by the parties in advocating for their view of fair value and arrived at its own determination of fair value. The Delaware Supreme Court found the problem with the trial court’s opinion was not that it failed to take into account the stock price and deal price; the court erred because its reasons for giving that data no weight (and for relying instead exclusively on its own discounted cash flow (“DCF”) analysis to reach a fair value calculation of $17.62) did not follow from the court’s key factual findings and from relevant, accepted financial principles. "[T]he evidence suggests that the market for Dell’s shares was actually efficient and, therefore, likely a possible proxy for fair value. Further, the trial court concluded that several features of management-led buyout (MBO) transactions render the deal prices resulting from such transactions unreliable. But the trial court’s own findings suggest that, even though this was an MBO transaction, these features were largely absent here. Moreover, even if it were not possible to determine the precise amount of that market data’s imperfection, as the Court of Chancery concluded, the trial court’s decision to rely 'exclusively' on its own DCF analysis is based on several assumptions that are not grounded in relevant, accepted financial principles." View "Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd, et al." on Justia Law
In Re Investors Bancorp, Inc. Stockholder Litigation
At issue in this appeal are the limits of the stockholder ratification defense when directors make equity awards to themselves under the general parameters of an equity incentive plan. In the absence of stockholder approval, if a stockholder properly challenges equity incentive plan awards the directors grant to themselves, the directors must prove that the awards are entirely fair to the corporation. But, when the stockholders have approved an equity incentive plan, the affirmative defense of stockholder ratification comes into play. The Court of Chancery has recognized a ratification defense for discretionary plans as long as the plan has “meaningful limits” on the awards directors can make to themselves. Here, the Equity Incentive Plan (“EIP”) approved by the stockholders left it to the discretion of the directors to allocate up to 30% of all option or restricted stock shares available as awards to themselves. Plaintiffs have alleged facts leading to a pleading stage reasonable inference that the directors breached their fiduciary duties by awarding excessive equity awards to themselves under the EIP. The Delaware Supreme Court determined a stockholder ratification defense was not available to dismiss the case, and the directors had to demonstrate the fairness of the awards to the Company. The Court reversed the Court of Chancery’s decision dismissing the complaint and remanded this matter for further proceedings. View "In Re Investors Bancorp, Inc. Stockholder Litigation" on Justia Law
Brinckerhoff v. Enbridge Energy Company, Inc., et al.
Plaintiffs Peter Brinckerhoff and his trust, were long-term investors in Enbridge Energy Partners, L.P. (“EEP”), a Delaware master limited partnership (“MLP”). A benefit under Delaware law of this business structure was the ability to eliminate common law duties in favor of contractual ones, thereby restricting disputes to the four corners of the limited partnership agreement (“LPA”). This was not the first lawsuit between Brinckerhoff and the Enbridge MLP entities over a conflicted transaction. In 2009, Brinckerhoff filed suit against most of the same defendants in the current dispute, and challenged a transaction between the sponsor and the limited partnership. Enbridge, Inc. (“Enbridge”), the ultimate parent entity that controlled EEP’s general partner, Enbridge Energy Company, Inc. (“EEP GP”), proposed a joint venture agreement (“JVA”) between EEP and Enbridge. Brinckerhoff contested the fairness of the transaction on a number of grounds. After several rounds in the Court of Chancery leading to the dismissal of his claims, and a trip to the Delaware Supreme Court, Brinckerhoff eventually came up short when the Court of Chancery’s ruling that he had waived his claims for reformation and rescission of the transaction by failing to assert them first in the Court of Chancery was affirmed. A dispute over the Clipper project would again go before the Court of Chancery. In 2014, Enbridge proposed that EEP repurchase Enbridge’s interest in the Alberta Clipper project excluding the expansion rights that were part of the earlier transaction. As part of the billion dollar transaction, EEP would issue to Enbridge a new class of EEP partnership securities, repay outstanding loans made by EEP GP to EEP, and, amend the LPA to effect a “Special Tax Allocation” whereby the public investors would be allocated items of gross income that would otherwise be allocated to EEP GP. According to Brinckerhoff, the Special Tax Allocation unfairly benefited Enbridge by reducing its tax obligations by hundreds of millions of dollars while increasing the taxes of the public investors, thereby undermining the investor’s long-term tax advantages in their MLP investment. The Court of Chancery did its best to reconcile earlier decisions interpreting the same or a similar LPA, and ended up dismissing the complaint. On appeal, Brinckerhoff challenged the reasonableness of the Court of Chancery’s interpretation of the LPA. The Supreme Court agreed with the defendants that the Special Tax Allocation did not breach Sections 5.2(c) and 15.3(b) governing new unit issuance and tax allocations. But, the Court found that the Court of Chancery erred when it held that other “good faith” provisions of the LPA “modified” Section 6.6(e)’s specific requirement that the Alberta Clipper transaction be “fair and reasonable to the Partnership.” View "Brinckerhoff v. Enbridge Energy Company, Inc., et al." on Justia Law