Recent Delaware Mergers and Acquisitions (M&A) Cases

In the ever-changing landscape of mergers and acquisitions (M&A), Delaware courts remain at the forefront, setting influential legal precedents. Recent decisions from Delaware courts offer critical insights into various aspects of M&A transactions, from fiduciary duties to the impact of stockholder votes. Here’s a closer look at some notable cases from the past year and their implications for mergers and acquisitions strategy and governance.

 1. In re Edgio, Inc. Stockholders Litigation

Case Summary: In In re Edgio, Inc. Stockholders Litigation, 2023 WL 3167648 (Del. Ch. May 1, 2023), the Delaware Court of Chancery addressed the scope of Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015). While Corwin allows for the business judgment rule to apply in post-closing damages claims if a transaction is approved by a majority of disinterested, informed, and uncoerced stockholders, the court found this principle does not extend to cleansing injunctive relief claims aimed at defensive measures.

Implications: The court’s decision reinforces that while Corwin can validate economic terms of a transaction, it does not cleanse defensive actions taken by a board. Practitioners should be cautious when using Corwin cleansing votes and ensure they address only economic aspects of a deal, not defensive strategies.

 2. Cygnus Opportunity Fund, LLC v. Washington Prime Group, LLC

Case Summary: In Cygnus Opportunity Fund, LLC v. Washington Prime Group, LLC, 302 A.3d 430 (Del. Ch. 2023), the court explored fiduciary duties when they conflict, especially where an LLC Operating Agreement does not waive fiduciary duties. The court upheld that while the Operating Agreement might waive fiduciary duties for managers, it does not absolve officers from their duties to disclose critical information to minority unit holders.

Implications: This case highlights the importance of understanding the scope of fiduciary duties in LLCs, especially where duties are not explicitly waived. Practitioners should be mindful of potential conflicts and ensure thorough disclosure in transactions involving fiduciary conflicts.

 3. Delman v. GigAcquisitions3, LLC

Case Summary: In Delman v. GigAcquisitions3, LLC, 288 A.3d 692 (Del. Ch. 2023), the court examined the role of SPAC sponsors and their potential conflicts of interest. The court applied the entire fairness standard rather than Corwin due to the controlling nature of the sponsor in the SPAC transaction, finding potential issues with disclosures and conflicts of interest.

Implications: Practitioners should be vigilant about conflicts of interest in SPAC transactions and ensure that all disclosures are complete and transparent. The case underscores the need for careful examination of deal structures where sponsors have significant influence.

 4. Altieri v. Alexy

Case Summary: In Altieri v. Alexy, C.A. 2021-0946-KSJM (Del. Ch. May 22, 2023), the court applied the Gimbel test to determine whether a sale of assets required stockholder approval. The court concluded that the sale of a significant portion of assets did not fundamentally alter the corporation’s core business, thus not requiring a stockholder vote.

Implications: This decision reinforces that the board of directors is generally in the best position to decide on significant transactions. Practitioners should evaluate whether a transaction meets the quantitative and qualitative thresholds that might necessitate stockholder approval.

 5. In re Tesla Motors, Inc. Shareholder Litigation

Case Summary: In In re Tesla Motors, Inc. Shareholder Litigation, 298 A.3d 667 (2023), the Delaware Supreme Court upheld the application of the entire fairness standard in a transaction where Elon Musk’s influence was a concern. The court found the transaction fair in process and price despite allegations of over-payment and conflicts of interest.

Implications: This case emphasizes the importance of assessing both the process and price of a transaction when conflicts of interest are present. Practitioners should ensure that transactions are conducted fairly and transparently, particularly in cases involving influential figures.

 6. New Enterprise Associates 14, L.P. v. Rich

Case Summary: In New Enterprise Associates 14, L.P. v. Rich, 295 A.3d 520 (Del. Ch. 2023), the court enforced stockholder covenants not to sue for breach of fiduciary duties, provided they were narrow and reasonable. The case highlights that such covenants are enforceable if they meet specific criteria.

Implications: Practitioners should be aware of the enforceability of covenants not to sue and ensure they are clearly defined and reasonable. This can be a useful tool in transactions involving sophisticated parties.

 7. CCSB Financial Corporation v. Totta

Case Summary: In CCSB Financial Corporation v. Totta, 302 A.3d 387 (2023), the Delaware Supreme Court invalidated a charter provision that attempted to make board decisions on stockholder voting limitations “conclusive and binding,” as it conflicted with the fiduciary duty of loyalty.

Implications: The case underscores that corporate charter provisions cannot exempt boards from their fiduciary duties. Practitioners should carefully draft and review charter provisions to ensure compliance with fiduciary standards.

 8. Colon v. Bumble, Inc.

Case Summary: In Colon v. Bumble, Inc., 305 A.3d 352 (Del. Ch. 2023), the court upheld voting power formulas based on stockholder identity, ruling they did not violate Delaware law as long as they were evenly applied.

Implications: This decision confirms the flexibility of the Delaware General Corporation Law regarding voting rights formulas. Practitioners should ensure that any such formulas comply with legal standards and are applied uniformly.

 9. In re Mindbody, Inc. Stockholder Litigation

Case Summary: In In re Mindbody, Inc. Stockholder Litigation, 2023 WL 2518149 (Del Ch.), the court found that the sale process was tainted by breaches of fiduciary duty and inadequate disclosures, leading to liability for both the seller and buyer.

Implications: This case highlights the importance of a thorough and transparent sales process. Practitioners on both sides should ensure full disclosure and adherence to fiduciary duties to avoid potential liability.

 Conclusion

These recent Delaware cases provide valuable lessons for corporate attorneys, executives, and advisors navigating the complex world of mergers and acquisitions (M&A) transactions. By understanding these rulings and their implications, practitioners can better manage fiduciary duties, disclosure requirements, and transaction structures to mitigate risks and ensure successful outcomes in future deals.

If you are in need of further understanding the complexities of these new rules and their implications regarding mergers and acquisitions, contact Lars Soreide, Esq. of Soreide Law Group at:  888-760-6552.