Delaware Courts Archives - Securities Law Blog

Delaware Court Of Chancery – M&A Transactions

The Delaware Chancery Court’s recent decisions in Crispo v. Musk, West Palm Beach Firefighters v. Moelis & Company, Chordia v. Lee, and Sjunde AP-fonden v. Activision Blizzard, Inc. have caused some angst for merger and acquisition (M&A) practitioners. This blog will summarize those opinions and the statutory changes proposed by the Delaware Bar in response.

Crispo v. Musk

In Crispo v. Musk, the court decided on the ambiguous issue of when a target may assert a claim for premium damages in the event of a default by a buyer in an acquisition agreement. In essence, when a public company is the target in an acquisition, the board of directors act as agents for the shareholders, who will ultimately receive the merger consideration. Moreover, that merger consideration is almost always at a premium to pre-merger market price. Unfortunately, this creates a contractual legal issue, whereby if the buyer breaches the agreement, the only damage claim by the target

June 11, 2024

2023 Changes To Delaware Corporate Law

Each year the Delaware legislature passes several amendments to the Delaware General Corporation Law (DGCL) which impact not only public and private companies incorporated in Delaware, but elsewhere, as many states follow the DGCL. This year the most significant changes relate to reduced stockholder approval provisions. Effective August 1, 2023, the DGCL has been amended to: (i) eliminating the need for stockholder approval for forward stock splits in certain cases; (ii) reducing the voting threshold for certain reverse stock splits or changes to authorized shares; (iii) allowing for the disposition of treasury stock for less than par value; (iv) simplifying the process for ratifying defective corporate actions; (v) simplify notices to stockholders following action taken by consent; (vi) expanding certain appraisal rights; and (vii) establishing “safe harbor” provisions from the stockholder approval requirement for certain dispositions of pledged assets.

Shareholder Voting Requirements for Certain Amendments to the Certificate of Incorporation – DGCL Section 242

One of the reasons Delaware

September 5, 2023

Class Voting in Delaware – The Saga Continues

Just a few weeks ago, I wrote about the Garfield v. Boxed, Inc. case in Delaware questioning whether Class A and Class B common stock in a SPAC structure were different series of a same class or different classes of stock requiring separate class voting in certain circumstances (see HERE). The Delaware Chancery court in Garfield v. Boxed, found that in that particular case, the Class A and Class B were separate classes requiring a separate class vote to increase the total outstanding common stock as required by the Delaware General Corporate Law (DGCL) Section 242(b)(2).

Following the Garfield decision, there has been a run on the Chancery Court by post-business-combination SPACs seeking to ratify shareholder approvals obtained during the de-SPAC process, in reliance on DGCL Section 205. Although the wording has varied, in essence each of the companies have asked the Chancery court to (i) validate and declare effective the company’s current certificate of incorporation

May 2, 2023

Class Voting In Delaware And The Impact On SPACs

In December 2022, the Delaware Chancery Court entered a ruling sending the SPAC world spiraling, for what seems like the 10th time in the last couple of years. As is always the case in a SPAC (or at least 99% of the time), common stock is broken into two series, Class A and Class B. The Class A common stock is issued to the public shareholders in the underwritten initial public offering and the Class B common stock is issued to the sponsor. Upon closing a business combination transaction, the sponsor Class B common stock automatically converts into Class A common stock, leaving one Class of common stock. Also, in the majority of SPAC transactions, the shareholder approval for the business combination transaction involves other changes to the charter documents for the SPAC, including a name change, and changes in authorized capital stock, etc. The term “charter” in this blog refers to the certificate of incorporation and any amendments

March 28, 2023

Caremark Is Alive And Well – Director Liability In Delaware

The last time I wrote about In Re Caremark International Inc. (“Caremark”), and its protections for a board of directors from breach of fiduciary duty claims, was in early 2021 following a year of cases that had eroded its historical strong defenses. Now, almost two years later, boards have paid attention to the judicial opinions and added compliance practices, including implementing written oversight systems, resulting in a dramatic uptick in the dismissal of plaintiff’s attempts to satisfy Caremark claims.

Background

In Re Caremark International Inc. Derivative Litigation was a civil action in the Delaware Court of Chancery in 1996 which drilled down on a director’s duty of care in the oversight context. A Caremark claim “seeks to hold directors accountable for the consequences of a corporate trauma.” To adequately allege such a claim, a plaintiff must allege that the board had some level of involvement in the trauma such that it knew or should have known about

December 13, 2022

2022 Delaware Corporate Law (DGCL) Amendments

Each year the Delaware legislature passes several amendments to the Delaware General Corporation Law (DGCL) which impact public and private companies incorporated in Delaware, and elsewhere, as many states follow the DGCL. Effective August 1, 2022, the DGCL has been amended to: (i) add certain exculpation provisions in favor of senior officers; (ii) reduce the voting rights necessary to convert a corporation to another type of business entity; (iii) require a dissolution filing upon expiration of a corporate existence; (iv) update signature affirmations; (v) eliminate the requirement to make a stockholder list available during a stockholder meeting; (vi) clarify the method of notice for a stockholder meeting; (vii) increase insurance protections; (viii) update three important provisions related to stockholder appraisal rights; (ix) provide technical updates to the requirements for equity issuances; (x) broaden the ability to complete advance stockholder consents; (xi) improve the method of effectuating a domestication; and (xii) clarify annual franchise tax reports.

Stockholder Appraisal Rights

Appraisal

September 13, 2022

Caremark Eroded – Director Liability In Delaware

This year has marked a string of cases eroding the long history of Delaware’s board of director protections from breach of fiduciary duty claims. In Re Caremark International Inc. Derivative Litigation was a civil action in the Delaware Court of Chancery in 1996 which drilled down on a director’s duty of care in the oversight context. Caremark found that generally directors do not need to approve or exercise oversight over most company decisions, other than mergers (see HERE), changes in capital structure and fundamental changes in business.

Caremark claims, which allege failures of board oversight, have long been regarded by Delaware courts as “possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment.” To plead and prove a Caremark claim, a stockholder plaintiff must show that the board either (i) “utterly failed to implement any reporting information restrictions or controls”; or (ii) having implemented them, “consciously failed to monitor or oversee

March 2, 2021

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