Page 28 - Delaware Lawyer - Winter 2020

FEATURE
plan that capped the aggregate amount of shares to be issued. The proxy, however, omitted the fact that Steel Connect had taken a position in previous SEC filings supporting a reasonable inference that the challenged equity grants called for the is- suance of more shares than the company was legally permitted to issue. The Court concluded that the board’s deliberations and determinations concerning the com- pany’s authority to issue equity were ma- terial information that was required to be provided to stockholders.
What the Future Holds
While challenges to corporate transac- tions are unlikely to diminish, the nature of the contests is constantly evolving. With an increased emphasis on material- ity, Delaware courts focus more on ensur- ing that bona fide challenges are given their day in court, while ensuring that more dubious claims are properly vetted before receiving similar treatment. Dis- missal of stockholder suits under Cor- win has also been somewhat curtailed by stockholders exercising their rights to inspect the subject company’s books and records pursuant to Section 220 of the DGCL. Indeed, litigants have success- fully employed information obtained by Section 220 to demonstrate disclosure vi- olations, and consequently, defeat the ap- plication of Corwin.15 This trend is likely to continue as Delaware courts continue to sharpen Section 220’s tools at hand. As these doctrines continue to develop, the
While challenges to corporate transactions are unlikely to diminish, the nature of the contests is constantly evolving.
hope remains that companies will make fuller, more complete material disclosures to properly inform all stockholders who are asked to vote on mergers or other sub- stantial transactions.
NOTES
1. 125 A.3d 304 (Del. 2015).
2. See 506 A.2d 173 (Del. 1986). 3. Corwin, 125 A.3d at 312.
4. See, e.g., In re Volcano Corp. S’holder Litig., 143 A.3d 727, 747 (Del. Ch. 2016); In re Rouse Properties, Inc., 2018 WL 1226015, at *2 (Del. Ch. Mar. 9, 2018) (applying Corwin); In re Cyan, Inc. S’holders Litig., 2017 WL 1956955 (Del. Ch. May 11, 2017); In re Paramount Gold & Silver Corp. S’holders Litig., 2017 WL 1372659 (Del. Ch. Apr. 13, 2017); In re Merge Healthcare Inc., 2017 WL 395981, at *1 (Del. Ch. Jan. 30, 2017); In
re Om Grp., Inc. S’holders Litig., 2016 WL
5929951 (Del. Ch. Oct. 12, 2016).
5. Corwin, 125 A.3d at 312 (finding that “all of the objective facts regarding the board’s interests, KKR’s interests, and the negotiation process, were fully disclosed”).
6. 180 A.3d 1055 (2018).
7. 191 A.3d 268 (Del. 2018).
8. Id. at 272 (quoting Arnold v. Soc’y for Sav. Bancorp, Inc., 650 A.2d 1270, 1280 (Del. 1994)).
9. Rosenblatt v. Getty Oil Co., 493 A.2d 929, 944 (Del. 1985) (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976)).
10. 2019 WL 2714331 (Del. Ch. June 28, 2019).
11. 2019 WL 2714065 (Del. Ch. June 28, 2019).
12. Section 203 prohibits a stockholder who acquires more than 15% of a company’s stock from engaging in a business combination with the company for three years absent approval from the company’s board of directors and the affirmative vote of two-thirds of the disinterested stockholders.
13. 2019 WL 2714065 at *1.
14. Id. at *22 (quoting Lewis v. Vogelstein, 699 A.2d 327, 333 (Del. Ch. 1997)).
15. See e.g., In re Tangoe, Inc. S’holders Litig., 2018 WL 6074435 (Del. Ch. Nov. 20, 2018); Appel v. Berkman, 180 A.3d 1055, 1059 (Del. 2018). Cf. In re Solera Holdings, Inc. Stockholder Litig., 2017 WL 57839,
at *8 (Del. Ch. Jan. 5, 2017) (dismissing complaint on Corwin grounds, and noting that there is “no indication in the record that the plaintiff here availed itself of [the Section 220] opportunity”). See also In re Xura,
Inc., Stockholder Litig., 2018 WL 6498677 (Del. Ch. Dec. 10, 2018) (limited discovery in appraisal action transformed case into fiduciary duty action).
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what is expected of corporate directors — after all, they are the
factors whose presence suggests leniency, and whose absence just the opposite. But as a corporate practitioner at the time, I was probably only vaguely aware that sentencing guidelines even existed, and had certainly never thought about how they could be applied to establish normative expectations for corporate di- rectors. Chancellor Allen’s opinion making this connection and establishing the duty of oversight was brilliant and a great leap forward in Delaware corporate law — one that has withstood the test of time, as Caremark remains a landmark decision near- ly 25 years later.
Caremark was an extraordinary opinion, but it really typifies Chancellor Allen’s approach to the law. It is fully consistent with his guiding principles, combining practicality, intellectual rigor,
and a sense of how the principles enunciated fit within the larger economic and legal landscape. The type of analysis and approach evident in Caremark was routinely present in Chancellor Allen’s opinions.
Finally, I would be remiss if I did not note Chancellor Al- len’s warmth and humanity, about which entire volumes could be written. He was, for me, a great mentor. For others, he was a great colleague or teacher. He approached matters with wit, wisdom and humanity. He is greatly missed.
NOTES
1. https://www.law.upenn.edu/live/news/7009-cede-co-v-technicol- or-inc-634-a2d-345-del-1993#oralhistory
2. 698 A.2d 959 (Del. Ch. 1996). 3. 188 A.2d 125 (Del. 1963).
26 DELAWARE LAWYER WINTER 2020