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Recent Delaware Corporate Law Decisions

June 5, 2012

In recent months, the Delaware Court of Chancery has addressed a number of issues important to Delaware corporations and their advisors:

In Central Laborers Pension Fund v. News Corp., No. 682, 2011 (Del. May 29, 2012), the Delaware Supreme Court affirmed the Court of Chancery’s dismissal of an action seeking to enforce a Section 220 books and records demand on the grounds that the plaintiff’s demand had not strictly complied with the statute’s “form and manner” requirements.

In RAA Management, LLC v. Savage Sports Holdings, Inc., No. 577, 2011 (Del. May 18, 2012), the Delaware Supreme Court affirmed the Superior Court's dismissal of a potential acquiror’s fraud claim based upon purported misrepresentations during due diligence because the potential acquiror had agreed in a non-disclosure agreement that the target company would not be liable for and was not warranting as to the accuracy of any information provided during due diligence.

In Forsythe v. ESC Fund Management Co. (U.S.), Inc., C.A. No. 1091-VCL (Del. Ch. May 9, 2012), the Court of Chancery resolved objections to a settlement by giving objectors the option of continuing the case in pursuit of a larger recovery if they agreed to post a secured bond.

In In re Comverge Inc. Shareholders Litigation, C.A. No. 7368-VCP (Del. Ch. May 8, 2012), the Court of Chancery in an oral ruling refused to enjoin the acquisition of Comverge, Inc. by HIG Capital LLC, finding that the independent directors made reasonable decisions, even if those decisions were debatable in hindsight.
In Gearreald v. Just Care, Inc., C.A. No. 5233-VCP (Del. Ch. Apr. 30, 2012), the Court of Chancery’s $35 million valuation of Just Care, Inc. in an appraisal proceeding was approximately $6 million less than the acquisition price.

In In re Answers Corporation Shareholders Litigation, Consol. C.A. No. 6170-VCN (Del. Ch. Apr. 11, 2012), the Court of Chancery refused to dismiss a lawsuit in connection with the acquisition of Answers Corporation by Summit Partners, L.P., holding that the plaintiffs adequately pled that four of Answers’ seven directors—though disinterested and independent—conceivably could have acted in bad faith, having known of the other directors’ interest but nevertheless conducting an expedited sales process.

In Frank v. Elgamal, C.A. No. 6120-VCN (Del. Ch. Mar. 30, 2012), the Court of Chancery held that entire fairness review would apply to a cash-out merger between American Surgical Holdings, Inc. and an unaffiliated private equity purchaser, having concluded that the plaintiff adequately alleged the existence of a control group.

In In re Celera Corporation Shareholder Litigation, C.A. No. 6304-VCP (Del. Ch. Mar. 23, 2012), the Court of Chancery approved the settlement of a putative class action despite the representative plaintiff having sold all of its shares after entering into an MOU and before the closing of the challenged transaction.

And in In re Micromet, Inc. Shareholders Litigation, C.A. No. 7197-VCP (Del. Ch. Feb. 29, 2012), the Court of Chancery denied the plaintiffs’ motion to preliminarily enjoin Amgen, Inc.’s $1.16 billion acquisition of Micromet, Inc., rejecting the plaintiffs’ challenges to Micromet’s market check and the merger agreement’s deal protection measures.

Central Laborers Pension Fund v. News Corp.: Delaware Supreme Court Affirms Dismissal of Section 220 Books and Records Request for Failure to Strictly Comply With the Statutory “Form and Manner” Requirements 
In Central Laborers Pension Fund v. News Corp., No. 682, 2011 (Del. May 29, 2012), the Delaware Supreme Court affirmed the Court of Chancery’s dismissal of the plaintiff’s complaint, which sought to enforce a demand for inspection of books and records under Section 220 of the Delaware General Corporation Law (“Section 220”). The Supreme Court based its decision on the plaintiff’s failure to attach to its demand documentary evidence of its beneficial ownership of News Corporation’s (“News Corp.”) stock and stressed that stockholders seeking inspection of books and records must strictly comply with the “form and manner” requirements of Section 220.
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RAA Management, LLC v. Savage Sports Holdings: Delaware Supreme Court Affirms Dismissal of Fraud Claims Based Upon Non-Reliance and Waiver Provisions of NDA 
In RAA Management, LLC v. Savage Sports Holdings, Inc., No. 577, 2011 (Del. May 18, 2012), the Delaware Supreme Court affirmed the Superior Court's dismissal of a fraud claim based on a non-disclosure agreement (“NDA”) entered into between RAA Management, LLC (“RAA”) and Savage Sports Holdings, Inc. (“Savage”). In the action, RAA sought to recover costs incurred performing due diligence in preparation for a potential transaction with Savage, which RAA alleged it would not have pursued but for certain misrepresentations by Savage. The Court analyzed the NDA and determined that, under either Delaware or New York law, the non-reliance and waiver provisions in the NDA foreclosed Savage’s fraud claims.
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Forsythe v. ESC Fund Management: Court of Chancery Resolves Objections to Settlement by Giving Objectors Option to Continue Litigation Subject to Posting Secured Bond in Amount of Settlement Consideration 
In Forsythe v. ESC Fund Management Co. (U.S.), Inc., C.A. No. 1091-VCL (Del. Ch. May 9, 2012), the Court of Chancery implemented a novel form of relief in resolving an objection to the adequacy of the consideration received in the settlement of representative litigation. Although the Court was prepared to approve the proposed $13.25 million settlement, the Court gave the objectors the option of continuing the case in pursuit of a larger recovery if they agreed to post a secured bond that would ensure that the partnership would, at a minimum, receive the full amount of the proposed settlement consideration once the litigation had ultimately been resolved.
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In re Comverge: Court of Chancery Denies Preliminary Injunction, Declining to Second-Guess Directors’ Debatable but Reasonable Tactical Choices
In In re Comverge Inc. Shareholders Litigation, C.A. No. 7368-VCP (Del. Ch. May 8, 2012), the Court of Chancery in an oral ruling denied a motion to preliminarily enjoin the acquisition of Comverge, Inc. (“Converge”) by HIG Capital LLC and its affiliates (“HIG”). The Court found that in hindsight certain choices made by Comverge’s directors were debatable, but the Court declined to second-guess decisions made by the independent directors. 
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Gearreald v. Just Care, Inc.: In Appraisal Proceeding, Court of Chancery Determines Fair Value of Company to Be $34 Million—$6 Million Less than Acquisition Price
In Gearreald v. Just Care, Inc., C.A. No. 5233-VCP (Del. Ch. Apr. 30, 2012), the Court of Chancery found in an appraisal proceeding that the fair value of Just Care, Inc. (“Just Care”) was $34,244,570, approximately $6 million less than the acquisition price.
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In re Answers: Court of Chancery Denies Motion to Dismiss, Finding Adequate Allegations that Directors Conceivably Could Have Acted in Bad Faith by “Consciously Disregarding” Their Duties in Sale of Company
In In re Answers Corporation Shareholders Litigation, Consol. C.A. No. 6170-VCN (Del. Ch. Apr. 11, 2012), the Court of Chancery refused to dismiss breach of fiduciary duty and aiding and abetting claims in connection with the acquisition of Answers Corporation (“Answers”) by Summit Partners, L.P. (“Summit”), a private equity fund. The Court held that the plaintiffs adequately pled that three of Answers’ seven directors were interested in the merger and four conceivably could have acted in bad faith by having known of the other directors’ interest but nevertheless conducting an unnecessarily expedited sales process. The Court had previously refused to enjoin the merger, but at the motion to dismiss stage, the Court did not rely on the factual record developed in connection with the earlier preliminary injunction proceeding.
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Frank v. Elgamal: Court of Chancery Finds Allegations of “Control Group” Sufficient to Invoke Entire Fairness Review of Merger 
In Frank v. Elgamal, C.A. No. 6120-VCN (Del. Ch. Mar. 30, 2012), the Court of Chancery held that entire fairness review would apply to the merger of American Surgical Holdings, Inc. (“American Surgical”) with an unaffiliated private equity purchaser in which American Surgical’s minority stockholders were cashed out. Because the Court concluded that the plaintiff had adequately alleged the existence of a control group, the Court found that the merger would be subject to entire fairness review under the standard set forth in In re John Q. Hammons Hotels Inc. Shareholder Litigation., 2009 WL 3165613 (Del. Ch. Oct. 2, 2009). 
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In re Celera: Court of Chancery Criticizes Representative Plaintiff’s Sale of Shares During Lawsuit and Comments on “Don’t-Ask-Don’t-Waive” Standstills 
In In re Celera Corporation Shareholder Litigation, C.A. No. 6304-VCP (Del. Ch. Mar. 23, 2012), the Court of Chancery approved the settlement of a putative class action despite the representative plaintiff having sold all of its shares after entering into an MOU and before the closing of the challenged transaction. While the Court held that the plaintiff narrowly satisfied the requirements for an appropriate class representative, the Court criticized the sale of shares and warned of summary dismissal of similarly situated representative plaintiffs in future cases. 
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In re Micromet: Court of Chancery Denies Stockholder-Plaintiffs’ Motion for Preliminary Injunction, Finding Market Check to Be Reasonable and Deal Protection Measures to Be Non-Preclusive
In In re Micromet, Inc. Shareholders Litigation, C.A. No. 7197-VCP (Del. Ch. Feb. 29, 2012), the Court of Chancery denied the plaintiffs’ motion to preliminarily enjoin Amgen, Inc.’s (“Amgen”) $1.16 billion acquisition of biopharmaceutical company Micromet, Inc. (“Micromet”) in a tender offer at $11 per share followed by a second-step cash-out merger. The Court concluded that the plaintiffs failed to show a reasonable likelihood of success on their claims and specifically rejected the plaintiffs’ challenges to Micromet’s market check and the merger agreement’s deal protection measures. 
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