In a virtual course on how to bring—or not bring—an M&A strike suit, on June 30, a Delaware Chancery Court dismissed all shareholder claims against a merger target and its acquirer, ending nearly two years of litigation. Though the allegations are familiar in the strike-suit context, the 45-page opinion which this ~$100 million merger yielded is notable for its methodical tour of Delaware fiduciary-duty law, 102(b)(7) exculpatory provisions, and so-called Revlon duties. The roadmap opinion should be required reading for directors considering a merger.
Defendants Ramtron International and Cypress Semiconductor both work in the technology industry and the two began their courtship in 2011. Though shareholder-plaintiff Paul Dent couldn’t prevent the 2012 Ramtron-Cypress marriage, he continued to hold out for a better dowry, naming Ramtron’s board and Cypress in a suit alleging that Cypress aided and abetted Ramtron’s board in breaching its duty to shareholders, and seeking quasi-appraisal of his shares. Vice Chancellor Parsons disposed of these claims, taking the time to explain in unusual detail why the allegations utterly failed. READ MORE
Several weeks ago we asked whether directors of public companies face potential liability for not preventing cyber attacks. But what about liability for other acts of oversight? Can directors be held personally liable for money damages when they have done nothing affirmatively wrong?
Generally, the answer is no. Many states, like Delaware, allow corporate charters to include provisions that protect directors (and sometimes officers) from money damages for certain breaches of fiduciary duty. Acts that are not protected include breaches of the duty of loyalty, intentional misconduct, knowing violations of the law or receiving an improper personal benefit. But where plaintiffs seek money damages for breaches of the duty of care, exculpatory provisions in corporate charters typically provide directors a defense to the claims.
Practically speaking, these provisions protect directors against claims of negligence, and some courts have held the provisions even go so far as to protect against “reckless indifference.” The protection stops, however, when a director consciously disregards his or her duties. For example, and with reference to the earlier discussion on cyber attacks, an exculpatory provision might not shield a director from money damages where (i) a damaging cyber attack occurred, and (ii) it could be proven that the director exhibited a “sustained or systematic failure to exercise reasonable oversight” over the company’s cybersecurity, such that it evidenced the director’s conscious disregard of cybersecurity. READ MORE