Securities Litigation, Investigations and Enforcement

Chancery Court

Gordon v. Verizon: New York Parts Company with Delaware

Robert Loeb, Robert Stern, Michael Tu, Paul Rugani, Kevin Askew and William FoleyPosted on February 7, 2017

On February 2, 2017, the New York Appellate Division, First Department, issued a decision in Gordon v. Verizon Communications, Inc., No. 653084/13, 2017 WL 442871 (1st Dep’t 2017), approving the settlement of litigation over an acquisition by Verizon Communications (“Verizon”) and articulating a new test to evaluate the fairness of such settlements. The Gordon decision signals that New York will remain a friendly venue to disclosure-based M&A settlements and may see increased shareholder M&A lawsuits as a result

As we have repeatedly written about (here, here and here), Delaware Chancery Courts have spent the past year attempting to curtail, or eliminate altogether, M&A litigation settlements where the sole remedy is enhanced proxy disclosures. Chancellor Bouchard’s landmark decision in In re Trulia Stockholder Litigation, 129 A.3d 884 (Del. Ch. 2016), rejected these “disclosure-only” settlements, finding that the “enhanced” disclosures produced by such settlements were not “material or even helpful” to stockholders. The Chancery Court bemoaned the proliferation of disclosure-only settlements in Delaware, and indicated that these types of settlements would be met by “continued disfavor” unless the supplemental disclosures are “plainly material,” i.e., they must “significantly alter the ‘total mix’ of information made available.”

In Trulia’s wake, the number of M&A suits filed in Delaware plummeted—declining by almost 75% in the first half of 2016—as plaintiffs’ counsel opted to file in federal court or states other than Delaware in the hope of finding more hospitable fora for “disclosure-only” resolutions. READ MORE →

Chancery Court Reaffirms There Is No Magic Number for “Control” Status

Greg BeamanPosted on March 7, 2016

On February 29, 2016, the Delaware Court of Chancery denied a motion to dismiss fiduciary duty claims against certain current and former directors of Halt Medical and a 26% stockholder, American Capital, arising out of a transaction that was allegedly designed to “squeeze out” minority stockholders. See Calesa Associates, L.P. v. American Capital, Ltd., C.A. No. 10557-VCG. Vice Chancellor Glasscock found that the plaintiffs had adequately alleged that American, despite owning only 26% of the company’s shares, exercised sufficient influence over the Halt Medical board such that it and certain affiliates could be deemed “controlling stockholders” owing fiduciary duties to other stockholders. Among other things, the decision in Calesa reaffirmed that majority stock ownership is not the sole criterion for determining “control.” The decision also sounded a cautionary note, however, by suggesting that, where plaintiffs remain minority stockholders in the company after the allegedly dilutive transaction at issue, they must plead demand futility even where, as here, only direct claims are asserted, or face dismissal at the pleading stage.