fiduciary duty issues in m&a transactions - Jackson Walker LLP

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In re Countrywide Financial Corporation Derivative Litigation, Civ. No. 07-372-SLR(D. Del. Oct. 7, 2008) ........................................................................................................43In re Countrywide Financial Corporation Shareholders Litigation, C.A. No. 3464-VCN,2008 WL 4173839 (Del. Ch. Sept. 10, 2008) ....................................................................43County of York Employees Retirement Plan v. Merrill Lynch & Co., Inc., 2008 WL4824053 (Del.Ch., Oct 28, 2008) (NO. CIV.A. 4066-VCN)...........................235, 241, 247Credit Lyonnais Bank Nederland, N.V. v. Pathe Communications Corp., C.A. No. 12150,1991 Del. Ch. LEXIS 215 (Del. Ch. 1991)..................................................................73, 74Crenshaw v. Swenson, 611 S.W.2d 886 (Tex. Civ. App.—Austin 1980,writ ref’d n.r.e.)........................................................................................................274, 275Crescent/Mach I Partners, L.P. v. Twiner, 846 A.2d 963 (Del. Ch. 2000)...................................13CRTF Corp. v. Federated Department Stores, Inc., 683 F. Supp. 422 (S.D.N.Y. 1988) ............203Daniel v. Falcon Interest Realty Corp., 190 S.W.3d 177 (Tex. App.—Houston [1st Dist.]2005, no pet. hist).............................................................................................................277Decker v. Mitchell (In re JTS Corp), 305 B.R. 529 (Bankr. N.D. Cal. 2003) ...............................72In re Dehon, Inc., 334 B.R. 55 (Bank. D. Mass. 2005) .................................................................84Delta Holdings, Inc. v. National Distillers & Chemical Corp., 945 F.2d 1226 (2d Cir.1991) ..................................................................................................................................89DePinto v. Landoe, 411 F.2d 297 (9th Cir. 1969) .......................................................................255Desert Partners, L.P. v. USG Corp., 686 F. Supp. 1289 (N.D. Ill. 1988)...........129, 161, 162, 203Desimone v. Barrows, C.A. No. 2210-VCS (Del. Ch. June 7, 2007)..........................................113In re Digex, Inc. Shareholders Litigation, 789 A.2d 1176 (Del. Ch. 2000) ........134, 137, 138, 206District 65 UAW v. Harper & Roe Publishers, 576 F. Supp. 1468 (S.D.N.Y 1983)...................255Dragt v. Dragt/DeTray, LLC, 161 P.3d 473 (Wash. App. 2007) ................................................284Edgar v. MITE Corp., 457 U.S. 624 (1982) ................................................................................4, 5Ehrenhaus v. Baker, 2008 WL 5124899, 2008 NCBC 20 (N.C.Super., Dec 05, 2008)(NO. CIV.A. 08 CVS 22632)...................................................................................235, 242Elliott Associates v. Avatex Corp., 715 A.2d 843 (Del. 1998) ........................................................6Elloway v. Pate, 238 S.W.3d 882 (Tex.App.—Houston [14th Dist.] 2007)..................43, 113, 163Emerald Partners v. Berlin, 787 A.2d 85 (Del. 2000)...................................................................67In re Emerging Communications, Inc. Shareholders Litigation, C.A. No.16415,2004 WL 1305745 (Del. Ch. May 3, 2004).....................................................................211Emerson Radio Corp. v. International Jensen Inc., 1996 WL. 483086 (Del. Ch. 1996) ....176, 188Energy Partners, LTD. v. Stone Energy Corp., C.A. Nos. 2374-N, 2402-N, 2006 Del. Ch.LEXIS 182 (Del. Ch. Oct. 11, 2006) ...............................................................................196In re Enivid, Inc., 345 B.R. 426 (Bankr. D. Mass. 2006) ..............................................................83Equitec-Cole Roesler v. McClanahan, 251 F. Supp. 2d 1347, 1350 (S.D. Tex. 2003) .................42Equity-Linked Investors LP v. Adams, 705 A.2d 1040 (Del. Ch. 1997)..................................72, 74Esopus Creek Value LP v. Hauf, No. 2487-N (Del. Ch. Nov. 29, 2006).....................................259In re Exide v. Credit Suisse First Boston, 299 B.R. 732 (Bankr. D. Del. 2003) ...........................86Express Scripts, Inc. v. Crawford, Civil Action No. 2663-N (Del. Ch. February 13, 2007).........41Express Scripts, Inc. v. Crawford, 2007 WL 707550 (Del. Ch. Feb. 23, 2007)..................132, 263In Re: F5 Networks Derivative Litigation, 2007 U.S.Dist. LEXIS 56390 (W.D. Wash.,Aug. 1, 2007) ...................................................................................................................114Fagan v. La Gloria Oil & Gas Co., 494 S.W.2d 624 (Tex. Civ. App.—Houston [14thDist.] 1973, no writ).....................................................................................................70, 715427504v.1viii
Faour v. Faour, 789 S.W.2d 620 (Tex. App.—Texarkana 1990, writ denied).............................35Farnsworth v. Massey, 365 S.W.2d 1 (Tex. 1963)......................................................................269FDIC v. Benson, 867 F. Supp. 512 (S.D. Tex. 1994) ....................................................................10FDIC v. Brown, 812 F. Supp. 722 (S.D. Tex. 1992) .....................................................................10FDIC v. Harrington, 844 F. Supp. 300 (N.D. Tex. 1994) .....................................................8, 9, 10FDIC v. Schreiner, 892 F. Supp. 869 (W.D. Tex. 1995)...............................................................10FDIC v. Wheat, 970 F.2d 124 (5th Cir. 1992) .............................................................................255Fed. United Corp. v. Havender, 11 A.2d 331, 342 (Del. 1940) ..................................................263Feldman v. Cutaia, 951 A.2d 727 (Del. 2008) ..............................................................................43Ferguson v. Williams, 670 S.W.2d 327 (Tex. App.—Austin 1984, writ ref’d n.r.e.) .................275Field v. Allyn, 457 A.2d 1089 (Del. Ch.), aff’d 467 A.2d 1274 (Del. 1983)...............................263In re First Boston, Inc. Shareholders Litigation, 1990 Del. Ch. LEXIS 74, Fed. Sec. L.Rep. (CCH) 95322 (Del. Ch. June 7, 1990).....................................................................138First Marblehead Corp. v. House, 473 F.3d 1, 6 (1st Cir. 2006) ................................................106First Union Corp. v. SunTrust Banks, Inc., 2001 NCBC 9A 32 (N.C. Super. Ct. Aug.10, 2001) ..................................................................................................................244, 246Fisk Ventures, LLC v. Segal, 2008 WL 1961156 (Del. Ch. 2008) ..............................................282Fitzgerald v. Cantor, No. CIV.A.16297-NC, 1999 WL 182573 (Del. Ch. Mar. 25, 1999) ........285Flanary v. Mills, 150 S.W.3d 785 (Tex. App. - Austin 2004).........................................................8Fleet Nat. Bank v. Boyle, 2005 WL 2455673 (E.D. Pa. 2005) ......................................................83Fliegler v. Lawrence, 361 A.2d 218 (Del. 1976)...............................................................64, 68, 69Floyd v. Hefner, 2006 WL 2844245 (S.D. Tex. Sept. 29, 2006).........................3, 8, 10, 71, 72, 83In re FLS Holdings, Inc. S'holders Litigation, 1993 WL 104562 (Del. Ch. Apr. 21, 1993) .......140Fogel v. U.S. Energy Systems Inc., No. 3271-CC (Del. Ch. Dec. 13, 2007) ...................................3In re Fort Howard Corp. Shareholders Litig., 1988 WL 83147 (Del. Ch. 1988) ..............135, 136,164, 186Frantz Manufacturing Co. et al. v. EAC Industries, 501 A.2d 401 (Del. 1985)..........................254Friese v. Superior Court of San Diego County, 36 Cal. Rptr. 3d 558 (Cal. Ct. App. 2005) ...........6Gantler v. Stephens, ___ A.2d ___, 2009 WL 188828 (Del. 2009)......................29, 32, 33, 35, 64,68, 125, 256, 257Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970), cert denied, 401 U.S. 974 (1971).......107Gearhart Industries, Inc. v. Smith International, Inc., 741 F.2d 707 (5th Cir. 1984) ............3, 4, 5,7, 8, 9, 10, 11, 44, 56, 70, 71, 121, 122, 203In re General Homes Corp., 199 B.R. 148 (S.D. Tex. 1996) ........................................................71Gerdes v. Reynolds, 28 N.Y.S.2d 622 (N.Y. S.Ct. 1941) ............................................................255Gesoff v. IIC Indus. Inc., C.A. Nos. 19473, 19600 (Del. Ch. May 18, 2006)..............................142Geyer v. Ingersoll Pub. Co., 621 A.2d 784 (Del.Ch. 1992) ........................................71, 72, 73, 86Gimbel v. The Signal Companies, Inc., 316 A.2d 599 (Del. Ch. 1974).......................................257Globis Partners, L.P. v. Plumtree Software, Inc., C.A. No.1577-VCP(Del. Ch. Nov. 30, 2007)..........................................................................................125, 219Golden Cycle, LLC v. Allan, 1998 WL 892631 (Del. Ch. December 10, 1998) .........................130Goodwin v. Live Entertainment, Inc., 1999 WL 64265 (Del. Ch. 1999).......59, 131, 182, 184, 200Grand Metropolitan Public, Ltd. v. Pillsbury Co., 558 A.2d 1049 (Del. Ch. 1988) ...................203In re Greater Southeast Community Hospital Corp., 333 B.R. 506 (Bankr. Dist. Colo.2005) ............................................................................................................................83, 865427504v.1ix
Page 1 and 2: FIDUCIARY DUTY ISSUES IN M&A TRANSA
Page 3 and 4: TABLE OF CONTENTSPageI. Introductio
Page 5 and 6: VII.C. The Board’s Consideration.
Page 12 and 13: Greater Southwest Community Hospita
Page 14 and 15: In re LNR Property Corp. Shareholde
Page 16 and 17: Paramount Communications, Inc. v. T
Page 18 and 19: Spiegal v. Buntrock, 571 A.2d 767 (
Page 20 and 21: I. Introduction.FIDUCIARY DUTY ISSU
Page 22 and 23: concepts of those duties in both Te
Page 24 and 25: It is essential to distinguish betw
Page 26 and 27: C. Fiduciary Duties in Texas Cases.
Page 28 and 29: director’s capacity with a second
Page 30 and 31: . Reliance on Reports.Directors may
Page 32 and 33: directors in office. In Delaware, a
Page 34 and 35: Moreover, these claims, if successf
Page 36 and 37: exemption from liability contained
Page 38 and 39: committee had considered, but faile
Page 40 and 41: conscious disregard for their respo
Page 42 and 43: Shortly thereafter, in In Re Citigr
Page 44 and 45: investment will be different that e
Page 46 and 47: designed to subject directors, even
Page 48 and 49: In another case later in 2007, Chan
Page 50 and 51: access to that Blockbuster informat
Page 52 and 53: The Supreme Court found that the pl
Page 54 and 55: E. Fiduciary Duties of Officers.Und
Page 56 and 57: Board, 121 a disinterested Board wo
Page 58 and 59:
In Delaware, “in order to cause t
Page 60 and 61:
objectively pursue on the corporati
Page 62 and 63:
claims in Delaware, the fact that t
Page 64 and 65:
expressly permitted by state corpor
Page 66 and 67:
These independent directors will be
Page 68 and 69:
(3) NASDAQ. NASD Rule 4350(c)(1) re
Page 70 and 71:
independence is intended to cover e
Page 72 and 73:
The NYSE Audit Committee Charter Pr
Page 74 and 75:
the committee is required by the be
Page 76 and 77:
interest in the matter, and is cons
Page 78 and 79:
Delaware draws a distinction betwee
Page 80 and 81:
categories of personal loans by an
Page 82 and 83:
c. Fiduciary Duties.In approving ex
Page 84 and 85:
§ 21.418 mirrors these clarificati
Page 86 and 87:
DGCL § 102(b)(7) in effect permits
Page 88 and 89:
In 1985, Texas followed Delaware’
Page 90 and 91:
In Texas a corporation’s director
Page 92 and 93:
Owing fiduciary duties to the “wh
Page 94 and 95:
It is well established that the dir
Page 96 and 97:
In the intervening period, the Dela
Page 98 and 99:
the trustee, or a representative of
Page 100 and 101:
the CEO called only upon his “lon
Page 102 and 103:
against the directors. The company
Page 104 and 105:
entire fairness of transaction; (2)
Page 106 and 107:
y the Delaware Supreme Court on Aug
Page 108 and 109:
acquisition would be sufficient, wh
Page 110 and 111:
naturally concerned that they be fu
Page 112 and 113:
an officer; (d) in negotiating his
Page 114 and 115:
Decisions from the Delaware Supreme
Page 116 and 117:
elevantly, “for acts or omissions
Page 118 and 119:
§ 141(e), which permits corporate
Page 120 and 121:
facts that, if true, would show tha
Page 122 and 123:
to provide them with protection aga
Page 124 and 125:
Delaware has no public policy inter
Page 126 and 127:
The Chancellor dismissed claims con
Page 128 and 129:
three particular types of Board mal
Page 130 and 131:
There is an important distinction b
Page 132 and 133:
nature of a grant of stock options,
Page 134 and 135:
7. Teachers’ Retirement System of
Page 136 and 137:
arrangements, which placed the burd
Page 138 and 139:
C. Non-Profit Corporations.The comp
Page 140 and 141:
Grasso’s level of compensation an
Page 142 and 143:
Given the extent of Delaware case l
Page 144 and 145:
traditional conflict of interest wa
Page 146 and 147:
and the merger was not a change in
Page 148 and 149:
concluded that it would not be appr
Page 150 and 151:
2. Being Adequately Informed.Althou
Page 152 and 153:
“proof is materially enhanced . .
Page 154 and 155:
committee should be formed prior to
Page 156 and 157:
Retention of legal and financial ad
Page 158 and 159:
eing active and being informed are
Page 160 and 161:
contingently paid and possibly inte
Page 162 and 163:
committee member, relying on advice
Page 164 and 165:
offer represented a 45% premium ove
Page 166 and 167:
However, the Chancery Court faulted
Page 168 and 169:
summary judgment on what amounts to
Page 170 and 171:
tried to negotiate better terms; th
Page 172 and 173:
• When the Revlon duties become a
Page 174 and 175:
stockholders by aggressively demand
Page 176 and 177:
its burden of proving the entire fa
Page 178 and 179:
(1) In Van Gorkom, 483 the Trans Un
Page 180 and 181:
measures to protect against a hosti
Page 182 and 183:
F. The Pursuit of a Sale.When a boa
Page 184 and 185:
The evidence that will support a fi
Page 186 and 187:
The plaintiff stockholders claimed
Page 188 and 189:
agreements were in line with those
Page 190 and 191:
than, of course, its $350 million s
Page 192 and 193:
the directors themselves, taking in
Page 194 and 195:
Company to have declined the reques
Page 196 and 197:
a statutory issue. The clear implic
Page 198 and 199:
provisions in favor of one suitor p
Page 200 and 201:
consequence, the board may find it
Page 202 and 203:
6. Specific Cases Where No-Shops, L
Page 204 and 205:
Electronics. 591 The merger agreeme
Page 206 and 207:
eak-up fee of approximately 1% of t
Page 208 and 209:
(being adequately informed and unde
Page 210 and 211:
The record reflects that the defens
Page 212 and 213:
The Court of Chancery determined th
Page 214 and 215:
prospect of another bankruptcy. WCI
Page 216 and 217:
uyer). After the Energy Partners Me
Page 218 and 219:
defensive mechanisms to thwart an a
Page 220 and 221:
H. Postponement of Stockholder Meet
Page 222 and 223:
Federal courts applying Texas law h
Page 224 and 225:
C. Business Combination Statutes.Bo
Page 226 and 227:
affiliated shareholder if the trans
Page 228 and 229:
In analyzing cases involving negoti
Page 230 and 231:
B. In re Emerging Communications, I
Page 232 and 233:
Supreme Court has found that the ap
Page 234 and 235:
after signing the settlement agreem
Page 236 and 237:
The Merger Agreement prohibits the
Page 238 and 239:
expected cash flows. Thus, I will e
Page 240 and 241:
technique was used in different mar
Page 242 and 243:
are being asked to make an importan
Page 244 and 245:
negotiate exclusively with Eisner (
Page 246 and 247:
and then digesting another company,
Page 248 and 249:
obtaining antitrust clearance, beca
Page 250 and 251:
stapled financing and would be comp
Page 252 and 253:
The plaintiffs recognize this reali
Page 254 and 255:
their fiduciary duties of care by h
Page 256 and 257:
share for Bear Stearns stock, a fig
Page 258 and 259:
shareholders therefrom, depended on
Page 260 and 261:
company found itself. No other bidd
Page 262 and 263:
willing to move forward without gov
Page 264 and 265:
without any specific preordained re
Page 266 and 267:
if the directors did not recommend
Page 268 and 269:
But our case law does not do much t
Page 270 and 271:
other information concerning, any o
Page 272 and 273:
corporation, at least without speci
Page 274 and 275:
There is, however, an exception in
Page 276 and 277:
In Gantler, the Court in effect hel
Page 278 and 279:
otherwise provides, no resolution b
Page 280 and 281:
appraisal rights, pointing out that
Page 282 and 283:
Delaware law does not extend apprai
Page 284 and 285:
Thus, stated generally, DGCL § 262
Page 286 and 287:
4. Valuation under DGCL.The DGCL es
Page 288 and 289:
shareholder who fails to comply wit
Page 290 and 291:
dissenting shareholder’s shares b
Page 292 and 293:
2. Loyalty. The duty of loyalty req
Page 294 and 295:
appellation. 864 Since TRPA and the
Page 296 and 297:
The Tex. LP Stats. state in part th
Page 298 and 299:
Unlike DRLPA, under Tex. LP Stats.,
Page 300 and 301:
Members in a Member-managed LLC to
Page 302 and 303:
provisions that expressly emphasize
Page 304 and 305:
Persons who control Members can be
Page 306 and 307:
Appendix ASUMMARY OF THE SARBANES-O
Page 308 and 309:
conceal a record or document so as
Page 310 and 311:
generally accepted accounting princ
Page 312 and 313:
of the second business day followin
Page 314 and 315:
management of the issuer,” and SO
Page 316 and 317:
audits into the auditors’ assessm
Page 318 and 319:
Criminal and Civil Sanctions. SOX m
Page 320 and 321:
Vocabulary.“At-the-money” optio
Page 322 and 323:
announcements that the filing of SE
Page 324 and 325:
Consequences. Backdating of options
Page 326 and 327:
the options. The staff understands
Page 328 and 329:
• Misleading SEC Filings. The res
Page 330 and 331:
§ 409A, options that were in the m
Page 332 and 333:
condition the closing of the transa
Page 334 and 335:
claims related to options backdatin
Page 336 and 337:
Possible Illegal Acts. Auditors who
Page 338 and 339:
egistration statement under the 193
Page 340 and 341:
Disclosure is also be required wher
Page 342 and 343:
meaningful comparisons from company
Page 344 and 345:
• What specific items of corporat
Page 346 and 347:
Compensation Discussion and Analysi
Page 348 and 349:
Summary Compensation Table: All Oth
Page 350 and 351:
• Commuting expenses;• Discount
Page 352 and 353:
• Value realized on exercise of o
Page 354 and 355:
• Although not required, tabular
Page 356 and 357:
• By specific category or type, a
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