Securities Law Alert
In This Edition:• Second Circuit: Affirms Dismissal of a Securities Fraud Class Action Against a Leading Hotel Chain• Third Circuit: Affirms Dismissal of a Securities Fraud Class Action Where the Allegations Suggested
Mismanagement Rather Than Fraud• Fifth Circuit: Statements Concerning Transparency, Quality and Corporate Responsibility Are
Inactionable Puffery• Southern District of New York: Denies Class Certification in a Breach of Contract Action Concerning theAlleged Failure to Perform Suitability Analyses• Southern District of New York: Dismisses a Securities Fraud Class Action Against an Argentinian Real
Estate Company• Northern District of Indiana: Dismisses Securities Fraud Class Action Claims Against Former Private
Equity Investors in a Medical Device Company• Delaware Supreme Court: MFW’s Ab Initio Requirement Is Satisfied if the Controller Conditions theTransaction on MFW’s Procedural Protections Before the Commencement of Substantive Economic
Negotiations• Delaware Chancery Court: Finds a “Material Adverse Effect” for the First Time
September/October 2018

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Second Circuit: Affirms
Dismissal of a Securities Fraud
Class Action Against a Leading
Hotel Chain
On August 20, 2018, the Second Circuitsummarily affirmed dismissal of a securities
fraud action against a leading hotel chain“for substantially the same reasons” set forthin the district court’s order. Police & Fire
Ret. Sys. of the City of Detroit v. La Quinta
Holdings, 735 F. App’x 11 (Mem) (2d Cir.
2018).1
1. Simpson Thacher represents La Quinta Holdings Inc., The
Blackstone Group L.P., and certain La Quinta officers anddirectors in this matter.

Simpson Thacher & Bartlett LLP

The district court dismissed the suit withprejudice on the grounds that the company
had adequately disclosed each of the risks
at issue, including the impact of falling oil
prices, the need for renovations at certain
properties, the transition of the company’s
call center, and the sale of certain hotels.
Police & Fire Ret. Sys. of the City of Detroit
v. La Quinta Holdings, 2017 WL 4082482(S.D.N.Y. 2017). The district court reasoned
that “[w]hen evaluating whether a company
provided sufficient disclosures,” a court“should consider not only the disclosuresthe company makes, but also information
already in the public domain and facts known
or reasonably available to the shareholders.”
The district court found meritless plaintiffs’allegations that certain “disclosures shouldhave been made earlier.” The court explainedthat “[m]ere allegations that statements
in one report should have been made inearlier reports do not make out a claim of
securities fraud.’” Finally, the district court
dismissed claims in connection with what
the court found to be a statement of opinion
made by the hotel chain’s then-CEO, basedon its determination that the opinion was
not misleading when considered with other“representations together and in context.”

Third Circuit: Affirms
Dismissal of a Securities
Fraud Class Action Where
the Allegations Suggested
Mismanagement Rather
Than Fraud
On September 20, 2018, the Third Circuit
affirmed dismissal of a securities fraud classaction against a car rental company broughton the heels of an acknowledgement in an
SEC filing that a “sometimes inappropriate
tone at the top . . . may have led toinappropriate accounting decisions.” In re
Hertz Global Holdings, 2018 WL 4496352(3d Cir. 2018) (Jordan, J.). The Third
Circuit found the district court did not err ininterpreting this statement as “an admissionof ‘mismanagement,’ as opposed to an
admission of ‘misconduct.’” The Third Circuit
found the allegations did not “necessarily
suggest” that defendants were “engaged ina systematic fraud.” The court determinedthat it was “[m]ore plausible . . . that the[i]ndividual [d]efendants were just badleaders.”
The Third Circuit found plaintiffs’ otherallegations equally insufficient to plead
scienter. First, the court held that the “sizeand scope” of the company’s financial
restatement did not support a strong
inference of scienter because plaintiffs
failed to “plead particularized allegations offraudulent intent.” The court observed that“any inference of scienter was circumscribedby the fact that the accounting errors werespread across myriad accounting categories.”
The court also noted that for each income
category, the amount of the overstatement
ranged from 9.97% to 32.12%. The Third

Circuit explained that “[c]ourts that havelooked to the magnitude of a financial
restatement to strengthen the inference of
scienter have been faced with restatements
significantly more drastic” than those atissue here.
Second, the court found the allegation thatthe individual defendants certified theaccuracy of the company’s SEC filings did not“add to the scienter puzzle in the absence of
any allegation that [any] defendant knew hewas signing a false SEC filing or recklessly
disregarded inaccuracies contained” in thatfiling. Third, the court placed no weight onallegations that the individual defendants“each resigned in close proximity to the public
release of bad news.” The court explainedthat “[c]hanges in leadership are only to be
expected when leadership fails.” The court
stated that in order “for corporate departures
to strengthen an inference of scienter, there
must be particularized allegations connecting
the departures to the alleged fraud.”

Finally, the Third Circuit determined thatthe alleged insider trading activity did notsupport a strong inference of scienter because
the individual defendants did not sell theirholdings when the stock was trading at
its peak. Moreover, plaintiffs alleged that
only two of the five individual defendants
engaged in insider trading. Although these
two individual defendants allegedly solda sizable percentage of their holdings, thecourt explained that “even large percentagesof holdings sold at first blush appearing
suspicious are not sufficient to infer scienter
when other factors, such as the timing of therelevant sales, weigh against that inference.”
The court found that the lengthy class periodalso mitigated any inference of scienter basedon alleged insider trading because “it is not
unusual for insiders to trade at some point
during their tenure with a company.”2

Fifth Circuit: Statements
Concerning Transparency,
Quality and Corporate
Responsibility Are
Inactionable Puffery
On October 3, 2018, the Fifth Circuit affirmed
dismissal of a securities fraud action alleging
that a grocery retailer made misstatements
concerning the company’s “commitment
to transparency, quality and corporate
responsibility,” among other alleged
misstatements. Emps. Ret. Sys. v. Whole
Foods Mkt., 2018 WL 4770729 (5th Cir. 2018)(King, J.). The court held these “generalizedstatements” constituted inactionable pufferyeven though the retailer had “built a brandaround holding itself to higher ethicalstandards than its competitors.” The court
found that a “reasonable investor” would notassess the company’s value based on such
“self-serving statements.” Rather, reasonable
investors would “rely on facts to determine
whether” the company is in fact “transparent
and otherwise holds itself to high standards.”
The Fifth Circuit also held that plaintiffs
failed to allege loss causation. According toplaintiffs, the retailer’s financial statements
were inflated as a result of companywide
weights-and-measures-related overcharging
violations. Plaintiffs contended that a July 29,2015 stock price drop reflected a corrective
disclosure of these alleged accounting
misstatements, even though the market had
been aware of the overcharging violations
for several weeks. Plaintiffs alleged that“revenues failed to meet expectations because[the retailer’s] customers took exception
to the possibility of being defrauded andvoted with their feet.” But plaintiffs did
not allege that “the disappointing sales
numbers somehow represented customer
dissatisfaction with [the retailer’s] accounting
practices.” The court found plaintiffs’
theory of loss causation “conflate[d] thenonactionable weights-and measures fraudwith the allegedly actionable securities fraud.”
The court explained that even if the retailer
had “not record[ed] the ill-gotten receipts
as revenue,” the retailer’s customers “would
have reacted just as negatively” to news of
the overcharging violations and plaintiffs“would have suffered the exact same harmregardless of whether [the retailer] hadoverstated its revenue.” The Fifth Circuit

concluded plaintiffs “fail[ed] to identify adecline in stock price that shortly followed acorrective disclosure.”

Southern District of New York:
Denies Class Certification in
a Breach of Contract Action
Concerning the Alleged
Failure to Perform Suitability
Analyses
On September 17, 2018, the Southern Districtof New York denied class certification ina breach of contract action alleging that a
broker-dealer failed to conduct suitability
analyses before recommending that
customers invest in certain closed-end
mutual funds. Fernandez v. UBS AG, 2018
WL 4440498 (S.D.N.Y. 2018) (Stein, J.).2
The court held that Rule 23(a)(3)’s typicality
requirement was not met because “themanner in which [the broker-dealer] allegedly
failed to perform a suitability analysis before
recommending a [f]und to a proposed classmember is different for each class member.”
The court further held that Rule 23(b)(3)’s
predominance requirement was not satisfied
because the single common question
concerning the scope of the broker-dealer’s
contractual obligation to conduct suitability
analyses was “substantially outweighed bynumerous individual questions.”
The suitability provision in the client
agreements at issue stated as follows: “Wemust have a reasonable basis for believingthat any securities recommendations wemake to you are suitable and appropriate
for you, given your individual financial
circumstances.” The court observed that“[w]hether an investment is suitable
for a particular client is an inherently
individualized inquiry” that “depends on theunique characteristics of both the investor
and the investment at a particular point intime.” Plaintiffs nevertheless claimed thatthey would be able to present “common
proof” of the broker-dealer’s alleged acrossthe-board failure to conduct suitability
analyses by “focusing on the conductof the [broker-dealer], together with arepresentative sample of client accounts.”
2. Simpson Thacher represents UBS AG and its affiliates in thismatter.
3

The court found plaintiffs failed to showthat the facts in dispute were “susceptible togeneralized proof,” and held that “individualquestions overwhelm the classwide questions”
for several reasons.
First, the court rejected plaintiffs’ contention
that the investments were “inherently
unsuitable” for any investor because they
were not structured to preserve capital, oneof the stated investment objectives. The
court disagreed that “a security with multiple
enumerated objectives is unsuitable per se if it
is inconsistent with any one of its objectives,”
and noted that plaintiffs “cite[d] no evidence
that this standard has ever actually been
applied in the real world.” With respect toplaintiffs’ related argument concerning thealleged “riskiness” of the investments, thecourt determined that a security’s excessive
riskiness for one client “is not itself proof thatthe security is excessively risky (or unsuitable)
for all investors.”
Second, the court found plaintiffs’ expert did
not provide the requisite “generalized proof”
that the broker-dealer “fail[ed] to undertakeany client-focused suitability analyses before
recommending the [f]unds to the proposedclass members.” Plaintiffs’ expert assumed
that an appropriate suitability analysis had
been conducted only if an advisor provided
written documentation of the analysis,“together with all of the reasons underlyingthat determination” with respect to eachrelevant suitability factor. The court foundthis approach “not credible,” and determinedthat there was no basis for the requirementthat a suitability analysis must include“express consideration and documentationof every single” suitability factor.3 The court
found plaintiffs’ expert in fact demonstrated
that the broker-dealer’s “alleged suitability
failures were far from uniform” because
each individual financial advisor may haveconsidered certain factors, but not others,
when conducting a suitability analysis foreach individual client.
Third, the court held plaintiffs could not relyon “communications directed to the publicat large,” such as advertisements and client
fliers, to establish that the broker-dealer
had “recommended” the investments at
issue to each of the individual plaintiffs. The
3. The parties disputed whether the factors set forth in FINRA
Rule 2111 governed the suitability analysis set forth in theclient agreements.

court found that “whether a transaction wasrecommended such that [the broker-dealer’s]
suitability obligations arose . . . is anindividualized question.” Fourth, the court
found plaintiffs could not show that thealleged failure to conduct suitability analyses
caused their losses without demonstratingthat the investments were “actually
unsuitable” for each individual plaintiff. Fifth,
the court determined that “class members
would be individually subject to affirmative
defenses such as failure to mitigate and duty
to object.”Finally, the court found that there would be
individual questions concerning damages,
because “the proper measure of marketadjusted damages is (1) what clientswould have received if [the broker-dealer]
had performed a suitability analysis andrecommended a suitable investment, less(2) what they actually received from theirinvestments in the [f]unds.”
The court concluded that while plaintiffs may
not pursue their claims as a class, “they may
arguably pursue their individual claims in
FINRA arbitrations if they so choose.”Southern District of New
York: Dismisses Securities
Fraud Class Action Against
an Argentinian Real Estate
Company
On September 10, 2018, the Southern Districtof New York dismissed a securities fraudclass action against an Argentinian real estatecompany and related defendants. Sachsenberg
v. IRSA Inversiones y Representaciones
Sociedad Anónima, 2018 WL 4308546(S.D.N.Y. 2018) (Broderick, J.).4 Plaintiffs
alleged that the company failed to disclose
its control over a recently-acquired Israeli
holding company and failed to consolidate
the financial statements of the Israeli holding
company into its own financial statements.
The court held that plaintiffs failed to allege
any material misstatement or omission
because the Argentinian company did nothave control over the Israeli entity during
4. Simpson Thacher represents IRSA Inversiones y
Representaciones Sociedad Anónima, Cresud Sociedad
Anónima Comercial and executives Eduardo Sergio Elsztain,
Saúl Zang and Matías Iván Gaivironsky.
4the time period at issue due to an ongoingarbitration concerning the acquisition.
Pursuant to International Financial
Reporting Standard 10, which the parties
agreed was the governing rule, “the test for
consolidation . . . is actual practical control
over the subsidiary free of any barriers(economic or otherwise) that prevent an
investor from exercising control.” Thecourt found that because of the ongoingarbitration, the Argentinian company “lacked
the practical ability to exercise control”
over the Israeli entity and thus had no
obligation to consolidate that entity into its
financial statements.
The court further held that plaintiffs failed
to allege scienter. With respect to plaintiffs’
suggestion that defendants sought to avoid
consolidating the Israeli entity to avoid
breaching the Argentinian company’s debt
covenants, the court explained that “thedesire to comply with financial covenants inloan agreements is insufficient to support astrong inference of scienter through motive
and opportunity.” The court also noted that
the Argentinian company subsequently
consolidated the Israeli entity into its
financial statements, yet no noteholder had
claimed a breach of any debt covenant sincethen. The court deemed “circular” plaintiffs’
argument that defendants were reckless infailing to consolidate.

The court held that plaintiffs could not allege
scienter based solely on the theory thatthe alleged fraud involved the company’s“core operations.” The court explainedthat “since the enactment of the [Private
Securities Litigation Reform Act of 1995],
the Second Circuit has expressed doubt as
to the continued independent viability of
the core operations doctrine.” The court

stated that it could consider plaintiffs’“core operations allegations to constitutea supplementary, but not an independent,means to plead scienter.” The court held
plaintiffs “fail[ed] to provide any basis for aconclusion that [d]efendants had a motive
to defraud,” and further found plaintiffs’“allegations of conscious misbehavior or
recklessness . . . virtually nonexistent.”

Northern District of Indiana:
Dismisses Securities Fraud
Class Action Claims Against
Former Private Equity
Investors in a Medical Device
Company
On September 26, 2018, the Northern Districtof Indiana held that plaintiffs adequately
alleged securities fraud claims against a
medical device company, but dismissed
plaintiffs’ Section 12(a)(2) and insider
trading claims against the company’s former
private equity investors (the “Private Equity
Defendants”).5 Shah v. Zimmer Biomet
Holdings, 2018 WL 4637247 (N.D. Ind. 2018)(Simon, J.). The court held plaintiffs did notallege that the Private Equity Defendants
were “statutory sellers of any of the securities
in question,” as required for liability under
Section 12(a)(2) of the Securities Act of 1933.
The court also found plaintiffs did not allege
that the Private Equity Defendants “actuallypossessed material non-public information” at
the time they made the alleged insider trades.
The court explained that “Section 12 liability
attaches only to a person who ‘offers or sells’
a security, and that person is liable only tothose persons ‘purchasing such security fromhim.’” Shah, 2018 WL 4637247 (quoting 15
U.S.C. § 77l(a)(2)). The court further notedthat in Pinter v. Dahl, 486 U.S. 622 (1988),
the Supreme Court “made the categoricallynarrow nature of Section 12 liability clear
and limited it only to ‘the buyer’s immediate
seller.’” Shah, 2018 WL 4637247 (quoting
Pinter, 486 U.S. 622).
In Shah, plaintiffs alleged that the Private
Equity Defendants sold their shares in the
medical device company, but failed to pleadthat plaintiffs purchased those shares from
5. Simpson Thacher represents one of the private equity
defendants, KKR Biomet LLC, in this matter.
5

the Private Equity Defendants. The court
found that the offering documents made clearthat the Private Equity Defendants “agreed tosell to the underwriters.” The court heldthat as a result, “plaintiffs did not purchasetheir stock directly from the Private Equity
Defendants but instead from the underwriters
and thus the Private Equity Defendants
cannot be held liable under Section 12.” Thecourt also found plaintiffs could not groundtheir Section 12 claims on the solicitation ofsales, because plaintiffs did not allege thatany of the Private Equity Defendants “directly
communicated with any plaintiff, encouraging
them to purchase any [company] stock.”“conditions its bid on [these] protections at
the beginning stages of the process . . . before
any economic negotiations commence.” The
Delaware Supreme Court further held that if
the transaction satisfies the MFW standard,then plaintiffs can state a duty of care claim
only by alleging that the independent special
committee acted with gross negligence.
Plaintiffs cannot plead a duty of care violation
based solely on an allegedly inadequate
deal price.

The court found plaintiffs’ insider trading
claims against the private equity defendants
equally insufficient because plaintiffs did
not allege that the private equity investors“actually possessed material non-public
information.” Although plaintiffs allegedthat two of the issuer’s directors were“controlled by” certain of the private equity
defendants, plaintiffs did not allege that “anyinformation relating to [the] problems” atissue was “in fact shared with the Private
Equity Defendants.” The court determinedthat plaintiffs “alleged nothing more than that
the Private Equity Defendants had potential
access to insider information.” The court
explained that “access to information is not
the same as actually possessing the specificinformation and knowing it.”

The MFW court held that the businessjudgment standard of review applies to acontrolling stockholder transaction if thetransaction “is conditioned ab initio upon theapproval of both an independent, adequatelyempowered Special Committee that
fulfills its duty of care, and the uncoerced,
informed vote of a majority of the minority
stockholders.” Kahn v. M&F Worldwide
Corp., 88 A.3d 635 (Del. 2014) (MFW).6
In Synutra, plaintiffs argued that MFW’s
ab initio requirement is satisfied only ifthese two conditions are in place from thecontroller’s first offer. Plaintiffs contended
that “if a controller’s first approach does
not contain the required conditions, then it
is stuck with entire fairness review, even if
the controller still commits itself to MFW’s
requirements early on before any economic
negotiations.” The Delaware Supreme Court
rejected this “cramped reading” of the abinitio requirement, and explained that the
purpose of this rule is simply to ensure thatthe controller cannot use MFW’s conditions
as “bargaining chips” once “negotiations
to obtain a better price from the controller
have commenced.” The court held that the
ab initio requirement is satisfied “so longas the controller conditions its offer on the
key protections at the germination stage of
the Special Committee process” before thestart of “substantive economic negotiations.”
The Delaware Supreme Court stated that its
decision was consistent with its summaryaffirmance of the bench ruling in Swomley v.
Schecht, 2014 WL 4470947 (Del. Ch. 2014),
aff’d, 128 A.3d 992 (Del. 2015) (TABLE).
There, the Delaware Chancery Court foundthe ab initio requirement was satisfied eventhough the controller’s first proposal did

Delaware Supreme Court:
MFW’s Ab Initio Requirement
Is Satisfied if the Controller
Conditions the Transaction on
MFW’s Procedural Protections
Before the Commencementof Substantive Economic
Negotiations
On October 9, 2018, the Delaware Supreme
Court held that MFW does not impose abright-line rule requiring a controllingstockholder to condition a proposedtransaction on the satisfaction of MFW’s
two “key procedural protections” in thecontroller’s initial offer. Flood v. Synutra
Int’l, 2018 WL 4869248 (Del. 2018) (Strine,C.J.). The court found MFW’s ab initio
requirement is satisfied if the controller

MFW’s Ab Initio Requirement Does
Not Impose a Bright-Line, First
Offer Rule

6. Please click here to read our discussion of MFW.
6

not condition the transaction on MFW’sprotections. The Swomley court found it
sufficient that the controller announced
MFW’s conditions “before any negotiations
took place.” Swomley, 2014 WL 4470947.

favorable to minority stockholders.” Thecourt reaffirmed the holding in Swomleythat if a controlling stockholder transaction
was conditioned ab initio on MFW’s two
procedural protections, then “a plaintiff canplead a duty of care violation only by showingthat the Special Committee acted with grossnegligence, not by questioning the sufficiencyof the price.”

Delaware Chancery Court:
Finds a “Material Adverse
Effect” for the First Time

Plaintiffs Cannot Plead a Dutyof Care Violation Based on an
Inadequate Price
In MFW, the Delaware Supreme Court statedin a footnote (footnote 14) that the complaint
at issue may not have survived a motion
to dismiss because “allegations about thesufficiency of the price call[ed] into question
the adequacy of the Special Committee’s
negotiations.” MFW, 88 A.3d 635. Plaintiffs inSynutra relied on MFW’s footnote 14 to argue
that a duty of care violation may be “basedon an insufficient price.” Synutra, 2018 WL
4869248. In Synutra, the Delaware Supreme
Court expressly overruled MFW’s footnote
14 to the extent it suggests that “a due careviolation can be premised . . . on a court’s
after the fact sense that the committee shouldhave extracted more price concessions.” Thecourt held that if the transaction compliedwith MFW’s requirements, then a plaintiff
may not “avoid the business judgment rule byraising questions about whether the Special
Committee . . . was adroit in bargaining.”
The Synutra court explained that “the entire
point of the MFW standard is to recognize
the utility to stockholders of replicating thetwo key protections that exist in a thirdparty merger: an independent negotiating
agent whose work is subject to stockholder
approval.” The court reasoned that “if[the MFW] standard injects the reviewing
court into an examination of whether theSpecial Committee’s good faith efforts”
were effective, then controllers would have“no incentive to use the approach mostOne of the key terms in an acquisition
agreement is “Material Adverse Effect,” which
essentially defines when a buyer does nothave to complete an agreed-upon acquisition
as a result of an adverse change to a target’s
business during the period between signingand closing. Despite all of the attention given
to this term by M&A practitioners, until
the recent decision in Akorn, v. Fresenius
Kabi, 2018 WL 4719347 (Del. Ch. Oct. 1,
2018) (Laster, V.C.), the Delaware Court ofChancery had never found that a buyer was
justified in terminating a public company
merger agreement on the basis that a Material
Adverse Effect occurred.
Delaware courts to consider this issue havefound that a Material Adverse Effect requiresthat “unknown events” threaten earnings
potential in a “durationally-significant
manner.” IBP v. Tyson Foods, 789 A.2d 14(Del. Ch. 2001). In IBP, for example, theDelaware Chancery Court held that a 64%
quarterly decline in year-over-year sales
did not constitute a Material Adverse Effectbecause the decline was only in a single
quarter and the target’s business was cyclicalby nature.
In Akorn, the buyer terminated the merger
agreement on the grounds that (1) significant
declines in the target’s performance
amounted to a Material Adverse Effect (andtherefore, a failure of the standalone MAE
condition), and (2) serious FDA compliance
failures breached the target’s regulatorycompliance representations in a mannerthat constituted a Material Adverse Effect(and therefore, a failure of the target’s
ability to “bring-down” its representations
and warranties at closing). During the four
quarters following execution of the merger7agreement, the target’s year-over-year
EBITDA declined by 86% due to competitors
entering the market, loss of a material
contract and other issues. In the same
period, the target experienced year-over-year
quarterly revenue declines of more than 25%,
operating income declines of more than 80%,and net income declines of more than 90%.
Moreover, a whistle-blower came forwardraising allegations concerning the target’s
FDA compliance practices, and further
investigation uncovered significant FDA
compliance issues which the court determined
reduced the target’s equity value by 21% andwould take up to four years to remedy.
The court held that the buyer had satisfied
its “heavy burden” to demonstrate that aMaterial Adverse Effect had occurred basedon both the severe decline in the target’s
performance and its myriad FDA complianceissues. With respect to the target’s businessperformance, for example, the court foundthat the year-over-year decline was material
and durationally significant as “[t]here is
every reason to think that the additional
competition will persist and no reason tobelieve that [the target] will recapture its lost
contract.” Additionally, while cautioning thata 20% decline in a target’s equity value is
not necessarily sufficient to show a Material
Adverse Effect, the court found that the
21% decline coupled with the need for up to
four years to remedy the compliance issues

meaningfully contributed to satisfying theMaterial Adverse Effect standard. The target
argued that its decline in performance and
FDA compliance issues could not result in a
Material Adverse Effect because the buyer
knew of the potential for competition and
was aware of some FDA compliance issues
from its due diligence. The court rejected
this argument, and explained that risks
that a buyer discovers in its diligence will
not preclude the buyer from showing that aMaterial Adverse Effect has occurred basedon problems that arose as a result of thoserisks. Rather, the court looks to the terms ofa contract and its allocation of risks between
the parties to determine whether the parties
specifically agreed to exclude items uncoveredin due diligence or unforeseen events fromthe definition of Material Adverse Effect.
It does not appear that Akorn represents a seachange in Delaware law on what constitutes aMaterial Adverse Effect. The court reaffirmed
its prior decisions requiring an adversechange to threaten earnings potential ina “durationally-significant manner.” The
Akorn ruling is also specific to the facts
and circumstances of the transaction.
Nonetheless, the decision will likely be heavily
scrutinized by practitioners as the only
concrete example to date of a Delaware court
finding a Material Adverse Effect. The target
has appealed the Akorn ruling.

This edition of the
Securities Law Alert was edited byAlexis S. Coll-Veryacoll-very@stblaw.com / +1-650-251-5201,
Susannah S. Geltman
sgeltman@stblaw.com / +1-212-455-2762,
Cheryl J. Scarboro
cscarboro@stblaw.com / +1-202-636-5529,
and Deborah L. Stein
dstein@stblaw.com / +1-310-407-7525.

8

New York

Los Angeles

Brooke E. Cucinella+1-212-455-3070
brooke.cucinella@stblaw.com

Lynn K. Neuner+1-212-455-2696
lneuner@stblaw.com

Michael D. Kibler+1-310-407-7515
mkibler@stblaw.com

Paul C. Curnin+1-212-455-2519
pcurnin@stblaw.com

Michael J. Osnato, Jr.
+1-212-455-3252
michael.osnato@stblaw.com

Chet A. Kronenberg+1-310-407-7557
ckronenberg@stblaw.com

Stephen M. Cutler+1-212-455-2773
stephen.cutler@stblaw.com

Mark J. Stein+1-212-455-2310
mstein@stblaw.com

Deborah L. Stein+1-310-407-7525
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Michael J. Garvey+1-212-455-7358
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Alan C. Turner+1-212-455-2472
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Palo Alto

Susannah S. Geltman+1-212-455-2762
sgeltman@stblaw.com

Craig S. Waldman+1-212-455-2881
cwaldman@stblaw.com

Paul C. Gluckow+1-212-455-2653
pgluckow@stblaw.com

George S. Wang
+1-212-455-2228
gwang@stblaw.com

Nicholas S. Goldin+1-212-455-3685
ngoldin@stblaw.com

Jonathan K. Youngwood+1-212-455-3539
jyoungwood@stblaw.com

Peter E. Kazanoff+1-212-455-3525
pkazanoff@stblaw.com

David Elbaum
Senior Counsel+1-212-455-2861
david.elbaum@stblaw.com

Joshua A. Levine+1-212-455-7694
jlevine@stblaw.com
Linton Mann III+1-212-455-2654
lmann@stblaw.com
Joseph M. McLaughlin+1-212-455-3242
jmclaughlin@stblaw.com

Janet A. Gochman
Senior Counsel+1-212-455-2815
jgochman@stblaw.com

Stephen P. Blake+1-650-251-5153
sblake@stblaw.com
Alexis S. Coll-Very+1-650-251-5201
acoll-very@stblaw.com
James G. Kreissman+1-650-251-5080
jkreissman@stblaw.com
Simona G. Strauss
Senior Counsel+1-650-251-5203
sstrauss@stblaw.com

Washington, D.C.
Jeffrey H. Knox
+1-202-636-5532
jeffrey.knox@stblaw.com
Cheryl J. Scarboro+1-202-636-5529
cscarboro@stblaw.com
Peter C. Thomas+1-202-636-5535
pthomas@stblaw.com

The contents of this publication are for informational purposes only. Neither this publication nor the
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