Source: https://www.jdsupra.com/legalnews/skadden-s-2019-insights-key-delaware-91160/
Timestamp: 2019-04-21 15:13:22+00:00

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The Delaware courts issued a number of significant decisions in 2018 that are likely to have ripple effects throughout 2019. Among them were a series of cases that further developed the parameters of the Corwin and MFW doctrines, a case of first impression invalidating a forum selection provision that sought to require Securities Act claims to be brought in federal court, the first-ever Delaware case approving the termination of a merger because of a material adverse effect (MAE), and the finding of “fair value” in an appraisal proceeding based on the unaffected market price of a company’s stock.
The Delaware Supreme Court’s 2015 decision in Corwin v. KKR Financial Holdings LLC granted a potentially powerful litigation tool to corporate directors and officers — irrebuttable business judgment deference to decisions approved by a majority of disinterested, fully informed and uncoerced stockholders (the so-called Corwin doctrine). Among the questions left unanswered was how the Delaware courts would measure whether stockholder approval was “fully informed.” The Delaware Supreme Court and Court of Chancery addressed that question in a series of opinions in 2018, holding in several notable instances that disclosures fell short of fully informing stockholders, thereby rendering the Corwin doctrine unavailable.
In a series of opinions in 2018, the Delaware Supreme Court and Court of Chancery held that disclosures fell short of fully informing stockholders, thereby rendering the Corwin doctrine unavailable.
Similarly, in Morrison v. Berry, the Supreme Court reversed the Court of Chancery’s dismissal under Corwin based on “‘partial and elliptical disclosures’ [that] do not satisfy Corwin.” The action arose from the acquisition of The Fresh Market (TFM) by an entity owned by Apollo Management, L.P. through a two-step tender offer and merger. In its ruling, the court held that the proxy misrepresented the agreement allegedly reached between Apollo and TFM’s founder and his son, as well as the founder’s alleged preference to only deal with Apollo and his threat to sell his shares.
These cases illustrate how full and complete disclosure in connection with a fundamental transaction can be highly case-specific, how Corwin can be defeated at the pleadings stage without any finding that the underlying alleged facts are actually true, and that the court will carefully review the challenged disclosures to determine whether a shortcoming exists that will prevent application of the Corwin doctrine. In 2019, we will be watching for further developments in Delaware disclosure law as it applies to this doctrine.
In Flood v. Synutra International, Inc., the Supreme Court clarified that, for purposes of MFW, “from the beginning” means “before the start of substantive economic negotiations.” This line of demarcation serves “to have both the controller and the Special Committee bargain under the pressures exerted on both of them by these [procedural] protections.” Thus, “so long as the controller conditions its offer on the key protections at the germination stage of the Special Committee process, when it is selecting its advisors, establishing its method of proceeding, beginning its due diligence, and has not commenced substantive economic negotiations with the controller, the purpose of the pre-condition requirement of MFW is satisfied.” We anticipate that 2019 will further illuminate when “substantive economic negotiations” begin — a topic of spirited debate among the academic community and Delaware law practitioners.
In a seminal 2013 decision, Boilermakers Local 154 Retirement Fund v. Chevron Corp., the Court of Chancery upheld the validity of a provision in Chevron’s bylaws requiring “internal corporate claims” — i.e., those claims subject to the internal affairs doctrine, such as claims for breach of fiduciary duty — to be litigated in Delaware courts. This decision was subsequently codified at 8 Del. C. § 115, which expressly allows forum selection provisions to be included in the certificate of incorporation or the bylaws of a Delaware corporation. In the years since, corporations, practitioners, scholars and the media all questioned how far the forum selection provision could extend. In December 2018, the Court of Chancery provided an answer.
The Sciabacucchi decision is likely to be appealed, and the outcome of that appeal will be closely watched for its potential implications for future forum selection cases.
Delaware’s first judicial finding of an MAE in a merger transaction, Akorn, Inc. v. Fresenius Kabi AG, went from filing to affirmance on appeal in less than eight months. The case began in April 2018, when Akorn filed its complaint seeking a declaratory judgment that Fresenius could not terminate the parties’ merger agreement. The Court of Chancery held that Fresenius, the acquirer, could validly terminate the merger agreement with Akorn, the seller, because of the presence of two separate and independent MAEs. First, it found that Akorn’s business “fell off a cliff” right after the merger agreement was approved by stockholders, and that this decline continued for a “durationally significant” period of time (five quarters), showed “no sign of abating” and could not be attributed to general industry decline or other MAE exceptions in the merger agreement.
In December 2018, the Delaware Supreme Court affirmed the Court of Chancery’s judgment because it found that the “record adequately supports” the Court of Chancery’s findings on both MAE points. (For more, see our December 21, 2018, client alert “Delaware Supreme Court Affirms Akorn.”) Whether Akorn establishes any “thresholds” buyers must clear in order to prove an MAE or merely provides data points on an evolving landscape remains to be seen.
Appraisal law has been a significant focus of the Delaware courts over the past several years. In 2019, the Delaware Supreme Court is poised to issue a ruling in the appeal Verition Partners Master Fund Ltd. v. Aruba Networks, Inc., an appraisal action where the Court of Chancery held after trial that Aruba Networks’ most recent 30-day average unaffected market price was the best evidence of “fair value,” even though that price was more than 30 percent below the merger price. The court reasoned that its use of unaffected market price was consistent with other recent noteworthy Delaware Supreme Court appraisal decisions — such as DFC and Dell — where the driving valuation argument was that the merger price (as opposed to an expert-driven valuation analysis) was the best evidence of appraisal value.
Companies, practitioners, scholars and the media are closely watching the case, and the Supreme Court’s decision is one of the most highly anticipated Delaware opinions of 2019.

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