Opinion ID: 2189591
Heading Depth: 1
Heading Rank: 12

Heading: Fraud Allegations Inadequate

Text: The plaintiff submits that the amended complaint charges with particularized factual allegations that the purported merger of equals in reality was an acquisition of Kinross by Amax Gold and, therefore, that the merger was structured, with Kinross as parent and Amax Gold as subsidiary, to deny plaintiff standing to pursue this action. The Court of Chancery, however, was unable to discern any allegations in the plaintiff's amended complaint to suggest that the merger was the product of fraud. [42] The Court of Chancery's determination that the facts alleged were not sufficient to invoke the fraud exception to Lewis v. Anderson is supported by the record. The Court of Chancery reasoned that for it to make economic sense for Cyprus  the then owner of over 58% of Amax Gold  to enter into the merger solely to eliminate the plaintiff's derivative claims, Cyprus' potential liability from the plaintiff's derivative action would have needed to be greater than the financial loss it would have experienced by accepting an inadequate price for its Amax Gold shares. According to the Court of Chancery, however, the plaintiff was unable to identify with any precision the magnitude of [her] claims regarding the unfair financing that Cyprus Amax allegedly provided to Amax Gold and, [m]ost critically, nothing in the complaint supports a rational inference that Cyprus Amax would have entered into a merger divesting itself of 58% of Amax Gold solely to insulate itself and its affiliated directors from liability in this derivative action. The Court of Chancery concluded that [g]iven the magnitude of the merger transaction, the involvement of an Amax Gold special committee, and a third-party merger partner like Kinross, the absence of well-pled facts suggesting that the liability Cyprus Amax and its affiliated directors faced was so substantial as to have motivated them to cause Amax Gold to enter into a pretextual merger with another publicly traded company at a sub-optimal price is fatal. We agree. The amended complaint makes no allegation that the Amax Gold Board of Directors dictated the structure of the Kinross Merger or that the Amax Gold Board even considered the plaintiff's derivative claims when it approved the Kinross Merger. In the absence of such allegations, the Court of Chancery properly determined that the mere fact that Amax Gold and Kinross chose to structure the merger as a reverse triangular merger provides no rational basis to infer that the merger was a fraud designed merely to deprive stockholders of the corporation that has lost its status as a public company of derivative standing. In reaching that determination, the Court of Chancery properly recognized that no inference regarding Amax Gold's intent for entering into the merger can be drawn from the fact that Kinross was the surviving company after the merger, as opposed to Amax Gold, because triangular mergers are common and have a myriad of legitimate justifications. [43] In its analysis of the plaintiff's amended derivative complaint, the Court of Chancery properly construed our holding in Lewis v. Anderson as focusing the `fraud' inquiry on the board facing a derivative suit and whether that board caused the company [Amax Gold] to merge with another party simply to avoid defending the derivative suit rather than for other valid business reasons.