Court Opinion

ID: 4113502
Source: CourtListenerOpinion
Date Created: 2017-01-05 19:06:17.759055+00
Date Added: 2024-06-11T14:49:23.790943
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN RE SOLERA HOLDINGS, INC.                  CONSOLIDATED
STOCKHOLDER LITIGATION                       C.A. No. 11524-CB

                          MEMORANDUM OPINION

                        Date Submitted: October 13, 2016
                         Date Decided: January 5, 2017

R. Bruce McNew and Andrea S. Brooks, WILKS LUKOFF & BRACEGIRDLE
LLC, Wilmington, Delaware; Randall J. Baron, David T. Wissbroecker, Maxwell R.
Huffman, and Eun Jin Lee, ROBBINS GELLER RUDMAN & DOWD LLP, San
Diego, California, Attorneys for Plaintiff City of Warren Police and Fire Retirement
System.

Raymond J. DiCamillo, Kevin M. Gallagher, and Sarah A. Clark, RICHARDS,
LAYTON & FINGER, P.A., Wilmington, Delaware; Brian T. Frawley and
Chimnomnso N. Kalu, SULLIVAN & CROMWELL LLP, New York, New York,
Attorneys for Defendants Tony Aquila, Stuart J. Yarbrough, Thomas C. Wajnert,
Thomas A. Dattilo, Kurt J. Lauk, Arthur Kingsbury, Patrick D. Campbell, and
Michael E. Lehman.

William M. Lafferty and D. McKinley Measley, MORRIS, NICHOLS, ARSHT &
TUNNELL LLP, Wilmington, Delaware, Attorneys for Defendants Vista Equity
Partners Fund V, L.P., Summertime Holding Corporation, and Summertime
Acquisition Corporation.

BOUCHARD, C.
      In this action, a former stockholder of Solera Holdings, Inc. challenges a

private equity firm’s acquisition of the company for $55.85 per share or a total of

approximately $3.7 billion in a merger that closed in March 2016. The transaction

followed a sale process that involved the solicitation of numerous financial firms

and strategic companies, and a go-shop designed to permit Solera to continue its

discussions with an additional strategic company that surfaced during the solicitation

period. That company ultimately decided not to bid higher during the go-shop

period, citing a decline in its stock price and volatility in the financing markets.

      The complaint asserts a single claim for breach of fiduciary duty against the

eight members of Solera’s board who approved the transaction, seven of whom were

outside directors. The transaction did not involve a controlling stockholder, and the

independence and disinterestedness of the outside directors has not been challenged

seriously. As such, plaintiff sensibly does not contend that the transaction is subject

to entire fairness review, but does contend that it calls for enhanced scrutiny under

Revlon and its progeny.

      Defendants have moved to dismiss the complaint for failure to state a claim

for relief. As explained below, I conclude based on longstanding doctrine reaffirmed

in Corwin v. KKR Financial Holdings LLC that the Solera board’s decision to

approve the transaction is subject to the business judgment presumption because, in

a fully-informed and uncoerced vote, a disinterested majority of Solera’s

                                           1
stockholders approved the merger, which offered them a 53% unaffected premium

for their shares. The complaint thus must be dismissed because it is not alleged that

the board’s decision to approve the merger constituted waste.

I.    BACKGROUND

      Unless noted otherwise, the facts recited in this opinion come from the

allegations of the Verified Consolidated Amended Complaint (the “Complaint”) and

the documents incorporated therein.

      A.     The Parties

      Solera Holdings, Inc. (“Solera” or the “Company”) is a provider of risk and

asset management software and services to the automotive and property

marketplace, including the global property and casualty insurance industry.

Founded in 2005, Solera went public in May 2007. As of October 26, 2015, Solera

had approximately 67.2 million shares of common stock outstanding. In March

2016, Solera merged with an affiliate of Vista Equity Partners (“Vista”) in the

transaction that is the subject of this action (the “Merger”).

      Plaintiff City of Warren Police and Fire Retirement System alleges it held

shares of Solera common stock at all relevant times.

      The Complaint names as defendants the eight members of Solera’s board of

directors during the sale process that led to the Merger. Defendant Tony Aquila was

Solera’s founder, President, CEO, and Chairman of the board. Aquila was the only

                                           2
management-director on Solera’s eight-member board.               Defendants Stuart J.

Yarbrough, Thomas A. Dattilo, and Patrick D. Campbell served on the special

committee the board formed in July 2015 to consider the Company’s strategic

alternatives.      Datillo and Campbell also served on the board’s Compensation

Committee, along with Thomas C. Wajnert.

         B.     Solera Explores a Potential Sale

         Over a two-year period before May 2015, Aquila engaged in informal

discussions with private equity firms regarding a potential go-private transaction.

Through these discussions, Aquila allegedly learned that “although strategic

acquirers were likely to pay more for the Company, only private equity buyers were

likely to provide him post-merger employment and investment opportunities.”1

         On May 6, 2015, during a conference call after Solera released its third quarter

report, Aquila made the following comment that allegedly put Solera in play: “[W]e

got the short game playing out there. And we’ve got to thread the needle. And the

only other option to that is to go private.”2 After the call, Aquila had discussions

with several private equity firms regarding a potential transaction.

         On July 19, 2015, Solera received a written indication of interest from a

private equity firm (“Party A”) for an all-cash acquisition of the Company at a price

1
    Compl. ¶ 46.
2
    Compl. ¶ 49.

                                             3
between $56 and $58 per share. Party A confirmed that it would agree to provide

continuing roles for Aquila and his management team after the proposed transaction.

      C.     The Sale Process Starts

      On July 20, 2015, Solera’s board formed a special committee consisting of

Yarbrough, Campbell, and Dattilo (the “Special Committee”) to consider the

Company’s strategic alternatives. Yarbrough was named Chairman of the Special

Committee. On July 25, 2015, the Special Committee engaged Centerview Partners

LLC (“Centerview”) as its financial advisor.

      On July 30, 2015, Centerview provided the Special Committee with a list of

potential private equity and strategic buyers. The Special Committee instructed

Centerview to contact six private equity firms and five strategic companies on the

list, but excluded from this outreach effort a potential strategic buyer known as

“Party B” because Party B was a competitor of the Company.

      Between August 1 and August 10, 2015, Solera entered into confidentiality

agreements with Vista, Party A, and four other private equity firms—Parties C, D,

E, and F. These confidentiality agreements contained standstill provisions that

terminated automatically upon Solera’s entry into a definitive agreement with

respect to a sale transaction. On August 10, 2015, Centerview instructed Vista and

Parties A, C, D, and F to submit written indications of interest by August 17, 2015.

                                         4
         On August 11, 2015, the Special Committee met with Centerview, Sullivan &

Cromwell LLP, and Richards, Layton & Finger, P.A. to discuss ways to obtain

financing for the potential private equity buyers. The Special Committee thereafter

entered into confidentiality agreements with potential financing sources, including

Goldman, Sachs & Co. and Koch Industries, and introduced Vista and Party A to

potential financing partners. By the end of the first week of August, some of the

strategic companies Centerview had contacted had dropped out of the process

because they were involved in other transactions.

         On August 17, 2015, Vista, Party A, and Party C submitted indications of

interest to acquire Solera at $63 per share, $60 per share, and between $60 and $62

per share, respectively. Between August 18 and August 21, Solera entered into

confidentiality agreements with Koch Equity Development, LLC, a subsidiary of

Koch Industries, and three other potential financing sources.

         D.    Party B Enters the Sale Process after a News Leak

         On August 19, 2015, Bloomberg published an article indicating that Solera

was exploring a potential sale with private equity firms, which caused Solera to issue

a press release the next day announcing that it was “exploring a variety of strategic

alternatives.”3    Two days later, on August 21, Party B contacted Centerview

3
    Compl. ¶ 77.

                                          5
indicating its interest in a potential transaction, which it expressed in writing the next

day.

       From August 21 to August 23, Party B’s financial advisor indicated to

Centerview that Party B would be able to offer a value in excess of the then-rumored

highest bid of $63 per share. On August 24, 2015, Party B signed a confidentiality

agreement. Around this time, the global equity markets declined sharply, with the

MSCI Asia ex-Japan, MSCI Europe, and MSCI U.S. indices declining by 8.5%,

8.7%, and 8.6%, respectively.

       On September 1, 2015, Party B submitted a written indication of interest to

acquire the Company at a price between $55 and $58 per share consisting of 75%

cash and 25% stock. On the same day, the Special Committee sent a draft merger

agreement to Party A and Vista. On September 3, 2015, Party B submitted an

increased offer at a price of $60 per share with an unspecified mix of consideration.

       E.    The Board Approves the Merger with Vista

       On September 4, 2015, Vista submitted a reduced offer at a price of $55 per

share and Party A submitted a reduced offer at a price of $56 per share. Later that

day, Centerview informed Vista that it would need to increase its price to at least

$56 per share, which Vista agreed to do.

       On September 8, 2015, Party A confirmed its $56 per share offer. That same

day, Vista again reduced its offer, this time to $53 per share, which the Special

                                            6
Committee stated was inadequate. On September 11, 2015, Party A submitted a

reduced offer at $54 per share and Vista submitted a revised offer at $55.85 per

share. On September 12, 2015, the Solera board unanimously approved a transaction

whereby Vista would acquire the Company in a merger for $55.85 per share pursuant

to an Agreement and Plan of Merger (the “Merger Agreement”).

      The Merger Agreement contained a 72-hour, renewing matching right

provision that allowed Vista to match any offer, and a non-solicitation provision

prohibiting the Company from soliciting any bidder other than Party B. As to Party

B, the Merger Agreement contained a go-shop provision permitting the Company to

continue discussions with Party B for 28 days after the date of the Merger

Agreement. The Merger Agreement also contained a two-tiered termination fee

provision designed to work in coordination with the go-shop provision. In the first

tier, Party B would be required to pay Vista a termination fee of $38.15 million

(about 1 percent of the equity value of the Merger) and to reimburse up to $5 million

of its expenses if the Company terminated the Merger Agreement within the 28-day

go-shop period to enter into an alternative transaction with Party B. In the second

tier, any other successful bidder for the Company (or Party B if the Company did

not terminate the Merger Agreement before the expiration of the 28-day go-shop)

would be required to pay Vista a termination fee of $114.4 million (about 3 percent

of the equity value of the Merger).

                                         7
         On September 13, 2015, Solera announced the Merger in a press release:

         Solera Holdings, Inc. . . . has entered into a definitive merger
         agreement . . . pursuant to which an affiliate of Vista Equity Partners . . .
         will acquire Solera in a transaction valued at approximately $6.5
         billion . . . including the existing net debt of Solera. Other key investors
         include an affiliate of Koch Equity Development LLC . . . the
         investment and acquisition subsidiary of Koch Industries, Inc., and an
         affiliate of Goldman, Sachs & Co.

         Pursuant to the Merger Agreement, Vista will acquire 100% of the
         outstanding shares of Solera common stock for $55.85 per share in cash
         in the Merger. The purchase price represents an unaffected premium
         of 53% over Solera’s closing share price of $36.39 on August 3, 2015.4

After this announcement, Solera provided Party B with access to the electronic data

room compiled for the other prospective bidders, but excluded Party B from

reviewing certain documents that the Company deemed to be “highly competitively

sensitive.”5

         On September 29, 2015, twelve days before the expiration of the 28-day go-

shop period, Party B’s financial advisor informed the Company that it would not

submit a proposal to acquire the Company due to, among other things, “recent

downward movements in Party B’s trading price and volatility in the financing

markets.”6

4
    Compl. ¶ 121. (quoting press release).
5
    Compl. ¶ 122.
6
    Compl. ¶ 122 (quoting Proxy Statement).

                                              8
         F.    The Compensation Committee Approves Certain Payments to
               Management During the Sale Process

         On August 11, 2015, in the midst of the sale process, the Special Committee

discussed implementing a new management retention and compensation plan. On

August 13, 2015, the Special Committee referred this issue to the Compensation

Committee, which consisted of three members, two of whom (Datillo and Campbell)

served on the Special Committee. Datillo was the chair of the Compensation

Committee. The third member of the Compensation Committee was Thomas C.

Wajnert.

         On August 23, 2015, the Compensation Committee approved a retention plan

that would pay an aggregate amount of $33 million to the Company’s management

team (the “Retention Plan”). Of the $33 million, Aquila was allocated $18 million,

half of which was payable only upon the closing of a transaction, and the other half

was due to be paid to him on August 22, 2016, even if the sale of the Company fell

through.7      The Retention Plan also allocated $815,000 to Renato Giger, the

Company’s Chief Financial Officer, and $3.5 million to Jason Brady, the Company’s

Senior Vice President, General Counsel, and Secretary. Both of these amounts were

payable only upon the closing of a transaction.8

7
    Compl. ¶¶ 81, 84.
8
    Compl. ¶ 81.

                                          9
         On August 25, 2015, the Compensation Committee approved a $10 million

special cash award to Aquila purportedly in recognition of Aquila’s “contributions

during fiscal 2015 above and beyond [his] actual achievements measured against his

Annual Business Incentive Plan performance objectives” (the “Special Cash

Award”).9 Solera paid the Special Cash Award to Aquila on August 27, 2015.10

         The Complaint asserts that the $33 million Retention Plan “served no

legitimate purpose” because there already were retention plans in place for Solera’s

management, including Aquila, Giger, and Brady.11 In particular, the Company had

granted various incentive awards to management in connection with “Mission

2020,” a program that was established in August 2012 to grow the Company to $2

billion in revenue and $800 million in Adjusted EBITDA by 2020.12 The Mission

2020 awards consisted of time-based awards and performance-based awards, both

of which had a strike price of $58.33.13

         Giger and Brady received “Mission 2020 Awards” in 2013 consisting of non-

vested stock options and, as of October 28, 2015, stood to receive significant benefits

9
    Compl. ¶ 92 (quoting Proxy Statement).
10
     Compl. ¶ 100.
11
     Compl. ¶ 82.
12
  Compl. ¶ 24. Solera later raised the target to $840 million of Adjusted EBITDA in view
of the strong financial performance of the Company. Compl. ¶¶ 35, 54.
13
     Compl. ¶ 124.

                                             10
from Mission 2020 awards they had received previously in the form of performance-

based restricted stock units (PSUs), restricted stock units (RSUs), and stock

options.14     On March 9, 2015, separate from the Mission 2020 plan, the

Compensation Committee awarded Aquila as a “retention award” shares of stock

that would vest upon a merger having a current value of $3.5 million.15

         On December 8, 2015, at the same meeting at which Solera’s stockholders

were asked to approve the Merger, the stockholders separately were asked to

approve, on a non-binding advisory basis, compensation that would be paid to the

Company’s named executive officers (Aquila, Giger, and Brady) in connection with

the Merger, including the payments due under the Retention Plan.16 Solera’s

stockholders rejected this proposal. Because the stockholder vote was non-binding,

plaintiff alleges (and defendants do not dispute) that Solera likely paid out the

retention payments.

14
  Compl. ¶ 82 (“As of the filing of the Amended 10-K on October 28, 2015, the remaining
balance Giger stood to receive after the first phase (the sooner of the end of fiscal year
2017 or a merger) of 2020 awards was $1,563,797 in PSU awards, $781,899 in RSU awards
and $781,899 in stock options. The remaining balance Brady stood to receive after the first
phase is $995,149 in PSU awards, $497,546 in RSU awards and $497,546 in stock
options.”).
15
     Compl. ¶ 82.
16
     Compl. ¶ 129.

                                            11
      G.     Procedural History

      On September 21, 2015, Edward A. Braunstein, a Solera stockholder, filed an

action in this Court seeking to enjoin the consummation of the proposed Merger. On

October 22, 2015, Braunstein filed an amended complaint, a motion for a

preliminary injunction, and a motion for expedited proceedings.

      In support of his motion for expedited proceedings, Braunstein challenged the

sale process, in particular with respect to how Party B was treated, and argued that

Solera’s preliminary proxy statement, issued on October 5, 2015, was materially

false and misleading in several respects. On November 5, 2015, after briefing and

argument, I denied the motion to expedite, finding that the sale process and

disclosure claims Braunstein had advanced were not colorable.17

      On November 17, 2015, almost two weeks after the motion for expedited

proceedings was denied in the Braunstein action, another stockholder of Solera—

City of Warren Police and Fire Retirement System—filed a separate complaint in

connection with the proposed Merger. On January 29, 2016, the Warren action was

consolidated with the Braunstein action, and the City of Warren Police and Fire

Retirement System was appointed as the lead plaintiff.

17
  Braunstein v. Aquila, C.A. No. 11524-CB, Transcript at 49-54 (Del. Ch. Nov. 5, 2015).
The definitive proxy statement was issued before this hearing, on October 30, 2015.

                                          12
         On December 8, 2015, the stockholders of Solera voted to approve the

Merger, which closed on March 3, 2016.18

         On March 23, 2016, plaintiff City of Warren Police and Fire Retirement

System filed a Verified Consolidated Amended Complaint (as defined above, the

“Complaint”) on behalf of a putative class of Solera’s common stockholders. The

Complaint asserts a single claim for breach of fiduciary duty against the eight

members of Solera’s board who approved the Merger.

         On April 22, 2016, defendants moved to dismiss the Complaint under Court

of Chancery Rule 12(b)(6) for failure to state a claim for relief. Argument on this

motion was heard on October 13, 2016.

II.      ANALYSIS

         This Court will grant a motion to dismiss under Court of Chancery Rule

12(b)(6) only if the “plaintiff could not recover under any reasonably conceivable

set of circumstances susceptible of proof.”19 In making this determination, the Court

will “accept all well-pleaded allegations as true and draw all reasonable inferences

in the plaintiff’s favor.”20 The Court is not required, however, to accept mere

conclusory allegations as true or make inferences unsupported by well-pleaded

18
     Compl. ¶¶ 150-51.
19
  Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531, 536 (Del.
2011).
20
     Norton v. K-Sea Transp. P’rs L.P., 67 A.3d 354, 360 (Del. 2013).

                                             13
factual allegations.21 The Court also “is not required to accept every strained

interpretation of the allegations proposed by the plaintiff.”22

         The Complaint asserts a single claim for breach of fiduciary duty against the

eight members of Solera’s board concerning their approval of the Merger. More

specifically, the Complaint alleges that the defendants improperly favored the

interests of Aquila and the Company’s management, failed to establish an effective

Special Committee or to extract the highest price possible for the Company,

implemented preclusive deal protection devices, and failed to disclose material

information about the value of the Company’s stock.23

         Plaintiff does not assert that the Merger should be subject to entire fairness

review, and no reason is apparent why it would be. The Merger did not involve a

controlling stockholder, and plaintiff does not assert that a majority of the eight

members of Solera’s board, seven of whom were outside directors, were not

independent or disinterested.24 Plaintiff instead argues that the board’s conduct of

 In re Lukens Inc. S’holders Litig., 757 A.2d 720, 727 (Del. Ch. 1999), aff’d sub nom.
21

Walker v. Lukens, Inc., 757 A.2d 1278 (Del. 2000) (TABLE).
22
     In re Gen. Motors (Hughes) S’holders Litig., 897 A.2d 162, 168 (Del. 2006).
23
     Compl. ¶ 162 (a)-(e).
24
   Plaintiff’s counsel acknowledged during argument that they do not challenge the
disinterestedness of the outside directors and that plaintiff’s only challenge to their
independence concerns the management compensation decisions made during the sale
process, which only involved the three members of the Compensation Committee. Tr. Oral
Arg. at 34-37 (Oct. 13, 2016). See also Compl. ¶ 59 (challenging independence of

                                             14
the sale process and decision to approve the Merger calls for enhanced scrutiny under

Revlon and its progeny.25 But as our Supreme Court explained last year in Corwin

v. KKR,26 Revlon was “primarily designed to give stockholders and the Court of

Chancery the tool of injunctive relief to address important M&A decisions in real

time, before closing,” and was not a tool “designed with post-closing money

damages claims in mind.”27

          In the post-closing context, the Supreme Court held in Corwin that “when a

transaction not subject to the entire fairness standard is approved by a fully informed,

uncoerced vote of the disinterested stockholders, the business judgment rule

applies.”28        This rule flows from our “long-standing policy . . . to avoid the

Campbell and Datillo for approving additional compensation for management during the
sale process).
25
   Revlon, Inc. v. MacAndrews & Forbes Hldgs., Inc., 506 A.2d 173, 182 (Del. 1986)
(“[When] the break-up of the company [is] inevitable[,] . . . [t]he duty of the board . . .
change[s] from the preservation of [the company] as a corporate entity to the maximization
of the company’s value at a sale for the stockholders’ benefit.”).
26
     125 A.3d 304 (Del. 2015).
27
     Id. at 312.
28
   Id. at 308-09. After carefully reviewing the context of this statement, Vice Chancellor
Slights concluded in Larkin v. Shah that the Supreme Court did not intend to suggest that
every form of transaction that otherwise may be subject to entire fairness review was
exempt from the potential cleansing effect of stockholder approval, but that “the only
transactions that are subject to entire fairness that cannot be cleansed by proper stockholder
approval are those involving a controlling stockholder.” Larkin v. Shah, 2016 WL
4485447, at *10 (Del. Ch. Aug. 25, 2016); see also In re KKR Fin. Hldgs. LLC S’holder
Litig., 101 A.3d 980, 1003 (Del. Ch. 2014) (“even if the plaintiffs had pled facts from
which it was reasonably inferable that a majority of . . . directors were not independent, the
business judgment standard of review still would apply to the merger because it was

                                             15
uncertainties and costs of judicial second-guessing when the disinterested

stockholders have had the free and informed chance to decide on the economic

merits of a transaction for themselves.”29 More recently in Singh v. Attenborough,

our Supreme Court further explained that: “When the business judgment rule

standard of review is invoked because of a vote, dismissal is typically the result.

That is because the vestigial waste exception has long had little real-world relevance,

because it has been understood that stockholders would be unlikely to approve a

transaction that is wasteful.”30

          There is no dispute that a majority of Solera’s disinterested stockholders

approved the Merger in an uncoerced vote after receiving a definitive proxy

statement dated October 30, 2015 (the “Proxy Statement”).31 Plaintiff does not

contend, furthermore, that the decision to approve the Merger was an act of waste.

Thus, the threshold question that defendants’ motion to dismiss presents, which

would be decisive to the resolution of the present motion if answered in the

affirmative, is whether the Solera’s stockholders’ approval of the Merger was fully-

informed. I turn to that question next.

approved by a majority of the shares held by disinterested stockholders . . . in a vote that
was fully informed.”).
29
     Id. at 313.
30
     Singh v. Attenborough, 137 A.3d 151, 151-52 (Del. 2016).
31
     Clark Aff. Ex. 2.

                                            16
                1.     The Pleading Standard when the Cleansing Effect of a
                       Stockholder Vote is Put at Issue

         Before considering the merits of the specific disclosure issues in this case, I

pause to address a question that was the point of some confusion in the parties’

presentations—how does the burden of proof operate when applying the standard-

shifting principles arising from a fully-informed, uncoerced vote of a majority of

disinterested stockholders that the Supreme Court reaffirmed in Corwin?

         In 1999, Chancellor Chandler explained in Solomon v. Armstrong that the

party bearing the burden of proof on disclosure issues varies depending on whether

the issue arises as an affirmative claim or as part of a ratification defense:

         In their analyses of Delaware’s disclosure jurisprudence, there appears
         to be some dispute among the litigants over who bears the burden of
         proof on disclosure issues. The answer is that it depends on which type
         of disclosure claim is made by whom. As far as claims of material
         misstatements, omissions and coercion go, the law is clear that plaintiff
         bears the burden of proof that disclosure was inadequate, misleading,
         or coercive. On the other hand, when it comes to claiming the
         sufficiency of disclosure and the concomitant legal effect of
         shareholder ratification after full disclosure (e.g., claim
         extinguishment, the retention of the business judgment rule
         presumptions, or the shift of the burden of proof of entire fairness from
         the defendant to the plaintiff) it is the defendant who bears the burden.32

Later that year, Chief Justice Strine, writing as a Vice Chancellor, agreed in the

Harbor Finance case that, when a board seeks “to obtain ‘ratification effect’ from a

32
     Solomon v. Armstrong, 747 A.2d 1098, 1128 (Del. Ch. 1999) (internal citations omitted).

                                              17
stockholder vote,” the “burden to prove that the vote was fair, uncoerced, and fully

informed falls squarely on the board.”33

         In deciding Corwin at the trial court level, I endorsed the same allocation of

the burden of proof, holding that the burden to show the vote was fully-informed fell

on the defendants asserting a “ratification” defense.34 Although the Supreme Court

did not address the issue directly on appeal, it appeared to agree with this

allocation,35 and later decisions of this Court have taken the same approach.36 To

state that defendants bear the burden to establish that a vote is fully informed,

33
     Harbor Finance P’rs v. Huizenga, 751 A.2d 879, 899 (Del. Ch. 1999).
34
   KKR, 101 A.3d at 999 (“Defendants, who have asserted this defense, bear the burden of
establishing that the 2014 Proxy disclosed all material facts.”). I use the term “ratification”
here to refer broadly to any approval by a majority of disinterested stockholders pursuant
to a fully informed, uncoerced vote that could lead to a shift in the standard of review under
Corwin, regardless of whether the vote was voluntary or statutorily required. As I
explained in KKR and the Supreme Court affirmed in Corwin, although there is precedent
holding that the term “ratification” describes only a voluntary stockholder approval, the
legal effect of a fully informed stockholder vote should be the same whether or not the vote
was voluntary. Id. at 1002-03.
35
  Corwin, 125 A.3d at 312 n.27 (quoting with approval the discussion in Harbor Finance
concerning the allocation of the burden of proof).
36
   See, e.g., In re Volcano Corp. S’holder Litig., 143 A.3d 727, 748 (Del. Ch. 2016)
(“Although a plaintiff generally bears the burden of proving a material deficiency when
asserting a duty of disclosure claim, a defendant bears the burden of demonstrating that the
stockholders were fully informed when relying on stockholder approval to cleanse a
challenged transaction.”); In re Comverge, Inc. S’holders Litig., C.A. No. 7368-VCMR, at
¶ 7 (Del. Ch. Oct. 31, 2016) (ORDER).

                                              18
however, leaves open the question who has the burden to plead disclosure

deficiencies in the first place to test whether the vote really was fully-informed.37

         It makes little sense in my view that defendants must bear this pleading burden

for it would create an unworkable standard, putting a litigant in the proverbially

impossible position of proving a negative. Chief Justice Strine similarly recognized

in Harbor Finance “the illogic of requiring the court and defendants to identify

disclosure deficiencies not complained of by experienced plaintiffs’ lawyers.” 38 It

instead is far more sensible that a plaintiff challenging the decision to approve a

transaction must first identify a deficiency in the operative disclosure document, at

which point the burden would fall to defendants to establish that the alleged

deficiency fails as a matter of law in order to secure the cleansing effect of the vote.39

37
  “Burden of pleading” is “[a] party’s duty to plead a matter in order for that matter to be
heard in the lawsuit.” Burden of Pleading, BLACK’S LAW DICTIONARY (10th ed. 2014).
“Burden of proof,” on the other hand, refers to “[a] party’s duty to prove a disputed
assertion or charge.” Burden of Proof, BLACK’S LAW DICTIONARY (10th ed. 2014). Cf.
Monroe County Employees’ Retire. Sys. v. Carlson, 2010 WL 2376890, at *2 (Del. Ch.
June 7, 2010) (holding that although defendants bear the burden to prove the transaction is
entirely fair, plaintiff must make factual allegations in the complaint that demonstrate the
absence of fairness); Brader v. Allegheny Gen. Hosp., 64 F.3d 869, 876 (3d Cir. 1995)
(holding that although the plaintiff satisfied his burden to plead an antitrust injury, the
Court was making no determination as to whether the plaintiff would be able to satisfy his
burden of proof in the post-pleading stage of litigation); 2 MCCORMICK ON EVID. § 337
(2016) (“The burdens of pleading and proof with regard to most facts have been and should
be assigned to the plaintiff,” but the burdens of proof “do not invariably follow the [burden
of pleading].”).
38
     Harbor Finance P’rs, 751 A.2d at 891 n.36.
39
  In this regard, the Court may properly consider relevant portions of a proxy statement
when analyzing disclosure issues, not to establish the truth of the matters asserted, but to

                                             19
The logic of this approach is borne out by the reality that this is how ratification

defenses in corporate sale transactions have been litigated in practice since Corwin

was decided, including in this case.40

         Some have expressed concern about the fairness of requiring plaintiffs to

plead disclosure deficiencies before obtaining discovery.41 The reality, however, is

that plaintiffs must plead claims before receiving discovery in American civil

litigation all the time.42 In the deal litigation context, moreover, plaintiffs may avail

themselves of the relatively low pleading standard of “colorability” to obtain

examine what was disclosed to the stockholders. In re Santa Fe Pacific Corp. S’holder
Litig., 669 A.2d 59, 69 (Del. 1995) (“It was certainly proper to consult the Joint Proxy to
analyze the disclosure claim because the operative facts relating to such a claim perforce
depend upon the language of the Joint Proxy. Thus, the document is used not to establish
the truth of the statements therein, but to examine only what is disclosed.”).
40
   See, e.g., City of Miami Gen. Empls. v. Comstock, 2016 WL 4464156, at *10-16 (Del.
Ch. Aug. 24, 2016) (plaintiff alleged seven categories of disclosure deficiencies in the
proxy); Larkin, 2016 WL 4485447, at *20 (holding that plaintiffs conceded the vote was
fully informed by failing to brief their disclosure claims); In re Om Gp., Inc. S’holders
Litig., 2016 WL 5929951, at *12-17 (Del. Ch. Oct. 12, 2016) (plaintiffs seeking to avoid
Corwin by arguing that the proxy was materially misleading in three specific respects);
Volcano, 143 A.3d at 748-49 (plaintiffs arguing that the vote was not fully informed
because of an alleged omission); Comverge, C.A. No. 7368-VCMR, at ¶ 6 (plaintiffs
arguing that the stockholder vote was not fully informed by pointing to three alleged
omissions in the company’s disclosure); Chester Cty. Ret. Sys. v. Collins, C.A. No. 12072-
VCL, at ¶ 10 (Del. Ch. Dec. 6, 2016) (ORDER) (“Because the plaintiff has not pled a viable
disclosure claim, the business judgment rule applies.”).
41
     Tr. Oral Arg. at 30:11-22; 52:8-14 (Oct. 13, 2016).
42
  The ability to conduct a books and records inspection under 8 Del. C. § 220 functionally
serves as an important exception in non-expedited stockholder litigation, but there is no
indication in the record that the plaintiff here availed itself of that opportunity.

                                              20
discovery in aid of disclosure claims before a stockholder vote,43 which is the

preferred time to address such claims in order to afford remedial relief appropriate

for genuine informational deficiencies.44 Here, to the credit of the plaintiff who filed

the first case in this consolidated action, that course of action was pursued but he

simply came up short in trying to identify a colorable disclosure claim.

         B.     The Stockholder Vote Approving the Merger was Fully Informed

         Under Delaware law, when directors solicit stockholder action, they must

“disclose fully and fairly all material information within the board’s control.”45 The

essential inquiry is whether the alleged omission or misrepresentation is material.

Delaware has adopted the standard of materiality used under federal securities laws.

Under that standard, information is “not material simply because [it] might be

helpful.”46 Rather, it is material only “if there is a substantial likelihood that a

43
  See Nguyen v. Barrett, 2016 WL 5404095, at *3 (Del. Ch. Sept. 28, 2016) (comparing
the legal standards for evaluating disclosure claims pre-closing and post-closing).
44
   In re Transkaryotic Therapies, Inc., 954 A.2d 346, 360 (Del. Ch. 2008); Comstock, 2016
WL 4464156, at *9; see also In re Staples, Inc. S’holders Litig., 792 A.2d 934, 960 (Del.
Ch. 2001) (VC. Strine) (“Delaware case law recognizes that an after-the-fact damages case
is not a precise or efficient method by which to remedy disclosure deficiencies. A post-
hoc evaluation will necessarily require the court to speculate about the effect that certain
deficiencies may have had on a stockholder vote and to award some less-than-scientifically
quantified amount of money damages to rectify any perceived harm. . . . An injunctive
remedy . . . specifically vindicates the stockholder right . . . to receive fair disclosure of the
material facts necessary to cast a fully informed vote—in a manner that later monetary
damages cannot and is therefore the preferred remedy, where practicable.”).
45
     Stroud v. Grace, 606 A.2d 75, 84 (Del. 1992).
46
     Skeen v. Jo-Ann Stores, Inc., 750 A.2d 1170, 1174 (Del. 2000).

                                               21
reasonable shareholder would consider it important in deciding how to vote.”47 In

other words, information is material if, from the perspective of a reasonable

stockholder, there is a substantial likelihood that it “significantly alter[s] the ‘total

mix’ of information made available.”48

         Although the materiality standard has been ingrained into the fabric of

Delaware law for decades, plaintiff seizes on the Supreme Court’s use of the phrase

“troubling facts” in Corwin to insinuate that defendants were obligated to disclose

“all troubling facts regarding director behavior” irrespective of their materiality.49 I

disagree. The relevant sentence from Corwin makes clear that the Supreme Court

did not establish a new standard for stockholder disclosure, but simply confirmed,

consistent with existing precedent, that “troubling facts regarding director behavior

. . . that would have been material to a voting stockholder” must be disclosed when

seeking stockholder approval of a transaction.50

         In its Complaint, plaintiff asserted six categories of disclosure deficiencies,51

a number of which I found not to be colorable in denying the motion for expedition

47
  Rosenblatt v. Getty Oil Co., 493 A.2d 929, 944 (Del. 1985) (adopting materiality standard
of TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976)).
48
     Arnold v. Soc’y for Sav. Bancorp, 650 A.2d 1270, 1277 (Del. 1994).
49
     See Pl.’s Ans. Br. 7.
50
     Corwin, 125 A.3d at 312.
51
  Those categories consisted of (1) omissions regarding the alleged conflicts of the Special
Committee, which plaintiff presses on this motion; (2) omissions regarding the alleged
“specific benefits obtained by Aquila and Company management from Vista, including all

                                             22
in the Braunstein action, and only one of which plaintiff addressed in its opposition

brief. The alleged disclosure deficiencies listed in the Complaint that plaintiff did

not brief have been abandoned and are deemed waived.52 Plaintiff also asserted in

its brief a new disclosure challenge that was absent from the Complaint. After

considering the only two disclosure allegations that plaintiff briefed, I conclude that

both are without merit as a matter of law and thus defendants have established that

the stockholder vote was fully informed.

               1.    Disclosures Concerning the Alleged Conflicts of the Special
                     Committee

         Plaintiff asserts that the Proxy Statement “omitted sufficient disclosures

regarding the conflicts of the Special Committee, including the role of the Special

Committee members in the Compensation Committee actions, especially with

respect to the approval of the Retention Award and the Special Cash Award.”53 The

only alleged conflict of the Special Committee plaintiff has identified is the fact that

amounts received under the Merger-related compensation arrangements and any rollover
and investment opportunities from Vista;” (3) omissions regarding the alleged “actual and
potential conflicts of Centerview and Rothschild Inc.,” a financial advisor to Solera; (4) the
alleged failure to disclose whether Party B was subject to a standstill; (5) alleged omissions
and misrepresentations concerning Centerview’s fairness analyses; and (6) alleged
omissions and misrepresentations concerning Solera’s financial projections. Compl. ¶¶
138-41, 143-47.
52
   Emerald P’rs v. Berlin, 2003 WL 21003437, at *43 (Del. Ch. Apr. 28, 2003) (“It is
settled Delaware law that a party waives an argument by not including it in its brief.”),
aff’d, 840 A.2d 641 (Del. 2003) (TABLE).
53
     Compl. ¶ 138.

                                             23
two members of the Special Committee also served on the Compensation

Committee.54 I conclude that this information was disclosed adequately to Solera’s

stockholders, and that the identity of the Compensation Committee members was

not material to the stockholder vote on the Merger in any event.

         The Proxy Statement contained the following disclosure regarding the identity

of the Special Committee members: “[T]he board of directors formed the special

committee, consisting of three independent and disinterested directors, to oversee a

review of the Company’s strategic alternatives: Stuart J. Yarbrough (as chairman),

Patrick D. Campbell and Thomas A. Dattilo.”55 The Proxy Statement also expressly

incorporated by reference a Form 10-K/A filed just two days earlier.56 The Form

10-K/A disclosed that the report on executive compensation recited therein had been

prepared by the members of the Compensation Committee and then listed them by

name as follows: Thomas A. Dattilo, Pat Campbell, and Thomas C. Wajnert.57

         Under Delaware law, documents incorporated by reference into a disclosure

statement may be considered disclosed. In Orman v. Cullman, for example, the

54
     See Pl.’s Ans. Br. 7-10.
55
     Clark Aff. Ex. 2 (Proxy Statement) at 33.
56
   Clark Aff. Ex. 2 (Proxy Statement) at 110 (“We incorporate by reference the documents
listed below . . . .” The first one listed is the “Annual Report on Form 10-K for the fiscal
year ended June 30, 2015 (filed with the SEC on August 31, 2015), as amended on October
28, 2015.”).
57
     Clark Aff. Ex. 3 (Form 10-K/A) at 18.

                                                 24
Court dismissed a disclosure claim because the facts concerning the relevant

director’s alleged self-interest were “sufficiently disclosed” in the Form 10–K and

Form 10–K/A that were incorporated into the proxy statement by reference.58

Similarly here, by expressly incorporating by reference a Form 10-K/A issued just

two days earlier, the Proxy Statement provided sufficient disclosure to Solera’s

stockholders regarding the identity of all of the members of both the Special

Committee and the Compensation Committee before they were asked to vote to

approve the Merger. The Proxy Statement thus did inform them about “the role of

the Special Committee members in the Compensation Committee actions.”59

         Despite the fact that the Proxy Statement and the Form 10-K/A incorporated

therein listed by name the members of both the Special Committee and the

Compensation Committee, plaintiff asserts that the following statement in the Proxy

Statement created a false impression that the individuals involved in the sale process

were not simultaneously deciding compensation issues:

         Also on August 13, 2015, the special committee determined, in light of
         the corporate governance considerations associated with the adoption
         of any management retention plan, that the evaluation of such a
         management retention plan should be conducted through the
         compensation committee of the board of directors.60

58
   Orman v. Cullman, 794 A.2d 5, 34-35 (Del. Ch. 2002); see also In re W. Nat’l Corp.
S’holders Litig., 2000 WL 710192, at *28 (Del. Ch. May 22, 2000) (finding that proxy
statement adequately disclosed litigation risk by incorporating SEC filings).
59
     Compl. ¶ 138.
60
     Clark Aff. Ex. 2 (Proxy Statement) at 36.

                                                 25
Even if a reasonable person might infer from this paragraph alone that the

memberships of the Special Committee and the Compensation Committee did not

overlap, that inference would not be material in my view for two reasons. First,

because the Proxy Statement and the Form 10-K/A incorporated therein fully

disclosed the composition of both committees, this paragraph does not “significantly

alter the ‘total mix’ of information made available.”61 Second, given that the Merger

was approved unanimously by all eight members of Solera’s board, seven of whom

were outside directors whose independence and disinterestedness is not

meaningfully challenged,62 the fact that two members of the Special Committee also

served on the Compensation Committee was immaterial in my view.

                2.        Disclosures Concerning the “Purpose and Effect” of
                          Certain Payments to Management

         Plaintiff argues that the Proxy Statement failed to disclose certain information

bearing on the “purpose and effect” of (a) the payments made under the Retention

Plan to Aquila and other members of management and (b) the Special Cash Award

to Aquila, both of which were approved in August 2015, a few weeks before the

Board approved the Merger.

61
     Arnold, 650 A.2d at 1277.
62
     See supra note 24.

                                            26
          I note at the outset that plaintiff’s central grievance with these payments

appears to focus more on their propriety than whether the material facts concerning

them were fully disclosed to Solera’s stockholders when they were asked to approve

the Merger. Plaintiff argues, for example, that the board’s approval of payments

conditioned on the sale of the Company “disincentivized management to wait and

pursue the more valuable option of running the Company long-term” and “increased

the incentive to sell.”63 Even if true, these criticisms bear on the substantive merits

of the decision Solera’s outside directors made to award the compensation at issue.

Insofar as disclosures to the stockholders are concerned, plaintiff takes issue with

several aspects of the Proxy Statement, but fails to identify any material omission of

fact, or any false or misleading statement contained therein.

         First, plaintiff argues that the Proxy Statement falsely stated that $33 million

in payments under the Retention Plan where intended “‘to preserve the value of the

Company’ and to ‘contribute towards the successful ongoing operations of the

Company’s business’” because $24 million of these payments “were payable only if

management completed a merger.”64 Cropped from plaintiff’s quotation of the

Proxy Statement, however, is additional language that made clear that the payments

under the Retention Plan were intended to serve a dual purpose, which included

63
     Pl.’s Ans. Br. 12-13.
64
     Id. at 11 (quoting Proxy Statement).

                                            27
incentivizing management to continue their employment until the “completion of

any strategic transaction involving the Company:”

         On August 23, 2015, the compensation committee of the board of
         directors held a meeting. At the meeting, the compensation committee
         of the board of directors reviewed and approved the terms of a proposed
         retention and transaction success program with an aggregate payment
         amount of $33 million for certain members of Company management
         and key employees, which was designed to preserve the value of the
         Company and to provide an additional incentive for certain members
         of Company management and key employees to continue in
         employment and contribute towards the successful ongoing operations
         of the Company’s business and the completion of any strategic
         transaction involving the Company.65

The Proxy Statement also itemized the specific amounts of the “retention awards”

that Aquila, Giger, and Brady would receive “only if the merger is consummated”

with the qualification that “50% of Mr. Aquila’s award is payable on the earlier of

the consummation of the merger and August 22, 2016.”66 In short, the actual

disclosure in the Proxy Statement concerning the directors’ reasons for approving

the Retention Plan and the details of its operation undermine plaintiff’s

characterization of these disclosures as “false.”

         Second, citing to the Form 10-K/A issued on October 28, 2015, plaintiff

argues that the Proxy Statement did not disclose “that before the $24 million was

granted, the Company’s compensation structure focused on incentivizing

65
     Clark Aff. Ex. 2 (Proxy Statement) at 37 (emphasis added).
66
     Clark Aff. Ex. 2 (Proxy Statement) at 69-70.

                                             28
management to grow the business for the long-term benefit of shareholders.”67 As

noted above, however, the Proxy Statement expressly incorporated by reference the

Form 10-K/A cited by plaintiff, which explains the vesting features of the Mission

2020 option awards, and the fact that none of them would trigger a payment in

connection with the Merger because the option price exceeded the Merger price:

                In March 2013, we granted the Mission 2020 Awards to the
         NEOs. The Mission 2020 Awards are highly performance-contingent,
         multi-year non-qualified stock options for our NEOs as an economic
         incentive to obtain for the Company and our stockholders each NEO’s
         long-term commitment and continued substantial efforts and
         contributions to both increased profitability and stockholder value
         creation during the first phase of Mission 2020. Seventy percent of the
         Mission 2020 Awards are earned and vest only upon achievement of
         performance-based milestones (the “Performance-Based Awards”).
         Thirty percent of the Mission 2020 Awards vest on a time-based
         schedule (the “Time-Based Awards”).

               As of June 30, 2015, none of the Performance-Based Awards
         have been earned, and one-third of the Time-Based Awards have
         vested. Upon the closing of the [Merger], all of the Mission 2020
         Awards will be canceled, and the NEOs will not receive any Merger
         consideration in connection with the Mission 2020 Awards as the
         exercise price per share ($58.33) exceeds the per share Merger
         consideration of $55.85.68

         Third, plaintiff quibbles about the alleged failure to disclose the reasons

behind a supposed shift in Solera’s compensation strategy. But as the above

67
     Pl.’s Ans. Br. 12.
68
  Clark Aff. Ex. 3 (Form 10-K/A) at 13-14. The abbreviation “NEO” refers to the
Company’s “named executive officers,” which were Aquila, Giger, and Brady during fiscal
year 2015. Id. at 6.

                                           29
discussion reflects, the compensation plans were fully disclosed, and “asking why

does not state a meritorious disclosure claim” under Delaware law.69

         Finally, plaintiff asserts that the Proxy Statement’s disclosure regarding the

$10 million Special Cash Award to Aquila was misleading. The relevant disclosure

reads as follows:

         On August 25, 2015, the compensation committee of the board of
         directors approved a one-time, special cash award to Mr. Aquila in the
         amount of $10 million, which amount the Company paid to Mr. Aquila
         on August 27, 2015. The special cash award recognizes Mr. Aquila’s
         contributions during fiscal year 2015 (including achievements
         commenced in fiscal year 2015 and completed in fiscal year 2016 year
         to date) above and beyond Mr. Aquila’s actual achievements measured
         against his individual performance objectives set forth in the
         Company’s fiscal year 2015 annual business incentive plan. The
         special cash award did not relate in any way to the Company’s
         exploration of strategic alternatives, including the merger. The
         Company publicly announced the approval and payment of the special
         cash award to Mr. Aquila on August 31, 2015.70

According to plaintiff, this disclosure was misleading because it “suggested that

[Aquila] had not already been compensated for his performance under the current

incentive plans.”71       More specifically, plaintiff contends that certain of the

achievements the Compensation Committee identified in determining the multiplier

to apply to establish Aquila’s compensation under a different bonus plan (the

69
     In re Sauer-Danfoss Inc. S’holders Litig., 65 A.3d 1116, 1131 (Del. Ch. Apr. 29, 2011).
70
     Clark Aff. Ex. 2 (Proxy Statement) at 38.
71
     Pl.’s Ans. Br. 14.

                                                 30
“Annual Business Incentive Plan” or “ABIP”) for fiscal year 2015 are similar to

those that were used for the Special Cash Award.72

         Plaintiff’s contentions concerning the Special Cash Award once again appear

to reflect more a disagreement with the merits of the compensation decision than a

genuine disclosure claim. Plaintiff does not dispute that the Proxy Statement

disclosed the amount, nature, and timing of the Special Cash Award. Not only do I

discern no disclosure deficiency regarding the Special Cash Award, the details

concerning this payment were immaterial in my view to the stockholders in deciding

whether to approve the Merger. As I observed early in this case when denying the

prior plaintiff’s motion for expedition, the Special Cash Award, which the Company

paid out on August 27, 2015, logically had no impact on who the company was sold

to because it had been paid and the money was out the door before final bids were

submitted and the Merger Agreement was signed.73

                                         *****

         For the reasons explained above, plaintiff’s disclosure challenges are without

merit and defendants thus have sustained their burden to establish that the

stockholder vote approving the Merger was fully informed.

72
  Id. at 14-15 (comparing factors considered in making ABIP payment for fiscal year 2015,
as listed in the October 28, 2015 Form 10-K/A, with factors considered in granting the $10
million Special Cash Award, as listed in the August 31, 2015 Form 8-K).
73
     Braunstein v. Aquila, C.A. No. 11524-CB, Transcript at 56:9-12.

                                             31
          C.    The Business Judgment Rule Applies to the Board’s Approval of
                the Merger

          Because the Merger was approved by a majority of Solera’s disinterested

stockholders in a fully informed, uncoerced vote, the business judgment rule—and

not enhanced scrutiny as plaintiff advocates—applies to the Solera board’s decision

to approve the Merger, and the transaction may only be attacked on the ground of

waste. Since plaintiff does not assert that the board’s decision to approve the Merger

amounted to waste, the Complaint must be dismissed for failure to state a claim for

relief.

III.      CONCLUSION

          For the foregoing reasons, defendants’ motion to dismiss the Complaint with

prejudice is GRANTED.

          IT IS SO ORDERED.

                                           32