Court Opinion

ID: 2769063
Source: CourtListenerOpinion
Date Created: 2015-01-12 22:02:53.635043+00
Date Added: 2024-06-11T11:27:35.558053
License: Public Domain

COURT OF CHANCERY
                                   OF THE
 SAM GLASSCOCK III           STATE OF DELAWARE                 COURT OF CHANCERY COURTHOUSE
  VICE CHANCELLOR                                                       34 THE CIRCLE
                                                                 GEORGETOWN, DELAWARE 19947

                           Date Submitted: January 9, 2015
                           Date Decided: January 12, 2015

Seth D. Rigrodsky, Esquire                      Robert S. Saunders, Esquire
Brian D. Long, Esquire                          Arthur R. Bookout, Esquire
Gina M. Serra , Esquire                         Michael J. Alonso, Esquire
Jeremy J. Riley , Esquire                       Skadden, Arps, Slate, Meagher & Flom LLP
Rigrodsky & Long, P.A.                          One Rodney Square
2 Righter Parkway, Suite 120                    P.O. Box 636
Wilmington, DE 19803                            Wilmington, Delaware 19801-0636

                                                Anne C. Foster, Esquire
                                                Christopher H. Lyons, Esquire
                                                Richards, Layton & Finger, P.A.
                                                One Rodney Square
                                                920 N. King St.
                                                Wilmington, DE 19801

              Re:    Parsons v. Digital River, Inc., et al.
                     Civil Action No. 10370-VCG

Dear Counsel:

      On December 31, 2014, I heard oral argument on the Plaintiff’s Motion to

Expedite. At that time, I denied the Plaintiff’s Motion as to the Revlon claims

raised therein, but I deferred ruling on the Motion as it related to the Plaintiff’s

disclosure claims. Instead, I allowed the Plaintiff to submit a few disclosure claims

in a supplemental brief, together with case law and an explanation of why such

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claims would be material to stockholders.1 The Plaintiff’s Motion initially raised

upwards of 30 disclosure claims, approximately five of which the Plaintiff

highlighted during argument. The Plaintiff’s supplemental briefing focused on

two. Following my review of that brief, in addition to the Defendants’ responses, I

am denying the Plaintiff’s Motion to Expedite with respect to the remaining

claims.

       To prevail on a motion to expedite, a plaintiff must demonstrate ―a

sufficiently colorable claim and show a sufficient possibility of threatened

irreparable injury, as would justify imposing on the defendants and the public the

extra (and sometimes substantial) costs of an expedited preliminary injunction

proceeding.‖2 This Court has observed that ―the optimal time to bring a disclosure

claim in connection with a proposed merger, or in a like context where the

company requests shareholder action or approval, is before the stockholder vote is

taken and the deal closes,‖ thus highlighting the value of expedition in disclosure

cases.3 That observation notwithstanding, I note that if a meritorious disclosure

claim is pursued post-closing, a quasi-appraisal remedy may be available.4

1
  Parsons v. Digital River, Inc., C.A. No. 10370-VCG, at 32–33 (Del. Ch. Dec. 31, 2014)
(TRANSCRIPT); see, e.g., Bleymeyer v. Monogram Sciences, Inc., at 31:20–32:20 (Del. Ch. July
9, 2009) (TRANSCRIPT).
2
  In re 3Com S’holders Litig., 2009 WL 5173804, at *1 (Del. Ch. Dec. 18, 2009) (alteration
omitted).
3
  In re SunGard Data Sys., Inc. S’holders Litig., 2005 WL 1653975, at *2 (Del. Ch. July 8,
2005).
4
  See, e.g., In re Orchard Enterprises, Inc. S’holder Litig., 88 A.3d 1, 42–47 (Del. Ch. 2014).

                                              2
       In her supplemental submission, the Plaintiff helpfully emphasized what I

assume are the two most significant of her three dozen disclosure claims,

       relating to the failure to provide material information as to (i) what
       occurred during the go-shop period; and (ii) the basis for CEO
       Dobson’s statement to the Board that he ―believed it likely that Siris
       would be interested in retaining members of senior management post-
       closing,‖ including when he formed such belief or any
       communications concerning management retention prior to the
       Merger Agreement.5

       At the times of the Plaintiff’s Motion, oral argument, and the filing of her

supplemental brief, the Company had not yet filed its Definitive Proxy. That was

filed on January 8, 2015, at which time the Company disclosed, in detail,

information about the go-shop period, including the number of parties involved,

indications of interest, and confidentiality agreements entered.6 Therefore, I find

the Plaintiff’s claim regarding the go-shop period to be moot.7

       I turn, then, to the disclosure claim regarding management retention. The

Proxies—both Preliminary and Definitive—provide: ―Mr. Dobson also confirmed

that neither he nor other members of senior management had discussed any

arrangements with Siris regarding potential post-transaction employment by

5
  Pl.’s Supplemental Br. in Further Supp. of Mot. for Expedited Proceedings at 1. The Plaintiff
asserts a third disclosure claim, involving Morgan Stanley’s ―comparable companies‖ analysis in
its fairness opinion; the Plaintiff no longer seeks expedited discovery with respect to this claim,
instead asking that it proceed to a preliminary injunction hearing on the current record.
6
  See Digital River Defs.’ Supplemental Br. in Opp’n to Pl.’s Mot. for Expedited Proceedings at
6; Alonso Aff. Ex. 10 at 10–11, 87–89.
7
  To be clear, to the extent that she is seeking further disclosure regarding the go-shop period, the
Plaintiff has not demonstrated a remaining colorable claim. She declined the opportunity to file
a reply brief, post-Definitive Proxy.
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Digital River, although he believed it likely that Siris would be interested in

retaining members of senior management post-closing.”8                    The Proxies also

disclosed that the Digital River Board had directed management not to discuss

employment with Siris prior to execution of a merger agreement,9 that no such

discussion had taken place,10 and that no employment agreements had been entered

into as of the time of either proxy.11 The Plaintiff contends, however, that it is

material to know ―the basis for Dobson’s belief, when he formed it, and any

communications regarding management retention.‖12

       The Plaintiff points to this Court’s decision in In re Micronetics, Inc.

Shareholder Litigation, where Vice Chancellor Parsons noted that in ―disclosing

management’s . . . expectation of continued employment with [the buyer], [the

proxy] may be neglecting to disclose pertinent parts of that full story.‖13 The

Defendants argue that Micronetics is not helpful to the Plaintiff here because, in

that case, the proxy referenced actual employment agreements and definitively

stated that management would continue their employment with the company. 14

8
   Alonso Aff. Ex. 3 at 38 (Preliminary Proxy); see also Alonso Aff. Ex. 10 at 38 (Definitive
Proxy).
9
  See Alonso Aff. Ex. 3 at 37; see also Alonso Aff. Ex. 10 at 37.
10
   See Alonso Aff. Ex. 3 at 38; see also Alonso Aff. Ex. 10 at 38.
11
   See Alonso Aff. Ex. 3 at 9; see also Alonso Aff. Ex. 10 at 9.
12
   Pl.’s Supplemental Br. in Further Supp. of Mot. for Expedited Proceedings at 4.
13
    C.A. No. 7626-VCP, at 16:8–11 (Del. Ch. July 23, 2012) (TRANSCRIPT); see also Pl.’s
Supplemental Br. in Further Supp. of Mot. for Expedited Proceedings at 4.
14
   See Digital River Defs.’ Supplemental Br. in Opp’n to Pl.’s Mot. for Expedited Proceedings at
10–12.
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Further, as these Defendants point out, this Court has noted that although a fact

was found material in one case, such a finding does not ―endow that issue with

talismanic properties or reduce it to a magic word forever after.‖15

      Here, the stockholders were informed that Dobson believed, and disclosed to

the board, that Siris would offer senior management continued employment, but

that he had not discussed these matters with Siris; that the board directed

management not to speak with Siris about such employment, pre-agreement; and

that no such discussions took place. This gives stockholders the ability to consider

management’s incentives and provides all information likely to be material to

stockholders. It does not implicate the concern, addressed in Micronetics, that

benefits flowing to management from a merger with a specific buyer, material to

stockholders, remain undisclosed.        Attempting to raise the specter of such

undisclosed material incentives, the Plaintiff resorts to suggesting that the

disclosures are simply not credible: ―[The Court] should not . . . assum[e]‖ the

truth of the statement in the Proxies that there had been no discussions with Siris

regarding management retention; ―[e]ven if this is true . . . , [D]efendants have

avoided representing that there have been no communications with Siris regarding

management retention.‖16 The Plaintiff, however, offers no factual basis for this

15
   In re Midas, Inc. S’holder Litig., C.A. No. 7346-VCP, 18:1–4 (Del. Ch. Apr. 12, 2012)
(TRANSCRIPT).
16
   Pl.’s Supplemental Br. in Further Supp. of Mot. for Expedited Proceedings at 6 n.3.
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speculation. This is not a rifle shot at a clear disclosure violation, or even a wing

shot at a passing colorable claim. It is a pot-shot, and pot-shots do not provide

grounds to expedite discovery in way of a motion to enjoin a merger. In other

words, it does not appear that there is any material information to be disclosed

regarding post-transaction retention of management.          The disclosure violation

posited by the Plaintiff is speculative; thus, the chance of receiving injunctive relief

based on it is low, and I do not find that the value of any potential disclosure to

stockholders outweighs the cost of expedition.

      Accordingly, the remainder of the Plaintiff’s Motion to Expedite is denied.

To the extent the foregoing requires an Order to take effect, IT IS SO ORDERED.

                                               Sincerely,

                                               /s/ Sam Glasscock III

                                               Sam Glasscock III

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