United States: Recent Decisions Worth Noting

Originally appeared in Kaye Scholer's Spring 2016 M&A and Corporate Governance Newsletter.

The following are a few other interesting decisions that have been issued since our last newsletter:

In re Trulia, Inc. S'holder Litig., C.A. No.  10020-CB (Del. Ch. Jan 22, 2016)

Many view this decision as putting the final nail in the coffin for disclosure-only settlements in M&A litigation. After this decision, disclosure-only settlements will only be approved if they "address a plainly material misrepresentation or omission," and the accompanying release is "narrowly [drafted] to encompass nothing more than disclosure claims and fiduciary duty claims concerning the sale process." It will be interesting to see the data on how much of an impact the case has on strike suits in public M&A deals.

Delaware courts can award damages for lost profits in cases of breach of a Type II preliminary agreement (i.e., an agreement to negotiate in good faith the terms of an agreement, where open terms, even major ones, remain to be negotiated). The decision reflects a departure from jurisdictions such as New York and California, where lost profits are considered too speculative for such breaches, and the typical measure of damages is out-of-pocket costs. The decision highlights the risks associated with not taking seriously obligations in term sheets or letters of intent to negotiate in good faith the terms of definitive agreements.

In re VAALCO Energy, Inc. S'holder Litig.  C.A. No. 11775-VCL (Del. Ch. Dec. 21, 2015)

In the summary judgment transcript ruling, the court held that charter and bylaw provisions that provide only for-cause removal of directors were invalid in the context of a corporation that had an unclassified board. The court relied on Section 141(k) of the Delaware General Corporation Law, which provides for removal with or without cause, except in the case of corporations with staggered boards or that have cumulative voting. What is interesting about the decision is that the court noted that there are about 175 public companies in the US with unclassified boards that have charter or bylaw provisions that provide only for-cause removal of directors. Many of these presumably are companies that declassified their boards, but did not update their removal provisions. These companies should take note that this aspect of their organizational documents is invalid.

FdG Logistics LLC v. A&R Logistics Holdings  Inc., C.A. No. 9706-CB (Del. Ch. Feb. 23, 2016)

This decision provides additional guidance on the proper way to draft an effective antireliance provision in an acquisition agreement. In part, the decision involved the buyer's claims of fraudulent misrepresentations and omissions concerning certain documents delivered prior to signing. The merger agreement's antireliance language provided that the target company was not making any representations or warranties outside of the merger agreement. The merger agreement also contained a standard integration clause. The court held that to be effective, anti-reliance language has to reflect an affirmative expression of antireliance by the aggrieved buyer, and cannot be merely a statement by the seller. Distinguishing a recent decision, Prairie Capital III, L.P. v. Double E Holdings Corp., 2015 WL 7461807 (Del. Ch. Nov. 24, 2015) (see Kaye Scholer's Significant 2015 Decisions Affecting Private Company  M&A), the court held that what was missing here was "any affirmative expression by the Buyer of (1) specifically what it was relying on and when it decided to enter the Merger Agreement or (2) that it was not relying on any representations made outside of the Merger Agreement."


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