Chancery Dismisses Breach of Fiduciary Duty Claims Related to Sale of Company
In Re Answers Corporation Shareholders Litigation, Cons. C.A. No. 6170-VCN (Del. Ch. Feb. 3, 2014).
One takeaway from this decision granting a motion for summary judgment to defendants and rejecting claims for breach of fiduciary duty against the directors who sold the company, is that this decision in an example of a concept that scholars for years have referred to as the “indeterminacy” of Delaware corporate law. See, e.g., an article by the late great professor Larry Ribstein, called The Uncorporation and Corporate Indeterminacy, and more recent scholarship here.
In sum, one iteration of the concept is that no matter how many thousands of cases have honed and polished the nuances and contours of Delaware corporate law, reasonable lawyers well-versed in Delaware corporate law often fail to predict the outcome of cases applying well-settled principles of that law to new sets of facts.
Of course there are those who, with the clarity of hindsight, will confidently explain that the result of this case was predictable, but more than one denial of prior motions to dismiss in this case belie that level of predictability.
For more background facts on this case, refer to four prior Chancery decisions in this case, including denials of motions to dismiss. See, e.g., highlights of one prior decision here.
The claims involved in this case were predictable enough. The plaintiffs’ claims included breaches of the fiduciary duties of care, loyalty and good faith due to: (I) a fatally flawed sales process; (II) unreasonable deal protection measures; (III) using the merger to extract certain benefits for itself; (IV) issuing materially misleading proxy materials; and (V) aiding and abetting by the Buyout Group.
No doubt the usual commentators will review the well-worn principles applied in this 43-page opinion, a customary length for decisions such as this one. As it is want to do, the Court of Chancery carefully reviewed the facts of record and applied the law in a businesslike manner. The plaintiffs, however, after about three years of litigation, are left with nothing. For those who claim it is too easy for plaintiffs’ lawyers to sue and get quick settlements in connection with merger or sale transactions, this opinion, and the three years of fruitless litigation for the long-suffering plaintiffs in this case cannot be used as evidence in support of those arguments.