In Re Transkayrotic Therapies, Inc., 2008 WL 2462767 (Del. Ch., June 19, 2008), read opinion here. This Chancery Court opinion is almost 100-pages long in its original format and provides important clarification on "disclosure law" in Delaware. There were 2 prior rulings in this case on important procedural issues. The summaries on this blog of those two prior decisions in this case are available here.
It is not unusual for the Chancery Court to provide a summary of the case that is better than I can provide. Here is the court’s summary as part of the introductory section of its decision in this case:
All corporate combinations leave in their wake certain artifacts-documents, e-mails, conversations, and notes. If one digs through enough of the rubble of a consummated
merger, one will almost invariably find something questionable. A clever corporate archeologist can extrapolate from these suspicious artifacts and concoct a theory of malfeasance, disloyalty, and bad faith. Yet, theories alone cannot lead to liability. To survive a motion for summary judgment, such excavating plaintiffs must provide the Court with solid evidence of a genuine issue of material fact; they cannot rely on their allegations. Similarly, to be awarded summary judgment, defendants must demonstrate that there is no triable issue of fact; defendants cannot rely on rebuttable presumptions once plaintiffs have rebutted them.
This quote also makes for "good literature" even if it were not part of a scholarly court decision. The court granted, for the most part, the motions for summary judgment.
Here is a sampling of a few other key points:
1. This opinion provides a history lesson on the evolution of Delaware case law concerning breach of the duty of disclosure, sometimes referred to as the duty of candor. Although it is often described as being included as part of the duty of loyalty, not every breach of the duty of disclosure implicates bad faith or disloyalty. Although it can be pursued as a separate cause of action, in this case the court granted summary judgment in part on this claim because in this case the alleged disclosure violation implicated the duty of care only, and due to the exculpatory provision authorized by Section 102(b)(7) of the DGCL any violation could not lead to monetary damages. Moreover, while equitable relief–prior to a merger–for a disclosure claim is the preferred practice, because the merger here happened so long ago, injunctive relief was no longer practical. See In re Staples, Inc. S’hlders Litig. 792, A.2d 934, 960 (Del. Ch., 2001); McMillan v. Intercargo Corp., 768 A.2d 492, 500 (Del Ch. 2000).
2. The court also discusses fundamentals of corporate governance. Namely, the opinion observes that the BJR is "born" from Section 141(a) of the DGCL which provides for the management of the business and affairs of the corporation by the board of directors, and that to challenge a particular transaction ostensibly covered by the BJR, one must rebut its presumptive protection.
3. The definitions of directors’ "interest" and "independence", so central to rebutting the BJR’s presumption, are explained. See footnotes 58 to 68.
4. Section 251(c) of the DGCL requires shareholder approval of mergers such as the one involved in this case. The court found that the plaintiffs "scarcely" rebutted the presumption of a merger’s validity connected with the filing of a Certificate of Merger, at least for summary judgement purposes. Plaintiffs allege that the votes were improperly calculated so as to call into question whether it was properly approved.
Consistent with the "paleontology" theme of its introduction, the court concluded its opinion as follows:
The evidence plaintiffs have managed to dig up in their multi-year excavation of the TKT-Shire merger has led them to spin a tale of betrayal and self-interest by certain directors and heroics by the CEO. An examination of the actual record evidence, however, demonstrates that there is no genuine issue of material fact with respect to the Individual Defendants’ loyalties. Consequently, I grant summary judgment in favor of those defendants on counts I and II. Having found no breach of duty, then, I also grant summary judgment in favor of Shire with respect to Count IV insofar as it accuses Shire of aiding and abetting breaches by Yetter, Moorhead, and Leff.
Plaintiffs’ excavation, however, has unearthed enough questionable artifacts to create a triable issue of fact with respect to one aspect of the aiding and abetting claim, and
I therefore deny summary judgment as to the portion of Count IV relating to Langer. Moreover, defendants have failed to demonstrate that there is no genuine issue of material fact with respect to Count III. Although the certificate of merger creates a presumption of validity, plaintiffs have rebutted that presumption with record evidence. Summary judgment, therefore, is denied as to Count III. The parties should contact chambers to reschedule trial in this matter.
UPDATE: Here is Professor Bainbridge’s scholarly analysis of the case, in the course of which he asks, for example, whether the opinion’s author has adopted Professor B’s "director primacy" theory of corporate governance. Notably, the court’s opinion in this case (as in others) cited to one of Professor B’s articles.