In Re: Ness Technologies, Inc., Shareholders Litigation, C.A. No. 6569-VCN (Del. Ch. Aug. 3, 2011).
This letter ruling addressed a motion to expedite proceedings in a putative class action that was filed to enjoin a proposed transaction through which the largest shareholder of Ness would, through a wholly owned subsidiary, acquire Ness in a cash transaction. The plaintiffs contend that the transaction is the product of a flawed sales process and that the members of the board aided and abetted the largest shareholder and also breached their fiduciary duties to the plaintiffs. In addition to advancing price and process claims, the plaintiffs assert that the board’s disclosures regarding the transaction were inadequate.
Overview of Key Legal Principles
Regarding the legal standard for granting expedition, the Court observed that:
“The Court acts regularly to grant requests to expedite proceedings: ‘a party’s request to schedule an application for a preliminary injunction, and to expedite the discovery related thereto, is normally granted. Exceptions to that norm are rare.’ Although the burden is not high, a plaintiff seeking expedition must have ‘articulated a sufficiently colorable claim and shown a sufficient possibility of a 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.’ ” See footnotes 14 and 15.
After reviewing the price and process claims, as well as the disclosure claims, the Court referenced other cases where injunctive relief has been both granted and denied, involving disclosure issues, and the role played by investment banks. See footnotes 24 and 27.
In the end, the Court concluded that the majority of allegations did not state a “colorable claim” that the proxy failed to provide a fair summary.
Limited Expedition Granted
However, the Court did grant the plaintiffs the right to engage in expedited discovery to answer the narrow question about whether the financial advisor for either the special committee or the board had any past, present or expected future dealings with the largest shareholder or its affiliates; and whether that created a conflict of interest for one or both of the financial advisors. The motion to expedite was denied with respect to the other price and process claims.
The Court reasoned that the disclosures on this issue did not indicate “how much business the financial advisors have done, or are doing, or might expect to do in the future” with the largest shareholder or its affiliates, and if the amount of business involved would be material to either of the advisors.
Thus, the Court determined that the plaintiffs might have a “colorable claim” on this issue regarding the financial advisors, and to that extent the Court granted expedited proceedings on the limited and focused discovery regarding the question of whether the financial advisors for the board or the special committee were conflicted because of their relationships with the largest shareholder.