In Hamilton Partners, L.P. v. Highland Capital Management, L.P. C.A. No. 6547-VCN (May 25, 2012), the Court of Chancery deferred a ruling on a motion to dismiss because the court found that a restructuring agreement which contemplated a merger (which would change the governing law from Delaware to Nevada) was ambiguous. This dispute involves a merger between American HomePatient, Inc., with an indirect wholly-owned subsidiary of Highland Capital Management, L.P. Hamilton Partners, L.P. filed a class-action against Highland and Joseph F. Furlong, III, CEO, President, and a director of AHP for breaches of fiduciary duties (and aiding and abetting) in connection with the Merger. The defendants moved to dismiss.
Highland owned 48% of AHP’s outstanding common stock and 82% of its secured debt. When Highland proposed that AHP engage in a restructuring transaction, AHP’s board established a special committee to review the transaction. The restructuring contemplated several steps, including: (1) that AHP, a Delaware corporation, would reincorporate in Nevada; (2) the self-tender offer; and (3) a merger, which would cash-out at $0.67 per share any AHP shareholder other than Highland who did not tender in the self-tender offer. Shortly after the reincorporation was completed, AHP commenced the self-tender offer which resulted in Highland owning 78% of AHP’s outstanding common stock. Highland then proposed that AHP merge with Highland’s subsidiary pursuant to 8 Del. C. § 251. The Board approved the merger and then submitted the merger to a vote of the AHP’s stockholders, with a recommendation that they vote for it. The merger was consummated on October 12, 2010.
Question as to Timing of Review of Merger and Applicable Law
The complaint alleged that Highland was a controlling stockholder that stood on both sides of the merger, and that Highland breached its fiduciary duties because the transaction was not entirely fair to the AHP stockholders who were cashed out. However, the parties could not agree on the timing of the review of the merger agreement. The defendants argued that the merger was agreed to at the time the parties executed the restructuring agreement which was when AHP was a Delaware corporation. The plaintiff argued that AHP did not agree to the merger at the time the restructuring agreement was executed, but later when the Board and shareholders approved it (which would be subject to Nevada law because AHP reincorporated in Nevada). The Court noted that “[a]t this stage [it] cannot determine whether the correct time to review the actions of Highland and Furlong with regard to the Merger is in April 2010 or September 2010 because the Restructuring Agreement is ambiguous.” Therefore, the Court deferred ruling on the motion to dismiss.