This post was prepared by an Eckert Seamans associate.
The Court of Chancery recently denied a plaintiff’s motion to expedite her preliminary injunction motion, which sought to delay a June 8, 2017 stockholders’ vote on Yahoo’s decision to sell its operating business to Verizon for $4.8 billion. In Buch v. Filo, C.A. No. 10933-VCL (transcript)(Del. Ch. May 26, 2017), after conducting a telephonic hearing, Vice Chancellor Laster denied the motion for expedited relief, and effectively denied the preliminary injunction motion by finding that Plaintiff had failed to establish a colorable claim and irreparable harm.
Factual Background: Plaintiff, a Yahoo shareholder, asserts both direct and derivative claims in her underlying suit based upon the Yahoo Board of Directors’ alleged breach of duty for failure to adequately disclose the severance terms of a terminated executive employee, Henrique de Castro. De Castro’s termination resulted in a severance package of $58 million after fifteen months of service as Yahoo’s Chief Operating Officer. A prior Chancery decision involving that severance package was highlighted on these pages. Plaintiff’s suit had survived an earlier motion to dismiss about which Vice Chancellor Laster commented that a potential remedy for the inaccurate severance disclosure in 2014 could be the subsequent compelled disclosure in a proxy statement of the prior misrepresentation.
Plaintiff’s motion to delay the June 2017 shareholder vote rested upon an alleged deficiency in Yahoo’s 2017 proxy statement, which failed to disclose the prior 2014 “misdisclosure” with respect to de Castro’s severance. Specifically, plaintiff asserted that the June 8, 2017 shareholder vote would be the last opportunity for Yahoo CEO, Marissa Mayer, and Board Chairman Emeritus, Maynard Webb, to remedy their 2014 misdisclosure, as well as the shareholders’ last opportunity to vote on Mayer’s compensation. Plaintiff asserted that her claim for expedited relief was colorable because the Court did not dismiss the Complaint upon Defendants’ earlier motion. Plaintiff also argued that her claim was colorable because Yahoo’s Board Chairman Emeritus had stated by email that it’s “[h]ard to believe we got a hall pass on this one” with respect to Institutional Shareholder Services’ comments regarding the 2014 de Castro severance proxy disclosure.
Plaintiff further contended that she demonstrated irreparable harm because the June 8, 2017 shareholder vote would be the last chance for Mayer and Webb to remedy their inadequate disclosure from 2014. In response to Defendants’ claims of undue delay by Plaintiff in seeking injunctive relief eight months after the announcement of the “say on pay” vote, Plaintiff noted that the parties had been engaged in settlement talks.
Defendants countered Plaintiff’s assertion of colorable claim by arguing that there was no allegation of an inadequate disclosure in the proxy statement with respect to the matters to be voted upon on June 8, 2017. Defendants next countered the immediate irreparable harm prong by noting that the only alleged harm had occurred years ago in connection with the severance paid to de Castro and the alleged misdisclosure of same.
Analysis: The Court of Chancery found both the Plaintiff’s colorable claim and irreparable harm arguments to be lacking. After noting that the decision whether to grant expedited relief is discretionary, the Court ruled that the likelihood that it would ultimately grant injunctive relief was “remote” at best. Specifically, Vice Chancellor Laster noted that he contemplated the relief in the underlying action “as some type of post-adjudication remedy.” The Court dispensed with the irreparable harm prong by finding that the connection between the 2014 de Castro severance “misdisclosure” and the June 8, 2017 acquisition and “say on pay” vote was not sufficiently strong to warrant equitable relief. Moreover, the Court commented that the plaintiff’s desired disclosure would be of “relatively minimal importance” in light of the extensive news coverage of the “boiling soup of issues surrounding Ms. Mayer and Yahoo!”
The Court of Chancery also effectively denied Plaintiff’s underlying motion for preliminary injunction by taking it “out of the queue because it’s just not going to happen in light of my ruling on the motion to expedite.”
Take Away: Litigants are cautioned against filing motions to expedite requests for injunctive relief to halt a stockholder vote with respect to alleged “misdisclosures” which occurred years earlier and especially when such “misdisclosure” is only “remotely” linked to the pending vote.