Two recent decisions of the Delaware Court of Chancery separated by only two weeks took seemingly contradictory positions regarding the extent to which corporate disclosures must be made clear in proxy statements and other SEC filings. In an order issued on March 7 in In re Columbia Pipeline Group Stockholder Litigation, C.A. No. 12152-VCL (Del. Ch. Mar. 7, 2017), the court invoked the business judgment rule under Corwin v. KKR Financial Holdings, 125 A.3d 304 (Del. 2015), to dismiss challenges related to a stockholder-approved merger. In so holding, the court rejected the plaintiffs' position that the stockholder vote was uninformed by virtue of the target corporation's failure to disclose the ownership stake of Goldman, Sachs & Co., financial adviser to the target, in the acquiror. Citing the Court of Chancery's decision in In re Micromet Shareholders Litigation, C.A. No. 7197-VCP (Del. Ch. Feb. 29, 2012), the court ruled that Goldman's disclosure of this stake in a 2016 319-page SEC filing on Form 13F was sufficient.

By contrast, in Vento v. Curry, C.A. No. 2017-0157-AGB (Del. Ch. Mar. 22, 2017), the court enjoined a vote on the proposed issuance of stock by an acquiror in a stock-for-stock merger on the basis of a disclosure deficiency. Specifically, the joint proxy statement/prospectus, which formed part of the acquiror's registration statement filed on Form S-4, failed to disclose any facts concerning the financing fees to be received by the acquiror's financial adviser in connection with the merger. Although these fees were not directly disclosed, the defendants asserted that stockholders could derive the fees based on the acquiror's public filings. In the registration statement, a table set forth a series of adjustments to the acquiror's balance sheet that would result from the merger's consummation, including a line item of $14.025 million for “financing commitment fees.” Roughly 100 pages into a filing on Form 8-K made by the acquiror a few months earlier, an affiliate of the adviser was identified as contributing 40 percent of the total principal amount of the deal's debt financing. Taken together, the defendants argued that a stockholder could “reasonably conclude” that the adviser's affiliate stood to receive 40 percent of $14.025 million, or approximately $5.6 million, in connection with the financing. In rejecting this argument, the court relied on the “buried facts doctrine,” under which a “disclosure is inadequate if the disclosed information is 'buried' in the proxy materials,” Weingarden v. Meenan Oil, C.A. No. 7291 (Del. Ch. Jan. 2, 1985), explaining that “one reasonably would expect that all material facts concerning a financial advisor's potential conflicts of interest would be disclosed in plain English in one place.”

A review of the seldom-invoked buried facts doctrine indicates that these decisions are not as inconsistent as they may at first appear. Derived from federal precedent applicable to disclosure obligations arising under securities law, the doctrine was first applied by the Court of Chancery in Weingarden v. Meenan Oil. Although it found no issue with the defendants' disclosure of information relating to recently granted stock options on pages 30 and 31 of a proxy statement rather than at the beginning of the proxy, the Weingarden court cited the federal district court for the District of Delaware's decision in Blanchette v. Providence & Worcester, 428 F.Supp. 347 (D. Del. 1977), as an example of the doctrine's intended purpose. In Blanchette, the district court held that Providence and Worcester Co.'s description of the scaled voting provisions governing its stock in a prospectus's opening summary and body were misleading. While the company mentioned in a footnote to its financial statements that these voting provisions had been invalidated, under the buried facts doctrine, this remote disclosure could not remedy other, more readily identifiable disclosures noting the existence of the provisions that omitted this important fact.