In a comprehensive analysis of the standards of review, burdens of proof and potential damages implicated in a fiduciary-duty challenge to a squeeze-out merger, the Delaware Court of Chancery recently examined the harsh potential consequences for controlling shareholders who manipulate special board committees, the fairness opinions of their financial advisers, and proxy materials concerning the value of a company.
In In re Orchard Enterprises Stockholder Litigation,(Del. Ch. February 28, 2014) (Laster, V.C.), the Court of Chancery granted summary judgment, in part, to plaintiff minority stockholders based on a proxy disclosure violation concerning the applicability of the controlling stockholder’s liquidation preference to the squeeze-out merger, and held that entire fairness review applied to the plaintiffs’ fiduciary-duty claims, with the burden of persuasion on the defendants. The court also granted summary judgment, in part, to the defendants on the grounds that the proxy disclosure concerning the ongoing company liability for the controlling stockholder’s liquidation preference was factually accurate, and that Orchard Enterprises itself, as the constituent company in the merger, was not liable for aiding and abetting its directors’ alleged breach of fiduciary duties in connection with the merger. The court denied the parties’ other grounds for their cross-motions for summary judgment, and bound the case over for trial.
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