For instance, corporations and boards of directors should take into account demand futility standards in derivative litigation to structure the way that they review threatened or pending litigation. Specifically, after the Delaware Supreme Court’s decision in United Food & Commercial Workers Union & Participating Food Industry Employers Tri-State Pension Fund v. Zuckerberg, 262 A.3d 1034 (Del. 2021), corporations now have set benchmarks to use in assessing the risk of derivative litigation and how to review pending litigation demands from aggrieved shareholders.
Corporations have similar tools from the teachings of In re Primedia, Inc. Shareholders Litigation, 67 A.3d 455 (Del. Ch. 2013) and Morris v. Spectra Energy Partners (DE) GP, LP, 246 A.3d 121 (Del. 2021), which both evidence a willingness on the part of the Delaware Supreme Court to expand post-merger stockholder standing to assert direct claims relating to the value of the their former derivative litigation. Both Primedia and Morris teach that where a corporation faces an actual or possible derivative claim that may be pursued as a post-merger claim, Delaware corporations should carefully consider whether to assign value to the derivative claim, how the Primedia test may affect the status of the post-merger litigation, and how materiality will be viewed by courts after the transaction is completed.
And, finally, Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015) presents a powerful and practical tool for defending against potential future lawsuits and insulating corporate directors, even if they are not independent, so long as all of the material information about the transaction (including the lack of independence of the directors) is disclosed pre-vote and the shareholders vote to approve the transaction in an uncoerced manner. Indeed, Corwin, in theory, could cut off post-merger Primedia-based claims, so long as the corporation discloses pre-vote all ongoing or threatened derivative litigation and the value (or lack thereof) the corporation has attributed to that litigation.
At bottom, the fact paced and often shifting world of M&A litigation is not just the province of litigators. The lessons to be learned and tools provided by that case law can serve lawyers structuring deals, advising corporate boards and seeking to cut-off litigation risk at the front end before ending up in court.
For a more in-depth discussion on the topic, please view my recent webinar, “Not Just a Deal Tax: M&A from a Litigation Perspective.”
Ryan Moore is a partner in the Litigation Department at Klehr Harrison.