November 20, 2008

California Love

– by John Jenkins, Calfee, Halter & Griswold LLP

Looking for a sophisticated discussion of Delaware law concerning the effect of shareholder ratification on breach of fiduciary duty claims? How about an in-depth analysis of the current state of Delaware law on disclosure of management projections in a merger proxy statement?

If so, then head to California.

Last Monday, the California Court of Appeal rendered its decision in Greenspan v. Intermix Media, No. B196434 (Nov. 10 2008), the latest chapter in ongoing litigation between Bruce Greenspan, the former CEO of Intermix Media, who oversaw the development of, and News Corp., which acquired Intermix in 2005. Mr. Greenspan and the other plaintiffs in the case brought a variety of fiduciary duty and tort claims in connection with News Corp.’s acquisition of Intermix. These claims generally arose out of alleged conflicts of interest among members of the Intermix board and flaws in the sale process that the plaintiffs contended violated the Intermix board’s fiduciary obligations under Delaware law.

The trial court ruled that the shareholders’ ratification of the transaction “vitiated the breach of fiduciary duty claims because there had been adequate disclosure of all material facts.” The Court of Appeal affirmed that ruling. More importantly for M&A lawyers, the court also provided a remarkably cogent discussion of the evolution and scope of Delaware’s shareholder ratification doctrine, as well as an equally impressive analysis and application of the Delaware courts’ take on some of the thorniest disclosure issues confronting M&A practitioners, including disclosure of management’s internal financial projections.

So many of Delaware’s doctrines evolve over time that it is sometimes difficult to piece them all together. Every now and again, it’s nice to see everything laid out in one spot, and the Court of Appeal did an impressive job of doing that in the Intermix case.