DealLawyers.com Blog

This Wachtell memo discusses the Delaware Chancery Court’s recent decision in Nguyen v. Barrett, which makes it clear that if a plaintiff has a disclosure claim, it better be brought before closing:

The court rejected the plaintiff’s suggestion that “Delaware has recently established a new regime,” under which a plaintiff can elect to bring disclosure claims before or after the stockholder vote: “To be clear, where a plaintiff has a claim, pre-close, that a disclosure is either misleading or incomplete in a way that is material to stockholders, that claim should be brought pre-close, not post-close.” Only that rule, the court explained, encourages litigants to seek a remedy for disclosure problems “pre-close, at a time when the Court can insure an informed vote.”

The court also addressed the differing standards that apply to pre-closing and post-closing litigation involving disclosure claims:

Dismissing the amended complaint, the court emphasized the contrast between a “pre-close disclosure claim, heard on a motion for preliminary injunctive relief,” and a “disclosure claim for damages against directors post-close.” A pre-close claim, the court explained, requires a plaintiff to show only “a reasonable likelihood . . . that the alleged omission or misrepresentation is material,” while a post-close damages claim carries substantial additional burdens, including the obligation to plead that the directors violated their disclosure duties “consciously,” “intentionally,” or in “bad faith.” Finding no allegations that demonstrated this “extreme set of facts,” the court ruled that the damages claims could not stand.

Applying the post-closing damages standard, the Chancery Court rejected claims premised on disclosure of projections used in the fairness opinion and the contingent nature of the financial advisor’s fee.

– John Jenkins