February 22, 2018

Disclosure: Delaware Says Reasons for Director’s Abstention are “Material”

Last year, I blogged about a Chancery Court decision holding that the reasons for a director’s abstention from voting on a proposed sale weren’t material. Earlier this week, in Appel v. Berkman (Del. Sup.; 2/18). the Delaware Supreme Court reversed that ruling.

This Steve Quinlivan blog summarizes the Supreme Court’s decision. Here’s an excerpt:

According to the Delaware Supreme Court, the defendants’ argument that the reasons for a dissenting or abstaining board member’s vote can never be material is incorrect. The Court reasoned that because Delaware law gives important effect to an informed stockholder decision, Delaware law also requires that the disclosures the board makes to stockholders contain the material facts and not describe events in a materially misleading way.

Here, the founder and Chairman’s views regarding the wisdom of selling the company were ones that reasonable stockholders would have found material in deciding whether to vote for the merger or seek appraisal, and the failure to disclose them rendered the facts that were disclosed misleadingly incomplete. Therefore, the Delaware Supreme Court reversed the order dismissing the plaintiffs’ claims.

In his opinion, Chief Justice Strine said that the Supreme Court wasn’t holding that information of this type was always material – simply that the materiality issue must be decided by looking at the information in the context of the total mix of information provided to investors.

John Jenkins