December 2, 2021

Aiding & Abetting: Contract Right to Review Proxy Helps Snare Buyer

I’ve previously blogged about the ongoing litigation surrounding Visa Equity Partners’ acquisition of Mindbody.  In addition to fiduciary duty claims against the target’s board & CEO, the plaintiffs in that case also made the unusual claim that the buyer aided & abetted their alleged breaches of fiduciary duty.  In a recent letter opinion, Chancellor McCormick declined to dismiss those claims – and a standard contractual right permitting the buyer to review the target’s proxy statement prior to its filing with the SEC played a central role in her decision.

In order to assert an aiding & abetting claim, the plaintiffs must allege that the buyer knowingly participated in a breach of fiduciary duty.  In this litigation, the plaintiffs alleged that the board and CEO breached their fiduciary duties of disclosure because target’s proxy statement failed to disclose, among other things, details about early interactions between the buyer and the target’s CEO.  With respect to that aspect of the claim, the Chancellor pointed to language contained Section 6.3(b) of the merger agreement, which provides that:

The Company may not file the Proxy Statement or any Other Required Company Filing with the SEC without first providing Parent and its counsel a reasonable opportunity to review and comment thereon, and the Company will give due consideration to all reasonable additions, deletions or changes suggested thereto by Parent or its counsel.

That language, or something similar to it, has likely been included in just about every public company merger agreement ever filed.  But it took on perhaps unexpected significance in the evaluation of the plaintiffs’ aiding & abetting claim against the buyer.  That’s because Chancellor McCormick pointed to it as supporting the knowing conduct on the part of the buyer necessary to establish such a claim:

[T]he merger agreement contractually entitles Vista to review the proxy and requires Vista to inform Mindbody of any deficiencies with the proxy. Vista knew that the proxy did not disclose information about Vista’s own dealings with Stollmeyer, dealings which I previously found support the plaintiffs’ claim for breach of the duty of disclosure. The plaintiffs thus adequately alleged that Vista knowingly participated in the disclosure violation related to Stollmeyer’s early interactions with Vista.

If you’re keeping an eye out for emerging Delaware trends, it’s worth noting that this is the second case this year in which the Chancery Court upheld aiding & abetting claims against a buyer in an M&A transaction.

John Jenkins