It looks like one of the emerging trends in recent Delaware case law is an increased willingness to allow claims against buyers premised on allegations that they aided & abetted the seller’s directors and officers in breaching their fiduciary duties. This Milbank blog takes a look at these cases and offers some advice to buyers about how to protect themselves against aiding & abetting claims.
One of the ways that recent cases have tagged buyers is by citing contractual provisions that give the buyer the right to review the seller’s proxy disclosures. Plaintiffs have successfully alleged that a buyer’s failure to object to omissions in the seller’s disclosure about potentially problematic contacts may serve as evidence of knowing conduct. This excerpt from the blog provides some advice to buyers about how to help avoid having a contract right intended to protect them used to support a plaintiff’s aiding and abetting claims:
Finally, to eliminate the “contractual hook” relied on by the courts in both Mindbody and In re Columbia Pipeline Group, Inc., the merger agreement’s covenant to correct target’s disclosure could be written to limit buyer’s obligation to participate in target’s proxy disclosure to providing target with information only about buyer itself – such that any disclosure required to be made regarding meetings held with target management, the terms of preliminary offers made to target and judgments regarding the materiality of any other information in the possession of target (such as projections) would be the sole responsibility of target. This should have the effect of requiring some showing that buyer actually knew of the fiduciary’s breach, as plaintiffs will not be allowed to rely on the breach of the information covenant to demonstrate “knowing participation” in the fiduciary breach.
The blog also makes a compelling argument that it is inappropriate to use these contractual provisions as a basis for aiding & abetting claims, noting that “buyers are not typically privy to communications between a CEO and board regarding process matters, so that much evidence of a poorly run process may be hidden from buyer’s view.”
– John Jenkins