May 27, 2022

Officer Liability: M&A Board Minutes Put CLO in the Cross Hairs

Yesterday, in Goldstein v. Denner, (Del. Ch.; 5/22), the Delaware Chancery Court refused to dismiss breach of fiduciary duty claims against the officers and directors of Bioverativ arising out of the company’s 2018 sale for Sanofi.  This is another one of Vice Chancellor Laster’s 100+ page opinions, so there’s certainly a lot I could talk about. But one aspect of the case that I thought would grab your attention right before a long holiday weekend was the Vice Chancellor’s refusal to dismiss claims against the company’s Chief Legal Officer based on her alleged “embellishment” of board minutes approving the sale of the company.

The complaint alleges some pretty sketchy conduct by several members of the board, including violations of the company’s insider trading policy & non-disclosure of key facts to other board members. While some duty of care claims were made against the company’s officers, most of the complaint’s allegations alleged breaches of the duty of loyalty arising out of lucrative severance benefits that they would receive in the event of a sale. When it came to the CLO, the complaint alleged that those conflicts prompted her to prepare board minutes in a way that did not reflect reality. Here’s an excerpt from Vice Chancellor Laster’s opinion:

The complaint alleges that [the CLO] took steps to create a record that would enable the Transaction to close. But rather than creating a record in the sense of creating documents that accurately reflected what had taken place, [the CLO] created a record in the sense of engaging in acts of creativity. The plaintiff alleges that [the CLO] documented events that did not occur and described other events in a manner that made the process seem better than it was.

In making these allegations, the plaintiffs pointed to discrepancies between the language of the minutes and internal emails produced in response to a books & records demand.  Although acknowledging that there were “defendant-friendly” ways to reconcile the emails to the minutes, the Vice Chancellor concluded that it was inappropriate for the Court to “find facts or weigh competing inferences” at this stage of the proceeding.  Accordingly, he concluded that the plaintiff had advanced a possible account in which the CLO created “an embellished description of the Board’s deliberative process,” and declined to dismiss the breach of fiduciary duty claim against her.

If you’re looking for more on this case, check out Ann Lipton’s Twitter thread  on VC Laster’s holding that directors who expect repeat board positions from activists may not be viewed as independent.

John Jenkins