DealLawyers.com Blog

In two decisions last spring, the Supreme Court overruled Chancery Court decisions that had dismissed challenges to transactions on the basis that MFW‘s conditions were met. In both cases, the Supreme Court found that certain undisclosed conflicts of interest involving financial advisors were material and held that the stockholder vote approving the deal was not fully informed, so defendants’ motion to dismiss fiduciary duty claims should be denied. The second of those decisions was in City of Sarasota Firefighters Pension Fund v. Inovalon Holdings (Del.; 4/24). Just this week, Chancellor McCormick addressed the defendants’ supplemental motions to dismiss raised on remand — including that the claims should be dismissed because defendants are entitled to exculpation — in City of Sarasota Firefighters Pension Fund v. Inovalon Holdings (Del. Ch.; 6/25).

In denying the motion to dismiss on this basis, Chancellor McCormick found that it was reasonably conceivable that defendants failed to disclose the advisor conflicts and exaggerated another advisor’s role in market outreach knowingly and in bad faith. In so finding, she points to the significance of this information in the eyes of the Supreme Court to support an inference that it is reasonably conceivable the defendants withheld information from the proxy statement to make the process look better.

The defendants argued that it was unreasonable to infer bad faith because “’it took a review by the Supreme Court . . . to clarify that such facts were material.’ If the trial court did not view this information as material, how can one fault the Committee Defendants?” The Chancellor acknowledged that this was a fair question but said it ignores the law in the case. The Supreme Court determined the information was material, and it is reasonably conceivable that the defendants withheld it knowingly, which is enough to state a non-exculpated claim.

– Meredith Ervine