DealLawyers.com Blog

Late last month, in In re Illumina, Inc. Consolidated Derivative Stockholder Litigation (Del. Ch.; 10/26), Vice Chancellor Fioravanti dismissed a stockholder derivative action alleging that the officers and directors of Illumina breached their fiduciary duties by causing the company to consummate a merger in violation of law. VC Fioravanti determined a majority of Illumina’s directors did not face a substantial likelihood of liability because plaintiffs failed to plead a known violation of EU or U.S. law, and therefore failed to plead demand futility. Here’s more from Wachtell:

The case concerned the decision by the board of directors of Illumina, Inc. to approve the closing of the company’s acquisition of GRAIL. At the time, the European Commission had opened an antitrust investigation even though GRAIL had no revenue in the EU, purportedly triggering a statutory standstill against closing. Illumina sued to challenge the EC’s unprecedented exercise of jurisdiction, arguing that the standstill did not apply. The U.S. FTC was also pursuing an administrative action against the transaction, but had withdrawn its lawsuit seeking a preliminary injunction in light of the standstill, leaving no legal bar to closing in the U.S.

After informing itself of the relevant law and regulatory landscape, including by engaging legal counsel, Illumina’s board voted to close the transaction.

Following several years of litigation, Illumina ultimately won its legal challenge against the EC’s jurisdiction […] In the U.S., the FTC’s litigation was effectively mooted without any final resolution when Illumina later decided that it would divest GRAIL.

Meanwhile, Illumina stockholder plaintiffs sued, claiming that the directors breached their fiduciary duties by causing Illumina to violate the law by closing the GRAIL transaction despite the purported EC standstill and FTC opposition[.]

VC Fioravanti concluded that there was no knowing violation of law and that the directors were “‘informed of the legal risks of closing and made an informed decision’ to close while continuing to litigate the company’s position.”

The Court of Chancery’s decision reaffirms that disinterested, independent directors can decide in good faith to accept regulatory risk based on their well-informed belief in the validity of their company’s legal position.

– Meredith Ervine