Justia Securities Law Opinion Summaries

The Court of Chancery found that the fair value of Aruba Networks, Inc., as defined by 8 Del. C. 262, was $17.13 per share, which was the thirty-day average market price at which its shares traded before the media reported news of the transaction that gave rise to the appellants’ appraisal rights. The issue this case presented for the Delaware Supreme Court's review centered on whether the Court of Chancery abused its discretion in arriving at Aruba’s thirty-day average unaffected market price as the fair value of the appellants’ shares. Because the Court of Chancery’s decision to use Aruba’s stock price instead of the deal price minus synergies was rooted in an erroneous factual finding that lacked record support, the Supreme Court answered that in the positive and reversed the Court of Chancery’s judgment. On remand, the Court of Chancery was directed to enter a final judgment for petitioners, awarding them $19.10 per share, which reflected the deal price minus the portion of synergies left with the seller as estimated by the respondent in this case, Aruba. View "Verition Partners Master Fund Ltd., et al. v. Aruba Networks, Inc." on Justia Law

In this shareholder-derivative action, Shareholders of The Western Union Company averred several of Western Union’s Officers and Directors breached their fiduciary duties to the company by willfully failing to implement and maintain an effective anti-money-laundering-compliance program (AML-compliance program), despite knowing of systemic deficiencies in the company’s AML compliance. The Shareholders didn’t make a pre-suit demand on Western Union’s Board of Directors to pursue this litigation, and the district court found no evidence that such demand would have been futile. The district court thus dismissed the case, reasoning that the Shareholders’ obligation to make a pre-suit demand on the Board was not excused. The Tenth Circuit concurred with the district court's decision to dismiss, and affirmed. View "City of Cambridge Retirement v. Ersek" on Justia Law

Nicholas Olenik, a stockholder of nominal defendant Earthstone Energy, Inc., brought class and derivative claims against defendants, challenging a business combination between Earthstone and Bold Energy III LLC. As alleged in the complaint, EnCap Investments L.P. controlled Earthstone and Bold and caused Earthstone stockholders to approve an unfair transaction based on a misleading proxy statement. Defendants moved to dismiss the complaint, claiming the proxy statement disclosed fully and fairly all material facts about the transaction, and Earthstone conditioned its offer on the approval of a special committee and the vote of a majority of the minority stockholders. The Court of Chancery agreed with the defendants and dismissed the case. While the parties briefed this appeal, the Delaware Supreme Court decided Flood v. Synutra International, Inc. Under Synutra, to invoke the MFW protections in a controller-led transaction, the controller must “self-disable before the start of substantive economic negotiations.” The controller and the board’s special committee must also “bargain under the pressures exerted on both of them by these protections.” The Court cautioned that the MFW protections would not result in dismissal when the “plaintiff has pled facts that support a reasonable inference that the two procedural protections were not put in place early and before substantive economic negotiations took place.” So the Supreme Court determined the Court of Chancery held correctly plaintiff failed to state a disclosure claim. But, the complaint should not have been dismissed in its entirety: applying Synutra, which the Court of Chancery did not have the benefit of at the time of its decision, plaintiff pled facts supporting a reasonable inference that EnCap, Earthstone, and Bold engaged in substantive economic negotiations before the Earthstone special committee put in place the MFW conditions. The Court of Chancery’s decision was affirmed in part and reversed in part, and the case remanded for further proceedings. View "Olenik v. Lodzinski, et al." on Justia Law

Nicholas Olenik, a stockholder of nominal defendant Earthstone Energy, Inc., brought class and derivative claims against defendants challenging a business combination between Earthstone and Bold Energy III LLC. As alleged in the complaint, EnCap Investments L.P. controlled Earthstone and Bold and caused Earthstone stockholders to approve an unfair transaction based on a misleading proxy statement. Defendants moved to dismiss the complaint on several grounds, principal among them that the proxy statement disclosed fully and fairly all material facts about the transaction, and Earthstone conditioned its offer on the approval of a special committee and the vote of a majority of the minority stockholders. The Court of Chancery agreed with defendants and dismissed the case. Two grounds were central to the court’s ruling: (1) the proxy statement informed the stockholders of all material facts about the transaction; and (2) although the court recognized that EnCap, Earthstone, and Bold worked on the transaction for months before the Earthstone special committee extended an offer with the so-called MFW conditions, it found those lengthy interactions “never rose to the level of bargaining: they were entirely exploratory in nature.” Thus, in the court’s view, the MFW protections applied, and the transaction was subject to business judgment review resulting in dismissal. While this appeal was pending, the Delaware Supreme Court decided Flood v. Synutra International, Inc. Under Synutra, to invoke the MFW protections in a controller-led transaction, the controller must “self-disable before the start of substantive economic negotiations.” The controller and the board’s special committee must also “bargain under the pressures exerted on both of them by these protections.” The Court cautioned that the MFW protections will not result in dismissal when the “plaintiff has pled facts that support a reasonable inference that the two procedural protections were not put in place early and before substantive economic negotiations took place.” The Supreme Court determined the Court of Chancery held correctly that plaintiff failed to state a disclosure claim. But, the complaint should not have been dismissed in its entirety: applying Synutra and its guidance on the MFW timing issue, which the Court of Chancery did not have the benefit of at the time of its decision, plaintiff has pled facts supporting a reasonable inference that EnCap, Earthstone, and Bold engaged in substantive economic negotiations before the Earthstone special committee put in place the MFW conditions. The Supreme Court also found no merit to defendants’ alternative ground for affirmance based on EnCap’s supposed lack of control of Earthstone. The Court of Chancery’s decision was affirmed in part and reversed in part, and the case was remanded for further proceedings. View "Olenik v. Lodzinski, et al." on Justia Law

Standing alone, a general disclaimer (still less a general merger clause) is not sufficient as a matter of law to preclude reasonable reliance on material factual misrepresentations, even by a sophisticated investor. FIH appealed the district court's grant of summary judgment dismissing federal securities law claims against defendants. The district court concluded as a matter of law that FIH could not have reasonably relied on the alleged misrepresentations, because such reliance was precluded by a general merger clause in Foundation's agreement, incorporated by reference into the subscription agreements by which FIH had invested in Foundation. However, the Second Circuit held that the merger clause did not as a matter of law preclude FIH's reasonable reliance on the alleged misrepresentations. The court also held that the district court did not err nor abuse its discretion in excluding as untimely an expert report. Accordingly, the court vacated the judgment and remanded for further proceedings. View "FIH, LLC v. Foundation Capital Partners, LLC" on Justia Law

COR, a securities clearing and settlement firm, filed suit against Calissio seeking to recover losses resulting from a dividend transaction that it has not already recovered in other proceedings. The Eighth Circuit affirmed the district court's grant of summary judgment dismissing all claims against SST (the transfer agent) and the Broker Defendants. The court held that the transfer agent had no knowledge of a misrepresentation in the use of a seemingly appropriate "CUSIP" number for additional shares of the same class as existing shares and the transfer agent reasonably relied on attorney opinion letters in issuing the new shares. Furthermore, COR failed to show it reasonably relied on the transfer agent's alleged misrepresentation. Accordingly, the transfer agent was entitled to judgment on plaintiff's fraudulent misrepresentation claims.The court also held that the district court properly dismissed claims against the Broker Defendants. In this case, COR has no conversion claim against the Broker Defendants, who simply acted as pass-through agents of the buyers in receiving and distributing due bill credits. Likewise, COR's unjust enrichment claim failed because the Broker Defendants received due bill credits from DTC for the benefit of their account holders and passed the benefit to their account holders without delay. View "COR Clearing, LLC v. Calissio Resources Group, Inc." on Justia Law

After the merger of RCA and AFIN, RCA shareholders filed suit alleging that the proxy statement was false and misleading under federal securities laws. In this case, the shareholders alleged that the proxy statements and omissions regarding (A) the AFIN NAV; (B) the sale of the Merrill Lynch properties; (C) SunTrust Bank; and (D) the AFIN Standalone Projections were materially misleading.The Fourth Circuit affirmed the district court's dismissal of the claims, holding that the statements the shareholders complained of were not false or misleading and the alleged omissions were addressed by narrowly tailored warning language. View "Paradise Wire & Cable Defined Benefit Pension Plan v. Weil" on Justia Law

Plaintiffs, 39 former employees of Infinium Capital, voluntarily converted loans they had made to their employer under the company’s Employee Capital Pool program into equity in the company. A year later their redemption rights were suspended; six months after that, they were told their investments were worthless. Plaintiffs filed suit against Infinium, the holding company that owned Infinium, and members of senior management, asserting claims for federal securities fraud and state law claims for breach of fiduciary duty and fraud. The Seventh Circuit affirmed the dismissal, with prejudice, of their fifth amended complaint for failure to state a claim. Reliance is an element of fraud and each plaintiff entered into a written agreement that contained ample cautionary language about the risks associated with the investment. Federal Rule of Civil Procedure 9(b) provides that a party alleging fraud or mistake “must state with particularity the circumstances constituting fraud or mistake,” although “[m]alice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.” Plaintiffs failed to identify the speakers of alleged misrepresentations with adequate particularity, failed to adequately plead scienter, and failed to plead a duty to speak. View "Cornielsen v. Infinium Capital Management, LLC" on Justia Law

Stockholder-plaintiff KT4 Partners LLC appealed the Court of Chancery’s post-trial order granting in part and denying in part KT4’s request to inspect various books and records of appellee Palantir Technologies Inc., a privately held technology company. The Court of Chancery found that KT4 had shown a proper purpose of investigating suspected wrongdoing in three areas: (1) “Palantir’s serial failures to hold annual stockholder meetings”; (2) Palantir’s amendments of its Investors’ Rights Agreement in a way that “eviscerated KT4’s (and other similarly situated stockholders’) contractual information rights after KT4 sought to exercise those rights”; and (3) Palantir’s potential violation of two stockholder agreements by failing to give stockholders notice and the opportunity to exercise their rights of first refusal, co-sale rights, and rights of first offer as to certain stock transactions. The Court ordered Palantir to produce the company’s stock ledger, its list of stockholders, information about the company’s directors and officers, year-end audited financial statements, books and records relating to annual stockholder meetings, books and records relating to any cofounder's sales of Palantir stock. The Court otherwise denied KT4's requests, including a request to inspect emails related to Investors' Rights Agreement amendments. Both sides appealed, but the Delaware Supreme Court was satisfied the Court of Chancery did not abuse its discretion with respect to all but two issues: (1) denying wholesale requests to inspect email relating to the Investors' Rights Agreement; (2) and requests to temper the jurisdictional use restriction imposed by the court. "Given that the court found a credible basis to investigate potential wrongdoing related to the violation of contracts executed in California, governed by California law, and among parties living or based in California, the basis for limiting KT4’s use in litigation of the inspection materials to Delaware and specifically the Court of Chancery was tenuous in the first place, and the court lacked reasonable grounds for denying the limited modifications that KT4 requested." View "KT4 Partners LLC v. Palantir Technologies, Inc." on Justia Law

In 2008, Fisker, a manufacturer of luxury hybrid electric cars, became part of a trend in venture capital investments toward green energy technology start-ups. The Department of Energy advanced Fisker $192 million on a $528.7 million loan, secured with assistance from the Kleiner venture capital firm, a Fisker controlling shareholder. Tech-industry rainmakers and A-list movie stars invested in Fisker, which was competing with another emerging player, Tesla. In 2009, before sales began on its first-generation vehicles, Fisker announced that its second-generation vehicles would be built in Delaware. Delaware agreed to $21.5 million in state subsidies. Vice President Biden and Delaware Governor Markell participated in Fisker’s media unveiling of the collaboration. Riding this publicity, Fisker secured funding from additional venture capital firms and high net worth investors, including the five plaintiffs, who collectively purchased over $10 million in Fisker securities. In 2011, Fisker began selling its flagship automobile. In 2012, it stopped all manufacturing. In April 2013, Fisker laid off 75% of its remaining workforce; the U.S. Government seized $21 million in cash for Fisker’s first loan payment. The Energy Department put Fisker’s remaining unpaid loan amount ($168 million) out to bid. Fisker filed for bankruptcy. In October 2016, the plaintiffs filed a class action, alleging fraud, breach of fiduciary duty, and negligent misrepresentation. The Seventh Circuit affirmed the dismissal of plaintiffs’ claims as precluded by Illinois law’s three-year limitations period. Those claims accrued no later than April 2013. View "Orgone Capital III, LLC v. Daubenspeck" on Justia Law