In re Cyan, Inc. Stockholders Litigation, CA 11027-CB

Background

Cyan, Inc. agreed to be acquired by Ciena in May 2015 for ~ $335 million (89% stock, 11% cash); merger closed Aug 3, 2015 after ~98% of votes cast approved it.
Before the deal Cyan faced a certified securities class action (alleged IPO misstatements); Cyan directors and underwriters were defendants; indemnification exposure alleged by plaintiffs.
Cyan issued $50M of convertible notes in late 2014; the merger’s cash+stock structure could trigger indenture “Fundamental Change” protections (make-whole or conversion rights) for noteholders.
Plaintiffs (stockholders) challenged the proxy’s disclosures and alleged the board breached fiduciary duties by approving the merger to secure indemnification and preserve directors’ protections; they sought quasi-appraisal relief.
Defendants moved to dismiss. Court reviewed whether plaintiffs pleaded a non-exculpated duty-of-loyalty/bad-faith claim (Cyan’s charter contained a §102(b)(7) exculpation) and whether the stockholder vote was fully informed under Corwin.
Court dismissed both counts with prejudice: (1) plaintiffs failed to plead majority director interest or bad faith; (2) a fully informed, uncoerced vote cleansed the transaction; quasi-appraisal remedy failed because no viable disclosure or non-exculpated fiduciary claim was pled.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether plaintiffs pled non-exculpated breach of fiduciary duty by board	Board was motivated by self-interest: secure buyer with "deep pockets" to preserve indemnification and trigger make-whole for insiders holding notes; largest stockholders wanted a private liquidity exit	Board’s decision is presumptively protected by the business judgment rule; alleged conflicts were immaterial or affected fewer than a majority; directors had indemnity, D&O insurance, and Cyan’s potential SEC-litigation exposure was overstated	Dismissed: plaintiffs failed to plead that a majority of directors were interested or acted in bad faith; exculpatory charter provision bars monetary claims absent bad faith or disloyalty
Whether proxy omitted material facts making stockholder vote uninformed (Corwin cleansing)	Proxy misstated Jefferies’ conflict; failed to disclose Windstream dependence impact and a Jefferies appendix precedent-analysis relied on by board	Proxy disclosed Jefferies’ note holdings and indemnification, risk of Jefferies’ interest, hiring of Houlihan Lokey, Windstream concentration (via incorporated 10‑K/10‑Q), and the precedent transactions used for Cyan as a whole	Dismissed: the alleged omissions were immaterial or adequately disclosed (including incorporation by reference); vote was fully informed and uncoerced, invoking Corwin cleansing
Whether plaintiffs stated a valid quasi-appraisal claim	Withholding material information prevented stockholders from deciding whether to seek statutory appraisal; equitable quasi-appraisal should be available	Quasi-appraisal is a remedy for fiduciary breaches (disclosure claims); plaintiffs’ underlying disclosure/fiduciary claims fail and Cyan’s exculpatory provision bars monetary relief	Dismissed: quasi-appraisal unavailable because no viable breach or material nondisclosure was pled and plaintiffs cannot evade §102(b)(7) by framing the claim as equitable
Whether plaintiffs’ late request for proxy supplementation supports bad faith	Refusal to supplement shortly before meeting shows conscious disregard of duties	Plaintiffs waived injunctive relief, failed to seek preliminary relief, and provided no nonconclusory facts showing conscious disregard or inexplicable conduct	Dismissed: refusal to supplement did not establish bad faith; no adequate pleading of conscious disregard

Key Cases Cited

Corwin v. KKR Fin. Hldgs. LLC, 125 A.3d 304 (Del. 2015) (fully informed, uncoerced stockholder approval invokes business judgment review)
Singh v. Attenborough, 137 A.3d 151 (Del. 2016) (vote-cleansing doctrine and rarity of waste claims)
Revlon, Inc. v. MacAndrews & Forbes Hldgs., Inc., 506 A.2d 173 (Del. 1986) (enhanced scrutiny when sale requires maximization of shareholder value)
Orman v. Cullman, 794 A.2d 5 (Del. Ch. 2002) (materiality of director interest for duty-of-loyalty claims)
Lyondell Chem. Co. v. Ryan, 970 A.2d 235 (Del. 2009) (bad faith defined as conscious disregard of duties)
Crescent/Mach I P’rs, L.P. v. Turner, 846 A.2d 963 (Del. Ch. 2000) (inexplicable conduct as indicia of bad faith)
In re Orchard Enters., Inc. S’holder Litig., 88 A.3d 1 (Del. Ch. 2014) (quasi-appraisal characterized as a remedy tied to causes of action such as disclosure breaches)