288 A.3d 692
Del. Ch.2023Background
- GigCapital3, Inc. (Gig3) was formed as a Delaware SPAC in Feb. 2020; sponsor (GigAcquisitions3 LLC, controlled by Avi Katz) received ~20% of post‑IPO founder shares for $25,000 and purchased private placement units.
- Gig3 completed an IPO raising ~$200M; IPO proceeds were held in trust and public holders had redemption rights (~$10/share + interest) prior to a de‑SPAC merger.
- Gig3 negotiated a merger with Lightning eMotors; a planned PIPE largely failed, and Gig3 instead arranged $100M in convertible notes with dilutive features and warrants.
- The definitive proxy disclosed Lightning management projections and generic conflicts, but (allegedly) did not disclose the ‘‘net cash per share’’ Gig3 would actually contribute after dilution or certain adverse facts about Lightning’s scalability.
- Stockholders approved the merger (98% of votes cast), ~29% of public holders redeemed; after closing the combined company’s stock fell materially and plaintiff sued (class action) alleging fiduciary breaches and unjust enrichment based on impaired redemption choices.
- Court denied the defendants’ motion to dismiss: claims were direct (not derivative or impermissible holder claims), pleadings supported application of entire fairness, and unjust enrichment survived.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Direct v. derivative nature of claims | Delman: harms (impaired redemption choice / lost opportunity to redeem) are individual to public holders, so claims are direct | Defs: this is an overpayment/bad‑deal that injured the corporation, so derivative | Court: direct — Tooley test supports individual injury to public holders and recovery would go to harmed holders, not the corporation |
| Holder‑claim doctrine (class treatment) | Delman: shareholders were asked to take action (redeem or invest); collective action problem makes reliance and class treatment feasible | Defs: this is a holder claim (no affirmative request), so cannot be classized | Court: not a holder claim — redemption choice is an affirmative investment decision and common proof of disclosure suffices |
| Standard of review — business judgment v. entire fairness | Delman: conflicts (controller incentives + board composition) rebut business judgment and trigger entire fairness | Defs: disclosed conflicts and shareholder vote cleanse and/or business judgment applies | Court: entire fairness applies because controller conflicts and a majority of the board were plausibly conflicted/ not independent; Corwin cleansing unavailable here |
| Adequacy of disclosures re: net cash per share | Delman: Proxy omitted material, reasonably available info (net cash per share after dilution, value of warrants/notes) impairing redemption decision | Defs: Proxy disclosed key facts and risks; no material omission | Court: reasonably conceivable that Proxy misled about value backing each share and omitted material info (net cash per share), so dismissal inappropriate |
| Adequacy of disclosures re: Lightning projections | Delman: Proxy presented optimistic Lightning projections without balancing, reasonably available countervailing info about scalability | Defs: projections were forward‑looking and suitably qualified | Court: plausible omission of reasonably available, material information about Lightning’s scalability and prospects supports claim |
| Corwin / shareholder vote cleansing | Delman: vote was decoupled from economics because holders could redeem; vote therefore not a legitimate Corwin‑type cleansing | Defs: an informed, uncoerced majority vote cleanses the transaction | Court: Corwin inapplicable — voting and economic interests were decoupled (redeemers could still vote), and material disclosure defects exist |
Key Cases Cited
- In re MultiPlan Corp. Stockholders Litig., 268 A.3d 784 (Del. Ch. 2022) (recognizing a SPAC‑style claim where conflicted fiduciaries impaired public holders’ redemption decisions)
- Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983) (entire fairness requires assessing both fair dealing and fair price; disclosure failures factor into fair dealing)
- Corwin v. KKR Fin. Hldgs. LLC, 125 A.3d 304 (Del. 2015) (a fully informed, uncoerced stockholder vote can shift review to the business judgment rule)
- Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del. 2004) (tests for whether a claim is direct or derivative)
- Kahn v. Lynch Commc’ns Sys., Inc., 638 A.2d 1110 (Del. 1994) (defining controller transactions and standards for conflicted controller review)
- In re Walt Disney Co. Derivative Litigation, 906 A.2d 27 (Del. 2006) (discussion of entire fairness and fiduciary standards)
- Stone v. Ritter, 911 A.2d 362 (Del. 2006) (duties of directors, including duty of oversight and loyalty)
- Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156 (Del. 1995) (entire fairness and the court’s examination of price and process)