Singh v. Attenborough
137 A.3d 151
| Del. | 2016Background
- Republic stockholders approved a merger by a fully informed, uncoerced vote of disinterested stockholders; the Court of Chancery found this invoked the business judgment rule.
- Plaintiffs challenged the merger post-closing, asserting board and advisor fiduciary breaches (including duty of care and aiding-and-abetting claims against the financial advisor).
- The Court of Chancery initially issued an opinion (Oct. 1, 2015) and later amended on reargument (Oct. 29, 2015); the Delaware Supreme Court reviewed the reargument judgment.
- The Supreme Court affirmed the Court of Chancery’s reargument decision that the stockholder vote invoked the business judgment rule and thus typically ends litigation absent waste.
- The Court clarified that, absent an exculpatory charter provision, damages liability for breach of the duty of care requires pleading gross negligence; applying that standard post-vote would nullify the vote’s effect.
- The Court declined to adopt the Court of Chancery’s initial treatment of the advisor claims, emphasizing that advisors can be liable for aiding-and-abetting when their bad-faith conduct causes board breaches (per RBC), but found the record here insufficient to infer scienter or knowing misconduct by the advisor.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a fully informed, uncoerced vote by disinterested stockholders invokes the business judgment rule | Vote should not bar post-closing damages or higher scrutiny | Vote was fully informed and voluntary and invokes business judgment rule | Yes; the vote invoked the business judgment rule, limiting review and typically resulting in dismissal |
| Standard for director liability on duty-of-care post-closing damages claims | Directors can be liable for negligence in change-of-control damages suits | Damages liability requires gross negligence absent non-exculpatory charter | Absent exculpatory provision, damages liability requires pleading gross negligence; applying a lesser standard post-vote would negate the vote’s effect |
| Whether the Court of Chancery erred in holding advisors immune unless aiding-and-abetting a non-exculpated breach | Plaintiffs argued advisor’s late pitch disclosure and related conduct supported scienter and liability | Defendants contended the advisor’s conduct was immaterial, disclosed, and did not show knowing wrongdoing | The Supreme Court distanced from the Court of Chancery’s first opinion on this point; advisors can be liable under aiding-and-abetting when their bad-faith conduct causes board breaches (per RBC), but record here did not support scienter |
| Whether the transaction constituted waste such that business judgment rule is displaced | Plaintiffs argued merger was wasteful and irrational | Defendants argued disinterested stockholders approved, so no waste | No rational basis to find waste; vote forecloses waste claim here |
Key Cases Cited
- Corwin v. KKR Fin. Holdings LLC, 125 A.3d 304 (Del. 2015) (fully informed, uncoerced vote invokes business judgment rule)
- RBC Capital Mkts., LLC v. Jervis, 129 A.3d 816 (Del. 2015) (financial advisor may be liable for aiding-and-abetting when it deliberately dupes the board and causes breaches)
- Harbor Fin. Partners v. Huizenga, 751 A.2d 879 (Del. Ch. 1999) (affirmative informed stockholder vote invokes business judgment rule and limits review to waste)
- McMillan v. Intercargo Corp., 768 A.2d 492 (Del. Ch. 2000) (post-closing damages claims attacking change-of-control require pleading gross negligence absent exculpatory charter)
- Michelson v. Duncan, 407 A.2d 211 (Del. 1979) (courts should defer to a fully informed stockholder electorate in judging fairness)
- Marciano v. Nakash, 535 A.2d 400 (Del. 1987) (fully informed disinterested stockholder approval permits invocation of business judgment rule; burden on challenger to prove gift or waste)