jegi media & technology conference · fortis advisors llc v. dialog semiconductor plc(del. ch....

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Mor

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Lew

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Boc

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LLP

MAJOR LEGAL TRENDS FOR 2016JEGI Media & Technology Conference

Robert Dickey

January 14, 2016

© 2015 Morgan, Lewis & Bockius LLP

IT’S CARNIVAL TIME!

Disclaimers of Reliance

Where we started:

• Anvil Holding Corp. v. Iron Acquisition Company (Del. Ch. May 17, 2013) – disclaimers of reliance must be specific to be effective.

• TransDigm Inc. v. Alcoa Global Fasteners, Inc. (Del. Ch. May 29, 2013) –disclaimers of reliance alone are insufficient to prevent claims of fraudulent concealment.

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Prairie Capital III, L.P. v. Double E Holding Corp. (Del. Ch. Nov. 24, 2015)

The new development:

• During lengthy sale process, it became apparent that target company was going to miss sales forecasts provided to buyer.

• CEO and CFO falsified financial statements to make it appear that the forecasts had been achieved.

• Buyer sued for fraud based on extracontractual statements made by CEO and CFO.

• Purchase agreement contained a disclaimer of reliance clause that would not have satisfied the requirements of Anvil Holding or TransDigm.

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Prairie Capital III, L.P. v. Double E Holding Corp. (Del Ch. Nov. 24, 2015) (cont’d)

What happened?

• Court adopted a common sense approach.

• Irrelevant if disclaimer is phrased negatively or positively.

• Did not allow buyer to reframe a claim for misrepresentation as a claim for omission to state the truth.

• Will Delaware Supreme Court resolve split between Vice Chancellor Laster and the now-retired Vice Chancellor Parsons? Stay tuned!

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Earnout Disputes

Where we started:

• Winshall v. Viacom International Inc. (Del. 2013) – where agreement is silent, implied covenant of good faith and fair dealing cannot be used to impose an affirmative obligation on buyer to operate acquired business in a manner intended to maximize the earnout payment to sellers.

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Lazard Technology Partners v. Qinetiq North America Operations LLC (Del. Apr. 23, 2015)

• Purchase agreement prohibited buyer from taking action to divert or defer revenue with the intent of reducing or limiting the earnout payment.

• Sellers argued that the clause should be read also to prohibit conduct that buyer knew would have the effect of compromising the ability to achieve the earnout targets.

• Court disagreed and refused to use the implied covenant of good faith and fair dealing to supplant the express contractual standard.

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Fortis Advisors LLC v. Dialog Semiconductor PLC (Del. Ch. Jan. 30, 2015)

• Merger agreement contained detailed covenant regarding the post-closing operation of business, including with respect to R&D, headcount and pricing.

• Sellers argued that the implied covenant of good faith and fair dealing should apply and create a general obligation to maximize the earnout payment.

• Court disagreed, holding that no “gaps” existed in the covenant from which the court could imply an additional contractual term.

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Minority Stockholder Squeezeouts

Where we started:

• General trend of increasing judicial skepticism of traditional “disclosure only” settlements

• Kahn v. M&F Worldwide Corp. (Del. March 14, 2014) – squeezeout of minority stockholders by majority stockholders gets reviewed under deferential business judgment rule if deal is conditioned from outset on approval by a fully functioning special committee and a majority-of-the-minority vote.

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In re Dole Food Co., Inc. Stockholder Litigation (Del. Ch. Aug. 27, 2015)

The new development:

• Majority stockholder, who was also chairman and CEO, took company private in transaction structured to follow M&F Worldwide.

• At trial, court found that majority stockholder and his COO and General Counsel worked in months preceding deal to depress stock price.

• During deal process, the majority stockholder and the COO undermined the special committee process by supplying the committee with misinformation.

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In re Dole Food Co., Inc. Stockholder Litigation (Del. Ch. Aug. 27, 2015) (cont’d)

• At trial, majority stockholder and COO argued “no harm, no foul” because price was reasonable and deal was approved by a majority of the minority stockholders.

• Court disagreed, holding that the M&F Worldwide conditions must be adhered to not just in form, but also in substance.

• Required majority stockholder and COO to pay $148 million in damages.

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Cybersecurity and Data Privacy

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• Do the work before you have a problem

• EU General Data Protection Regulation and Data Protection Directive

© 2015 Morgan, Lewis & Bockius LLP

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© 2015 Morgan, Lewis & Bockius LLP

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