Manti v. Carlyle: Allegations of rushed private equity exit trigger entire fairness sale scrutiny

Corporate / M&A Decisions update series

In Manti Holdings, LLC v. Carlyle Group Inc., C.A. No. 2020-0657-SG (Del. Ch. June 3, 2022), the Delaware Court of Chancery held that minority investor claims could proceed against a private equity firm, Carlyle, and related directors for allegedly rushing to sell a company at below fair market value in order to conclude the sale quickly and secure a return on their preferred shares that could be distributed to Carlyle’s investors. The court held that the complaint alleged that “Carlyle received a unique benefit” from closing quickly and that the “entire fairness test” therefore applied, “the highest standard of review in corporate law.” The court further held that the plaintiff adequately alleged breaches of the duty of loyalty by the Carlyle directors, including because of their divergent interests relative to common stockholders and because “the Board formed no special committee to insulate the Sale process from their influence.”

Manti Holdings, LLC v. Carlyle Group Inc., C.A. No. 2020-0657-SG (Del. Ch. June 3, 2022) arose out of the sale of Authentix to Blue Water Energy in 2017. Authentix began the sale process in October 2016, eventually narrowing the field to two companies: Intertek and Blue Water Energy. Intertek proposed a final offer of US$85 million, with an additional US$30 million contingent on Authentix meeting certain post-closing financial metrics. The Authentix board nonetheless elected to proceed with a sale to Blue Water Energy for US$77.5 million plus US$27.5 million in additional contingent consideration.

In August 2017, one of the plaintiffs, Manti Holdings, LLC, through its board representative, urged the board to withdraw from the sales process and postpone it for another year rather than sell at Blue Water’s offer because of several positive developments in Authentix’s business. The board chose to proceed with the Blue Water Energy transaction and, in September 2017, the stockholders were notified that the board and its majority shareholder, The Carlyle Group, Inc. (Carlyle), voted to approve the sale. The sale was not put to a stockholder vote because the Stockholder Agreement contains a “drag along” provision that requires “other holders” to consent and raise no objections against the sale if the sale is approved by the board and the holders of at least 50 percent of the then-outstanding shares, which Carlyle held.

Following the sale, the plaintiffs brought suit against Carlyle and the three directors they asserted were associated with it, challenging the sale under the “entire fairness” test and alleging breaches of the duty of loyalty by the director defendants. The defendants moved to dismiss, arguing that the allegations failed to state claims under Rule 12(b)(6), and that the plaintiffs waived their right to challenge the sale under the Stockholders Agreement. The plaintiffs asserted claims for breach of fiduciary duty against Carlyle and the director defendants, unjust enrichment, aiding and abetting a breach of fiduciary duty, and civil conspiracy.

The court held that the “entire fairness” standard potentially applied in this case and that dismissal of the plaintiffs’ fiduciary claims was therefore inappropriate. The entire fairness standard, the highest standard of review in corporate law, requires that a deal be at a fair price and the product of fair dealing. The court concluded that entire fairness was appropriate because (1) the plaintiffs alleged that Carlyle would uniquely benefit from a quick closing, and (2) the director defendants cut out the lone dissenting board member, Manti’s designee. After finding a conflicted transaction, the court held that the plaintiffs’ allegations of unfair dealing and an unfair price met the “low burden” required to survive a motion to dismiss in a case under the entire fairness test. Among other things, the plaintiffs had alleged that Authentix’s value was depressed due to uncertainty as to whether certain material contracts would be renewed; yet even after the contracts were renewed, the board approved a sale at a price reflecting renewal uncertainty. The plaintiffs also cited evidence that Carlyle had expressed a desire to close the sale quickly, and noted that the sale was never approved by an independent special committee of the board or by Authentix’s minority stockholders.

Regarding the director defendants, the court considered each director individually. Two of the director defendants were dual fiduciaries who held positions with both Carlyle and Authentix. The court found that they faced a potential conflict of interest because Carlyle had a unique interest in a quick sale and would receive a profit as a preferred shareholder, whereas Authentix’s common stockholders would receive little to no consideration unless the company sold for a higher price. Therefore, the court found a reasonable inference that they acted disloyally in connection with the sale. The court also found the allegations sufficient to state a claim as to the other director defendant because he allegedly stated that he worked for Carlyle and was told to sell the company.

The court also found that the plaintiffs had adequately alleged unjust enrichment as an alternative theory of liability, rejecting the defendants’ argument that Carlyle could not have been “enriched” by allegedly selling its shares for less than fair value. The court also upheld the unjust enrichment claim against Authentix’s CEO because, under his employment agreement, he would receive a cash bonus equal to a percentage of the sale consideration if Authentix sold for between US$50-80 million.

Finally, the court quickly dismissed the aiding and abetting and conspiracy claims. Since the court already found that Carlyle and the director defendants owed fiduciary duties to Authentix minority stockholders, the plaintiffs failed the “knowing participation by a defendant who is not a fiduciary” requirement. 

The plaintiff’s remaining claims, breach of fiduciary duty against Carlyle and the director defendants, and unjust enrichment against Carlyle and Bernard Bailey, are still pending before the court.


Authored by Ryan M. Philp, David R. Michaeli, Allison M. Wuertz, and Christine Jiha.

David Michaeli
New York
Allison Wuertz
New York
Jon Talotta
Global Co-Lead
Northern Virginia
William Regan
New York


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