Q2 2022 Quarterly Corporate / M&A decisions updates

Below is our Corporate / M&A decisions update covering decisions in the second quarter of 2022. This update is designed to highlight selected important M&A, corporate, and commercial court decisions on a quarterly basis.

The second quarter of 2022 brought a fascinating slate of new opinions from the Delaware courts. This quarter’s opinions touched on a number of key issues, including the enforceability of forum selection clauses, whether a “liquidation standard” requires a rehabilitation plan to provide shareholders with “liquidation value,” and the ability of a fair price to negate poor deal process. In addition, the Delaware Court of Chancery analyzed directors’ fiduciary duties in the contexts of insolvency, freeze-outs, and mergers effected by preferred shareholders. 

Brief summaries of these key decisions appear below with links to more robust discussions.

Lee v. Fisher: Circuit split on enforceability of forum-selection clauses

In Lee v. Fisher, 34 F.4th 777 (9th Cir. 2022), the Ninth Circuit affirmed the dismissal of a shareholder derivative suit against The Gap Inc. (Gap), alleging violations of Section 14(a) of the Securities Exchange Act of 1934, based on a Gap bylaw requiring that any derivative action be brought in the Delaware Court of Chancery. Due to the Exchange Act’s exclusive federal jurisdiction provision, this decision would effectively allow corporations to close all courthouse doors to derivative actions alleging violations of Section 14(a). Earlier this year, however, the Seventh Circuit held in Seafarer’s Pension Plan ex rel. Boeing Co. v. Bradway that a similar Boeing bylaw was unenforceable because it would mean the plaintiff’s derivative Section 14(a) claim may not be heard in any forum.

Please click HERE for a more detailed discussion of this case.


In re Tesla: fair price may ameliorate procedural defects under entire fairness review

Tesla Motors Stockholder Litigation arises out of Tesla’s acquisition of SolarCity, a market leader in manufacturing and installing solar energy generation systems. On two occasions in 2015 and 2016, Elon Musk suggested to Tesla’s board that Tesla acquire SolarCity, but the Board declined to pursue an acquisition. When Musk proposed the acquisition for a third time in May 2016, the Tesla board agreed to pursue it. Tesla shareholders sued the Board, including Musk, alleging that Musk, as Tesla’s controlling shareholder, had overruled the Board and caused Tesla to acquire an insolvent SolarCity at an unfair price. The Court of Chancery found that Musk and the Tesla board failed to apply basic Delaware corporate governance standards. However, Tesla shareholders ultimately benefited from the transaction, because share price under the terms of the SolarCity acquisition was a “fair price.” Therefore, the transaction satisfied Delaware’s most stringent standard of review – entire fairness.

Please click HERE for a more detailed discussion of this case.


Rehabilitation of Scottish Re: No per se liquidation standard for insurance rehabilitation plans

In In re Rehabilitation of Scottish Re (U.S.), Inc., C.A. No. 2019-0175-JTL (Del. Ch. Apr.18, 2022), the Delaware Court of Chancery ruled, as a matter of first impression, that in a delinquency proceeding for an insurance company under Delaware law, there is no per se requirement that a rehabilitation plan meet a “liquidation standard” to obtain court approval. Under the “liquidation standard,” a rehabilitation plan must provide claimants at least “liquidation value,” or the value they would have received in a liquidation proceeding. The court found that neither statutory nor common law creates a bright line rule that mandates this standard. However, liquidation value remains significant because a claimant only has standing to advance a constitutional objection to a rehabilitation plan if it receives less than liquidation value. Therefore, claimants must receive information sufficient to enable them to assess if they will receive liquidation value under any rehabilitation plan.

Please click HERE for a more detailed discussion of this case.


Stream TV Networks v. SeeCubic: Delaware court rejects “board only” insolvency exception

In Stream TV Networks, Inc. v. SeeCubic, Inc., the Delaware Supreme Court reversed the Delaware Court of Chancery’s finding that the board of Stream TV Networks, Inc. (Stream) could sell all of Stream’s assets without a stockholder vote due to Stream’s insolvency. The Delaware Supreme Court found that the sale agreement – in essence, a privately structured foreclosure transaction – constituted an “asset transfer” under Stream’s charter, triggering a class vote provision that required the approval of Stream’s Class B stockholders. The court further held that a “board only” insolvency exception no longer existed following the enactment of DGCL § 271 and its predecessor governing the sale of a corporation’s assets.

Please click HERE for a more detailed discussion of this case.


In re Cellular: AT&T breached duty to minority partners with unfair and self-interested freeze out

In Cellular Telephone Partnership Litigation, C.A. No. 6885-CVL, the Chancery Court held that AT&T breached its duty of loyalty to its minority partners when it enacted a Freeze-Out transaction that dissolved a cellular telephone service partnership and paid each minority partner their pro rata share of the value of the partnership, as determined by AT&T. Applying the entire fairness standard to the transaction, the court took issue with nearly every aspect of the deal and the price. The court undertook its own valuation of the partnership, and came to a valuation more than three times higher than AT&T had paid, increasing it from US$219 million to US$714 million. As a result, AT&T was required to pay an additional US$9 million to minority partners.

Please click HERE for a more detailed discussion of this case.


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

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.”

Please click HERE for a more detailed discussion of this case.



Authored by Jon M. Talotta, David R. Michaeli, Allison M. Wuertz, Maura Allen, Elizabeth Cochrane, Christine Jiha, William Winter, and Shannon Zhang.


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