12 Morrison Foerster In a pair of cases, the Delaware Chancery Court in 2023 found acquirors liable for aiding and abetting breaches of fiduciary duty by the targets’ officers.15 In each case, the court found, after trial, that: ▪ One or more target executives had preferred a particular buyer for unique personal reasons and taken actions to favor that buyer in violation of the executives’ fiduciary duties, and the acquiror had knowledge, or constructive knowledge, of and exploited or participated in those breaches. ▪ One or more target executives had violated their duty of disclosure by knowingly omitting from the proxy material information relating to the target executives’ favoritism towards the acquiror, and the acquiror was aware of the omitted facts and, pursuant to provisions in the applicable merger agreement, was obliged to correct misleading statements in the target’s proxy. For example, in Columbia Pipeline, the proxy failed to disclose a series of interactions between the target and the acquiror and that the acquiror had breached its standstill agreement with the target in the course of the sale process. A court may impose joint and several liability against a target company fiduciary, as the primary violator, and the buyer, as aider and abettor. Even where damages for aiding and abetting a disclosure violation may be difficult to quantify, the court may impose “nominal” damages, which in the aggregate may be significant. The cases further highlight the importance to the buyer as well as to the target fiduciaries of appropriate disclosure by the target company. Appropriate disclosure by a target and approval by its shareholders can support “cleansing” (pursuant to the Corwin doctrine) of other actions that might otherwise breach fiduciary duties. Acquirors should carefully consider their contractual obligations with respect to the target’s proxy disclosures and keep in mind it is not safe to assume that acquirors face little or no risk just because the proxy is ultimately the target’s document. 6 15 In re Columbia Pipeline Group Merger Litigation (Del. Ch. June 30, 2023); In re Mindbody, Inc. Stockholder Litigation (Del. Ch. Mar. 15, 2023). The court also found a buyer potentially liable for aiding and abetting a target CEO’s disclosure and other fiduciary obligations in Firefighters’ Pension System of the City of Kansas City v. Presidio, Inc. (Del. Ch. Jan. 29, 2021). Buyers Beware: Damages for Aiding and Abetting a Target’s Disclosure Violations “It is not safe to assume that acquirors face little or no risk just because the proxy is ultimately the target’s responsibility.”
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