Major Delaware Court Of Chancery M&A And Corporate Law Cases ' September 2022

Published date04 October 2022
Subject MatterCorporate/Commercial Law, M&A/Private Equity, Corporate and Company Law, Shareholders
Law FirmTaft Stettinius & Hollister
AuthorMr Matt Albaugh, Jason Asmus, Chris Brown, Beth A. Bryan, Julie Crocker, William Doyle and Melissa A. Macchia

Delaware courts issued several important decisions in September implicating, inter alia, Section 220 requests for books and records, board of director fiduciary duties to oversee cybersecurity efforts, the business judgment rule, judicial dissolution, and corporate manager's implied consent to the jurisdiction of Delaware courts. The expedited litigation in Twitter v. Musk also kept the court busy in the run-up to the Oct. 17 trial in that matter.

Court Rejects Confidentiality of Financial Statements Sought by Section 220 Request

Rivest v. Hauppauge Digital, Inc., C.A. No. 2019-0848 (Sept. 1, 2022)

Hauppauge Digital, Inc. (HDI) "went dark" in 2014 after previously being publicly registered with the Securities and Exchange Commission. Afterward, HDI failed to provide shareholders with any financial information or hold any annual meetings. A shareholder sought to inspect HDI's books and records under Section 220 of Delaware's General Corporation Law for the stated purpose of valuing his shares. HDI accused the shareholder of an ulterior and harmful purpose for seeking its records and sought "the strongest possible confidentiality restrictions" that would last indefinitely.

The Court of Chancery initially referred the matter to a Master. The Master ordered HDI to produce its annual and quarterly financial statements for the period 2016-2020, but it subjected the records to a two-year confidentiality restriction. On review, the court rejected the Master's confidentiality restriction. HDI argued that the shareholder's potential disclosure of its financial statements to a competitor would be harmful. The Court of Chancery rejected this argument, finding it to be a formulaic reality "of doing business in a market economy." The court concluded that HDI "failed to point to a sufficient interest that could outweigh [the shareholder's] countervailing interest in valuing his shares."

Key Takeaway: Companies wanting to place confidentiality restrictions on records sought by Section 220 requests must show the threat of harm outweighs a shareholder's legitimate use, and general fears of disclosure to competitors are insufficient.

Reverse Spinoff Complies With MFW and Is Subject to the Business Judgment Review

In re Match Group, Inc. Derivative Litigation, C.A. No. 2020-0505 (Sept. 1, 2022)

Plaintiffs alleged direct and derivative claims against Match Group's board and controlling shareholder in connection with a reverse spinoff initiated by the controlling shareholder. Defendants moved to dismiss the plaintiffs' complaint.

The court initially decided that both plaintiffs lacked standing to bring derivative...

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