Q3 2024 Quarterly Corporate / M&A decisions updates

In re Wack Jills: Delaware Decision marks the End of Wild West ABC Proceedings

In a recent opinion in an assignment for the benefit of creditors (ABC) proceeding, the Delaware Court of Chancery provided an illustrative account of the assignee’s failures to comply with the relevant statutory scheme, and ultimately granted “an extreme form of equitable relief” in removing the assignee from the case. Despite a statutory  requirement that assignees in ABC actions submit information analogous to that contained in “First Day” bankruptcy declarations, the court noted that ABC proceedings had trended towards bare bones paperwork that often failed to meet the clearly defined requirements of Delaware’s ABC statute.  Because ABC proceedings have historically taken place ex parte, statutory violations have gone largely unchecked. As such the Court of Chancery’s decision is an attempt to remedy what it called the pervasive “lawlessness of a period in which Delaware ABC proceedings were known as ‘the Wild West of bankruptcy.’”

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Lucid Motors: Ninth circuit affirms dismissal under “bright-line rule” regarding SPAV merger

In re: CCIV / Lucid Motors Sec. Litig., 110 F.4th 1181 (9th Cir. 2024), the Ninth Circuit affirmed dismissal of a securities fraud class action brought by investors under Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 against Lucid Motors and its Chief Executive Officer.  The investors alleged that Lucid and its CEO made misleading statements prior to Lucid’s merger with a SPAC. Finding on alternative grounds that the investors lacked standing, the Ninth Circuit applied a “bright-line rule” that limits standing to “purchasers or sellers of the stock in question,” following similar reasoning by the Second Circuit in Menora Mivtachim Ins. Ltd. v. Frutarom Indus. Ltd., 54 F.4th 82 (2d Cir. 2022). The Ninth Circuit also noted its reluctance to treat SPAC acquisitions differently than traditional mergers without specific statutory authority to do so.

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Gilbert v. Unisys: The Court of chancery grants advancement to unelected officers

In Gilbert v. Unisys corp., the Delaware Court of Chancery held that two former employees with the title of Vice President were entitled to advancement of litigation expenses brought by the corporation, despite the fact that the employees had not been appointed as corporate officers by the corporation’s board of directors. The court reasoned that, because “Vice Presidents” were included in the enumerated list of officers entitled to indemnification and advancement under the corporation’s charter, a reasonable person hired as a “Vice President” would expect to receive advancement. The court applied the doctrine of contra proferentum, resolving any ambiguity against the drafter of the charter, and granted advancement to the former employees on that basis, among others.

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Delaware Court finds corporate charter cannot incorporate private agreement by reference

In Seavitt v. N-able, 321 A.3d 516 (Del. Ch. 2024), decided prior to the amendment of the Delaware General Corporate law to add Section 122(18), the Delaware Court of Chancery held that the “public nature of a charter” means that it cannot incorporate by reference a private agreement. The court noted that allowing the introduction of “the DNA of a purely private agreement” into a “foundational and public document” would “undermine the certainty and stability of the charter.” Following the enactment of Section 122(18), which expressly permits such stockholder agreements, the result of cases with facts similar to Seavitt may differ. 

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Authored by Allison M. Wuertz, Jon M. Talotta, Christopher Pickens, Jordan D. Teti, Sean MacDonald, Jason Chohonis, Mickaela Fouad, and Conrad D. Noronha.