A few weeks ago, I blogged about the Chancery Court’s decision in In Re GGP, Inc. Stockholder Litigation, (Del. Ch.; 5/21). My blog focused on claims relating to an extraordinary dividend paid as part of a sale transaction, but the case also involved allegations that a 35% stockholder, Brookfield Capital Partners, was a controlling stockholder owing fiduciary duties to the corporation. A Sullivan & Cromwell memo addresses that aspect of the case, and this excerpt reviews the reasoning behind the Court’s decision to reject those allegations:
The court reiterated that since Brookfield owned less than 50% of GGP’s outstanding stock, it owed fiduciary duties as a controller only if it exercised actual control over GGP either by dominating GGP during the negotiation of the Merger or exercising general control over GGP’s business.
With respect to Brookfield’s degree of control over the Merger, the court held that Plaintiffs were required to plead that Brookfield dominated the Special Committee. In particular, the court held that Plaintiffs failed to show that a majority of Special Committee members were beholden to Brookfield.
With respect to Brookfield’s overall control over GGP’s business, the court held that “there [was] no pled basis to infer that Brookfield exerted any influence over GGP fiduciaries such that they would ‘defer to [Brookfield] because of its position as a significant stockholder.’” The court also credited Brookfield’s contractual standstill arrangements with GGP, which blunted the amount of influence that Brookfield could bring to bear.
Since Brookfield was not a controlling stockholder, the plaintiffs needed to plead that the vote approving the deal was either coerced or uninformed. The Court ultimately concluded that the plaintiffs’ pleadings were insufficient to support claims that the vote approving the deal was defective, so it dismissed their claims.
-John Jenkins, DealLawyers.com June 25, 2021