Fiduciary Duties: Can a Target Aid & Abet a Buyer’s Breach?
Aiding and abetting can be a squishy concept, which — along with the potential for the occasional jackpot — has made it an appealing claim for plaintiffs to assert against M&A advisors and other collateral deal participants. But what about a claim that the target aided and abetted the breach of fiduciary duties by the officers and directors ofthe buyer?
That may seem like a stretch, but the Chancery Court was recently confronted with that claim in In re Oracle Corp. Derivative Litigation, (Del. Ch.; 6/22), a lawsuit that arose out of Oracle’s acquisition of NetSuite. This excerpt from Steve Quinlivan’s recent blog on the case summarizes the plaintiffs’ allegations:
Among other things, absent a fiduciary or contractual relationship, Delaware law generally does not impose a duty to speak. Here the lead plaintiff claimed the NetSuite defendants undertook action to provide substantial aid to two Oracle defendants breach of their own duties to Oracle—the alleged substantial aid was silence on the history of key transactional negotiations.
To that end, the lead plaintiff pointed out that the NetSuite defendants owed fiduciary duties to make disclosures to NetSuite stockholders about the acquisition of NetSuite. The lead plaintiff posited that the NetSuite defendants breached those duties in aid of the secrecy necessary to further the Oracle defendants’ corrupt scheme.
That is, the disclosures required of the NetSuite defendants to NetSuite’s stockholders would, if made, result in disclosure to the public, which would in turn result in disclosure to Oracle’s special committee. The lead plaintiff alleged that such disclosures would have put Oracle’s directors on alert to the allegedly lopsided transaction terms, and would have led Oracle to scuttle the deal.
While Vice Chancellor Glasscock acknowledged that, in theory, a target could aid and abet a buyer’s breach of fiduciary duty, he made quick work of the plaintiffs’ elaborate house of cards by determining that the substance of the allegedly clandestine discussions between the parties was, in fact, publicly disclosed by NetSuite in 8-K and 14D-9 filings.
You know who I really feel for here? The poor law students who are going to have to deal with their professors running amok with this case over the next several years.
-John Jenkins, DealLawyers.com June 25, 2020
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