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Recent Delaware Corporate Law Updates

June 12, 2014

ATP Tour, Inc. v. Deutscher Tennis Bund:  The Delaware Supreme Court Upholds the Facial Validity of a Fee-Shifting Provision in the Bylaws of a Delaware Nonstock Corporation
In ATP Tour, Inc. v. Deutscher Tennis Bund, No. 534, 2013, 2014 WL 1847446 (Del. May 8, 2014), the Delaware Supreme Court, by Justice Berger, in responding to certified questions of law from the United States District Court for the District of Delaware (the “District Court”), held that a provision of a Delaware nonstock corporation’s bylaws that shifted litigation expenses to the losing party in intra-corporate litigation was facially valid under Delaware law and may be enforced if the provision was adopted through appropriate corporate procedures and for a proper corporate purpose.
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Hamilton Partners, L.P. v. Highland Capital Management, L.P.:  Court of Chancery Considers a 48% Stockholder and Majority Debt Holder a Controlling Stockholder and Declines to Dismiss Class Action Challenging Going-Private Transaction
In Hamilton Partners, L.P. v. Highland Capital Management, L.P., C.A. No. 6547-VCN, 2014 WL 1813340 (Del. Ch. May 7, 2014), the Court of Chancery, by Vice Chancellor Noble, in connection with a challenge to a going-private transaction whereby American HomePatient, Inc. (“AHP”) was acquired by an affiliate of one of its stockholders, Highland Capital Management, L.P. (“Highland”), refused to dismiss breach of fiduciary duty claims against Highland.  The Court held that, for purposes of defendants’ motion to dismiss, plaintiff alleged facts sufficient to support an inference that Highland, which owned 48% of AHP’s stock and 82% of AHP’s debt, was the controlling stockholder of AHP and that the merger was not entirely fair.
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Houseman v. Sagerman:  Court of Chancery Concludes that Failure to Obtain a Fairness Opinion Does Not Necessarily Constitute Bad Faith     
In Houseman v. Sagerman, C.A. No. 8897-VCG, 2014 WL 1600724 (Del. Ch. Apr. 16, 2014), the Court of Chancery, by Vice Chancellor Glasscock, in addressing defendants’ motion to dismiss claims related to the 2011 acquisition of Universata, Inc. (“Universata”) by HealthPort Technologies, LLC (“HealthPort”), held that the failure to obtain a fairness opinion in connection with the acquisition did not rise to the level of bad faith on the part of the board of directors of Universata (the “Board”) and did not support an aiding and abetting claim against the Board’s financial advisor.
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Chen v. Howard-Anderson:  Court of Chancery Distinguishes Lyondell and Explains Application of Exculpatory Provisions in Change of Control Cases
In Chen v. Howard-Anderson, C.A. No. 5878-VCL, 87 A.3d 648 (Del. Ch. 2014), the Court of Chancery, by Vice Chancellor Laster, ruling on a motion for summary judgment, held that, in a change of control case where the standard of review is enhanced scrutiny, directors and officers could be found liable for acting in bad faith (and thus breach their fiduciary duty of loyalty) if plaintiffs cite evidence sufficient to support an inference that the directors and officers acted unreasonably in conducting the sale process and allowed interests other than the pursuit of obtaining the best price reasonably available to influence their actions.  In so holding, the Court distinguished the Delaware Supreme Court’s decision in Lyondell Chemical Co. v. Ryan, 970 A.2d 235 (Del. 2009).
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In re Orchard Enterprises:  Court of Chancery Distinguishes MFW and Holds That Defendants Will Bear Burden of Proving at Trial the Entire Fairness of a Squeeze-Out Merger Negotiated by a Special Committee and Approved by a Majority of the Minority Stockholders
In In re Orchard Enterprises, Inc., Consol. C.A. No. 7840-VCL, 2014 WL 811579 (Del. Ch. Feb. 28, 2014), the Court of Chancery, by Vice Chancellor Laster, on cross motions for summary judgment, held, among other things, that the entire fairness standard of review will apply at trial to fiduciary duty claims challenging a squeeze-out merger, with the burden of persuasion on the defendants, notwithstanding that the merger was negotiated by a special committee and approved by a majority of the minority stockholders.
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In re Answers:  Court of Chancery Reaffirms Latitude Granted to a Board with a Majority of Independent and Disinterested Directors in Conducting a Sales Process
In In re Answers Corporation Shareholders Litigation, C.A. No. 6170-VCN, 2014 WL 463163 (Del. Ch. Feb. 3, 2014), the Court of Chancery, by Vice Chancellor Noble, granted summary judgment in favor of defendants in an action brought by stockholder plaintiffs challenging the merger by which Answers Corporation (“Answers”) was acquired by AFCV Holdings, LLC (“AFCV”), a portfolio company of private equity firm Summit Partners, L.P. (together with AFCV, the “Buyout Group”), for $10.50 per share (the “Merger”).  In so ruling, the Court found that there was no evidence that the board of directors of Answers (the “Board”), which was made up of a majority of independent and disinterested directors, acted in bad faith or was controlled by the alleged conflicted directors on the Board, and thus reaffirmed the Court’s deference to boards composed of a majority of independent and disinterested directors in conducting a sales process. 
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