An Nguyen v. Michael G. Barrett

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

AN NGUYEN, )
)
Plaintiff, )
)
v. ) C.A. No. 11511-VCG
)
MICHAEL G. BARRETT, THOMAS R. )
EVANS, ROBERT P. GOODMAN, )
PATRICK KERINS, ROSS B. )
LEVINSOHN, WENDA HARRIS )
MILLARD, JAMES A. THOLEN, AOL )
INC., and MARS ACQUISITION SUB, )
INC., )
)
Defendants. )

MEMORANDUM OPINION

Date Submitted: June 30, 2016
Date Decided: September 28, 2016

James R. Banko and Derrick B. Farrell, of FARUQI & FARUQI, LLP, Wilmington,
Delaware; OF COUNSEL: Juan E. Monteverde, of MONTEVERDE &
ASSOCIATES PC, New York, New York; Michael J. Palestina, of KAHN SWICK
& FOTI, LLC, Madisonville, Louisiana, Attorneys for Plaintiff.

Kevin R. Shannon and Jaclyn C. Levy, of POTTER ANDERSON & CORROON
LLP, Wilmington, Delaware; OF COUNSEL: William Savitt, Anitha Reddy, and
Nicholas Walter, of WACHTELL, LIPTON, ROSEN & KATZ, New York, New
York, Attorneys for All Defendants.

GLASSCOCK, Vice Chancellor
 This matter can now be considered twice-tested, but not in the beneficial sense

made famous by Professor Berle. The action involves a challenge to a merger

agreement, brought pre-close, alleging inadequate price and process, as well as some

thirty disclosure violations. In his motion for preliminary injunctive relief,1

however, the Plaintiff pursued only his “serious”2 disclosure violation, involving

lack of disclosure of purportedly material financial information. I found that a

preliminary injunction was unsustainable on the merits, and the Plaintiff sought an

interlocutory appeal, which our Supreme Court denied. The stockholders

overwhelmingly chose to tender into the merger, which closed; the Plaintiff now

seeks damages for breach of duty in regard to two alleged mal-disclosures; one, the

financial disclosure claim I found not reasonably likely to succeed at the preliminary

injunction stage; and a second, involving incentives of the financial advisor, which

the Plaintiff pled pre-close but elected not to argue in the motion for preliminary

injunctive relief—presumably, his second most serious disclosure claim. For the

reasons below, I find that neither claim can withstand a motion to dismiss.

1
The pleadings and briefing in this case have referred to the Plaintiff, An Nguyen, by both male
and female pronouns. Here I use the pronoun used by Plaintiff’s counsel in their most recent filing.
No disrespect is meant if this is incorrect.
2
Prelim. Inj. Hrg. Tr. 11:15–19.

1
 I. BACKGROUND

The matter is currently before me on Defendants’ Motion to Dismiss the

Second Verified Amended Complaint (the “Motion”).3 On September 16, 2015,

Plaintiff An Nguyen on behalf of himself, and a class of similarly situated

stockholders of Millennial Media, Inc. (“Millennial” or the “Company”), filed this

action, challenging the proposed acquisition of the Company by AOL, Inc. (“AOL”)

for $1.75 per share in cash through a tender offer and second-step short-form merger,

pursuant to 8 Del. C. § 251(h) (the “Transaction”).4 In his initial complaint, the

Plaintiff brought two counts: one for breach of the fiduciary duties of loyalty and

care against the directors of Millennial (the “Director Defendants”), for their alleged

failure to obtain a fair price or follow a fair process with respect to the Transaction;

and the other against AOL for aiding and abetting those breaches. Because the

Plaintiff has since abandoned those claims, as discussed infra, I need not detail the

rigorous sales process conducted by the Millennial board, which culminated in the

Transaction.

3
The facts are drawn from the well-pled allegations of Plaintiff’s Second Amended Complaint
(the “Complaint”) and documents integral to the Complaint or incorporated by reference therein,
and are presumed true for purposes of evaluating Defendants’ Motion.
4
This price represented, at the time, a 33% premium for Millennial’s shares. Defs’ Opening Br.,
Transmittal Aff. of Jaclyn C. Levy, Esq., Ex. A (the “Proxy”), at 23. This action is one of five
lawsuits filed challenging the Transaction between September 10 and September 16, 2015. The
other four suits, which were all voluntarily dismissed, were Parshall v. Millennial Media, Inc.,
C.A. No. 11485-VCG (Sept. 9, 2015); Desjardins v. Millennial Media, Inc., C.A. No. 11490-VCG
(Sept. 10, 2015); Chen v. Barrett, C.A. No. 11496-VCG (Sept. 10, 2015); and Wagner v. Barrett,
C.A. No. 11503-VCG (Sept. 15, 2015). Defs’ Opening Br. 8–9.

2
 The Millennial board unanimously approved the merger agreement on

September 2, 2015.5 It was executed, and the Transaction announced, the following

day.6 AOL commenced the tender offer on September 18, 2015.7 That same day,

the Company filed a Schedule 14D-9 Solicitation/Recommendation Statement (the

“Proxy”) with the SEC, in connection with the tender offer.8 On September 24,

2015, the Plaintiff filed his first amended complaint, adding roughly thirty alleged

disclosure violations concerning financial analyses prepared by the Company’s

financial advisor, LUMA Securities LLC (“LUMA”); Millennial’s projections;

board conversations with other potential bidders; and the Director Defendants’ stock

ownership.9

The Plaintiff moved for expedited proceedings and for preliminary injunctive

relief on September 29, 2015. Following a telephone conference held on October 6,

2015, I determined that expedited discovery was not warranted and directed the

parties to complete truncated briefing on the preliminary injunctive relief request;

specifically, I directed the Plaintiff to clarify his grounds for relief sought, which to

that point had constituted somewhat of a moving target. I heard oral argument on

October 8, 2015, immediately following which I denied Plaintiff’s request for

5
Proxy, at 12.
6
Compl. ¶ 5.
7
Id. at ¶ 3.
8
Id. at ¶ 88.
9
First Am. Compl. ¶¶ 88–97.

3
preliminary injunctive relief. The Plaintiff then moved for certification of an

emergency interlocutory appeal to the Delaware Supreme Court. After taking the

matter under review, I issued a letter opinion later that day denying Plaintiff’s

request.10 The Supreme Court refused the appeal on October 9, 2015.11

In seeking preliminary injunctive relief, the Plaintiff pursued only one of the

roughly thirty disclosure violations alleged in his first amended complaint: a claim

concerning unlevered, after-tax free cash flow projections (“UFCF”). The Plaintiff

advanced two principal—and mutually exclusive—arguments concerning this

claim. First, although the Plaintiff acknowledged that our case law indicates that

banker-derived financial projections need not be disclosed, he argued that here,

Millennial management forecasted all of the components of the UFCF and the

Company’s financial advisor, LUMA, simply plugged those values into a widely

used formula. As a result, the Plaintiff argued, either those inputs or the UFCF

themselves should be disclosed. Second, and in the alternative, the Plaintiff

contended that a corrective disclosure was required because the Proxy misleadingly

created the impression that Millennial management, and not LUMA, calculated the

UFCF that were used by LUMA to perform its discounted-cash-flow analysis.

10
Nguyen v. Barrett, 2015 WL 5882709 (Del. Ch. Oct. 8, 2015).
11
Nguyen v. Barrett, 2015 WL 5924668, *1 (Del. Oct. 9, 2015) (TABLE).

4
 After careful review of the Proxy and applicable precedent, I determined that

“a fair reading of the Proxy disclosed accurately that management did not prepare

forecasts of unlevered, after-tax free cash flows,”12 and, “[w]ith respect to the

argument that all inputs provided by management on which the financial advisor

relied in its [discounted cash flow] valuation must, as a matter of law, be disclosed

to stockholders, I found such a per se rule inconsistent with our case law.”13 In sum,

I concluded that “the Plaintiff had failed to demonstrate under the facts here that the

Proxy was materially incomplete or misleading.”14

The tender offer was completed on October 22, 2015, and the merger closed

the following day.15 Just over 80% of shares were tendered into the offer.16 The

Plaintiff filed a second amended complaint (the “Complaint”) on January 4, 2016,

which repeats the price and process claims (including aiding and abetting against

AOL) of the earlier complaints, narrows down the alleged disclosure violations to

only three claims, and adds a count for “quasi-appraisal.”17

12
Nguyen, 2015 WL 5882709, at *3.
13
Id. at *4.
14
Id.
15
Compl. ¶ 5.
16
Id.
17
I note, however, that quasi-appraisal is a remedy, not a cause of action. See Houseman v.
Sagerman, 2015 WL 7307323, at *4 (Del. Ch. Nov. 19, 2015) (“[Q]uasi-appraisal is not itself a
cause of action, but is instead a remedy that, where appropriate, awards stockholders damages
based on the going-concern value of their previously owned stock upon a finding of a breach of
fiduciary duty, such as the duty to disclose.”) (citation omitted). The Complaint may not be
sustained solely on the basis of a count for quasi-appraisal; rather, the Plaintiff must demonstrate
some underlying violation, for which quasi-appraisal is the appropriate remedy. See, e.g., Chen v.
Howard-Anderson, 87 A.3d 648, 691 (Del. Ch. 2014) (“If the plaintiffs prove at trial that the

5
 The Defendants filed their Motion to Dismiss on January 19, 2016, and the

parties completed briefing. Through his briefing, the Plaintiff implicitly waived the

price and process claims, by failing to defend them with any argument or authority, 18

and expressly waived one of his three remaining disclosure claims. 19 I heard oral

argument on June 30, 2016, following which the Plaintiff voluntarily waived his

aiding and abetting claim against AOL.20 That leaves for my consideration here only

two disclosure claims: the first, concerning the Company’s UFCF which was the

subject of the preliminary injunctive relief hearing; and a second, concerning

LUMA’s contingent-fee arrangement. For the following reasons, I find that the

Plaintiff has failed to state a non-exculpated claim of breach of fiduciary duty with

respect to either alleged disclosure violation; accordingly, I grant Defendants’

Motion.

defendants committed a non-exculpated breach of the fiduciary duty of disclosure, then damages
can be awarded using a quasi-appraisal measure.”).
18
See Forsythe v. ESC Fund Mgmt. Co. (U.S.), 2007 WL 2982247, at *11 (Del. Ch. Oct. 9, 2007)
(“The plaintiffs have waived these claims by failing to brief them in their opposition to the motion
to dismiss.”) (citing Emerald Partners v. Berlin, 2003 WL 21003437, at *43 (Del. Ch. Apr. 28,
2003) (stating “[i]t is settled Delaware law that a party waives an argument by not including it in
its brief”)).
19
See Pl’s Answering Br. 13 n.7 (“However, in light of recent developments in Delaware
disclosure law, see, e.g., In re Trulia, Inc. Stockholder Litigation, 129 A.2d 884, 901 n.57 (Del.
Ch. 2016), Plaintiff has elected not to raise [the third] disclosure point in this opposition.”).
20
Transcript of June 30, 2016 Oral Arg. 77:15–17.

6
 II. ANALYSIS

The Defendants move to dismiss under Court of Chancery Rule 12(b)(6) for

failure to state a claim. When considering such a motion, the Court must accept all

well-pled factual allegations in the complaint as true, draw all reasonable inferences

in favor of the plaintiff, and deny the motion “unless the plaintiff could not recover

under any reasonably conceivable set of circumstances susceptible of proof.”21

In order to sustain a pre-close disclosure claim, heard on a motion for

preliminary injunctive relief, a plaintiff must demonstrate “a reasonable likelihood

of proving that the alleged omission or misrepresentation is material;”22 by contrast,

when asserting a disclosure claim for damages against directors post-close, a

plaintiff must allege facts making it reasonably conceivable that there has been a

non-exculpated breach of fiduciary duty by the board in failing to make a material

disclosure.23 “Information is material if there is a substantial likelihood that a

reasonable shareholder would consider it important in deciding how to vote”; or, in

other words, “if, from the perspective of a reasonable stockholder, there is a

substantial likelihood that it significantly alters the ‘total mix’ of information made

21
Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Holdings LLC, 27 A.3d 531, 536–37 (Del.
2011).
22
In re Trulia, Inc. S’holder Litig., 129 A.3d 884, 896 (Del. Ch. 2016) (internal quotation omitted).
23
Chen v. Howard, 87 A.3d 648, 691 (Del. Ch. 2014) (“If the plaintiffs prove at trial that the
defendants committed a non-exculpated breach of the fiduciary duty of disclosure, then damages
can be awarded using a quasi-appraisal measure.”).

7
available.”24 Where, as here, an exculpation provision under 8 Del. C. § 102(b)(7)

shields a board from duty-of-care claims, this means a plaintiff must demonstrate

that a majority of the board was not disinterested or independent, or that the board

was otherwise disloyal because it failed to act in good faith, in failing to make the

material disclosure.25 A showing of bad faith requires an “extreme set of facts to

establish that disinterested directors were intentionally disregarding their duties or

that the decision . . . [was] so far beyond the bounds of reasonable judgment that it

seems essentially inexplicable on any ground other than bad faith.”26 For the

following reasons, the Plaintiff has failed to clear the bar of pleading disloyalty with

regard to either disclosure claim.

24
Trulia, 129 A.3d at 899 (internal quotations omitted).
25
In re BJ’s Wholesale Club, Inc. S’holders Litig., 2013 WL 396202, at *6 (Del. Ch. Jan. 31,
2013). To the extent it was not waived at oral argument, I reject Plaintiff’s contention, expressed
in briefing, that because the existence of a 102(b)(7) exculpatory provision was not explicitly pled
in Plaintiff’s Complaint, it is outside the bounds of Defendants’ Motion to Dismiss. Plaintiff’s
position, if accepted, would undermine the very purpose of a 102(b)(7) exculpation provision—
that is, to spare directors from the burden and expense of litigation where the only conceivable
claim is one for breach of the duty of care. Nor does Plaintiff’s position comport with the Delaware
Supreme Court’s decision in In re Cornerstone Therapeutics Inc, Stockholder Litigation, 115 A.3d
1173 (Del. 2015), where the Court held that, even in the entire fairness context, a case may be
dismissed at the motion-to-dismiss stage if the plaintiff has not alleged any non-exculpated claims
against the director defendants. Id. at 1187. Rather, as the Delaware Supreme Court indicated in
Malpiede v. Townson, 780 A.2d 1075 (Del. 2001), the Court can take judicial notice of the
existence of a 102(b)(7) exculpatory provision, which can easily be found in public filings on
record with the Delaware Secretary of State’s office. See id. at 1090 (“The trial court therefore
tacitly accepted it as authentic without defendants formally asking the court to take judicial notice
of [102(b)(7) provision’s] existence, which could easily be found in the public files in the Secretary
of State's office and could properly be noticed judicially by the court.”).
26
In re Chelsea Therapeutics Int’l Ltd. S’holders Litig., 2016 WL 3044721, at *7 (Del. Ch. May
20, 2016) (internal quotations omitted).

8
 A. The Unlevered, After-Tax Free Cash Flow Projections

I turn first to Plaintiff’s claim regarding the UFCF, which was the subject of

Plaintiff’s application for preliminary injunctive relief.

In their briefing the Plaintiff remakes arguments similar to those previously

considered in this action. The Plaintiff argues that the Defendants made selective

disclosure of certain financial projections in the Proxy and “intentionally excised

[what the Plaintiff describes as] Millennial’s UFCF—despite the fact that LUMA’s

Discounted Cash Flow Analysis was specifically based on these figures.”27 They

assert that the UFCF, and the components that went into it were material because

Millennial “stockholders were asked to exchange their ownership stake in the

Company and forego the Company’s future cash flows in exchange for all-cash

consideration.”28 They argue that the UFCF and its components were “even more

significant than usual” here because two of LUMA’s disclosed cash flow

projections, which used UFCF as an input, resulted in a price per share of $0.00.29

Additionally, they repeat their argument that these projections are not banker

formulated projections but, essentially, management figures.30 They allege LUMA

took UFCF components projected by management and “using no meaningful

27
Pl’s Answering Br. 19 (citing Second Am. Compl. ¶¶ 92–93, 101).
28
Id. at 21 (citing Second Am. Compl. ¶105).
29
Id. (citing Second Am. Compl. ¶ 105).
30
Id. at 22–24 (“[S]emantic gamesmanship aside, the UFCF figures were for all intents and
purposes derived by Millennial’s management.”).

9
independent judgment of any kind, plugged them into a calculator to arrive at the

UFCF figures.”31 Under these facts, they contend that the Company had a duty to

disclose UFCF, or at the very least, all of the UFCF components provided to LUMA,

because the Company cannot escape a duty to provide management projections by

simply giving a banker numbers to plug into a formula for the banker to merely hit

the “equals” button.32 They allege that because “some management projections were

disclosed, the Board was required to give materially complete information about all

of the Company’s projections and provide a complete summary of the key inputs

relied upon by LUMA.”33

The Defendants argue that the UFCF figures were derived by LUMA.34 They

assert that the cases cited by the Plaintiff, for the proposition that management

cannot avoid its duty to disclose projections by simply handing inputs to bankers for

them to perform the ministerial task of hitting enter, are distinguishable. They argue

those cases involved situations where no cash flows were disclosed.35 Here

however, “all of the cash flow information that was directly prepared by

management was disclosed.”36 Further, they assert that the Complaint does not

allege that management directed LUMA in selecting the formula, or even knew how

31
Id. at 23.
32
Id.
33
Id. at 27–28 (emphasis added).
34
Transcript of June 30, 2016 Oral Arg. 56:22.
35
Id. at 57:10–11.
36
Id. at 57:13–15.

10
LUMA would treat the components management provided them, or that

management had anything to do with LUMA’s methodology.37 Thus “[i]n these

circumstances, it simply cannot be said that these were management’s numbers.”38

Because these were banker prepared numbers and management’s best projections

were disclosed, the Defendants argue, the law is clear that the UFCF were not

material and need not be disclosed.

Even if I were to find that the UFCF disclosures—contrary to my earlier

determination on the record at the preliminary injunction hearing—constitute a

material lack of disclosure, Plaintiff’s UFCF claim must fail. The Plaintiff has failed

to plead facts such that it is reasonably conceivable that the allegedly incomplete

disclosure was made by the board disloyally or in bad faith, as is required to sustain

this claim post-close. The only conflict that the Plaintiff alleges as to six of the

directors—all except Millennial CEO, Michael Barrett39—is that they held stock

options that vested in the event of a transaction, providing a lucrative payout.40

When pressed at oral argument, the Plaintiff elaborated that the Director Defendants

must have wanted to accelerate their vesting because they faced “risk.”41 The

37
Id. at 58:21–59:12.
38
Id. at 59:19–21.
39
As to Barrett, the Plaintiff alleges that he had a significant prior employment relationship with
AOL, which caused the board to favor AOL, and that he stood to gain “an additional 12 months’
salary of $476,000, 100% of his restricted stock units, and 100% of his stock options” in
connection with the Transaction. Second Am. Compl. ¶¶ 12–14, 21, 65.
40
Id. at ¶ 12.
41
Transcript of June 30, 2016 Oral Arg. 40:23–41:12.

11
Plaintiff conceded that he did not know why the directors would cash out at lower

price, rather than wait to maximize the value of the Company.42 Instead, the Plaintiff

argued that he need not answer that question at the motion-to-dismiss stage, without

the aid of further discovery.

Under Delaware law, directors are presumed to be independent, disinterested,

and faithful fiduciaries.43 While a plaintiff need not know and articulate the exact

motive of directors in order to sustain a claim, the Plaintiff does bear the burden to

allege facts that rebut the presumption afforded to directors—that is, to demonstrate

that it is reasonably conceivable that the board acted in bad faith or disloyally. Here,

the single allegation as to the six directors (other than Barrett) is insufficient as a

matter of law to do so. It is well-settled that where the interests of directors and

stockholders are aligned, as here, the accelerated vesting of shares in a merger does

not create a conflict of interest.44 Additionally, even if an incongruency of interest

had been plead, the Plaintiff has also failed to allege how the payouts that these

directors stood to earn were material to them.45 I need not address the allegations

42
Id. at 39:21–40:4.
43
See, e.g., Beam ex rel. Martha Stewart Living Omnipedia, Inc. v. Stewart, 845 A.2d 1040, 1048–
49 (Del. 2004).
44
See Globis Partners, L.P. v. Plumtree Software, Inc., 2007 WL 4292024, at *8 (Del. Ch. Nov.
30, 2007) (“The accelerated vesting of options does not create a conflict of interest because the
interests of the shareholders and directors are aligned in obtaining the highest price.”) (internal
quotations omitted).
45
See Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156, 1167 (Del. 1995) (“[A] shareholder
plaintiff [must] show the materiality of a director’s self-interest to the given director’s
independence . . . .”).

12
with respect to Barrett; he is only one of seven on the board, and the Plaintiff can

only sustain a claim for the breach of the duty of loyalty by pleading facts showing

that it is reasonably conceivable that each of a majority of the board is conflicted.46

Finally, I note that Plaintiff’s reliance on this Court’s decision in Chen v. Howard-

Anderson47—where the Court found that it was unclear at the motion-for-summary-

judgment phase whether the alleged disclosure violations in the proxy statement

resulted from a breach of loyalty or a breach of care, and declined the motion—is

misplaced. The Chen court determined that, at that procedural stage, and given the

“confounding evidence of the directors’ knowledge and the problems that occurred

in discovery,” it needed further factual development to determine whether and to

what extent the 102(b)(7) exculpatory provision applied.48 That is not the case here.

Because the Plaintiff has failed to allege a reasonably conceivable breach of

the duty of loyalty based on self-interest, he can only sustain his claim if he can

demonstrate facts supporting an inference that the board acted in bad faith in making

its allegedly incomplete disclosure—that is, facts showing an “intentional”

46
See Plumtree, 2007 WL 4292024, at *9 (“Even assuming [the plaintiff] was correct, which it is
not, and such benefits were sufficient for the Court to infer [the CEO] was interested in the
transaction, [the CEO] is only one member of a six person Board. The other five uninterested
Individual Defendants constitute a clear majority.”); Cede & Co. v. Technicolor, Inc., 634 A.2d
345, 363 (Del. 1993) (“This Court has never held that one director’s colorable interest in a
challenged transaction is sufficient, without more, to deprive a board of the protection of the
business judgment presumption of loyalty.”) (emphasis added).
47
87 A.3d 648 (Del. Ch. 2014).
48
Id. at 693.

13
dereliction or a “conscious disregard” of duty.49 The Plaintiff has not met that

burden. Again, nothing in the pleadings, considered in the light most favorable to

the Plaintiff, suggests bad faith. I note that I found at the preliminary injunction

stage that the Plaintiff lacked a colorable claim of non-disclosure, and the

Defendants presumably relied on that preliminary conclusion by this Court, which

was undisturbed on appeal by the Supreme Court. Nothing in the record creates an

inference that the Defendants deliberately withheld information or disregarded a

manifest duty.50

B. LUMA’s Contingent Compensation

I next turn to Plaintiff’s claim regarding LUMA’s contingent fee. The

Plaintiff contends that the Proxy failed to disclose the amount of LUMA’s fee that

was contingent upon the completion of the Transaction. The Proxy discloses that

LUMA Securities has acted as financial advisor to the Company in
connection with the Merger and will receive a fee of $3.6 million for
its services, a substantial portion of which is contingent upon the
completion of the Merger (the “Advisory Fee”). LUMA Securities has
also acted as financial advisor to the Board and received a $500,000 fee
upon delivery of its opinion, which is not contingent upon the
conclusion expressed or the consummation of the Merger (the “Opinion

49
Lyondell Chem. Co. v. Ryan, 970 A.2d 235, 243 (Del. 2009).
50
The Plaintiff’s reliance on this Court’s decision in Doppelt v. Windstream Holdings, Inc., 2016
WL 612929 (Del. Ch. Feb. 5, 2016), is unavailing. There, the plaintiff alleged specific facts that
the board had knowingly withheld in its proxy: the proxy announced a $0.70 post-transaction
dividend target, while the board was planning to slash that target to $0.58 following stockholder
approval. Even with such facts, which do not exist here, then-Vice Chancellor Noble remarked
that the complaint “test[ed] the limits of the ‘reasonably conceivable’ standard.” Id. at *8 n.81.

14
 Fee”), provided that such Opinion Fee is partially creditable against any
Advisory Fee.51

The Plaintiff argues that this “partial” disclosure was “inadequate to inform

stockholders of how much of LUMA’s fee was contingent upon a transaction coming

to fruition,” as “what constitutes a ‘substantial portion’ is highly subjective and open

to various interpretations.”52

As a threshold matter, the Defendants argue that this claim has been waived;

it was pled in Plaintiff’s first amended complaint, but was abandoned during the

course of the expedited proceedings, through Plaintiff’s failure to pursue the claim

in briefing or argument on his motion for a preliminary injunctive relief. In my letter

opinion denying certification of an emergency interlocutory appeal, I remarked that

the “number of disclosure violations alleged [in the first amended complaint] is

extraordinary,” and found that “[b]y the time th[e] preliminary injunction request

was submitted, these disclosure violations were abandoned, and are therefore

waived, with a single exception” (referring to the claim concerning the unlevered,

after-tax free cash flow projections).53 The Plaintiff, on the other hand, contends

that I should not consider the claim waived in this post-close context, arguing first

that recent decisions have indicated a disposition toward addressing disclosure

51
Proxy, at 33–34 (emphasis added).
52
Defs’ Answering Br. 17.
53
Nguyen, 2015 WL 5882709, at *1, 3.

15
claims post-close,54 and second, that he adequately preserved his right to pursue

other disclosure claims post-close during argument on the motion for preliminary

injunctive relief.55 Essentially, the Plaintiff posits that Delaware has recently

established a new “regime,” under which a plaintiff can elect to bring disclosure

claims pre- or post-close, but creating uncertainties in the process which make

leeway towards his approach appropriate here.56

To be clear, where a plaintiff has a claim, pre-close, that a disclosure is either

misleading or incomplete in a way that is material to stockholders, that claim should

be brought pre-close, not post-close. There are two aspects to such a claim: the first

concerns a stockholder’s right to a fully informed vote; and the second is a potential

damages claim. While the latter may be remedied post-close, the former is

54
The Plaintiff points to Chester Cnty. Ret. Sys. v. Collins, C.A. No. 12072-VCL, at 21:16–23
(Del. Ch. Mar. 14, 2016) (TRANSCRIPT); Johnson v. Driscoll, C.A. No. 11721-VCL, at 45:19–
46:5 (Del. Ch. Feb. 3, 2016) (TRANSCRIPT).
55
See Prelim. Inj. Hrg. Tr. 11:15–19 (“Defendants also made this reference of frivolity. Nothing
here is frivolous, Your Honor. We’re moving on the serious disclosure, and whether we have other
disclosures in our pleadings, we can do those post-close for quasi-appraisal.”).
56
The Plaintiff argues that recent rulings of this Court cause Plaintiffs’ counsel to face a Catch-
22: bring disclosure claims pre-close and risk denial of expedition on ground that damages is a
sufficient remedy, or bring the claims post-close, and have them dismissed for failure to plead non-
exculpated breach of duty. No such dilemma exists, in my view. This Court’s jurisprudence makes
clear that it is preferable to bring disclosure claims before closing. Such pleadings allow this Court
to employ equitable relief to ensure an informed vote of stockholders. Those disclosure claims
must, of course, be colorable—otherwise, they could not justify the expense to litigants and the
Court of expedition, and in any event could not sustain equitable relief. Non-colorable claims are
properly refused expedition.
Post-closing, what may remain are claims for damages. To the extent an improper disclosure was
the result of an actionable breach of fiduciary duty on the part of directors, causing damages, a
remedy is available post-closing, but as with any claim of breach of fiduciary duty, the plaintiff
must plead facts that make it reasonably conceivable that an actionable breach of duty has
occurred. That burden is not inconsequential, as the instant matter demonstrates.

16
irretrievably lost following a stockholder vote.57 The preferred method for

vindicating truly material disclosure claims is to bring them pre-close, at a time when

the Court can insure an informed vote. Because of this interest, a salutary incentive

could be provided by considering claims based on disclosure, pled but not pursued

pre-close, to be waived.

However, the Defendants argue, and I agree, that regardless of whether I

consider this claim waived, it fails on the merits. Here, the Proxy discloses that a

“substantial portion” of LUMA’s fee was contingent on the completion of the

merger.58 This Court has repeatedly held that such a disclosure regarding advisor

fees, absent some indication that the fee was exorbitant or unusual, or otherwise

improper, is sufficient.59

57
In re Transkaryotic Therapies, Inc., 954 A.2d 346, 360–61 (Del. Ch. 2008) ([T]his Court has
explicitly held that a breach of the disclosure duty leads to irreparable harm. On account of this,
the Court grants injunctive relief to prevent a vote from taking place where there is a credible threat
that shareholders will be asked to vote without such complete and accurate information. The
corollary to this point, however, is that once this irreparable harm has occurred—i.e., when
shareholders have voted without complete and accurate information—it is, by definition, too late
to remedy the harm. If the Court could redress such an informational injury after the fact, then the
harm, by definition, would not be irreparable, and injunctive relief would not be available in the
first place.”) (citations omitted) (emphasis added).
58
Proxy, at 33; see also, Second Am. Compl. ¶ 91.
59
See, e.g., Cnty. of York Emps. Ret. Plan v. Merrill Lynch & Co., 2008 WL 4824053, at *11 (Del.
Ch. Oct. 28, 2008) (“It is true that compensation contingent on consummation of the transaction
has the potential to influence a financial advisor. However, that fact was disclosed in the proxy:
‘Merrill Lynch has agreed to pay a fee to MLPFS, a substantial portion of which is contingent
upon the merger being consummated.’ And this Court has held that the precise amount of
consideration need not be disclosed, and that simply stating that an advisor's fees are partially
contingent on the consummation of a transaction is appropriate. In other words, the Plaintiff has
simply not alleged a disclosure violation.”) (emphasis added) (citations omitted); Globis Partners,
L.P. v. Plumtree Software, Inc., 2007 WL 4292024, at *13 (Del. Ch. Nov. 30, 2007) (“The Merger
Proxy stated that Jefferies' fees were ‘customary’ and partially contingent, but did not provide

17
 The Plaintiff points to this Court’s decision in In re Atheros Communications,

Inc.60 for the proposition that the level of contingency of an advisor’s fee can be

material. There the Court found misleading a disclosure that the investment banker’s

fee was “substantially contingent” on the deal’s closing, when the well-pleaded facts

of the complaint showed that nearly all—98%—of the fee was contingent. The

Court held that while “[c]ontingent fees are undoubtedly routine,” the “percentage

of the fee that is contingent exceeds both common practice and common

understanding of what constitutes ‘substantial,’” and “may fairly raise questions

about the financial advisor's objectivity and self-interest.”61 In other words, the

Court found that the plaintiff’s pleadings themselves showed that the proxy was

inaccurate, by understating the level of contingency.62 To my mind, Atheros does

not undermine the body of cases that hold that, generally, the disclosure that a

further details. Without a well-pled allegation of exorbitant or otherwise improper fees, there is
no basis to conclude the additional datum of Jefferies' actual compensation, per se, would
significantly alter the total mix of information available to stockholders.”) (citation omitted).
60
2011 WL 864928 (Del. Ch. Mar. 4, 2011).
61
Id. at *8.
62
Id. at *8; see also In re Alloy, 2011 WL 4863716, at *11 (Del. Ch. Oct. 13, 2011) (“Although
this Court has held that stockholders may have sufficient concerns about contingent fee
arrangements to warrant disclosure of such arrangements, that need to disclose does not imply that
contingent fees necessarily produce specious fairness opinions. In this case, Plaintiffs provide
nothing more than conclusory allegations that the presence of a contingent fee structure must have
influenced [the banker], but they do not allege, for example, that the actual compensation received
was excessive or extraordinary. In these circumstances, I cannot conclude that a broad salvo
against such a common practice, standing alone, supports a reasonable inference that the fairness
opinion rendered in this case is so flawed that the [Company’s] directors could not have relied
upon it in good faith.”) (citations omitted).

18
“substantial portion” of a fee is contingent is sufficient. The Plaintiff here points to

no well-pled facts indicating that the fee arraignment falls outside this general rule.63

Moreover, as with Plaintiff’s other disclosure claim, the Plaintiff has not pled

facts such that it is reasonably conceivable that this allegedly incomplete disclosure

was made in bad faith. When pressed at oral argument, the Plaintiff described his

theory as follows:

Our theory is that all that information has not been disclosed
intentionally to mislead shareholders in approving this transaction, and
that the fact that the banker is getting paid a lot of money and that it’s
contingent on closing goes hand in hand, that that’s why they didn’t
want the free cash flow disclosed.64

Beyond alleging, in this conclusory fashion, that the two alleged disclosure

violations are related, the Plaintiff has not pled facts creating a reasonable inference

that the Director Defendants acted deliberately to knowingly withhold material

information regarding the contingent-banker-fee arrangement from the stockholders.

The Plaintiff, in declining to pursue this claim pre-close, conceded that the claim

was not its “serious” claim,65 instead choosing only to pursue its disclosure claim

regarding the UFCF; it is hard to see how the Defendants, in light of that concession,

63
I note that the other cases cited by Plaintiff—In re Del Monte Foods Co. Shareholders Litigation,
25 A.3d 813 (Del. Ch. 2011), and In re TIBCO Software Inc. Stockholders Litigation, 2015 WL
6155894 (Del. Ch. Oct. 20, 2015)—did not address disclosure claims concerning an advisor’s fee.
64
Transcript of June 30, 2016 Oral Arg. 11:3–9.
65
Prelim. Inj. Hrg. Tr. 11:15–19.

19
acted in bad faith in not altering the disclosure; in any event, facts evincing bad faith

are not adequately plead.

III. CONCLUSION

For the foregoing reasons, Defendants’ Motion to Dismiss is granted. An

appropriate Order is attached.

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 IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

AN NGUYEN, )
)
Plaintiff, )
)
v. ) C.A. No. 11511-VCG
)
MICHAEL G. BARRETT, THOMAS R. )
EVANS, ROBERT P. GOODMAN, )
PATRICK KERINS, ROSS B. )
LEVINSOHN, WENDA HARRIS )
MILLARD, JAMES A. THOLEN, AOL )
INC., and MARS ACQUISITION SUB, )
INC., )
)
Defendants. )

ORDER

AND NOW, this 28th day of September, 2016,

The court having considered Defendants’ Motion to Dismiss, and for the

reasons set forth in the Memorandum Opinion dated September 28, 2016, IT IS

HEREBY ORDERED that Defendants’ motion is GRANTED.

SO ORDERED:

/s/ Sam Glasscock III

Vice Chancellor

21