EFiled: Dec 16 2016 12:57PM EST
Transaction ID 59965807
Case No. 11216-VCS
COURT OF CHANCERY
OF THE
STATE OF DELAWARE
417 S. State Street
JOSEPH R. SLIGHTS III Dover, Delaware 19901
VICE CHANCELLOR Telephone: (302) 739-4397
Facsimile: (302) 739-6179
Date Submitted: October 26, 2016
Date Decided: December 16, 2016
Michael J. Barry, Esquire Joel Friedlander, Esquire
David M. Haendler, Esquire Jeffrey M. Gorris, Esquire
Grant & Eisenhofer P.A. Friedlander & Gorris, P.A.
123 Justison Street 1201 North Market Street, Suite 2200
Wilmington, DE 19801 Wilmington, DE 19801
S. Mark Hurd, Esquire
Thomas P. Will, Esquire
Morris, Nichols, Arsht & Tunnell LLP
1201 North Market Street
Wilmington, DE 19801
Re: In re OM Group, Inc. Stockholders Litigation
Consolidated C.A. No. 11216-VCS
Dear Counsel:
On May 31, 2015, Apollo Global Management, LLC acquired all
outstanding shares of OM Group, Inc. (“OM” or the “Company”) for $34 per share
in cash. OM stockholders approved the transaction at a special meeting on August
10, 2015, by a margin of 10:1. Within weeks of OM’s announcement of the
In re OM Group, Inc. Stockholders Litigation
Consolidated C.A. No. 11216-VCS
December 16, 2016
Page 2
transaction, six separate complaints were filed in this Court on behalf of OM
stockholders. The operative Consolidated Amended Verified Class Action
Complaint (the “Complaint”) alleged that the OM Board of Directors (the “Board”)
rushed to sell OM in order to avoid a prolonged proxy fight with a shareholder
activist and, in doing so, acted in a manner not consistent with maximizing present
share value in violation of their fiduciary duties under Revlon.1 Defendants moved
to dismiss the Complaint under Court of Chancery Rule 12(b)(6) for failing to state
a claim upon which relief can be granted. The Court granted the motion to dismiss
by opinion and order dated October 12, 2016 (the “Opinion”).2 Plaintiffs have
moved for reargument under Court of Chancery Rule 59(f) (the “Motion”). For the
reasons that follow, the Motion is denied.
1
Revlon, Inc. v. MacAndrews & Forbes Hldgs., Inc., 506 A.2d 173 (Del. 1986); TW
Servs., Inc. v. SWT Acq. Corp., 1989 WL 20290, at *7 (Del. Ch. Mar. 2, 1989) (“In
settling on a sale of a company for cash, the board’s duty to shareholders is inconsistent
with acts not designed to maximize present share value, acts which in other
circumstances might be accounted for or justified by reference to the long run interests of
shareholders.”).
2
In re OM Gp. Inc. S’holders Litig., 2016 WL 5929951 (Del. Ch. Oct. 12, 2016).
2
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Consolidated C.A. No. 11216-VCS
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As noted in the Opinion, the Complaint spun a narrative that the “OM Board
rushed to sell OM on the cheap in order to avoid the embarrassment and
aggravation of a prolonged proxy fight.”3 I characterized the narrative as
“disquieting.”4 The questions raised by the Defendants’ motion to dismiss, inter
alia, were whether the well-pled facts in the Complaint actually supported the
narrative and whether, in any event, the uncoerced, fully informed vote of the
disinterested OM stockholders to approve the transaction required the Court to
review the Board’s conduct under the deferential business judgment rule.5 I did
not address whether the Plaintiffs had pled a claim for breach of fiduciary duty
3
Opinion at *1.
4
Id.
5
See In re KKR Fin. Hldgs. LLC S’holder Litig., 101 A.3d 980, 1001 (Del. Ch. 2014),
aff’d sub nom., Corwin v. KKR Fin. Hldgs. LLC, 125 A.3d 304 (Del. 2015) (holding that
when a transaction has been approved by a majority of the disinterested stockholders in a
fully informed and uncoerced vote, the business judgment rule applies and “insulates the
transaction from all attacks other than on the grounds of waste.”). See also Chester Cty.
Ret. Sys. v. Collins, C.A. No. 12072-VCL, at 2 (Del. Ch. Dec. 6, 2016) (ORDER)
(“Because the merger received disinterested stockholder approval, the business judgment
rule will apply and dismissal will result unless the plaintiff has “allege[d] that facts are
missing from the [proxy] statement, identif[ied] those facts, state[d] why they meet the
materiality standard and how the omission caused injury.”) (citing Malpiede v. Townson,
780 A.2d 1075, 1087 (Del. 2001) (internal citation and quotations omitted)).
3
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because I concluded that, based on the facts alleged in the Complaint, the
Defendants had demonstrated that there was no reasonably conceivable basis upon
which I could infer that the OM stockholder vote was coerced or uniformed.6
Plaintiffs contend that this conclusion was the product of error and seek
reargument.
The Court will deny a motion for reargument “unless the Court has
overlooked a decision or principle of law that would have a controlling effect or
the Court has misapprehended the law or the facts so that the outcome of the
6
Opinion at *18. I note that the parties did not raise the burden of proof in briefing the
motion to dismiss or at oral argument and, therefore, I did not address it expressly in the
Opinion. See Opinion at *12, n.60 (noting that the Court was addressing the disclosure
allegations even though the Plaintiffs had abandoned their pre-closing disclosure claims
since the Defendants had “invoked the Corwin doctrine”). In any event, the burden is
settled. See In re KKR Fin. Hldgs., 101 A.3d at 999 (holding that defendants bear the
burden of demonstrating fully informed stockholder approval). Vice Chancellor Laster
recently explained the practical effect of the defense burden on a motion to dismiss in the
context of Corwin: “The idea . . . is the plaintiff has to plead something such that it is
reasonably conceivable that a disclosure claim could exist, and then we go from there.
So the plaintiff doesn’t have to show necessarily that there is something wrong with the
disclosures or that it will prevail at trial, but the plaintiff has the initial burden of pleading
something that shows that it is reasonably conceivable that the vote was not informed.”
In re Columbia Pipeline Gp., Inc. S’holder Litig., C.A. No. 12152-VCL, at 23 (Del. Ch.
Sept. 6, 2016) (TRANSCRIPT).
4
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decision would be affected.”7 “Where the motion merely rehashes arguments
already made by the parties and considered by the Court when reaching the
decision from which reargument is sought, the motion must be denied.”8
According to Plaintiffs, the Motion is grounded on the Court’s
“misapprehension of a pleaded fact.”9 The Complaint identified several areas in
which the Proxy,10 either by omission or misleading disclosure, allegedly
undermined the validity of the stockholder vote approving the transaction. I
analyzed each of these disclosure allegations in the Opinion and concluded that
none of the alleged disclosure deficiencies were material.11 Plaintiffs challenge
7
Stein v. Orloff, 1985 WL 21136, at *2 (Del. Ch. Sept. 26, 1985).
8
Wong v. USES Hldg. Corp., 2016 WL 1436594, at *1 (Del. Ch. Apr. 5, 2016) (citing
Lewis v. Aronson, 1985 WL 21141, at *2 (Del. Ch. June 7, 1985)).
9
Pls.’ Mot. for Reargument (“Motion”) ¶ 1.
10
I adopt the abbreviation conventions utilized in the Opinion.
11
Opinion at *17.
5
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this determination in one respect: “The disclosure issue in question for purposes of
this motion concerns ‘the evolution of Deutsche Bank’s engagement.’”12
As characterized in the Motion, the Complaint alleged the following with
respect to the engagement of Deutsche Bank as a second financial advisor to
members of the OM Board in connection with the transaction: “(i) the independent
directors decided to hire their own banker because of concerns that BNP Paribas
(the banker first engaged to advise on the transaction) was conflicted due to its ties
to management and a ‘management bias’ to sell OM to a private equity firm, (ii)
the independent directors discussed an initial-stage retention of a second bank for
advice on a flat-fee basis about whether to go forward with a sale process, with
only the possibility that the second bank would be retained contingently for a
12
Motion ¶ 2 (citing Opinion at *11). I note that, notwithstanding Plaintiffs’ indication at
the outset of the Motion that they are challenging the Court’s interpretation of “a pleaded
fact” regarding a single omitted disclosure, their identification of “the disclosure in
question” as the “evolution of Deutsche Bank’s engagement,” and their singular focus on
that omitted disclosure up to the final page of the Motion, Plaintiffs present a throwaway
contention regarding the Court’s treatment of another disclosure issue in a single sentence
within the final paragraph. See Motion ¶ 12. The argument is cryptic and appears to rely
on arguments already advanced in response to the motion to dismiss. It is not a proper
argument on a Rule 59(f) motion. Gore v. Al Jazeera Am. Hldgs. I, Inc., 2015 WL
4778339, at *3 (Del. Ch. Aug. 13, 2015) (“A court will not grant a motion for reargument
if the motion is merely a rehash of arguments already made.”).
6
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second stage in the event it was determined to go forward with a sale of OM, (iii)
OM’s CEO was ‘very resistant’ to the outside directors’ plan to hire a second bank,
(iv) it is a mystery how Deutsche Bank ended up being retained on a contingent
basis, and (v) the retention of Deutsche Bank on a contingent basis is something
that the Board ‘did nothing to prevent’ and ‘allowed,’ not something that the Board
consciously decided to do[.]”13 The Plaintiffs argue that the Court mistakenly
assumed that the OM Board made the decision to convert Deutsche Bank’s fee
arrangement from flat fee to contingency fee when, in fact, the alleged disclosure
deficiency is the failure of the OM Board to explain how or why the fee
arrangement was altered and who exactly approved the change.
The Opinion acknowledged that Plaintiffs were alleging that the Proxy
“omitted information regarding the evolution of Deutsche Bank’s engagement” and
that the “Proxy failed to disclose that the OM Board initially contemplated hiring
Deutsche Bank on a flat fee basis but then inexplicably converted the engagement
13
Motion ¶ 4.
7
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to a contingency fee arrangement.”14 Nevertheless, Plaintiffs contend that the
Court did not appreciate the nuance of its disclosure theory with respect to
Deutsche Bank fees because, contrary to the discussion of the claim in the Opinion,
the Complaint did not plead, and the Proxy did not disclose, that the Board actually
agreed to the contingency fee arrangement. The argument is rejected for two
reasons.
First, as Plaintiffs acknowledge, the Complaint alleged that the Board
contemplated at the outset of the engagement of Deutsche Bank the “possibility
that the second bank [Deutsche Bank] would be retained contingently for a second
stage in the event it was determined to go forward with a sale of OM[.]” 15 This is
precisely what appears to have happened. Whether the OM Board indicated its
acceptance of the “second stage” contingency fee arrangement by express
agreement or by acquiescence is of no material moment.16
14
Opinion at *11, *16.
15
Motion ¶ 4 (citing Complaint ¶¶ 57–61).
16
Opinion at *16–17.
8
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Second, by the time the fee arrangement was disclosed to stockholders in the
Proxy, the Board had approved it one way or the other; the stockholders were told
in no uncertain terms that the Company had approved an engagement letter
whereby Deutsche Bank’s compensation was, in part, to be “contingent upon
consummation of the merger.”17 The Opinion concluded, therefore, that the Proxy
fully disclosed Deutsche Bank’s “incentives” and that further disclosure of the
“OM Board’s thinking regarding the terms by which Deutsche Bank would be
engaged . . . [would be] precisely the sort of ‘play-by-play’ information that this
Court repeatedly has eschewed requiring companies to disclose.”18
Plaintiffs’ citations to RBC Capital Markets, LLC v. Jervis19 and In re El
Paso Corp. S’holder Litig.20 for the proposition that “the retention of second bank
on a contingent basis can be conflict-reinforcing, not cleansing” is not helpful
17
Opinion at *16 (quoting the Proxy at 47).
18
See Opinion at *17 (citing Dent v. Ramtron Int’l Corp., 2014 WL 2931180, at *15
(Del. Ch. June 30, 2014)). See also In re Sauer-Danfoss Inc. S’holders Litig., 65 A.3d
1116, 1130 (Del. Ch. 2011) (noting that “Delaware law does not require that a fiduciary
disclose its underlying reasons for acting”) (internal citations omitted).
19
129 A.3d 816 (Del. 2015).
20
41 A.3d 432 (Del. Ch. 2012).
9
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here.21 The Supreme Court in RBC Capital Markets, LLC considered whether the
engagement of a second investment bank that was engaged on a contingent fee
basis would remedy the misconduct of the initially-engaged banker in connection
with an aiding and abetting claim or would break the causal link between the first
banker’s misconduct and the harm to Rural/Metro Corporation stockholders. 22 In
El Paso, the Court considered the extent to which the engagement of a second
banker on a contingent fee basis would cleanse the conflict of interest of the banker
initially engaged to advise the board on the challenged transaction. 23 Neither
decision addressed in a disclosure context whether stockholders had been
adequately apprised of the circumstances pursuant to which the later-retained
21
Motion ¶ 9.
22
RBC Capital Markets, 129 A.3d at 864 n.188 (affirming decision after trial finding
investment bank liable for aiding and abetting breaches of fiduciary duty).
23
In re El Paso Corp., 41 A.3d at 434, 452 (noting that contingent fee gave second
banker “financial incentives” to “prefer” the deal endorsed by the initially-engaged,
conflicted banker but ultimately denying a motion for preliminary injunction so that “the
El Paso stockholders [would] not be deprived of the chance to decide for themselves
about the Merger.”).
10
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bankers were engaged or would be compensated, and neither involved the
cleansing effect of a fully-informed stockholder vote under Corwin.
Here, Plaintiffs raised Deutsche Bank’s engagement and fee arrangement for
one purpose—to argue that the Complaint pled facts upon which the Court could
conclude that it was reasonably conceivable the OM stockholders were not fully
informed when they voted overwhelmingly to approve the OM/Apollo merger. I
rejected that argument upon concluding that the Proxy adequately disclosed the
circumstances surrounding the engagement of Deutsche Bank and that the
omissions identified in the Complaint were not material. Accordingly, “[h]aving
determined that a majority of the disinterested, uncoerced and fully informed OM
stockholders approved the merger, [I determined] that the standard of review
[must] shift from enhanced scrutiny to the business judgment rule.”24 And,
“[w]hen the business judgment rule standard of review is invoked because of a
vote, dismissal typically is the result.”25
24
Opinion at *17 (internal citations omitted).
25
Id.
11
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Plaintiffs have failed to identify a fact the Court misapprehended such that
the “outcome of the decision would be affected.”26 Accordingly, the Motion for
Reargument must be DENIED.
Very truly yours,
/s/ Joseph R. Slights III
26
Wong, 2016 WL 1436594, at *1.
12