The Delaware Court of Chancery’s recent decision in In re Hennessy Capital Acquisition Corp. IV Stockholder Litigation, marks the Chancery Court’s first total dismissal of a complaint alleging breaches of fiduciary duties in connection with disclosures relating to a merger transaction involving a SPAC and establishes precedent that should aid the defense of future claims, the King & Spalding law firm noted.
A string of early pleading stage successes, and several eight-figure settlements, have encouraged a wave of lawsuits challenging the accuracy and sufficiency of public disclosures surrounding transactions in which private companies come public by merging with SPACs.
In the seminal SPAC case, In re MultiPlan Corp. Stockholders Litigation, the Court of Chancery held that claims alleging misleading proxy disclosures impaired SPAC stockholders’ ability to decide whether to redeem their shares and recoup their initial investment or hold the shares and become stockholders in the acquired company are direct, rather than derivative claims. Accordingly, motions to dismiss such claims must be analyzed under the plaintiff-friendly 12(b)(6) standard and are not subject to the heightened requirements to plead the futility of a pre-litigation demand on the board of directors that apply to derivative claims. The MultiPlan decision also rejected defense arguments that claims alleging breaches of fiduciary duties in connection with stockholder redemption rights should be (i) barred as contractual in nature and (ii) deemed “holder” claims not properly litigated as class actions due to individualized questions of reliance on the challenged disclosures. Finally, the Chancery Court held the MultiPlan plaintiffs adequately pled that structural elements of the transaction (that are common to many SPAC deals) created conflicts of interest between the SPAC fiduciaries and stockholders necessitating review of the claims under the onerous “entire fairness” standard under which defendants bear the burden of proving that the challenged act or transaction was entirely fair to the corporation and its stockholders. Read more.
