In an opinion issued Sept. 28, 2016, the Court of Chancery of Delaware clarified its position that claims challenging the sufficiency of proxy solicitation disclosures should be brought during the pre-closing period of a merger transaction in order to insure a fully informed vote of the stockholders.
Following the closing of the merger transaction, the plaintiff sought damages for two purported disclosure violations:
- a claim that the Court had previously rejected at the preliminary injunction phase, and
- a second claim which had been initially included in the complaint, but which had not been pursued pre-closing.
The plaintiff stated that such claims should not be considered waived in the post-close context, arguing in part that recent decisions by the Court have suggested that a plaintiff can elect to bring disclosure claims pre- or post-close.
In finding against the plaintiff’s argument, the Court clarified that “…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.” The Court stated that while damages for a disclosure violation claim may be remedied post-close, the right of the stockholders to a fully informed vote is irrevocably lost following a stockholder vote. Therefore, the Court added that “[t]he 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.”