The Delaware Chancery Court recently refused to dismiss claims for breach of fiduciary duty, fraud and unjust enrichment in connection with a failed merger. Under the agreement governing the merger, the target company relinquished all operational control of its business to the acquirer prior to the closing of the merger. Shortly after obtaining operational control of the target company, the acquirer expressed concerns about the target company's business. These concerns ultimately led the acquirer to exercise its right to terminate the merger agreement.

In ruling for the target company, the court found the target company's allegations regarding the business dealings between the target company and the acquirer were sufficient not only to plausibly suggest that the acquirer breached its obligations under the merger agreement, but also to support a claim for fraudulent misconduct. In so ruling, the court placed particular emphasis on the degree of operational control ceded by the target company to the acquirer under the merger agreement.

Narrowstep, Inc. v. Onstream Media Corp., C.A. No. 5114-VCP (Del. Ch. Dec. 22, 2010)