In the opinion issued on May 1, 2013 in In re Wayport, Inc. Litig., Consol. C.A. No. 4167-VCL (Del. Ch.), Vice Chancellor Laster of the Delaware Court of Chancery articulated the bounds of disclosure obligations of corporations and their board members in the face of claims by selling stockholders that they had been wrongfully misled about corporate information when they sold their stock.

Prior to being acquired by AT&T, Wayport, Inc. was a privately held Delaware corporation engaged in technology related to Wi-Fi hotspots. Brett Stewart was Wayport’s original CEO and a member of its Board. Stewart filed suit against other stockholders of Wayport (Trellis Fund and certain New Enterprise Associates Funds). The defendant Funds were permitted to designate a Board member and a Board observer. Plaintiff Stewart resigned from all positions with Wayport in late 2001, but retained his stock.

Over the course of 2006 and 2007, Stewart and the other plaintiffs negotiated with and sold a portion of their stock to the Funds for between $2.50 and $3.00 per share. During the sale negotiations, a representative of one of the Funds stated that it was not “aware of any bluebirds of happiness in the Wayport world,” which the Court interpreted to mean that there was no unexpected good news on the horizon (i.e., material non-public information that could positively impact the value of Wayport’s stock). Simultaneously, Wayport was engaged in negotiations to monetize their patents, ultimately culminating with a June 29, 2007 sale to Cisco Systems, Inc. for $9.5 million. The Board and the Fund learned of the Cisco Sale on July 2, 2007 (less than one month after the Fund made the no “bluebirds of happiness” statement), but did not inform the plaintiffs. The plaintiffs first learned of the Cisco Sale when they requested Wayport’s audited financial statements shortly after the final sale of their stock in September 2007. In November 2008, Wayport announced that it would be acquired by AT&T Inc. for $7.20 per share.

In applying the “special facts doctrine” to decide that the defendants had not breached any fiduciary duty of loyalty by failing to disclose the Cisco Sale to plaintiffs while plaintiffs were negotiating their stock sales, Laster found that the Cisco Sale, while material, did not amount to a “special fact” (which he further elaborated would include something such as an offer to purchase the company). However, Laster did find defendant Trellis liable for common law fraud for failing to update the “bluebirds of happiness” statement, which it later learned to be materially misleading, during negotiations for purchase of plaintiffs’ stock.

In re Wayport serves as a reminder to directors of Delaware corporations of the need to update statements made to stockholders that they later learn to be misleading, while setting an important limit on their liability under the “special facts doctrine.” Though defining such “special facts” narrowly, In re Wayport still provides a way forward for selling stockholders who feel as though they have not been given sufficient information during negotiations.