Q4 2024 Quarterly Corporate / M&A decisions updates

Tenth Circuit affirms dismissal of short seller’s claims against Overstock

On October 15, 2024, the United States Court of Appeals for the Tenth Circuit issued an opinion in In re Overstock Securities Litigation affirming the District of Utah’s dismissal of putative class action claims under the Exchange Act brought by a short seller. The plaintiff short-seller alleged that Overstock.com, Inc. and certain former Overstock executives made false and misleading statements and manipulated the market by purposefully creating a “short squeeze.” In affirming the district court’s decision, the Tenth Circuit held that (a) plaintiff could not rely on the Basic fraud-on-the-market presumption of reliance when plaintiff admitted in its complaint that it purchased Overstock securities in order to cover a short position and not in reliance on Overstock’s disclosures, and (b) absent some element of deception or secrecy, a fully disclosed corporate transaction cannot form the basis of a market manipulation claim under the Exchange Act.

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No breach of fiduciary duty where directors approved merger that stripped common stock of its value

In Jacobs v. Akademos, the Delaware Chancery Court ruled that a cash-out merger that provided common shareholders in a privately held corporation, Akademos, Inc., with no value was nonetheless entirely fair. This decision demonstrates that under certain circumstances, a merger need not generate shareholder value to withstand legal challenges.

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Federal district court denies Target’s motion to dismiss securities claims related to one of its ESG and DEI Initiatives

In Craig v. Target Corporation, et al., the District Court for the Middle District of Florida considered whether Target Corporation (Target) committed securities violations by failing to disclose risks related to an ESG and DEI initiative, in which Target undertook a marketing and sales campaign focused on prominently displaying Pride Month-related merchandise in its stores (the 2023 Campaign). Specifically, Plaintiffs alleged that Target’s 2021–23 Annual proxy statements failed to appropriately disclose the risk of consumer boycotts related to the 2023 Campaign, and that they were harmed when Target lost US$10 billion in market valuation as a result of consumer backlash towards the Campaign. Defendants moved to dismiss the complaint in its entirety, arguing that Plaintiffs failed to allege any misstatements or omissions, scienter, or loss causation. On December 4, 2024, the Court denied Defendants’ motion to dismiss.

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Solak v. Mountain Crest Capital: fiduciary duties claims abound for SPAC sponsors and directors

In Solak v. Mountain Crest Capital, the Delaware Court of Chancery found that a stockholder plaintiff pleaded a viable breach of fiduciary duty claim based on an alleged failure of the board of directors of a SPAC to disclose material information – specifically, the value of the company in terms of cash per share – prior to the vote on the merger. This is the first time the court has permitted claims based on the failure of a SPAC to disclose the net cash value of company shares to survive a motion to dismiss.  The court’s opinion emphasized that this case is a notable example of how, despite a contracted SPAC market, SPAC lawsuits remain “ubiquitous in Delaware,” and likened the SPAC docket to the digestive tract of an adult anaconda.

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Court of Chancery rules that supermajority voting provision did not apply to conversion

In Gunderson v. The Trade Desk, Inc., the Delaware Court of Chancery held that a company’s conversion pursuant to Section 266 of the Delaware General Corporation Law (DGCL) did not require a supermajority vote because that provision in the certificate of incorporation applied to only actions taken pursuant to Section 242 of the DGCL, which governs amendments to certificates of incorporation.  The court held that the doctrine of independent legal significance barred the parties from applying the supermajority provision to the conversion, because the conversion would be accomplished pursuant to a separate and distinct section of the DGCL, and the drafters of the company’s corporate documents did not include explicit language providing for supermajority voting requirement to extend beyond Section 242 to apply to mergers, consolidations, conversions or other similar transactions.

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Authored by Allison M. Wuertz, William (Bill) Regan, Christopher Pickens, Courtney Devon Taylor, Sean MacDonald, Christine Jiha, Jacey Gottlieb, Molly Balan, and Noah Ramirez.