Delaware Supreme Court Upholds Arm’s-Length Bargaining Protection

In a recent landmark decision, the Delaware Supreme Court highlighted its unwavering commitment to safeguarding arm’s-length bargaining processes by overturning a post-trial verdict that implicated a third-party buyer in aiding and abetting allegations. This ruling reiterated the court’s stance on the necessity of “actual knowledge” of wrongful conduct and substantial active involvement in such conduct to establish liability against an independent third-party purchaser.

The case in question dates back to 2016 when Canadian energy company TC Energy Corp. acquired Columbia Pipeline Group, Inc. for a substantial sum of approximately $10 billion. Following the completion of the acquisition, Columbia’s shareholders brought legal action against the company’s top executives and board of directors, alleging breaches of fiduciary duties. The crux of the claim revolved around the executives prioritizing their personal financial gains, namely lucrative retirement packages, over maximizing value for shareholders during the sale negotiations. Additionally, the shareholders accused TC Energy, the buyer, of aiding and abetting these alleged breaches.

While the Columbia executives settled before trial for a significant sum, TC Energy proceeded to a trial, ultimately facing liability claims. The Delaware Court of Chancery initially found TC Energy culpable and ordered considerable damages. However, echoing a recent precedent laid down in the In re Mindbody, Inc. Stockholder Litigation case, the Delaware Supreme Court stepped in and reversed the judgment against TC Energy, offering crucial clarity on the legal benchmarks and stringent criteria essential to implicate a buyer in aiding and abetting fiduciary breaches.

The focal point of the aiding and abetting claim centered on the sale process, with the plaintiffs alleging that Columbia’s executives, driven by personal financial incentives, steered the sale to TC Energy in a manner that primarily benefited themselves rather than the shareholders. The court underscored the necessity for buyers to possess actual knowledge – rather than mere suspicions or constructive knowledge – of both the seller’s breach of duty and the impropriety of their own conduct to establish liability for aiding and abetting. Despite TC Energy’s assertive negotiation stance and potential gains stemming from the executives’ eagerness to sell, there was a lack of evidence showcasing TC Energy’s actual awareness of the breaches.

Moreover, the disclosure claim focused on purported misrepresentations and omissions in the proxy statement circulated to Columbia shareholders prior to the merger vote. The plaintiffs contended that TC Energy’s failure to rectify or reveal material information that it recognized as missing or misleading equated to aiding and abetting disclosure breaches. However, the Supreme Court clarified that a buyer’s contractual responsibility to review and provide feedback on proxy materials alone does not automatically imply culpability for aiding and abetting if the seller’s disclosures fall short.

In conclusion, the Delaware Supreme Court’s recent ruling serves as a crucial reminder of the stringent standards buyers must meet to establish liability for aiding and abetting fiduciary breaches in arm’s-length bargaining settings. Upholding the precedence set forth in this case reaffirms Delaware’s dedication to shielding the integrity of independent transactions and reiterates the onus on claimants to meet a high threshold in proving such allegations.