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The Delaware Court of Chancery’s docket exploded with expedited “broken” deal litigation in 2020, driven by the impact of COVID-19. Beyond pandemic-related merger litigation, stockholder plaintiffs remained focused on claims involving controlling stockholders and increased focus on claims against officers for breaches of the duty of care. There were also significant developments in connection with stockholder statutory books-and-records requests.
Broken Deals
Transaction participants in 2020 faced extraordinary and unprecedented circumstances due to COVID-19. In addition to the crisis’ uncertain economic impact, many companies faced employee health concerns and government-mandated shutdowns of core business operations, among other things. (See “US M&A Outlook: Rebounding Market Fuels Optimism for Deal Activity in 2021.”) As merger parties grappled with the pandemic and its impact on pending deals, expedited litigation in the Court of Chancery was dominated by broken deals, in which sellers sought to force, and buyers sought to avoid, closing transactions. These cases raised novel contract interpretation concepts, including questions surrounding whether the pandemic constituted a “material adverse effect” (MAE) under the specific language of the deal parties’ merger agreements, failures to satisfy conditions caused by the pandemic, and compliance with sellers’ interim operating covenants and buyers’ best efforts covenants. Many of these cases settled, but several gave rise to noteworthy opinions offering guidance for the future.