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IN THIS ISSUE
Delaware Court of Chancery Allows Stockholder Litigation to Proceed Against Viacom-CBS Over $30B Merger; Ninth Circuit Affirms Dismissal with Prejudice of Securities Class Action Against Tesla; Second Circuit Affirms Dismissal of Securities Action Against Spencer Capital as Predominantly Foreign; Delaware Supreme Court Finds That Former Spectra Energy Shareholder Has Standing to Challenge Validity of Merger Price Based on Derivative Action Against Target Entity; Third Circuit Reverses Fraud Convictions Related to Regulatory Loan Reporting Requirements for “Past Due” Loans.
DELAWARE COURT OF CHANCERY ALLOWS STOCKHOLDER LITIGATION TO PROCEED AGAINST VIACOM-CBS OVER $30B MERGER
On January 27, 2021, in In re CBS Corporation Stockholder Class Action and Derivative Litigation, the Delaware Court of Chancery partially denied a motion to dismiss in a class action suit brought by stockholders against ViacomCBS, CBS Board members and executives, National Amusements, I
Key Takeaways
Under Delaware law, following the acquisition of an entity through a cash-out or stock-for-stock merger, equityholders generally lose standing to pursue derivative claims in the name of the acquired entity unless certain limited exceptions apply.
In 2015, Delaware’s Chancery Court, in Primedia, established a three-part test for determining when former equityholders have standing to pursue post-merger direct claims for a controller’s alleged failure to secure the value of a material derivative claim during the merger negotiations.
Delaware’s Supreme Court has now, through
Spectra Energy, adopted the
Primedia test, but with two important clarifications:
Apart from making a threshold determination about plaintiff’s allegations, a trial court may not apply any further litigation risk discount in assigning value to the plaintiff’s claims on a motion to dismiss.