PSD Boston and New York class action lawyers won their opposition to a motion to dismiss before Chancellor Bouchard in the Delaware Chancery Court. PSD represents a medical device innovator, Ken Carr, who is the corporate founder of a medical device technology company. Carr suffered dilution of his holdings and the effects of a blown warrant sale to a major manufacturer. The court issued the 62-page Memorandum Opinion on March 26, 2018.
Novel Corporate Law Issues
The case presented several novel issues of Delaware law. In its written opinion, the Court rejected the suggestion by defense counsel that warrants cannot trigger Revlon duties. The court also found demand on the board excused as futile. As a result, the court left in the case both direct and derivative claims.The lengthy ruling keeps the majority stockholder group and certain affiliates of it in the case. The court will likely soon set a schedule for class action briefing and a trial.
The court explained: “Equity-Link and Binks support the proposition that it would be appropriate to
apply the intermediate scrutiny of Revlon, at least in certain circumstances, to evaluate a board’s decision to grant a third-party an option to acquire control of a corporation, as opposed to a decision to sell the corporation outright. Indeed, if that were not the case, a party could seek to evade the special protections Revlon affords stockholders through creative structuring of a transaction (e.g., an unconditional, immediately exercisable option to purchase the entire company) that in substance is equivalent to an outright sale of the corporation. That would be an absurd result.”
The case involves warrants priced in the tens of millions of dollars. The warrants had exercise prices and threshold payments that involve more than $100 million.