In re Columbia Pipeline Group, Inc. Merger Litigation ( 2024 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE COLUMBIA PIPELINE GROUP, INC. ) CONSOLIDATED
MERGER LITIGATION ) C.A. No. 2018-0484-JTL
OPINION RESOLVING POST-TRIAL ISSUES
Date Submitted: January 19, 2024
Date Decided: May 15, 2024
Ned Weinberger, Brendan W. Sullivan, LABATON KELLER SUCHAROW LLP,
Wilmington, Delaware; Gregory V. Varallo, BERNSTEIN LITOWITZ BERGER &
GROSSMANN LLP, Wilmington, Delaware; Stephen E. Jenkins, Marie M. Degnan,
ASHBY & GEDDES, P.A., Wilmington, Delaware; Jeroen van Kwawegen, Lauren A.
Ormsbee, Thomas G. James, Margaret Sanborn-Lowing, BERNSTEIN LITOWITZ
BERGER & GROSSMANN LLP, New York, New York; Counsel for co-lead plaintiffs.
Martin S. Lessner, James M. Yoch, Jr., Kevin P. Rickert, YOUNG CONAWAY
STARGATT & TAYLOR, LLP, Wilmington, Delaware; Brian J. Massengill, Michael
Olsen, Matthew C. Sostrin, Linda X. Shi, MAYER BROWN LLP, Chicago, Illinois;
Counsel for defendant TC Energy Corporation.
LASTER, V.C.
In Measure for Measure, William Shakespeare wondered, “The tempter, or the
tempted, who sins most?”1 That sums up the principal dispute in the final chapter of
this case.
The post-trial decision in this action held a buyer liable to a class of sell-side
stockholders for aiding and abetting two sell-side officers in breaching their fiduciary
duties.2 For the breaches during the sale process (the “Sale Process Claim”), the court
awarded damages of $1 per share, resulting in aggregate class-wide damages (before
interest) of $398,436,581. For the breaches of the duty of disclosure (the “Disclosure
Claim”), the court awarded damages of $0.50 per share, resulting in aggregate class-
wide damages (before interest) of $199,218,290.50. The awards were non-cumulative,
meaning that the buyer can only be liable for the larger amount.
The officers settled before trial for $79 million. Under the Delaware Uniform
Contribution Among Tortfeasors Act (“DUCATA”), the buyer is entitled to a credit
against its liability equal to the greater of the settlement amount or the proportionate
share of damages for which the officers were responsible.
To minimize its potential liability, the buyer blames the officers—the
“tempted” in Shakespeare’s parlance. The buyer argues that the officers were the
fiduciaries for the company and its stockholders, so they were the primary
wrongdoers who should have rejected the buyer’s advances and remained resolutely
1 William Shakespeare, Measure for Measure act 2, sc. 2, l. 200.
2 In re Columbia Pipeline Gp., Inc. Merger Litig. (Liability Decision), 299 A.3d 393(Del. Ch. 2023).
loyal, no matter what the buyer did. The buyer views itself as less culpable because
it breached contractual obligations, but not fiduciary ones.
To maximize the class’s recovery, the plaintiffs blame the buyer—the “tempter”
in Shakespeare’s parlance. They argue that the buyer induced the officers to breach
their duties by engaging in conduct that the parties had agreed was off limits. From
this standpoint, the buyer did not simply breach contractual obligations; it knowingly
participated in the officers’ breaches of duty by violating agreed-upon boundaries.
First, by entering into a don’t-ask-don’t-waive standstill, the buyer committed
not to contact the company or its representatives about a transaction unless invited.
But rather than respecting that guardrail, the buyer repeatedly contacted the
officers, breaching the standstill each time. Later, after establishing a relationship
with the officers, obtaining confidential information from them, and securing an
advantage over any potential competing bidders through contractually prohibited
conduct, the buyer took advantage of the officers in the final phase of the deal
negotiations by dropping its offer and threatening to announce publicly that
discussions had terminated if the target did not accept. That too was conduct that the
parties had agreed contractually was off limits, but the buyer transgressed that
boundary as well. Caught in the trap the buyer set, the officers recommended the
deal to the board, and the board agreed.
2
To quote a more modern poet, “it takes two to tango.”3 There were two sides to
the deal—buyer and seller—and two sides to the wrongdoing that lead to the Sale
Process Claim. The buyer was on one side. The officers were on the other. The two
sides were equally responsible for the sale process breaches. The buyer is therefore
entitled to a liability credit equal to 50% of the potential liability for the Sale Process
Claim, or $199,218,290. The credit exceeds the $79 million that the officers paid in
settlement, so the buyer gets credit for the larger amount. That leaves the buyer
liable in the amount of $199,218,290 for the Sale Process Claim.
The allocation for the Disclosure Claim is more difficult. Here too, both sides
had obligations. The sell-side fiduciaries owed a duty of disclosure under Delaware
law. The buyer agreed contractually to provide all material information that was
necessary to prevent the disclosures in the proxy statement for the merger from being
inaccurate or materially misleading. But while both sides had similar obligations to
include accurate and complete information in the proxy statement, they knew
different things. Each side knew the most about its own conduct and any joint
interactions. Each side had reason to suspect that additional facts were true. And
there were still other facts that each side did not know about.
The post-trial decision identified seven breaches of the duty of disclosure. To
allocate responsibility for those breaches, this decision starts with the equal
allocation between buyer and seller from the Sale Process Claim, then adjusts the
3 Al Hoffmann wrote the lyrics to the song Takes Two To Tango (Coral Records 1952).
3
buyer’s accountability based on the level of the buyer’s knowledge. On issues where
the buyer knew as much as the sell-side fiduciaries, the buyer’s allocation is 50%. On
issues where the buyer had no knowledge, it bears none of the responsibility. On
issues where the buyer had some knowledge, the buyer bears one-third responsibility.
On issues where the buyer was on inquiry notice or had constructive knowledge, the
buyer bears one-fourth responsibility.
Giving equal weight to each disclosure violation results in the buyer having
42% responsibility for the Disclosure Claim. That allocation favors the buyer, because
the disclosure issues where the buyer bore a greater level of responsibility were more
serious, and the court could have weighted them more heavily.
The buyer is therefore entitled to a liability credit equal to 58% of the potential
liability for the Disclosure Claim, or $115,546,608. The credit exceeds the $79 million
that the officers paid in settlement, entitling the buyer to the larger amount. The
buyer is liable in the amount of $83,671,682 for the Disclosure Claim.
To reiterate, the damages for the Sale Process Claim and the Disclosure Claim
are non-cumulative. The buyer is liable for the larger amount, or $199,218,290.
The parties have two other disputes. This decision holds that the members of
the class that sought appraisal are entitled to recover damages, including damages
for the Disclosure Claim. This decision rejects the buyer’s request to toll the running
of prejudgment interest.
4
I. FACTUAL BACKGROUND
This decision assumes familiarity with the Liability Decision and relies on the
facts as found in that decision. What follows is a high-level summary of the more
detailed findings in the Liability Decision.
A. Columbia, Skaggs, And Smith
For many years, Columbia Pipeline Group, Inc. (“Columbia”) was a wholly
owned subsidiary of NiSource Inc., a publicly traded utility. Robert Skaggs, Jr.,
served as CEO of NiSource and chair of its board of directors. Stephen Smith served
as CFO.
Skaggs and Smith had been friends and colleagues for decades. They were both
aging executives who were looking forward to retirement. Both had selected 2016 as
their target year to retire, and both saw a spinoff of the Columbia business unit as a
means to achieve that goal.
Skaggs and Smith each had a lucrative change-in-control agreement with
NiSource under which a sale of the company would cause all unvested equity to vest.
In addition, Skaggs would receive three times his base salary and target annual
bonus if terminated after a change of control. Smith had the same arrangement but
with a two times multiplier.
Because of NiSource’s size, a sale of the Columbia business unit would not
qualify as a change of control. But if NiSource spun off Columbia, and if Skaggs and
Smith went with the new entity, then a sale of Columbia would trigger their benefits.
Skaggs and his management team recommended a spinoff to the NiSource board of
directors (the “Spinoff”).
5
B. The Spinoff
In September 2014, NiSource announced that it would pursue the Spinoff.
Skaggs and Smith asked to go with Columbia. The NiSource board of directors
approved their request, and Skaggs and Smith each received a comparable change-
in-control agreement from Columbia. Skaggs lobbied successfully for Smith to receive
an increased three-times multiplier.
The change-in-control agreements gave Skaggs and Smith personal reasons to
secure a deal when disinterested stockholders might have preferred that Columbia
remain independent. The agreements expired in 2018, meaning that it was safer to
sell sooner rather than later. For Skaggs and Smith, the expiration date was a
secondary factor, because both wanted to sell and retire in 2016.
Skaggs and Smith engaged Goldman, Sachs & Co. (“Goldman”) and Lazard
Frères & Co. (“Lazard”) to prepare for inbound acquisition proposals. Lazard
identified a group of possible buyers that included TransCanada Corporation, now
known as TC Energy Corp. (“TransCanada”). Other possible buyers included
Dominion Energy Inc. (“Dominion”), Berkshire Hathaway Energy (“Berkshire”),
Spectra Energy Corp. (“Spectra”), Enbridge Inc., and NextEra Energy Inc.
(“NextEra”).
In May 2015, Lazard contacted TransCanada and conveyed that Columbia
“may be put into play” after the Spinoff and “that social issues may not be a
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significant consideration.”4 With the benefit of that information, TransCanada
proceeded on the assumption that Skaggs and Smith intended to retire after any deal
and pocket their change-in-control benefits.
On July 1, 2015, NiSource completed the Spinoff, and Columbia became an
independent, publicly traded company. Its board of directors (the “Board”) comprised
Skaggs and six non-management directors.
C. Buyers Come Calling.
Skaggs and Smith’s expectation that Columbia would be an attractive target
proved prescient. In the first month after the Spinoff, Spectra and Dominion
contacted Skaggs about acquisitions. Skaggs favored Dominion and met with
Dominion’s CEO personally. He avoided meeting with Spectra’s CEO.
On August 12, 2015, Columbia and Dominion executed a non-disclosure
agreement (“NDA”) containing a don’t-ask-don’t-waive standstill. After obtaining due
diligence, Dominion’s CEO told Skaggs that Dominion was no longer interested in a
deal at the price they had discussed. They agreed to terminate discussions, and
Dominion destroyed the confidential information it had received.
In September 2015, TransCanada began its pursuit of Columbia. Francois
Poirier, TransCanada’s Senior Vice President for Strategy and Corporate
Development, led the deal team. Eric Fornell at Wells Fargo Securities, LLC (“Wells
Fargo”) acted as TransCanada’s investment banker.
4 Liability Decision, 299 A.3d at 412 (quoting JTX 109).
7
Spectra and Dominion had contacted Skaggs, but Poirier and Fornell targeted
Smith. Both had longstanding relationships with Smith from earlier in their careers.
Throughout September and early October 2015, Fornell greased the wheels for a
meeting between Smith and Poirier.
On October 9, 2015, Fornell’s efforts paid off when Smith agreed to an in-
person meeting with Poirier. After getting together with Smith, Poirier had the
TransCanada team update their analysis of a Columbia acquisition, first prepared
two months earlier. “The analysis described Columbia as ‘[c]urrently for sale.’ The
circumstantial evidence supports a finding that Smith was the source of that
information.”5
While Smith was engaging with TransCanada, Skaggs was pushing the Board
toward a sale. In mid-October 2015, Skaggs sent the Board a memorandum in which
he explained that Columbia needed either to raise capital or to find an acquirer with
a strong balance sheet. Skaggs recommended a two-track approach. Along one track,
Columbia would prepare for a stock offering. Along a second track, Columbia would
explore whether blue chip strategic players, including TransCanada, would be
interested in acquiring Columbia “at a price that’s within [Columbia’s] intrinsic value
range.”6 The Board approved Skaggs’s plan during its next annual meeting.
5 Id. at 413 (citations omitted).
6 PTO ¶ 195.
8
As part of the Board-approved strategy, Skaggs contacted Dominion on
October 26, 2015. He explained that Columbia soon would be pursuing an equity
offering and that if Dominion still had interest, they should move quickly.
On the evening of October 26, 2015, Smith had dinner with Poirier, and Poirier
described TransCanada’s interest in Columbia. After the meeting, Smith informed
other Columbia executives, including Skaggs, of TransCanada’s interest.
On October 29, 2015, the Board met telephonically. Skaggs reported on his
discussion with Dominion, and Smith reported on TransCanada’s approach.
Management recommended engaging with Dominion on the theory that Dominion
could pay a higher price. The Board instructed management to engage with
TransCanada if Dominion did not make an attractive proposal. The Board decided
Columbia would pursue an equity offering unless a potential buyer offered at least
$28 per share.
D. The November Sales Process
In November 2015, Skaggs and the management team conducted a haphazard
sales process. On November 2, Skaggs met with Dominion and offered exclusivity in
return for a bid of $28 per share. Dominion countered by suggesting an equity
investment or a three-way merger-of-equals that would include NextEra.
Smith contacted Poirier and offered to enter into an NDA and provide non-
public information. On November 9, 2015, they executed an NDA that contained a
don’t-ask-don’t-waive standstill (the “Standstill”). TransCanada focused on the
Standstill during negotiations of the NDA and secured a reduction in its length from
eighteen months to twelve months.
9
The NDA designated Smith as TransCanada’s principal contact. That turned
out to be a recipe for disaster, because Smith was a team player who was fully
transparent and lacking in guile or artifice. While those traits are highly desirable in
a CFO, they proved to be liabilities for an M&A neophyte who was thrust onto the
front lines of a high-stakes negotiation that affected him personally. TransCanada
repeatedly took advantage of Smith’s earnestness, inexperience, and desire for a deal.
Columbia also entered into NDAs with NextEra and Berkshire. Each NDA
contained a don’t-ask-don’t-waive standstill. Over the following weeks, Columbia
provided due diligence to Dominion, NextEra, TransCanada, and Berkshire. Each
bidder received a management presentation.
Skaggs and Smith preferred a deal with either Berkshire or TransCanada. To
tilt the process in their direction, they invited Berkshire to make a bid by November
24. They gave a similar message to TransCanada. Both Berkshire and TransCanada
understood that if Columbia did not receive a satisfactory bid, then the Board would
move forward with an equity offering. Skaggs and Smith did not contact NextEra,
Dominion, or Spectra, so they did not know about the deadline.
Both Berkshire and TransCanada made proposals. During the Board meeting
on November 25, 2015, Skaggs described the two proposals and reported that
Dominion, NextEra, or Spectra had not submitted anything. That was technically
true, but Skaggs failed to mention that no one told Dominion, NextEra, or Spectra
about the November 24 deadline, so none of them had any reason to bid. “Skaggs was
a good communicator, and the directors felt that he kept them well informed. But
10
Skaggs also knew how to take advantage of their confidence by selectively omitting
information or adding his own spin.”7
The Board decided the proposals were too low to pursue. After the meeting,
Columbia sent “pencils down” letters to Dominion, NextEra, Berkshire, and
TransCanada. The letters emphasized that the standstills were still in effect.
E. TransCanada Repeatedly Breaches The Standstill.
After the “pencils down” letters, the sales process should have ended. But
TransCanada pressed on, and Skaggs and Smith obliged.
1. TransCanada Continues To Engage.
The Standstill prevented TransCanada from initiating conversations with
Columbia about a potential transaction. Once the November sales process concluded,
TransCanada could not approach Skaggs or Smith without an invite. But
TransCanada repeatedly crossed the boundary it had committed to respect.
The same day as the “pencils down” letter, Poirier called Smith for additional
color on the Board’s decision. Smith told Poirier that management “probably” would
want to pick up merger talks again “in a few months.”8 Smith also told Poirier that
he presumed TransCanada did not want Columbia to raise additional capital through
a drop-down transaction before TransCanada could complete an acquisition, and he
suggested the next drop-down would take place in the March to June timeframe.
7 Liability Decision, 299 A.3d at 416.
8 Id. at 417.
11
Smith’s comments signaled that management wanted a deal and gave TransCanada
a timeline. The Board did not authorize Smith to give Poirier that information. None
of the other bidders violated their standstills, so none of them received similar
information.
After the market closed on December 1, 2015, Columbia announced an
underwritten public equity offering. On December 2, TransCanada’s CEO called
Skaggs and Fornell called Smith twice, using the offering as an excuse for touching
base about a potential transaction. Those calls violated the Standstill.
On December 8, 2015, Skaggs and Smith attended an energy conference that
Wells Fargo organized. During the conference, Fornell met with Skaggs and Smith
and used the meeting to follow up about a potential transaction. The meeting violated
the Standstill.
On December 17, 2015, Poirier called Smith to reiterate TransCanada’s
interest in a deal. Poirier indicated that TransCanada would be willing to pay around
$28 per share. During the call, Poirier proposed that he and Smith meet during the
first week of January. The call violated the Standstill.
Smith told Skaggs about Poirier’s outreach, and Skaggs shared the information
with Matt Gibson, the lead banker for Goldman. The next day, Gibson reported to his
team that TransCanada remained quite interested in a deal, that Smith would meet
with TransCanada during the first week of January, and that TransCanada had
indicated that they could pay $28 per share.
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2. Skaggs Primes The Directors For A Deal.
The potential for an offer at $28 per share inspired Skaggs to begin priming
the Board to support a sale. He worked with Goldman to prepare a pitch deck to
present to the Board at its next meeting on January 28–29, 2016. He also scheduled
separate one-on-one meetings with individual directors.
There can be good reasons for a CEO to engage in one-on-one conversations
with directors, but the practice invariably enhances the CEO’s ability to curate the
information each director receives and guide each director toward the CEO’s
preferred result. During one-on-one conversations, directors cannot benefit from
hearing the questions that other directors ask, nor can they deliberate and share
ideas. Skaggs used the one-on-one meetings to prepare the directors to support a sale.
During the meetings, Skaggs reminded the directors that he hoped to retire on
July 1, 2016—just eight months away. That boosted the case for a sale, because
otherwise the Board would need to find a new CEO, and a CEO transition is a
significant undertaking that always carries risk. Compared to finding, hiring, and
working with a brand-new CEO, and against the backdrop of a business plan that
Skaggs was saying incorporated significant amounts of execution risk, a sale of
Columbia would seem like an attractive option.
3. The January 7 Meeting
On January 4, 2016, Poirier called and texted with Smith in anticipation of an
in-person meeting on January 7 (the “January 7 Meeting”). Poirier asked Smith to
send him a package of confidential information so he could prepare for the January 7
Meeting. Poirier’s calls and texts breached the Standstill.
13
On January 5, 2016, Smith emailed 190 pages of confidential information to
Poirier. The materials were largely a copy of what bidders had received in November
2015, but with updated financial projections. Smith did not obtain Board approval
before sending this information to Poirier.
In preparation for the January 7 Meeting, Goldman drafted a one-page list of
talking points for Smith to use. Skaggs approved them.
The January 7 Meeting took place as planned. The meeting began with Poirier
going through his own set of talking points, culminating with a statement that
TransCanada remained interested in an all-cash deal to acquire Columbia at $28 per
share.
Then it was Smith’s turn. He started going through his talking points, but after
reading a few, he literally pushed the page across the table and gave it to Poirier.
That was atypical for an M&A negotiator, and it telegraphed to Poirier that Smith
was inexperienced and would be an open book.
During the conversation, Smith shared information freely. Poirier asked Smith
if there was a gap between the Board and management about selling, as
TransCanada suspected. Smith said there was, but there was a consensus on selling
at the right price.
After the January 7 Meeting, Poirier and Smith scheduled a daily call.
Between January 7 and January 13, 2016, they spoke almost every day. Each of those
calls violated the Standstill.
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4. Skaggs Continues Priming The Directors.
On January 11, 2016, Skaggs sent emails to the three directors with whom he
had already met to update them on management’s engagement with TransCanada.
Skaggs said he would share the same information verbally with the other directors
in upcoming one-on-one meetings.
Skaggs provided some details about what Poirier had said during the January
7 Meeting, but he omitted any mention of the many interactions with TransCanada
that had led up to the meeting. The email was another example of Skaggs’s skill at
manipulating the flow of information. “This time Skaggs flatly misrepresented what
he and Smith had been doing to engineer a sale.”9
Smith opened a data room so that TransCanada could begin due diligence. The
Board did not authorize that step. While reviewing the information in the data room,
TransCanada focused on the size of the change-in-control payments that Skaggs and
Smith would receive.
5. The January 25 Proposals
Based on his repeated interactions with Skaggs and Smith, Poirier knew that
Skaggs wanted an expression of interest before the two-day board meeting that would
begin on January 28, 2016. Smith and Poirier planned for their CEOs to speak on
January 25. Their interaction violated the Standstill.
9 Id. at 425.
15
On January 25, 2016, TransCanada’s CEO contacted Skaggs and expressed
interest in an all-cash acquisition in the range of $25 to $28 per share, subject to
further due diligence. Skaggs responded that Columbia would consider the proposal
and that the Board would push for the top of the range. TransCanada’s expression of
interest violated the Standstill.
The next day, January 26, 2016, Skaggs emailed the directors and told them
that TransCanada’s CEO had called him with an acquisition proposal. Skaggs did not
mention the Standstill, the backchanneling since November 30, 2015, the January 7
Meeting, or the due diligence that TransCanada had been conducting since January
9, 2016.
F. The Late January Board Meeting
The Board convened on January 28–29, 2016, for a regularly scheduled
meeting. Skaggs gave his pitch for a sale, and he described TransCanada’s expression
of interest. He portrayed a deal with TransCanada as the obvious choice.
Skaggs advised the Board that TransCanada’s expression of interest was
sufficiently firm to grant TransCanada exclusivity. Based on that recommendation,
the Board authorized Skaggs to grant TransCanada exclusivity and proceed.
G. The Deal Process Continues.
From January 28 through March 1, 2016, the two management teams marched
toward a transaction. The parties executed an exclusivity agreement on February 1,
2016, that provided for exclusivity until 5:00 p.m., Central Time, on March 2.
During this period, Skaggs and Smith were laser-focused on getting a deal done
fast with TransCanada. On February 9, 2016, Skaggs and Smith met with Fornell to
16
confirm TransCanada could finance its bid. They seemed so eager that Fornell told
Poirier they could be signaling their willingness to support a deal below
TransCanada’s price range.
Poirier also remained in regular contact with Smith. During a call on February
10, 2016, Smith’s talking points called for him to stress that “[i]mportantly, and
unusually for this industry, this opportunity is being presented to [TransCanada] in
a way that is unburdened by the ‘typical’ social issues.” 10 In other words, Smith
emphasized to Poirier that Columbia’s senior executives were happy to leave.
In late February 2016, TransCanada began laying the foundation to lower its
bid. During a call with Skaggs on February 12, TransCanada’s CEO emphasized that
is was difficult to justify the premium implied by a range of $25 to $28 per share.
During a call on February 24, TransCanada’s CEO told Skaggs that TransCanada
needed more time to develop a financing plan for a deal in that range and had to
obtain support from the rating agencies. He also told Skaggs that a deal might not be
achievable in that range. Skaggs did not push back. He asked TransCanada to move
faster.
H. Columbia Extends Exclusivity.
TransCanada’s exclusivity would expire on March 1, 2016. On that date, Smith
and two other senior officers met in person with a TransCanada team to address some
open deal points. During the meeting, the TransCanada team indicated that they
10 Id. at 431 (quoting JTX 715 at 23).
17
were planning to make a bid within Columbia’s range and asked Columbia to extend
exclusivity through March 14. Columbia management recommended extending
exclusivity through March 8, and the Board approved the extension.
On March 3, 2016, Columbia’s general counsel emailed his TransCanada
counterpart to ask if there was anything they needed to do about the Standstill.
TransCanada’s in-house counsel asked the Board to confirm that it consented to
TransCanada making a bid.
When the Board met on March 4, 2016, the directors heard about the Standstill
for the first time. As required by the Standstill, the Board formally authorized
management to request a proposal from TransCanada. The Board also instructed
Skaggs and Smith to waive the standstills in the NDAs with the other potential
bidders as soon as exclusivity with TransCanada expired, before any merger
agreement with TransCanada was signed. With exclusivity set to expire on March 8,
2016, that meant that the waivers for other potential bidders should go out on the
morning of March 9.
I. TransCanada Drops Its Price.
On March 5, 2016, TransCanada dropped its price. Poirier called Smith and
indicated that TransCanada would offer $24 per share. Smith was offended. He
thought he and Poirier were working collaboratively on a deal as partners.
After the call, Smith warned Skaggs. When TransCanada’s CEO called and
made the offer, Skaggs was ready with a strong response.
Later that day, Smith called Poirier and asked TransCanada to increase its
offer before the Board met that evening. Smith told Poirier that TransCanada needed
18
to get to the midpoint of Columbia’s range—$26.50 per share—to get the Board’s
attention. The Board did not authorize Smith to make what was effectively a
counteroffer. In response, TransCanada raised its offer to $25.25.
That evening, the Board met to consider TransCanada’s bid of $25.25 per
share. Skaggs and Smith recommended against it. They wanted to sell, and their
desire to sell had undercut Columbia’s negotiating position, but they were not willing
to sell at any price. They labored under conflicts of interest that interfered with their
ability to push for the final quarter, but they also would not take a terrible deal. The
Board accepted management’s recommendation. After the meeting Skaggs called
TransCanada’s CEO and rejected the offer.
On March 6, 2016, Wells Fargo told Goldman that if Columbia’s management
could support a price below $26.50 per share, then TransCanada might increase its
price above $25.25 per share. After hearing from Goldman, Skaggs and Smith agreed
to support a deal at $26 per share. Skaggs then spoke with one Board member. Based
on that call Skaggs instructed Goldman to tell Wells Fargo that (i) “management had
reached out to Board—and it was important they understand this answer is the
Board’s answer,” and (ii) “[b]ottom line, they’ll do 26. Not a penny less. Straight from
Board.”11 That was not true.
11 Id. at 435 (quoting JTX 885).
19
Smith separately called Poirier. Muddying the waters, Smith asked Poirier to
consider making a bid of $26 per share, noting that the Board had not approved that
price. That was honest, but it conflicted with Goldman’s message to Wells Fargo.
Later that day, TransCanada’s CEO told Skaggs that TransCanada’s
management would consider whether it could support a bid of $26 per share. Only
then did Skaggs report to the Board. Some of the directors were willing to support a
deal at that price. Others thought the number was too low.
J. The $26 Deal
On March 9, 2016, the TransCanada Board met to consider how to respond to
Columbia’s request for $26 per share. The TransCanada Board strongly supported
the deal and unanimously approved an offer at $26 per share, with 90% in cash and
10% in TransCanada stock (the “$26 Offer”).
Poirier called Smith and relayed the $26 Offer. He told Smith that there were
three things that could jeopardize it. One was if the rating agencies did not view the
transaction favorably. The second was if TransCanada’s stock fell below $49 per share
Canadian. The third was if TransCanada’s underwriters would not support the equity
issuance.
After hearing from TransCanada, Skaggs gathered his management team and
outside advisors. They decided they needed to know when the exchange ratio for the
stock component would be set.
Smith called Poirier to ask about the exchange ratio. Poirier told him that
TransCanada needed to fix the exchange ratio before the announcement. Smith tried
20
several times to get Poirier to agree that the exchange ratio would be fixed at closing,
but Poirier refused.
At the end of his call with Poirier, Smith accepted the $26 Offer on behalf of
the management team. From that point on, both sides acted as if they had an
agreement in principle on the terms Poirier had proposed (the “$26 Deal”).
K. The Wall Street Journal Leak
After Smith agreed to the $26 Deal, Skaggs scheduled a meeting of the Board
for the morning of March 10, 2016. Before the Board could meet, the Wall Street
Journal broke a story on discussions between TransCanada and Columbia. The New
York Stock Exchange (“NYSE”) halted trading in Columbia’s stock, and both the
NYSE and the Toronto Stock Exchange halted trading in TransCanada’s stock. Later
that day, TransCanada announced that it was in discussions regarding a potential
transaction with a third party but did not identify the company.
During the Board meeting, Skaggs described the $26 Offer and recommended
that the Board accept it. He did not report that Smith had agreed to it orally on behalf
of the management team.
Skaggs noted that TransCanada’s exclusivity had expired on March 8, 2016,
and TransCanada had not asked for an extension. The Board had instructed the
management team to waive the other bidders’ standstills as soon as exclusivity
expired, but because the management team thought they had a deal with
TransCanada, they had not sent the waiver letters.
After the Board meeting, Smith called Poirier to give him an update. During
the call, Poirier asked that Columbia give TransCanada two weeks of exclusivity.
21
Smith told him that because of the leak, “[t]he [Columbia] board is freaking out and
told the management team to get a deal done with [TransCanada] ‘whatever it
takes.’”12
Smith’s statement struck Fornell as bizarre. After hearing about it from
Poirier, Fornell wrote to his team: “Oddly, the Capricorn team has relayed this info
to Taurus.”13 One of the team members responded, “[t]urmoil provides opportunity.
Taurus would appear to be well positioned.”14 Fornell emailed back: “Yes.”15
The Board was not in fact “freaking out” and had not told management to get
a deal done “whatever it takes.” But that was how Smith understood the situation.
He thought that he and Poirier were working together to get a deal done, and he was
instinctively candid when talking with Poirier. It makes sense that when Poirier
asked for an extension of the exclusivity period, Smith responded that it would not
be a problem because “[t]he [Columbia] board is freaking out” and had told the
management team “to get a deal done.” The directors and Skaggs had shown some
frustration with the pace at which TransCanada was moving, and there undoubtedly
had been more frustration about TransCanada’s rejected offer of $25.25 per share. It
is easy to imagine that after hearing about the $26 Offer, someone on the Board said,
12 Id. at 438 (quoting JTX 952 at 1).
13 Id.
14 Id.
15 Id.
22
in substance, “Let’s get this done.” For his own part, Smith wanted to get a deal done
so he could retire with his change-in-control benefits, and he likely was freaking out
because he had been cast in the part of front-line negotiator for a deal that would
affect him personally. Regardless of the actual words that Smith used, he conveyed
the message that Poirier heard and reported to Fornell.
L. The $25.50 Offer
For TransCanada, Smith’s message and the Wall Street Journal story created
an opening to re-trade the $26 Deal. TransCanada exploited it.
The TransCanada Board met on the morning of March 14, 2016. The first issue
they addressed was whether TransCanada’s underwriters would support the $26
Deal. The underwriters stood by their commitments, and management advised the
Board that the market reacted positively to the acquisition.
Poirier and his colleagues nevertheless saw an opportunity to lower
TransCanada’s bid to $25.50 per share in cash (the “$25.50 Offer”). After the meeting,
Poirier texted Smith to ask if they could speak. When Smith asked what it was about,
Poirier said it was a simple update.
Smith thought both management teams had committed to the $26 Deal, so he
had gone on vacation with his family. Planning to be on the golf course and expecting
the call to be a non-event, he lateraled the call to a colleague.
During the call, Poirier claimed that TransCanada’s underwriters viewed the
stock component as challenging. That was not true. TransCanada’s underwriters had
remained committed to and comfortable with the transaction.
23
Next, Poirier cited TransCanada’s trading price, which he claimed had dropped
below the $49 Canadian price point. That was at least temporarily true, because on
Friday, March 11, 2016, TransCanada’s share price had slipped to $47 Canadian, and
on Monday, March 14, the stock traded around $47 Canadian. But TransCanada
management had told the TransCanada Board that the market supported the
transaction. Although no one knew it on March 14, the stock would begin recovering
the next day, and it crested $49 Canadian on March 16.
After identifying those issues, Poirier sprung the $25.50 Offer. Poirier
pointedly did not say that the $25.50 Offer was best and final, nor that the $26 Deal
was off the table. That was because if Columbia had said no to the $25.50 Offer,
TransCanada would have returned to the $26 Deal. But, as a skilled negotiator,
Poirier did not say that.
Poirier put a short fuse on the $25.50 Offer. He also said that if Columbia did
not accept, then TransCanada planned to issue a press release indicating that
acquisition discussions had terminated. Poirier admitted that he referred to the
issuance of the press release to create a sense of urgency.
A public announcement by TransCanada would have been bad for Columbia.
It could suggest that TransCanada had uncovered problems, turning Columbia into
damaged goods. At the beginning of the sale process, Goldman had warned Skaggs
and Smith that “[a]ny sale process that is public (whether leaked or announced) puts
pressure on board to ‘take’ best price at premium to market that is offered and absent
24
competition may lead to any given bidder trying to push [sic] deal at a lower price.”16
That was the pressure that Poirier sought to create.
The Standstill prohibited TransCanada from threatening to make the parties’
discussions public, but permitted TransCanada to make disclosures required by law.
Confronted with a threat that appeared to violate that commitment, TransCanada
argued that the regulations of the Toronto Stock Exchange required that
TransCanada disclose when discussions terminated.
If the $25.50 Offer had been a best-and-final offer such that TransCanada
intended to break off negotiations if Columbia rejected it, then Poirier’s statement
would have been an accurate description of what TransCanada was obligated to do,
and it would not have violated the Standstill. But TransCanada had not committed
to break off negotiations if Columbia rejected the $25.50 Offer. Poirier’s statement
was a threat intended to pressure Columbia into accepting the $25.50 Offer. That
threat breached the Standstill.
M. Columbia Accepts The $25.50 Offer.
After Poirier’s bombshell, Skaggs caucused with Smith and a colleague about
what to do. They thought about countering at $25.75, reflecting roughly another $100
million in merger consideration.
The Board met on the evening of March 14, 2016. Skaggs reported on the day’s
developments and, according to the minutes, told the directors that “TransCanada’s
16 Id. at 444 (quoting JTX 290 at 1).
25
final proposal was to acquire Columbia at a price of $25.50 per share in cash.”17 In
light of Poirier’s clear testimony about not saying that the $25.50 Offer was best and
final, either Skaggs misinformed the Board or the minutes are wrong.
The meeting minutes note that TransCanada had cited “concerns over
execution risk on TransCanada’s proposed subscription receipts offering and the
deterioration of TransCanada’s stock price” as the reasons for the lowered offer. 18 The
minutes do not reflect any analysis of those reasons. The minutes do not reflect any
discussion of the fact that exclusivity terminated when TransCanada lowered its
offer. The minutes do not reflect discussion of a possible counter at $25.75 per share.
The minutes do not reflect any effort by management to come clean about Smith’s
conversations with Poirier—such as his statement after the leak that the Board was
“freaking out” and wanted to get a deal done with TransCanada “whatever it takes”
or his oral agreement to the $26 Deal. Because no one mentioned those exchanges, no
one discussed how they could have undercut Columbia’s negotiating leverage and
encouraged TransCanada to lower its bid. If the Board had known about that back-
and-forth, then the directors might have disabused TransCanada about the Board’s
eagerness to sell and made a counteroffer.
The meeting concluded with the Board deciding to defer formally responding
to TransCanada until the directors could meet in person on March 16, 2016, to receive
17 Id. (quoting JTX 191 at 16).
18 Id. (quoting JTX 191 at 17).
26
full presentations and fairness opinions from their financial advisors. Pending that
meeting, the Board “authorized management and the Company’s advisors to continue
working with TransCanada in the interim.”19 In the language of an M&A negotiation,
that meant the Board was prepared to accept the deal. That was how Poirier
interpreted it. After the meeting, Skaggs and Smith chartered NetJets flights to bring
each director to Houston in person for the meeting on March 16.
Skaggs and Smith, however, continued to debate whether they should ask for
an additional $0.25 per share. On March 15, 2016, they exchanged text messages with
a colleague about the performance of TransCanada’s stock, which traded above $48
per share. The colleague suggested raising the issue with Poirier and asking for
another $0.25 per share. Skaggs waved him off and dismissed the idea of pushing
Poirier for a higher price.
The Board met in person on March 16, 2016, to consider the proposed merger
agreement. After receiving fairness opinions from Goldman and Lazard, the Board
approved the deal. On March 17, 2016, the parties executed the agreement and plan
of merger (the “Merger Agreement” or “MA”). That same day, Columbia issued a press
release announcing the Merger.
N. The Proxy Statement
On May 17, 2016, Columbia issued its proxy statement for the deal in which
the Board recommended that stockholders approve the Merger (the “Proxy
19 Id.
27
Statement”). Skaggs and Smith each received, reviewed, and commented on the draft
several times. Skaggs signed the Proxy Statement and attested to its accuracy.
Under the Merger Agreement, TransCanada had the right to participate in
drafting the Proxy Statement and to review its contents before Columbia
disseminated it. TransCanada committed to furnish all information about itself that
was required to be included in the Proxy Statement. TransCanada also committed
that none of the information it supplied would contain any untrue statement of
material fact or omit any material fact required to make a statement not misleading.
TransCanada further agreed to inform Columbia if there was any statement in the
Proxy Statement that needed to be corrected to ensure that the Proxy Statement did
not contain any untrue statement of material fact or omit any fact required to be
make the Proxy Statement not misleading.
TransCanada management had the opportunity to review and comment on the
draft Proxy Statement before Columbia transmitted it to its stockholders. After
reviewing a draft, Poirier provided comments TransCanada’s in-house counsel,
including about TransCanada’s communications with Smith and Skaggs. Poirier and
the in-house lawyer then consulted with TransCanada’s CEO, who told them not to
worry about the Proxy Statement. In his words, “I am not that worried about it, it is
their document.”20 He knowingly disregarded TransCanada’s disclosure obligation.
20 Id. at 448 (quoting JTX 1210).
28
In advance of the meeting of stockholders, a handful of stockholder plaintiffs
filed lawsuits seeking additional disclosure. Columbia and TransCanada added
language to the Proxy Statement to moot their claims.
On June 22, 2016, Columbia held a special meeting of stockholders to vote on
the Merger Agreement. Holders of 73.9% of the outstanding shares voted in favor of
the deal.
The Merger closed on July 1, 2016. Skaggs and Smith retired days later. Based
on the deal price of $25.50 per share, Skaggs received retirement benefits of $26.84
million—$17.9 million more than he would have received without a transaction.
Smith received $10.89 million—$7.5 million more than he would have received
otherwise.
O. More Deal-Related Litigation
The Merger gave rise to a procession of post-closing litigation. It began with a
consolidated fiduciary duty action filed in this court by different stockholder
plaintiffs. Their hastily filed complaint did not survive pleading-stage review. Other
former stockholders perfected their appraisal rights and petitioned for appraisal (the
“Appraisal Action”). As the Appraisal Action was moving towards trial, the current
stockholder plaintiffs brought this action and sought to consolidate the two lawsuits
for purposes of trial. TransCanada successfully opposed that effort. After the
conclusion of the Appraisal Action, the plaintiffs in this action amended their
complaint and pressed forward.
29
P. The Settlement
On March 2, 2022, the plaintiffs reached a settlement with Skaggs and Smith
(the “Settlement”). In return for global releases, Skaggs and Smith agreed to have
$79 million paid to the class. The Settlement foreclosed TransCanada’s ability to seek
contribution from Skaggs or Smith.
On June 1, 2022, the court conducted a hearing on the fairness of the
Settlement. The court approved the Settlement and entered an order dismissing the
claims against Skaggs and Smith.
Q. The Liability Decision
Trial in the action took place from July 18–22, 2022. After post-trial briefing
and argument, the court issued the Liability Decision on June 30, 2023.
The Liability Decision held that Skaggs and Smith breached their duty of
loyalty when pursuing a sale of Columbia because they sought a transaction that
would trigger their change-in-control benefits and enable them to retire in 2016, as
they wanted to do.21 That conflict of interest led them to take actions that fell outside
the range of reasonableness.22 The Liability Decision also held that Skaggs and Smith
breached their fiduciary duty of disclosure because the Proxy Statement contained
seven material misstatements or omissions.23
21 Id. at 406, 460–69.
22 Id. at 464–68.
23 Id. at 408, 483, 485–87.
30
For the Sales Process Claim, the Liability Decision held that the class suffered
damages of $1 per share.24 That amount comprised (i) $0.50 for the delta between the
$26 Deal and the $25.50 in consideration the class received in the Merger, plus (ii)
$0.50 representing the increase in value of TransCanada stock that would have been
a component of the $26 Deal.25 The Liability Decision held that the class suffered non-
cumulative damages of $0.50 per share for Disclosure Claim.26
The court instructed the parties to work on a form of final judgment that would
bring the case to a close at the trial level. 27 TransCanada announced publicly that it
would appeal.
II. LEGAL ANALYSIS
This decision must answer three questions:
• How much of a settlement credit does TransCanada receive under DUCATA?
• Can the members of the class who sought appraisal recover damages for the
Disclosure Claim?
• Should prejudgment interest be tolled?
A. The Settlement Credit
DUCATA governs what happens when a plaintiff recovers damages after
previously releasing some but not all joint tortfeasors. Section 6304(b) provides:
24 Id. at 408, 481–82.
25 Id.
26 Id. at 409, 489–94.
27 Id. at 500.
31
A release by the injured person of 1 joint tortfeasor does not relieve the
1 joint tortfeasor from liability to make contribution to another joint
tortfeasor unless the release is given before the right of the other
tortfeasor to secure a money judgment for contribution has accrued, and
provides for a reduction, to the extent of the pro rata share of the
released tortfeasor, of the injured person’s damages recoverable against
all the other tortfeasors.28
Under this provision, a settlement with one of several joint tortfeasors “can grant the
joint tortfeasor complete peace, including from claims for contribution, but only if the
plaintiff agrees to reduce the amount of damages it can recover from the remaining
joint tortfeasors” by either the greater of the settlement amount or the released
tortfeasors’ share of liability.29
Here, the Settlement contained language that tracked Section 6304(b).30 Thus,
if Skaggs and Smith are joint tortfeasors, then TransCanada is entitled to a
settlement credit equal to the greater of $79 million or their pro rata share of liability.
The plaintiffs do not dispute that Skaggs and Smith were joint tortfeasors. And
with good reason. The Liability Decision could not have imposed liability on
TransCanada for aiding and abetting Skaggs and Smith’s breaches of fiduciary duty
if Skaggs and Smith had not breached their fiduciary duties. But for the Settlement,
Skaggs and Smith would have been liable to the class, satisfying the joint tortfeasor
requirement.
28 10 Del. C. § 6304(b).
29 In re Rural/Metro Corp. S’holders Litig. (Rural II), 102 A.3d 205, 223 (Del. Ch.
2014), aff’d sub nom. RBC Cap. Mkts., LLC v. Jervis, 129 A.3d 816 (Del. 2015).
30 Dkt. 323, § 3.4.
32
1. Unclean Hands
As a threshold argument, the plaintiffs contend that the court need not
determine what would be a proportionate allocation of responsibility because the
doctrine of unclean hands prevents TransCanada from receiving any credit
whatsoever. “Equitable considerations can provide a discretionary basis for a court to
deny contribution, because DUCATA ‘was intended to apply equitable considerations
in the relationships of injured parties and tortfeasors.’”31
Under the doctrine of unclean hands, “a litigant who engages in reprehensible
conduct in relation to the matter in controversy forfeits his right to have the court
hear his claim, regardless of its merit.”32 The doctrine
is aimed at providing courts of equity with a shield from the potentially
entangling misdeeds of the litigants in any given case. The Court
invokes the doctrine when faced with a litigant whose acts threaten to
tarnish the Court’s good name. In effect, the Court refuses to consider
requests for equitable relief in circumstances where the litigant’s own
acts offend the very sense of equity to which [the litigant] appeals.33
“The court has broad authority to consider unclean hands; it is ‘not bound by formula
or restrained by any limitation that tends to trammel the free and just exercise of
discretion.’”34
31 Rural II, 102 A.3d at 237 (quoting Farrall v. A.C. & S. Co., Inc., 586 A.2d 662, 664
(Del. Super.1990)).
32 Portnoy v. Cryo-Cell Int’l, Inc., 940 A.2d 43, 80–81 (Del. Ch. 2008) (cleaned up).
33 Nakahara v. NS 1991 Am. Trust, 718 A.2d 518, 522 (Del.Ch.1998).
34 Texas Pac. Land Corp. v. Horizon Kinetics LLC, 306 A.3d 530, 568 (Del. Ch. Dec. 1,
2023) (quoting Nakahara, 718 A.2d at 522–23), aff’d, ---A.3d---, 2024 WL 763616 (Del. Feb.
26, 2024).
33
The unclean hands doctrine is not a license for a party to invoke anything
distasteful about an opposing party that the party might be able to identify. “The
court is not an avenger of wrongs committed at large.”35 “[F]or the unclean hands
doctrine to apply, the inequitable conduct must have an immediate and necessary
relation to the claims under which relief is sought.”36 For purposes of DUCATA, an
unclean hands defense must turn on the conduct of the party seeking contribution or
a settlement credit, not that party’s conduct towards the underlying plaintiff.37
Here, the conduct that gave rise to TransCanada’s liability consisted in large
measure of interactions between TransCanada and Skaggs and Smith. That course
of conduct culminated in TransCanada double crossing Skaggs and Smith by
“reneging on the $26 Deal, making the $25.50 Offer, and adding a coercive threat that
violated the NDA.”38 The plaintiffs view TransCanada’s actions as knowingly
wrongful conduct “aimed directly at the other joint tortfeasors [that] directly led to
the damage suffered by the class.”39 TransCanada, of course, disagrees.
Both sides rely on Rural II. There, stockholder plaintiffs sued sell-side
directors for breaching their fiduciary duties in connection with a merger and an
35 Rural II, 102 A.3d at 238 (cleaned up).
36 Id. at 237–38 (cleaned up).
37 Id. at 237.
38 Liability Decision, 299 A.3d at 478.
39 Dkt. 495 at 27.
34
associated proxy statement. They also asserted claims for aiding and abetting against
two sell-side financial advisors. The director defendants and one of the financial
advisors settled before trial, leaving only a claim for aiding and abetting against the
second financial advisor. After trial, the court held the sell-side advisor liable for
aiding and abetting.40 The court cited a series of actions by the advisor, including (i)
helping a director put the company in play without board authorization,41 (ii)
structuring the sale process to help the advisor maximize its share of financing fees,42
(iii) tipping the buyer about the directors’ views on price, (iv) creating an
“informational vacuum” by failing to provide the board with valuation information,
(v) priming the directors to support the proposed deal, and (vi) creating a misleading
board presentation designed to induce the directors to approve the deal.43
The advisor sought a settlement credit based on the extent to which the advisor
could have obtained contribution from the directors who settled. The court held that
the doctrine of unclean hands prevented the advisor from obtaining contribution on
any issue where the advisor misled the directors.44 The court explained that “[i]f [the
advisor] were permitted to seek contribution for these claims from the directors, then
40 In re Rural Metro Corp. (Rural I), 88 A.3d 54, 63 (Del. Ch. 2014), aff’d sub. nom.
RBC Cap. Mkts., v. Jervis, 129 A.3d 816 (Del. 2015).
41 Id. at 91.
42 Id.
43 Id. at 95–97.
44 Rural II, 102 A.2d at 239.
35
[the advisor] would be taking advantage of the targets of its own misconduct.”45 The
court noted that “[i]t would run contrary to the full protection contemplated by
Section 141(e) if [the advisor] could assert a claim for contribution back against the
directors who relied on the false and materially incomplete information that [the
advisor] provided.”46
The plaintiffs analogize the current case to Rural II, contending that
TransCanada similarly misled Skaggs and Smith, particularly during the final phase
of the negotiations when TransCanada lowered its bid. But the current case is
different. In Rural II, the court applied the doctrine of unclean hands where a
financial advisor that the directors hired to fulfill a trusted role misled its clients. In
this case, the officers and TransCanada were on opposite sides of the deal. As a third-
party acquirer, TransCanada was permitted far greater freedom of action than a sell-
side financial advisor, and TransCanada had the ability to act in its own self-interest.
This was obviously not a case where Skaggs and Smith had retained TransCanada to
advise them on the deal, nor was TransCanada operating in any type of trusted role.
TransCanada’s actions became problematic despite its status as a third-party
acquiror because TransCanada agreed in the Standstill that certain conduct was off-
limits. TransCanada then spent months transgressing the contractually agreed-upon
boundary, establishing a relationship with Skaggs and Smith, obtaining confidential
45 Id.
46 Id.
36
information from Skaggs and Smith, and gaining an advantage over any other bidder.
In the final double-cross, TransCanada again transgressed a contractually agreed-
upon boundary by lowering its bid and threatening to publicly terminate discussions
if Columbia did not accept. TransCanada was able to engage in that contractually
prohibited conduct and take advantage of Skaggs and Smith because TransCanada
perceived that Skaggs and Smith were conflicted fiduciaries who wanted to sell and
retire. TransCanada’s conduct rose to the level of knowing participation because
TransCanada repeatedly violated the limits it had agreed to respect, knowing it could
do so because of Skaggs and Smith’s disloyalty.
While sufficient to support a finding of liability against TransCanada, that
conduct is not sufficiently comparable to the financial adviser’s violation of the
board’s trust in Rural II. This is not a situation where the doctrine of unclean hands
calls for putting 100% of the responsibility on TransCanada. Rather, it is a situation
where DUCATA calls for a careful weighing of responsibility to determine an
appropriate settlement credit.
2. The Proportionate Allocation Of Responsibility
DUCATA contemplates that each joint tortfeasor will bear its proportionate
share of responsibility, either through contribution or a settlement credit against the
remaining joint tortfeasor’s liability. The default method is to divide the damages
equally among all joint tortfeasors. But “[w]hen there is such a disproportion of fault
among joint tortfeasors as to render inequitable an equal distribution among them of
the common liability by contribution, the relative degrees of fault of the joint
37
tortfeasors shall be considered in determining their pro rata shares.”47 Delaware
cases sometimes use the term “pro rata” to mean equal, but DUCATA uses that term
to mean “proportionate.”48 “Consequently, if fault among joint tortfeasors is found to
be disproportionate, the pro rata share of those tortfeasors is determined by reference
to their relative degrees of fault.”49
An equal allocation of fault would result in a one-third allocation to
TransCanada, a one-third allocation to Skaggs, and a one-third allocation to Smith.
TransCanada maintains it should bear proportionately less responsibility. The
plaintiffs maintain TransCanada should bear proportionately more liability. This
decision holds TransCanada responsible for 50% of the liability for the Sale Process
Claim and 42% of the liability for the Disclosure Claim.
a. TransCanada’s Argument That A Fiduciary Breach Is
More Culpable Than A Contractual Breach
TransCanada argues for pinning the bulk of the blame on Skaggs and Smith
based on their status as fiduciaries. According to TransCanada, that means they owed
the primary obligations to the corporation and its stockholders. TransCanada
portrays its own obligations as merely contractual and secondary. In substance,
TransCanada argues that fiduciary duties are more important than contractual
47 10 Del. C. § 6302(d).
48 RBC, 129 A.3d at 870 (quoting Rural II, 102 A.3d at 261).
49 Rural II, 102 A.3d at 261 (cleaned up).
38
commitments, such that breaches of fiduciary duty are more culpable than breaches
of contract.
For starters, TransCanada’s argument misconstrues why it was held liable.
TransCanada was not held liable for breaching a contract. TransCanada was held
liable for knowingly participating in breaches of fiduciary duty by Skaggs and Smith.
TransCanada knew that Skaggs and Smith were conflicted fiduciaries who wanted to
sell their company, trigger their change-in-control benefits, and retire. TransCanada
also knew that Smith’s fatal cocktail of candor, naïveté, and eagerness for a deal
meant that Poirier could strip-mine him for information.
But TransCanada was a third-party bidder, and in an arm’s length negotiation
between notionally sophisticated parties, it can be difficult to identify the limits on
what goes too far (short of fraud). In the Standstill, TransCanada agreed on
particular actions that were off limits. Yet TransCanada repeatedly transgressed
those boundaries, and it was through those violations that TransCanada took
advantage of Skaggs and Smith. Through the Standstill, TransCanada drew the lines
itself, then persistently crossed them. TransCanada was guilty of knowing
participation in breaches of fiduciary duty, not breaches of contract.
But even accepting TransCanada’s framing, Delaware law does not regard a
contractual breach as less culpable than a fiduciary breach. “The courts of this State
hold freedom of contract in high—some might say, reverential—regard. Only a strong
showing that dishonoring a contract is required to vindicate a public policy interest
even stronger than freedom of contract will induce our courts to ignore unambiguous
39
contractual undertakings.”50 Under Delaware law, fiduciary duties do not trump
contracts. Instead, contractual commitments trump fiduciary duties.
i. Van Gorkom
Delaware’s prioritization of contract over fiduciary duty has a nearly forty year
pedigree. In 1985, the Delaware Supreme Court squarely addressed the relationship
between fiduciary duties and contractual obligations in Van Gorkom,51 holding that
the former could not override the latter.
In that famous case, a stockholder contended that the directors of Trans Union
Corporation breached their fiduciary duties by approving a merger agreement
without adequate knowledge of the corporation’s alternatives. The directors argued
that they acted properly because they had the right to accept a better offer at any
50 Cantor Fitzgerald, L.P. v. Ainslie, --- A.3d ---, ---, 2024 WL 315193, at *1 (Del. Jan.
29, 2024) (cleaned up).
51 Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985). This opinion omits Van Gorkom’s
subsequent history, which is convoluted and potentially misleading. Strict rules of citation
call for identifying Van Gorkom as having been overruled in part by Gantler v. Stephens, 965
A.2d 695 (Del. 2009). That case responded to Van Gorkom’s loose use of the term “ratification”
to refer to the effect of an organic stockholder vote contemplated by the DGCL. The Gantler
decision limited the use of the term “ratification” to its “classic” sense, namely situations
where one decision-maker has made a decision unilaterally. Id. at 713. Other than that
narrow point of terminology, Gantler did not overrule Van Gorkom at all. Unfortunately,
Gantler’s attempt to correct the terminology used in Van Gorkom created the misimpression
that the case had worked a broader change in Delaware law. Subsequently, the Delaware
Supreme Court confirmed that Gantler did not have that broader implication. See Corwin v.
KKR Fin. Hldgs. LLC, 125 A.3d 304, 311 (Del. 2015). It therefore muddies the waters to cite
Gantler as having overruled Van Gorkom in part, both because Gantler only sought to clarify
a point of terminology and because Corwin subsequently made clear that Gantler did not
“unsettle a long-standing body of case law.” Id.40
time before the stockholder vote.52 The Delaware Supreme Court rejected the concept
of an inherent fiduciary termination right and looked instead at the merger
agreement for language that might have permitted the directors to terminate. The
only possible provision stated:
The Board of Directors shall recommend to the stockholders of Trans
Union that they approve and adopt the Merger Agreement (‘the
stockholders’ approval’) and to use its best efforts to obtain the requisite
votes therefor. [The acquirer] acknowledges that the Trans Union
directors may have a competing fiduciary obligation to shareholders
under certain circumstances.53
The Supreme Court held that “[c]learly, this language on its face cannot be construed
as incorporating . . . either the right to accept a better offer or the right to distribute
proprietary information to third parties.”54 In other words, the rights the directors
claimed to have could not be found in a cryptic acknowledgement of the Trans Union
directors’ “competing fiduciary obligation to shareholders under certain
circumstances.”55 The contract governed.
The directors next argued that they validly amended the merger agreement to
permit a “market test.”56 The Delaware Supreme Court agreed that the amendment
52 Van Gorkom, 488 A.2d at 878.
53 Id. at 879 (quoting merger agreement).
54 Id.
55 Id.
56 Id. at 878.
41
authorized outgoing solicitation, but held that it also eliminated Trans Union’s ability
to terminate the merger agreement to pursue a competing offer:
The most significant change was in the definition of the third-party
“offer” available to Trans Union as a possible basis for withdrawal from
its Merger Agreement with Pritzker. Under the [amendment], a better
offer was no longer sufficient to permit Trans Union’s withdrawal. Trans
Union was now permitted to terminate the Pritzker Agreement and
abandon the merger only if, prior to February 10, 1981, Trans Union had
either consummated a merger (or sale of assets) with a third party or
had entered into a “definitive” merger agreement more favorable than
Pritzker’s and for a greater consideration—subject only to stockholder
approval.57
The Delaware Supreme Court held that the amendment “imposed on Trans Union’s
acceptance of a third party offer conditions more onerous than [before].”58 It “had the
clear effect of locking Trans Union’s Board into the Pritzker Agreement” and
“foreclosed Trans Union’s Board from negotiating any better ‘definitive’ agreement .
. . .”59 Once again, there was no inherent fiduciary ability to escape the contractual
commitment.
Having held that Trans Union continued to be bound by an exclusive merger
agreement with Pritzker, the Delaware Supreme Court turned to the “legal question”
of the options available to the board when the directors met three months later to
ratify their prior decisions. Counsel advised that the directors had “three options: (1)
to ‘continue to recommend’ the Pritzker merger; (2) to ‘recommend that the
57 Id. at 883.
58 Id. at 884.
59 Id.
42
stockholders vote against’ the Pritzker merger; or (3) to take a noncommittal position
on the merger and ‘simply leave the decision to [the] shareholders.”60 The Delaware
Supreme Court emphatically rejected that analysis:
[T]he Board was mistaken as a matter of law regarding its available
courses of action . . . . Options (2) and (3) were not viable or legally
available to the Board under 8 Del. C. § 251(b). The Board could not
remain committed to the Pritzker merger and yet recommend that its
stockholders vote it down; nor could it take a neutral position and
delegate to the stockholders the unadvised decision as to whether to
accept or reject the merger. Under § 251(b), the Board had but two
options: (1) to proceed with the merger and the stockholder meeting,
with the Board’s recommendation of approval; or (2) to rescind its
agreement with Pritzker, withdraw its approval of the merger, and
notify its stockholders that the proposed shareholder meeting was
cancelled.61
The second option, the Delaware Supreme Court stressed, “would have clearly
involved a substantial risk—that the Board would be faced with suit by Pritzker for
breach of contract.”62 Referencing its prior holdings on the lack of any fiduciary
termination right, the justices reiterated that “the Board was not free to turn down
the Pritzker proposal.”63 The notion that the Trans Union board had some free-
standing ability as fiduciaries to terminate the merger agreement was “contrary to
the provisions of § 251(b) and basic principles of contract law . . . .”64
60 Id. at 887–88 (emphasis and alteration in original).
61 Id. at 888.
62 Id.
63 Id. (internal quotation omitted).
64 Id.
43
Van Gorkom thus made clear that if a board did not breach its fiduciary duties
when entering into a merger agreement, then the contract bound the corporation.
Directors did not have an inherent fiduciary right to escape or terminate a merger
agreement that was not the product of a breach of fiduciary duty at the time of
contracting. Decisions issued in the years following Van Gorkom acknowledged those
holdings.65
Consequently, target directors and their counsel began routinely insisting on
a clear and explicit contractual right to explore and, if appropriate, accept a superior
proposal. But for the contractual out, directors who believed themselves obligated by
their fiduciary duties to pursue a different alternative would face precisely the same
dilemma that confronted the Trans Union board. If fiduciary duties could trump
contract rights, then the contractual innovations would not have been necessary.
ii. QVC
Nearly a decade after Van Gorkom, the Delaware Supreme Court’s failure to
acknowledge the implications of that precedent in QVC66 produced a brief tremor of
uncertainty about the relationship between fiduciary duties and contractual
65 See Meyer v. Alco Health Servs. Corp., 1991 WL 5000, at *3 (Del. Ch. Jan. 17, 1991)
(“The Merger Agreement in this case was negotiated at arms-length and approved by the
Special Committee and a disinterested board of directors. In addition, the merger
consideration was determined to be fair by an independent investment adviser. Under these
circumstances, the individual defendants were not free to terminate the Merger Agreement
or rewrite it to provide the guarantee plaintiff desires.”); Corwin v. DeTrey, 1989 WL 146231,
at *4 (Del. Ch. Dec. 4, 1989) (“[T]he directors of the selling corporation are not free to
terminate an otherwise binding merger agreement just because they are fiduciaries and
circumstances have changed.”) (citing Van Gorkom, 488 A.2d at 888).
66 Paramount Commc’ns Inc. v. QVC Network Inc. (QVC), 637 A.2d 34 (Del. 1994).
44
obligations. There, a merger agreement contained a suite of provisions, including a
no-shop clause, that constrained the Paramount board from terminating the
agreement to secure a better deal for the company’s stockholders. 67 Viacom, the
acquirer, responded to a challenge to the no-shop provision by arguing that it
constituted a vested contract right.68 The high court disagreed:
The No-Shop Provision could not validly define or limit the fiduciary
duties of the Paramount directors. To the extent that a contract, or a
provision thereof, purports to require a board to act or not act in such a
fashion as to limit the exercise of fiduciary duties, it is invalid and
unenforceable. Despite the arguments of Paramount and Viacom to the
contrary, the Paramount directors could not contract away their
fiduciary obligations. Since the No–Shop Provision was invalid, Viacom
never had any vested contract rights in the provision.69
The decision as a whole evaluated whether it was reasonably probable that the
Paramount directors breached their fiduciary duties when selling the company.70 The
high court affirmed the trial court’s issuance of a preliminary injunction and
expanded it to encompass the termination fee, which the trial court had not
enjoined.71
If read broadly, the language in QVC to the effect that a contract provision
“could not validly define or limit the fiduciary duties of the Paramount directors”
67 Id. at 39.
68 Id. at 50.
69 Id. at 51 (citation omitted).
70 Id. at 48–50.
71 Id. at 37, 50.
45
might have suggested, contra Van Gorkom, that directors had the ability as
fiduciaries to override contractual obligations (or that a court could invoke the
directors’ fiduciary duties to the same end). Language elsewhere in the opinion
implied that the fiduciary override might come into being because of post-contracting
events. For example, the opinion described the Paramount board as having a
“continuing obligation” which “included the responsibility, [during a post-signing
board meeting] and thereafter, to evaluate critically both the QVC tender offers and
the Paramount–Viacom transaction.”72 The high court also remarked that after the
emergence of the QVC overbid, “[u]nder the circumstances existing at that time, it
should have been clear to the Paramount Board that the Stock Option Agreement,
coupled with the Termination Fee and the No-Shop Clause, were impeding the
realization of the best value reasonably available to the Paramount stockholders.” 73
And in addressing the no-shop clause, the QVC decision distinguished between
whether the provision “could validly have operated here at an early stage” and
whether it could later “prevent the Paramount directors from carrying out their
fiduciary duties in considering unsolicited bids.”74 Likewise, in addressing the stock
option lockup, the Court held that under “[t]he circumstances existing on November
72 Id. at 49 (emphasis added).
73 Id. at 50 (emphasis added).
74 Id. at 49 n.20.
46
15,” the option “had become ‘draconian.’”75 Finally, in responding to the director
defendants’ argument that “they were precluded by certain contractual provisions . .
. from negotiating with QVC or seeking alternatives,” the QVC opinion stated that
“[s]uch provisions . . . may not validly define or limit directors’ fiduciary duties under
Delaware law or prevent the Paramount directors from carrying out their fiduciary
duties under Delaware law.”76
Faced with this language and its apparent tension with Van Gorkom, Delaware
practitioners could not simply distinguish QVC as an enhanced scrutiny case
implicating Revlon. The transaction in Van Gorkom was a cash deal, so if Van Gorkom
had not pre-dated Revlon by sixteen months, enhanced scrutiny under Revlon would
have applied.77 Moreover, the Delaware Supreme Court held in 1989 that Revlon
75 Id. at 50. See also id. at 50 n.21 (finding that the Paramount board breached its
duties by not scheduling and holding an additional board meeting “shortly before the closing
date [of the Viacom tender offer] in order to make a final decision, based on all of the
information and circumstances then existing, whether to exempt Viacom from the Rights
Agreement . . . .”); id. at 51 (“The directors’ initial hope and expectation for a strategic alliance
with Viacom was allowed to dominate their decisionmaking process to the point where the
arsenal of defensive measures established at the outset was perpetuated (not modified or
eliminated) when the situation was dramatically altered.” (emphasis added)).
76 Id. at 48.
77 Indeed, a broad consensus exists that Van Gorkom was not actually a duty of care
case, but rather the Delaware Supreme Court’s initial, albeit unacknowledged enhanced
scrutiny case. In re Dollar Thrifty S’holder Litig., 14 A.3d. 573, 602 (Del. Ch. 2010) (“Van
Gorkom, after all, was really a Revlon case.” (footnotes omitted)); Gagliardi, v. TriFoods Int’l,
Inc., 683 A.2d 1049, 1051 n.4 (Del. Ch. 1996) (Allen, C.) (“I count [Van Gorkom] not as a
‘negligence’ or due care case involving no loyalty issues but as an early, as of its date, not yet
fully rationalized ‘Revlon’ or ‘change of control’ case.”); William T. Allen, Jack B. Jacobs, &
Leo E. Strine, Jr., Realigning The Standard Of Review Of Director Due Care With Delaware
Public Policy: A Critique Of Van Gorkom And Its Progeny As A Standard Of Review Problem,
96 Nw. U. L. Rev. 449, 459 n.39 (2002) (“Van Gorkom and Cede II must also be viewed as
part of the Delaware courts’ effort to grapple with the huge increase in mergers and
47
applied retroactively because the doctrine was “derived from fundamental principles
of corporate law” and “did not produce a seismic shift in the law governing changes
of corporate control.”78
Rather than rising up against the QVC opinion and deriding it as
fundamentally wrong, Delaware commentators stressed the inadequacies of the
Paramount board’s conduct at the time of contracting, cited the statement in the QVC
decision that “[i]t is the nature of the judicial process that we decide only the case
before us,”79 and gave a charitable reading to any contrary language in the decision. 80
acquisition activity in 1980s and the new problems that posed for judicial review of director
conduct. Indeed, if decided consistent with the ‘enhanced scrutiny’ analysis mandated by
Revlon, with its emphasis upon immediate value maximization, rather than as a ‘due care’
case, Van Gorkom would not be viewed as remarkable.” (citation omitted));William T. Allen,
The Corporate Director’s Fiduciary Duty of Care and the Business Judgment Rule Under U.S.
Corporate Law, in COMPARATIVE CORPORATE GOVERNANCE: STATE OF THE ART AND
EMERGING RESEARCH 307, 325 (Klaus J. Hopt et al. eds., 1998) (“In retrospect, [Van Gorkom]
can be best rationalized not as a standard duty of care case, but as the first case in which the
Delaware Supreme Court began to work out its new takeover jurisprudence.”); Bernard Black
& Reinier Kraakman, Delaware’s Takeover Law: The Uncertain Search for Hidden Value, 96
Nw. U. L. Rev. 521, 522 (2002) (“Van Gorkom should be seen not as a business judgment rule
case but as a takeover case that was the harbinger of the then newly emerging Delaware
jurisprudence on friendly and hostile takeovers, which included the almost contemporaneous
Unocal and Revlon decisions.”) Jonathan R. Macey & Geoffrey P. Miller, Trans Union
Reconsidered, 98 Yale L.J. 127, 128 (1988) (“Trans Union is not, at bottom, a business
judgment case. It is a takeover case.”).
78 Barkan v. Amsted Indus., Inc., 567 A.2d 1279, 1286 n.2 (Del. 1989); accord Cede &
Co. v. Cinerama, Inc., 634 A.2d 345, 367 (Del. 1993) (applying enhanced scrutiny under
Revlon, decided in 1986, to a merger that closed in 1982).
79 QVC, 637 A.2d at 51.
80 See, e.g., John F. Johnston & James D. Honaker, Toys “R” Us: An About-Face from
the Deal Protection Jurisprudence that led to Omnicare, 19 Insights, No. 12, 13, 17–18 (Dec.
2005) (describing conflicting language in QVC but stating that “[d]espite the per se rules that
these passages appear to announce . . . , the opinion can be read as holding only that the
failure to adequately shop the company prior to granting the protections at issue required
their invalidation”); R. Franklin Balotti & A. Gilchrist Sparks, III, Deal-Protection Measures
48
The same commentators emphasized the vitality of Van Gorkom, the inability of
fiduciary duties to override contractual obligations, and the continued viability of a
legal framework under which a court measures fiduciary compliance at the time of
contracting, not based on post-contracting events.81 Writing just three years after
and the Merger Recommendation, 96 Nw. U. L. Rev. 467, 471–72 (2002) (“Although the
Delaware Supreme Court’s fiduciary language in QVC could be read to contradict the
freedom-of-contract approach taken in Van Gorkom, commentators have reasoned that
because the QVC could specifically limited its holding to ‘the actual facts before the court,’
the holding is distinguishable from Van Gorkom.” (formatting added) (footnote omitted));
John F. Johnston, A Rubeophobic Delaware Counsel Marks Up Fiduciary–Out Forms: Part
II, 14 Insights, No. 2, 16, 21 n.10, 22 (Feb. 2000) (interpreting QVC as consistent with Van
Gorkom; explaining, “If the board is not properly informed or is otherwise in breach of its
fiduciary duties at the time it agrees to tie its hands, the provision will be invalid and
unenforceable. Hence, the stockholders will be protected. See QVC.”); John F. Johnston &
Frederick H. Alexander, Fiduciary Outs and Exclusive Merger Agreements—Delaware Law
and Practice, 11 Insights No. 2, 15, 18 (Feb. 1997) (“[W]hat the [QVC] court found to be a
breach of fiduciary duty was the perceived inadequacy of the process followed by the board
in conjunction with its entering into a merger agreement with a number of provisions
intended to protect the merger from other offers”).
81 Balotti & Sparks, supra, at 468–69 (“In Smith v. Van Gorkom, the Delaware
Supreme Court established that Delaware law does not give directors, just because they are
fiduciaries, the right to accept better offers, distribute information to potential new bidders,
or change their recommendation with respect to a merger agreement even if circumstances
have changed.” (footnote omitted)); William T. Allen, Understanding Fiduciary Outs: The
What and the Why of an Anomalous Concept, 55 Bus. Law. 653, 654 (2000) (“One of the
holdings of the Delaware Supreme Court in Smith v. Van Gorkom was that corporate
directors have no fiduciary right (as opposed to power) to breach a contract.” (footnotes
omitted)); John F. Johnston, A Rubeophobic Delaware Counsel Marks Up Fiduciary-Out
Forms: Part I, 13 Insights, No. 10, 2, 2 (Nov. 1999) (“[T]he target board’s compliance with its
fiduciary duties [for purposes of the right to accept a superior proposal] will be measured at
the time it enters into the agreement.”); John F. Johnston, Recent Amendments to the Merger
Sections of the DGCL Will Eliminate Some—But Not All—Fiduciary Out Negotiation and
Drafting Issues, 1 Mergers & Acquisitions L. Rep. 20, 777, 778 (July 20, 1998) (BNA) (“[T]here
is . . . no public policy that permits fiduciaries to terminate an otherwise binding agreement
because a better deal has come along, or circumstances have changed.”); id. at 779 (“[I]n
freedom-of-contract jurisdictions like Delaware, the target board will be held to its bargain
(and the bidder will have the benefit of its bargain) only if the initial agreement to limit the
target board’s discretion can withstand scrutiny under applicable fiduciary duty principles”);
Johnston & Alexander, supra, at 15 (explaining that in Van Gorkom, “the Delaware Supreme
Court held that directors of Delaware corporations may not rely on their status as fiduciaries
as a basis for (1) terminating a merger agreement due to changed circumstances, including a
49
QVC, then-Vice Chancellor, later-Justice Jacobs (the author of the trial court opinion
in QVC), stated flatly that “there is no Delaware case that holds that the management
of a Delaware corporation has a fiduciary duty that overrides and, therefore, permits
the corporation to breach, its contractual obligations.”82
iii. Omnicare
Nearly a decade after QVC, the Delaware Supreme Court’s opinion in
Omnicare83 generated another tremor of uncertainty. But even more vigorously than
after QVC, the Delaware legal community responded and removed any doubt about
the continuing vitality of the Van Gorkom regime, thereby rejecting any implication
that fiduciary duties could override contract rights.
In Omnicare, a target board entered into a merger agreement with a force-the-
vote provision and no right to terminate the merger agreement to accept a higher
bid.84 When the board approved the merger agreement, the directors knew that the
company’s two senior officers held high-vote stock carrying a majority of the
better offer; or (2) negotiating with other bidders in order to develop a competing offer.”); A.
Gilchrist Sparks, III, Merger Agreements Under Delaware Law—When Can Directors Change
Their Minds?, 51 U. Miami L. Rev. 815, 817 (1997) (“[Van Gorkom] makes it clear that under
Delaware law there is no implied fiduciary out or trump card permitting a board to terminate
a merger agreement before it is sent to a stockholder vote.”).
82 Halifax Fund, L.P. v. Response USA, Inc., 1997 WL 33173241, at *2 (Del. Ch. May
13, 1997).
83 Omnicare, Inc. v. NCS Healthcare, Inc., 818 A.2d 914 (Del. 2003).
84 Id. at 925–26.
50
outstanding voting power and would be entering into voting agreements with the
buyer that made the merger vote a foregone conclusion.85
After a competing bidder emerged, a class of stockholders challenged the
combination of a force-the-vote provision, no termination right, and majority-voting
power lockups.86 The plaintiffs contended that the combination both constituted a
breach of fiduciary duty and was invalid under Section 141(a).87
The majority opinion agreed on both points. Primarily analyzing the
combination through a fiduciary duty lens, the majority held that the combination of
defense measures was preclusive and therefore failed enhanced scrutiny. 88 In
language suggesting that the equitable fate of contractual provisions could vary based
on circumstances that arose after contracting, the majority stated that the “latitude
a board will have in either maintaining or using the defensive devices it has adopted
to protect the merger it approved will vary according to the degree of benefit or
detriment to the stockholders’ interests that is presented by the value or terms of the
subsequent competing transaction.”89 The majority held that the board needed to
85 Id. at 925.
86 Id. at 919.
87 See id. at 936–37.
88 Id. at 936.
89 Id. at 933.
51
bargain for an effective fiduciary out to ensure that it could continue to fulfill its
fiduciary duties.90
Two justices dissented. Both emphasized the post-signing dimension of the
majority’s equitable analysis. Chief Justice Veasey observed that for the majority to
rely on a subsequent topping bid allowed the outcome to “turn[] on . . . ex post
felicitous results” when a “real-time review of the board action” should have been
outcome determinative.91 The Chief Justice also criticized the majority to the extent
the decision established a per se rule requiring fiduciary outs in merger agreements.92
Advancing a proposition that other critics of the majority decision echoed, the Chief
Justice observed: “Certainty itself has value. The acquirer may pay a higher price for
the target if the acquirer is assured consummation of the transaction. The target
company also benefits . . . because losing an acquirer creates the perception that a
target is damaged goods . . . .”93 Then-Justice, later Chief Justice Steele joined Chief
Justice Veasey’s dissent and wrote separately to stress the importance of contractual
certainty.94
90 Id. at 939.
91 Id. at 940 (Veasey, C.J., dissenting).
92 Id. at 942.
93 Id.
94 Id. at 950 (Steele, J., dissenting).
52
Perceiving the Omnicare majority to have allowed fiduciary duties to override
contract rights, scholars, practitioners, and even judges attacked the decision.95 One
scholar called it “bad law, bad economics, and bad policy.”96 One of the dissenters,
then-Justice Steele, reportedly commented at a continuing legal education event that
“[w]hile I don’t suggest you rip the [Omnicare] pages out of your notebook, I suggest
that there is a possibility, one could argue, that the decision has the life expectancy
of a fruit fly. I would suggest to you that you not read into this case some
revolutionary change in the doctrinal position of Delaware.”97 The other dissenter,
95 See, e.g., Andrew D. Arons, In Defense of Defensive Devices: How Delaware
Discouraged Preventative Measures in Omnicare v. NCS Healthcare, 3 DePaul Bus. & Com.
L.J. 105, 120–21 (2004) (“The [Omnicare] majority’s decision was incorrect because NCS’s
board’s actions did in fact satisfy Delaware law, the majority misapplied the applicable law,
and other jurisdictions lend support against the majority’s holding.”); Eleonora Gerasimchuk,
Stretching the Limits of Deal Protection Devices: From Omnicare to Wachovia, 15 Fordham
J. Corp. & Fin. L. 685, 704 (2010) (“As a matter of policy, the Omnicare majority was correctly
criticized for announcing a per se rule that seemed to exceed the Delaware courts’ traditional
equitable authority and tended toward quasi-legislative lawmaking.”); Wayne O. Hanewicz,
Director Primacy, Omnicare, and the Function of Corporate Law, 71 Tenn. L. Rev. 511, 556–
58 (2004) (describing “problems” with Omnicare and stating it “may well be that [the court]
made the wrong substantive decision [in Omnicare].”); Marcel Kahn & Edward Rock, How to
Prevent Hard Cases From Making Bad Law: Bear Stearns, Delaware, and the Strategic Use
of Comity, 58 Emory L.J. 713, 730 (2009) (“Omnicare is a problematic and widely criticized
opinion.”); Daniel Vinish, The Demise of Clarity in Corporate Takeover Jurisprudence: The
Omnicare v. NCS Healthcare Anomaly, 21 St. John’s J. Legal Comment 311, 312 (2006) (“[In
Omnicare], the Delaware Supreme Court destroyed the prior lucidity in case law governing
corporate directors by holding . . . that an amalgam of stockholder and director action may
be taken into account” in enhanced scrutiny and that a fiduciary out “would now be imposed
on director action.”).
Sean J. Griffith, The Costs and Benefits of Precommitment: An Appraisal of
96
Omnicare v. NCS Healthcare, 29 J. Corp. L. 569, 623 (2004).
97 David Marcus, Cardinals, Fruit Flies and the Mouse, THE DEAL.COM (Dec. 2003),
quoted in Edward B. Micheletti, T. Victor Clark, Recent Developments in Corporate Law, 8
Del. L. Rev. 17, 18 n.4 (2005).
53
Chief Justice Veasey, wrote that “I think most objective observers believe that the
majority decision was simply wrong.”98 Critics repeatedly challenged the majority
decision on the ground that courts should not apply equitable doctrines based on post-
contracting events to override the certainty of contractual commitments.99 The public
reaction quickly turned into a one-sided debate, and it soon smacked of heresy to say
anything positive about the majority decision.100
98E. Norman Veasey & Christine T. Di Guglielmo, What Happened in Delaware
Corporate Law and Governance from 1992–2004? A Retrospective, 153 U. Pa. L. Rev. 1399,
1461 (2005).
99 Griffith, supra, at 615 (“Unfortunately, the majority opinion in Omnicare appears
to take the commodity-value of certainty away from target boards.”); Michael J. Kennedy,
The End of Time? Delaware’s Search for the Fiduciary GUT, 7 No. 5 M & A Law. 21 (Oct.
2003) (“Since Omnicare . . . [targets on the margins] have been robbed of the ability to
promise deal certainty. In each case the outcome will be the same, the bidder will lower its
price to discount for the uncertainty that its deal will not occur and extract more monetary
compensation if that deal does not go through. Neither of these outcomes is wealth-enhancing
for target stockholders.”); Brian C. Smith, Changing the Deal: How Omnicare v. NCS
Healthcare Threatens to Fundamentally Alter the Merger Industry, 73 Miss. L.J. 983, 998
(“Opponents of the decision have already begun to predict that the ruling will increase
uncertainty in the bidding process and reduce the value of merger activity among Delaware
corporations.”); Clifford E. Neimeth & Cathy L. Reese, Locked and Loaded: Delaware
Supreme Court Takes Aim at Deal Certainty, 7 No. 2 M & A Law. 16 (June 2003) (“We believe
that if Omnicare is followed in its most broad sense, the decision may entirely subjugate the
‘real time’ validity and reasonableness of that process to the occurrence of unforeseen (post-
decisional) economic events.”); Thanos Panagopoulos, Thinking Inside the Box: Analyzing
Judicial Scrutiny of Deal Protection Devices in Delaware, 3 Berkeley Bus. L.J. 437, 473 (2006)
(“[B]y taking an ex post approach to enhanced scrutiny . . . the Delaware Supreme Court has
enforced a substantive conclusion that deal protection devices in the change of control
context, and absolute lock-ups in any context, are not in the best interests of stockholders.”);
Troy A. Paredes, The Firm and the Nature of Control: Toward a Theory of Takeover Law, 29
J. Corp. L. 103, 161 (2003) (“[T]he majority’s reasoning [in Omnicare] has a distinct ex post
flavor to it. At bottom, the majority was troubled that the NCS board had pre-committed to
the Genesis merger, in effect precluding the NCS shareholders from accepting a subsequent
superior offer from Omnicare.”).
100It would be interesting to study the reasons why the reactions to QVC and
Omnicare differed so dramatically. There are striking similarities between the decisions.
Both conflicted with Van Gorkom by seemingly emphasizing the fiduciary obligations of
54
Writing for a symposium organized for the decadal anniversary of the decision,
I cautiously suggested that “like people, problems, and broken hearts, Omnicare isn’t
directors over vested contract rights. Both used similar language about the implications of
post-contracting events for the fiduciary analysis. Both enjoined aspects of an incumbent
merger agreement in favor of a topping bidder.
But there are also notable differences. In terms of deal outcomes, the incumbent
bidder (Viacom) eventually prevailed in QVC, albeit at a higher price. The incumbent bidder
(Genesis) lost out to the overbidder in Omnicare. In terms of court dynamics, the QVC
decision was a unanimous panel decision from the Delaware Supreme Court that affirmed
the Chancery Court’s grant of an injunction, so there was no contrary judicial view. Omnicare
was a 3-2 decision by the Delaware Supreme Court that reversed the Chancery Court’s denial
of an injunction, so there was built in judicial opposition to the result. And the opposition was
vocal. The dissenters continued to criticize the decision, and members of the Court of
Chancery came to the defense of their colleague. E.g., Sample v. Morgan, 914 A.2d 647, 672
n. 79 (Del. Ch. 2007) (describing Omnicare as “controversial” and citing the “two well-
reasoned dissents.”) In re Toys “R” Us, Inc. S’holder Litig., 877 A.2d 975, 1016 n.68 (Del. Ch.
2005) (describing Omnicare as “aberrational”); Leo E. Strine, Jr., If Corporate Action Is
Lawful, Presumably There Are Circumstances in Which It Is Equitable to Take That Action:
The Implicit Corollary to the Rule of Schnell v. Chris-Craft, 60 Bus. Law. 877, 897–903 (2005)
(describing the Court of Chancery decision as “a classic example of the Delaware corporate
law model” and criticizing the Omnicare majority opinion). In terms of litigants, the principal
plaintiff in QVC was the hostile bidder, represented by major New York and Delaware firms
with substantial defense-side practices (Wachtell Lipton Rosen & Katz and Young Conaway
Stargatt & Taylor), and that dynamic may have given the pro-plaintiff ruling legitimacy in
the eyes of the defense bar. In Omnicare, the Chancery Court held that the bidder lacked
standing to sue, which relegated the bidder to the sidelines. Members of the traditional
plaintiffs’ bar had filed a tag-along action, and they became the face of the case, even though
the bidder participated in the appeal.
Finally, from a broader societal perspective, perhaps by 2003 we were further along
in our cultural evolution towards more contentious and confrontational modes of interacting.
The intervening decade had witnessed increasing political polarization and degraded public
discourse surrounding the impeachment of President Bill Clinton and the election of
President George W. Bush. Meanwhile, online activity increased by an order of magnitude,
growing from only 10 million users in 1994 to 126 million in 2003. Compare A short history
of the web, CERN, https://home.cern/science/computing/birth-web/short-history, with
Mary Madden and Lee Rainie, America’s Online Pursuits, PEW RESEARCH CENTER (Dec. 22,
2003) https://www.pewresearch.org/internet/2003/12/22/americas-online-pursuits.
Doubtless other factors could have contributed as well.
55
all bad.”101 First, under the heading “Good Doctrine,” I observed that “Omnicare made
at least one substantial and valuable contribution to Delaware law: it confirmed that
enhanced scrutiny applies to deal protections in a negotiated acquisition, regardless
of the form of consideration.”102 Second, under the heading “Good Doctrine, Bad
Application,” I commented that the decision “appropriately separated the issues of
‘coercion’ and ‘preclusion’ [under enhanced scrutiny] from the overarching inquiry
into ‘reasonableness.’”103 But while I agreed with the doctrinal framework, I
disagreed with the application of those principles to the facts.104 Finally, under the
heading “Good Policy,” I also argued that Omnicare reached an optimal result by
establishing a pre-commitment rule for directors that limited a board’s ability to
preemptively lock up a deal.105
Where I concurred with the critics, albeit not so vehemently, was on the topic
of “Directors As Soothsayers.”106 I agreed that the Omnicare majority used language
that appeared to suggest that whether directors breached their fiduciary duties when
entering into a merger agreement will depend on how events subsequently unfold,
101 J. Travis Laster, Omnicare’s Silver Lining, 38 J. Corp. L. 795, 796 (2013).
102 Id. at 804.
103 Id. at 811.
104 Id. at 811–18.
105 Id. at 827–33.
106 Id. at 813.
56
but I argued for giving the majority the benefit of the doubt and integrating that
aspect of the opinion into existing Delaware law using the same techniques applied
to QVC. I pointed out that like QVC,
Omnicare did not expressly overrule any of the Delaware precedents
that require a court to review director action as of the time the directors
made their decision and based on circumstances then existing. Nor did
Omnicare expressly overrule any of the Delaware precedents, which
hold that if directors validly approve a contract, then that contract will
be enforced. As a judge who inevitably makes errors in his written work,
I have a vested interest in the charitable reading of opinions. Taking
Omnicare as a whole, and giving the opinion a charitable reading, the
majority did not attempt to change the point in time at which directors’
decisions are measured for compliance with their fiduciary duties.107
I explained that under the traditional Van Gorkom framework, “if a board does not
breach its fiduciary duties at the time it enters into a contract, the contract is binding
on the board and the corporation[, and] . . . events that arise after the board made its
decision cannot provide a basis for attacking the decision retrospectively.”108
iv. The Post-Omnicare World
Post-Omnicare decisions have established definitively that neither QVC nor
Omnicare changed the time when fiduciary compliance is measured, nor did either
decision give Delaware judges the ability to invoke directors’ fiduciary obligations to
override contracts based on post-signing events.109 For example, in Hokanson v.
107 Id. at 818–19.
108 Id. at 819.
109 E.g., C & J Energy Servs., Inc. v. Miami Gen. Empls.’, 107 A.3d 1049, 1072 (Del.
2014) (instructing trial courts not to divest third parties of their contract rights absent a
sufficient showing that the contract resulted from a fiduciary breach at the time of execution
and that the counterparty aided and abetted the breach); Frederick Hsu Living Tr. v. ODN
57
Petty,110 a board of directors entered into a securities purchase agreement under
which the buyer acquired preferred stock in the corporation and was granted the right
to force the corporation into a future go-private transaction at a price determined by
a contractual formula.111 The agreement left the form of the go-private transaction to
the buyer’s “sole discretion.”112 The board granted the buyer that right in 2003, and
in 2007, the buyer exercised it and specified that the acquisition would take place via
Hldg. Corp., 2017 WL 1437308, at *23 (Del. Ch. Apr. 14, 2017) (“[T]he fiduciary status of
directors does not give them Houdini-like powers to escape from valid contracts.”) (collecting
authorities); WaveDivision Hldgs., LLC v. Millennium Digital Sys., L.L.C., 2010 WL 3706624,
at *17 (Del. Ch. June 18, 2010) (“[D]espite the existence of some admittedly odd authority on
the subject, it remains the case that Delaware entities are free to enter into binding contracts
. . . so long as there was no breach of fiduciary duty involved when entering into the contract
in the first place.”); see also In re Sirius XM S’holder Litig., 2013 WL 5411268, at *6 (Del. Ch.
Sept. 27, 2013) (dismissing breach of fiduciary duty claim where contract prohibited actions
plaintiffs claimed directors should take); Buerger v. Apfel, 2012 WL 893163, at *3 (Del. Ch.
Mar. 15, 2012) (explaining that “[b]ecause any challenge to the initial decision to enter into
the employment agreements is time-barred, the fairness analysis must take into account the
contractual rights that the Apfels possess. In other words, the plaintiffs must litigate the
fairness of the compensation in a world where the employment agreements validly exist and
where a termination decision would have contractual consequences.”).
Only one decision—in a footnote and in dictum—suggests that Omnicare mandates a
fiduciary out. See In re OPENLANE, Inc. S’holders Litig., 2011 WL 4599662, at *10 n.53 (Del.
Ch. Sept. 30, 2011) (“Omnicare may be read to say that there must be a fiduciary out in every
merger agreement.”). That suggestion conflicts with all other post-Omnicare authority, and
as discussed above the line, it is not a conclusion that the language of the Omnicare decision
requires. Other decisions have rejected the OPENLANE suggestion. W. Palm Beach
Firefighters’ Pension Fund v. Moelis & Co., 311 A.3d 809, 846 n.165 (Del. Ch. 2024)
(disagreeing with the OPENLANE dictum); Hsu, 2017 WL 1437308, at *23 n.35 (same); see
In re TransPerfect Glob., Inc., 2018 WL 904160, at *24 n.176 (Del. Ch. Feb. 15, 2018) (“Even
when the sale of a public corporation is at issue, it would be hazardous to construe Omnicare
as mandating a fiduciary out.”), aff’d sub nom. Elting v. Shawe, 185 A.3d 694 (Del. 2018).
110 2008 WL 5169633 (Del. Ch. Dec. 10, 2008).
111 Id. at *2.
112 Id.
58
merger.113 The contractually determined consideration partially satisfied the
preferred stockholders’ liquidation preferences and left the common stockholders
with nothing. Stockholder plaintiffs sued, asserting that the board could not simply
permit the buyer to enforce the agreement, but rather had a fiduciary duty to seek
superior alternatives, including by negotiating for a higher buyout price. The
plaintiffs conceded that any attempt to challenge the validity of the 2003 agreement
was time-barred.114
Chief Justice Strine, then serving as a Vice Chancellor, held that “[t]he change
of control occurred in 2003” and that “the material decisions about the transaction,
including the price and transaction form,” were made then.115 Consequently, “all that
was left to do in 2007 when [the buyer] decided to exercise its Buyout Option was
apply the Contract Price Formula, sign the documents necessary to effect [the
buyer’s] chosen transaction form, and distribute the purchase money.”116 The board
had no special fiduciary ability to avoid the corporation’s contractual obligations or
their enforcement. The corporation “was contractually obligated to enter into the
Merger, and [its] board could not fail to do so without causing the company to
113 Id. at *4.
114 Id.
115 Id. at *5.
116 Id.
59
dishonor a contract.”117 The plaintiffs’ assertion that the directors breached their
fiduciary duties by not pursuing an efficient breach of contract could not overcome
the business judgment rule.118
To the extent there might have been any lingering uncertainty about the
implications of QVC or Omnicare, the Delaware Supreme Court’s 2014 decision in C
& J Energy eliminated it. There, the Court of Chancery enjoined the enforcement of
the no-shop provision in a merger agreement that resulted from a management-led,
single-bidder process in which the combined entity would have a controlling
stockholder, but the target company viewed itself as the acquirer and therefore its
board did not make any effort to explore strategic alternatives.119 The Delaware
Supreme Court vacated the injunction on multiple grounds, including the primacy of
the bidder’s contract rights,. The court explained that even in a setting where
enhanced scrutiny applied,
[s]uch an injunction cannot strip an innocent third party of his
contractual rights while simultaneously binding that party to
consummate the transaction. To blue-pencil a contract as the Court of
Chancery did here is not an appropriate exercise of equitable authority
in a preliminary injunction order. That is especially true because the
Court of Chancery made no finding that Nabors had aided and abetted
any breach of fiduciary duty, and the Court of Chancery could not even
117 Id. at *6.
118 Id. at *7–8.
119 C & J Energy, 107 A.3d at 1052–53.
60
find that it was reasonably likely that such a breach by C & J’s board
would be found after trial.120
Later in the decision, the Delaware Supreme Court reiterated that “a judicial decision
holding a party to its contractual obligations while stripping it of bargained-for
benefits should only be undertaken on the basis that the party ordered to perform
was fairly required to do so, because it had, for example, aided and abetted a breach
of fiduciary duty.”121 That language indicated that establishing a sell-side breach of
fiduciary duty at the time of contracting is not enough, standing alone, to warrant
equitable relief overriding the counterparty’s contract rights. Instead, the court must
find that the counterparty aided and abetted the sell-side breach. After C & J Energy,
no one could think that the application of enhanced scrutiny, standing alone, would
give a Delaware court the power to impose equitable limitations on the enforceability
of a contract.
v. No Inherent Hierarchy Of Blameworthiness
The path of the law from Van Gorkom to C & J Energy demonstrates that the
Delaware courts do not regard the fiduciary duties imposed by equity as more
important than voluntarily assumed contractual commitments. TransCanada is
simply wrong to suggest that Skaggs and Smith are inherently more responsible
because they breached duties arising in equity, while TransCanada transgressed
boundaries written into an agreement.
120 Id. at 1054.
121 Id. at 1072.
61
Instead, the cases overwhelmingly demonstrate that a court cannot invoke the
fiduciary duties of directors to override a counterparty’s contract rights. That is true
even when a heightened standard of review applies. To argue that case law empowers
a court to set aside a contract when reviewing director actions under an enhanced
form of judicial scrutiny embraces the much-ridiculed position that the Omnicare
majority was perceived to take. As consistently interpreted by courts and
commentators, QVC does not support that assertion, and post-Omnicare case law
soundly rejects it.122
122 One possible rejoinder could be that the cases from Van Gorkom to C & J Energy
involve external agreements. But Delaware decisions have prioritized contractual
agreements over fiduciary duties for internal affairs claims as well. The Delaware Supreme
Court has asserted that contractual obligations preempt overlapping fiduciary duty claims
that arise out of the same set of facts. Nemec v. Shrader, 991 A.2d 1120, 1129 Del. 2010).
Other decisions likewise hold that a claim for breach of contract occupies the field and
preempts overlapping claims for breach of duty against corporate fiduciaries. See In re
WeWork Litig., 2020 WL 6375438, at *12 (Del. Ch. Oct. 30, 2020); Ogus v. SportTechie, Inc.,
2020 WL 502996, at *11 (Del. Ch. Jan. 31, 2020); MHS Cap. LLC v. Goggin, 2018 WL
2149718, at *8 (Del. Ch. May 10, 2018); Veloric v. J.G. Wentworth, Inc., 2014 WL 4639217, at
*18–19 (Del. Ch. Sept. 18, 2014); Blaustein v. Lord Balt. Cap. Corp., 2013 WL 1810956, at
*13 (Del. Ch. Apr. 30, 2013), aff’d, 84 A.3d 954 (Del. 2014); Grayson v. Imagination Station,
Inc., 2010 WL 3221951, at *7 (Del. Ch. Aug. 16, 2010).
Sometimes, the authorities cited in the corporate decisions can be traced back to one
or more decisions involving an alternative entity, but the corporate decisions invariably
articulate the concept of contractual preemption as a general principle of Delaware law and
do not limit its application to the alternative entity context. See, e.g., Stewart v. BF Bolthouse
Holdco, LLC, 2013 WL 5210220, at *12 (Del. Ch. Aug. 30, 2013) (asserting generally that
“Delaware law recognizes the primacy of contract law over fiduciary law.”); Seibold v.
Camulos P’rs LP, 2012 WL 4076182, at *21 (Del. Ch. Sept. 17, 2012) (“Camulos’ claim that
Seibold breached his fiduciary duty by misusing confidential information alleges facts
identical to Camulos’ claim that Seibold breached his contractual duties by misusing
Confidential Information, and is thus foreclosed as superfluous.” (cleaned up)); Solow v.
Aspect Res., LLC, 2004 WL 2694916, at *4 (Del. Ch. Oct. 19, 2004) (“Because of the primacy
of contract law over fiduciary law, if the duty sought to be enforced arises from the parties’
contractual relationship, a contractual claim will preclude a fiduciary claim. This manner of
inquiry permits a court to evaluate the parties’ conduct within the framework created and
crafted by the parties themselves. Because the four fiduciary duty counts in the complaint
62
Likewise, as both Van Gorkom and Hokanson demonstrate, a court will not
impose equitable limitations on the enforceability of a contract based on assertions
that the performance of the contract constitutes a breach of fiduciary duty. In Van
Gorkom, the Delaware Supreme Court held that the directors could not escape their
contractual covenant to recommend the merger and submit it to a vote, even if they
had concluded that performance would cause them to breach their duties. In
Hokanson, the court viewed compliance with the fiduciary standards as irrelevant.123
arise not from general fiduciary principles, but from specific contractual obligations agreed
upon by the parties, the fiduciary duty claims are precluded by the contractual claims.”
(footnotes omitted)). See generally New Enter. Assocs. 14, L.P. v. Rich, 295 A.3d 520, 562–64
(Del. Ch. 2023) (describing Nemec and the contractual preemption of fiduciary duties).
Isolated decisions, including my own, have pushed back against the concept of
contractual preemption. E.g., Metro Storage Int’l LLC v. Harron, 275 A.3d 810, 857–58 (Del.
Ch. 2022); In re MultiPlan Corp. S’holders Litig., 268 A.3d 784, 806 (Del. Ch. 2022); ODN
Hdlgs., 2017 WL 1437308, at *24; Lee v. Pincus, 2014 WL 6066108, at *7–9 (Del. Ch. Nov.
14, 2014). Scholars explain that a contract claim can coexist with a fiduciary duty claim,
because fiduciary obligations overlay all of the rights and powers that the fiduciary can
exercise. Lionel D. Smith, Contract, Consent, and Fiduciary Relationships, in Paul B. Miller
& Andrew S. Gold, eds., CONTRACT AND FIDUCIARY LAW 128, 134 (2016); see Matthew
Harding, Fiduciary Undertakings, in CONTRACT AND FIDUCIARY LAW at 79 (“The fact that a
fiduciary undertaking may be made in a given contract does not bear on what counts as
sufficient performance of that undertaking as a matter of contract law. It instead means that
non-performance of the undertaking is susceptible of analysis in more than one frame, as
involving fiduciary breach as well as breach of contract. Moreover, the promisor may be liable
for fiduciary breach even in circumstances where she has fully performed her undertaking
from the perspective of contract law.” (footnote omitted)). Under this alternative to
contractual preemption, a fiduciary can face both a claim for breach of contract and a claim
for breach of fiduciary duty arising from the same conduct. Metro Storage, 275 A.3d at 858.
“If the contract provides the sole source of the specific prohibition, then the plaintiff only can
sue in contract, because the duty only arises from the contractual relationship. If, however,
the plaintiff also would have a claim under general fiduciary principles, then the plaintiff
also can assert the claim for breach of fiduciary duty.” Id. (citations omitted). At present,
however, contractual preemption has the upper hand.
123 2008 WL 5169633, at *5 (“[A]ll that was left to do in 2007 when [the buyer] decided
to exercise its Buyout Option was apply the Contract Price Formula, sign the documents
necessary to effect [the buyer’s] chosen transaction form, and distribute the purchase
63
What mattered was compliance with the contract, because the directors’ fiduciary
duties did not enable the corporation to escape it.124
Thus, contrary to TransCanada’s assertion, Skaggs and Smith are not more
culpable simply because the obligation they breached flowed from equity while the
lines TransCanada crossed were contractual. The allocation of responsibility must
turn on other, case-specific factors.
b. The Sales Process Claim
The rejection of TransCanada’s headline argument does not dictate the
allocation of responsibility in this case. The equal allocation that DUCATA
presumptively envisions would result in one-third for TransCanada, one-third for
money.”). Assume the defendant corporation in Hokanson refused to comply with the
purchase agreement. Given the tenor of the opinion, it hardly seems likely that the court
would have invoked equity as a basis to deny the buyer the contractual rights it had secured.
124 That remains true even though, just like any other contracting party, a corporation
can engage in efficient breach. When striving to act loyally, prudently, and in good faith to
maximize the value of the corporation for the benefit of its firm-specific stockholders,
“directors must exercise their fiduciary duties in deciding how to proceed in the face of an
agreement, understanding they are no differently situated than any other contractual
counterparty.” City of Pittsburgh Comprehensive Mun. Pension Tr. Fund v. Conway, 2024 WL
1752419, at *30 (Del. Ch. Apr. 24, 2024). That means that directors seeking to comply with
the fiduciary standard of conduct could decide to engage in efficient breach. But that does not
mean that the directors’ fiduciary duties overrides the corporation’s contractual obligations.
It simply means that the directors can engage in the same type of cost-benefit analysis as
any other contractual counterparty. Directors who cause their corporation to engage in
efficient breach have not freed the corporation from its contract. A breach is still a breach,
and the counterparty can seek contractual remedies, which could take the form of damages
or a decree of specific performance. See Hsu, 2017 WL 1437308, at *24. A breach of fiduciary
duty claim based on engaging or not engaging in efficient breach affects the liability of the
directors. It does not affect a claim by the contractual counterparty to enforce its rights,
unless (per C & J Energy) both the board breached its duties when entering into the contract
and the counterparty aided and abetted that breach.
64
Skaggs, and one-third for Smith. TransCanada argues that Skaggs and Smith should
be tagged with 83.33% of the responsibility, leaving TransCanada with only 16.67%.
The plaintiffs contend that TransCanada is 80% responsible, entitling TransCanada
to only a 20% settlement credit.
The Restatement (Third) of Torts recommends considering two factors when
allocating responsibility among joint tortfeasors:
(a) the nature of the person’s risk-creating conduct, including any
awareness or indifference with respect to the risks created by the
conduct and any intent with respect to the harm created by the conduct;
and
(b) the strength of the causal connection between the person’s risk-
creating conduct and the harm.125
Those factors prioritize the conduct of the joint tortfeasors and the causal connection
to the harm.
i. Causation
Taking the factors in reverse order, “[t]he comparative strength of the causal
connection between the conduct and the harm depends on how attenuated the causal
connection is, the timing of each person’s conduct in causing the harm, and a
comparison of the risks created by the conduct and the actual harm suffered by the
plaintiff.”126 The causation inquiry supports allocating 50% responsibility to
TransCanada.
125 Restatement (Third) of Torts: Apportionment of Liability § 8 (Am. L. Inst. 2019),
Westlaw (database updated Mar. 2024).
126 Id.
65
In this case, it took two sides to negotiate and enter into the deal that gave rise
to liability. Columbia was on one side, and TransCanada was on the other.
Just as it took two sides to enter into the deal, it took two sides to cause the
harm. Without the officers’ conflicts of interest and eagerness for a sale, TransCanada
could not have gotten its foot in the door, established compromising relationships
with the officers, elicited confidential information from them, and stolen a march on
other potential bidders. The officers’ conflicts of interest and desire for a deal supplied
one half of the causal equation.
TransCanada supplied the other half. Absent TransCanada’s repeated and
persistent breaches of the Standstill, TransCanada could not have secured those
advantages for itself. Without those advantages, TransCanada would not have been
in a position to renege confidently on the $26 Deal and threaten to terminate
discussions publicly if Columbia did not accept the $25.50 Offer.
For purposes of the causation factor, Skaggs and Smith operated as a unit.
They were part of the self-interested team that engaged with TransCanada. Rather
than allocating responsibility equally across Skaggs, Smith, and TransCanada, the
causation factor calls for allocating half of the responsibility to the Columbia side and
half of the responsibility to TransCanada. That means TransCanada receives a 50%
allocation.
ii. Conduct
When considering “the nature of the person’s risk creating conduct,” a court
should take into account “such things as how unreasonable the conduct was under
the circumstances, the extent to which the conduct failed to meet the applicable legal
66
standard, the circumstances surrounding the conduct, each person’s abilities and
disabilities, and each person’s awareness, intent, or indifference with respect to the
risks.”127 The conduct factor support allocating 50% of the responsibility to
TransCanada.
As the Liability Decision found, TransCanada knowingly exploited Skaggs and
Smith’s conflicts of interest.128 When doing so, TransCanada violated standards it set
for itself by agreeing to the Standstill. In that agreement, TransCanada
acknowledged that certain conduct was off limits. TransCanada was a sophisticated
actor, fully aware of what the Standstill required and prohibited.
TransCanada agreed in the Standstill not to communicate with Columbia or
its representatives about a transaction unless invited by the Board. In violation of
the Standstill, TransCanada cultivated relationships with Skaggs and Smith.
TransCanada extracted confidential information and gained an advantage over any
potential competing bidders. TransCanada also agreed in the Standstill not to
threaten to make the parties’ discussions public. Running roughshod over that
commitment, TransCanada reneged on the $26 Deal, made the $25.50 Offer,
demanded an answer within three days, and threatened to announce publicly that
the negotiations were dead unless Columbia accepted the reduced bid.129 As
127 Restatement, supra, § 8 cmt. C.
128 Liability Decision, 299 A.3d at 407.
129 Id.
67
TransCanada’s counsel conceded at argument “but for that final act, there would have
been no damages suffered by the Columbia [stockholders].”130
Skaggs and Smith engaged in culpable conduct as well, but not conduct that
was meaningfully more culpable than TransCanada’s. Skaggs and Smith labored
under conflicts of interest that made them eager for a transaction and receptive to
TransCanada’s machinations. Smith naively trusted Poirier, misperceiving their
shared interest in a deal as meaning they were on the same side, and he provided a
steady stream of confidential information to TransCanada. Skaggs’s desire for a deal
led him to prime the Board for a sale, which undercut the Board’s ability to supervise
the sale process and seek a higher price. And, at the critical moment, Skaggs and
Smith decided against pushing for another $0.25 because they cared more about a
deal closing than getting the best price.
Because of their conflicts of interest, Skaggs and Smith could rationalize as
right that which was merely personally beneficial,131 and that led them to breach
their duty of loyalty. But they were not so resolutely scheming and opportunistic as
Poirier and the TransCanada team. Skaggs and Smith wanted to trigger their
change-in-control benefits and retire, but they were also “professionals who took pride
130 Dkt. 495 at 60.
131 See City Cap. Assocs. Ltd. P’ship v. Interco Inc., 551 A.2d 787, 796 (Del. Ch. 1988)
(“[H]uman nature may incline even one acting in subjective good faith to rationalize as right
that which is merely personally beneficial.”).
68
in their jobs and wanted to do the right thing.”132 Both were less sophisticated than
their TransCanada counterparts, and Smith was out of his depth.
As the bard incisively observed, both the tempter and the tempted can sin.
Sometimes, the tempter might be the activating force and the tempted led astray.
Other times, the tempted might be sufficiently open to inviting the tempter in. Here,
both the tempter (TransCanada) and the tempted (the Columbia officers) played their
roles. Allocating 50% of the responsibility for the Sales Process Claim to
TransCanada is warranted on the basis of TransCanada’s conduct.
Allocating 50% of the responsibility for the Sales Process Claim to
TransCanada also appropriately reflects the fact that two separate acts led to the
damages award of $1 per share. Of that amount, the first $0.50 represents the delta
between the $26 Deal and $25.50 merger consideration.133 The other $0.50 reflects
that TransCanada’s stock price increased between signing and closing, which
resulted in the consideration contemplated by the $26 Deal being worth $26.50 per
share.134 The latter component results from market forces, so there is no need to
address allocation issues for that component.
Responsibility for the first $0.50 divides neatly between TransCanada and the
Columbia officers. TransCanada bears responsibility for reneging on the $26 Deal
132 In re Appraisal of Columbia Pipeline Gp., Inc. (Appraisal Decision), 2019 WL
3778370, at *28 (Del. Ch. Aug. 12, 2019).
133 Liability Decision, 299 A.3d at 482.
134 Id.
69
and making the overly aggressive $25.50 Offer, but the story did not end there. The
Columbia officers bear responsibility for not countering. They considered whether to
respond at $25.75, and if they had been free of conflicts, they likely would have. As
Poirier acknowledged, the $25.50 Offer was not best and final. The TransCanada
Board had backed the $26 Offer, so a deal at $25.75 per share would have been a win.
But Skaggs and Smith labored under conflicts of interest that caused them to favor
the bird in the hand that would trigger their change-in-control benefits. They chose
not to counter and convinced the Board to accept TransCanada’s lowered bid.
Responsibility for failing to counter and eliminate what would become half of the
damages award rests with Skaggs and Smith.
From three different perspectives, TransCanada bears responsibility for half
of the damages from the Sale Process Claim. That is the figure that the court adopts.
c. The Disclosure Claim
The damages for the Disclosure Claim are noncumulative, so the allocation of
responsibility for those claims may never have real-world significance. But in the
interests of completeness, this decision conducts the analysis.
The Restatement factors again guide the result. A court should consider both
“the nature of the person’s risk-creating conduct” and “the strength of the causal
connection between the person’s risk-creating conduct and the harm.”135
135 Restatement, supra, § 8.
70
The two sides of the deal engaged in the same risk-creating conduct: not
disclosing material information in the face of a duty to disclose. As officers, Skaggs
and Smith had a fiduciary duty to disclose all material information.136
TransCanada had a contractual duty. Under the Merger Agreement,
TransCanada committed to (i) “furnish all information concerning themselves and
their Affiliates that is required to be included in the Proxy Statement,” (ii) ensure
any information TransCanada provided did not “contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading,” and (iii) inform Columbia if there was
any issue in the Proxy Statement that needed to be addressed so that the “Proxy
Statement or the other filings shall not contain an untrue statement of a material
fact or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which they
are made, not misleading.”137
Both TransCanada, on the one hand, and Skaggs and Smith, on the other,
were obligated to review the Proxy Statement, ensure that it was complete, and
correct any material omissions or misstatements. As discussed previously, the
136 Liability Decision, 299 A.3d at 483.
137 MA § 5.01.
71
equitable and contractual obligations are equally meaningful. If anything, Delaware
puts greater weight on the voluntarily undertaken contractual obligation.
For purposes of causation, the principal distinguishing factor is knowledge. If
two parties owe a disclosure obligation, and both have the requisite knowledge, then
both are capable of making the disclosure and causally responsible for failing to make
it. If one party does not know the information, then that party is not capable of
making the disclosure and is not causally responsible. In between lie a range of
possibilities involving concepts like reasonable suspicion, inquiry notice, and
constructive knowledge. As between a party that knows an omitted fact is true and a
party that only suspects that it is true, the party that knew about the fact is relatively
more culpable. The other party is not off the hook, because that party could have
asked questions that could have led to the fact’s disclosure, but a difference remains.
TransCanada argues that “the parties who drafted [the Proxy Statement]—
Columbia, Skaggs, and Smith—have a far greater ‘causal connection’ to any
deficiencies.”138 As with the Sales Process Claim, that is not true. TransCanada
undertook a contractual obligation to review the Proxy Statement and point out any
material omissions or misstatements. TransCanada’s failure to fulfill that obligation
played an equal role in causing the disclosure violations.
Relatedly, TransCanada tries to turn its conscious disregard of its contractual
commitments into a virtue by asserting that it “never requested any changes to the
138 Def.’s Reply Br. at 12.
72
[Proxy Statement] or sought to hide anything that Columbia wanted,” instead taking
“a hands-off approach because it ‘viewed the Proxy Statement as Columbia’s
document and told [its] team not to worry about it.’”139 TransCanada’s obligations
under the Merger Agreement required more, and the willful disregard of an
affirmative obligation to act is no less culpable than an affirmative act.140
The Liability Decision found that the Proxy Statement contained seven
material omissions or misrepresentations. On issues where TransCanada had actual
knowledge to the same degree as Columbia, TransCanada bears equal responsibility.
On issues where TransCanada had no knowledge, TransCanada bears none of the
responsibility. On issues where TransCanada had some knowledge, the court has
139 Def.’s Opening Br. at 19 (quoting Liability Decision, 299 A.3d at 488).
140 See Aronson v. Lewis, 473 A.2d 805, 813 (Del. 1984) (subsequent history omitted)
(“[A] conscious decision to refrain from acting may nonetheless be a valid exercise of business
judgment and enjoy the protections of the rule.”); Quadrant Structured Prods. Co. v. Vertin,
102 A.3d 155, 183 (Del. Ch. 2014) (“The Complaint alleges that the Board had the ability to
defer interest payments on the Junior Notes, that the Junior Notes would not receive
anything in an orderly liquidation, that [Defendant] owned all of the Junior Notes, and that
the Board decided not to defer paying interest on the Junior Notes to benefit [Defendant]. A
conscious decision not to take action is just as much of a decision as a decision to act.”); In re
China Agritech, Inc. S’holder Deriv. Litig., 2013 WL 2181514, at *23 (Del. Ch. May 21, 2013)
(“The Special Committee decided not to take any action with respect to the Audit Committee’s
termination of two successive outside auditors and the allegations made by Ernst & Young.
The conscious decision not to take action was itself a decision.”); Krieger v. Wesco Fin. Corp.,
30 A.3d 54, 58 (Del. Ch. 2011) (“Wesco stockholders had a choice: they could make an election
and select a form of consideration, or they could choose not to make an election and accept
the default cash consideration.”); Hubbard v. Hollywood Park Realty Enters., Inc., 1991 WL
3151, at *10 (Del. Ch. Jan. 14, 1991) (“From a semantic and even legal viewpoint, ‘inaction’
and ‘action’ may be substantive equivalents, different only in form.”); Jean-Paul Sartre,
Existentialism Is a Humanism 44 (Carol Macomber trans., Yale Univ. Press 2007) (“[W]hat
is impossible is not to choose. I can always choose, but I must also realize that, if I decide not
to choose, that still constitutes a choice.”).
73
allocated to TransCanada one-third of the responsibility. On issues where
TransCanada was on inquiry notice or had constructive knowledge, the court has
allocated to TransCanada one-fourth of the responsibility.
Disclosure Violation Skaggs & TransCanada TransCanada
Smith Knowledge Allocation
Knowledge
“Smith invited a bid and told Actual Actual 50%
Poirier that TransCanada did not knowledge knowledge
face competition at the January 7
Meeting”141
“Dominion, NextEra, Berkshire, Actual Actual 33%
and TransCanada were subject knowledge knowledge of: its
to Standstills, TransCanada own Standstill,
breached its standstill, and that its breach of the
Columbia ignored TransCanada’s Standstill, and
breach”142 that Columbia
ignored the
breach.
Constructive
knowledge of
other
Standstills.143
“Skaggs and Smith were planning Actual Constructive 25%
to retire in 2016”144 knowledge knowledge145
141 Liability Decision, 299 A.3d at 485 (cleaned up).
142 Id.
143 Id. at 488.
144 Id. at 485.
145 Id. at 488.
74
Disclosure Violation Skaggs & TransCanada TransCanada
Smith Knowledge Allocation
Knowledge
Omitting and mischaracterizing Actual Actual 50%
a series of interactions between knowledge knowledge
TransCanada and Columbia
taking place from November 25,
2015, through February 9,
2016.146
“The Proxy Statement also failed Actual Actual 33%
to disclose that from November knowledge knowledge that
25, 2015, through March 4, 2016, TransCanada
TransCanada’s contacts with breached its
Columbia breached the Standstill and
Standstill, that Columbia Columbia
management chose not to enforce management
the Standstill, and that Columbia chose not to
management did not bring those enforce.
breaches to the attention of the
Board so that the Board could No knowledge of
determine how to proceed.”147 management’s
reporting to the
Board.
“[P]artial and misleading Actual Actual 50%
description of the $26 Offer.”148 knowledge Knowledge
“[M]isleading description of No Actual 100%
TransCanada’s reasons for knowledge knowledge
lowering its bid.”149
146 Id. at 485 (“First, the plaintiffs proved that TransCanada and Columbia had other
communications about a potential transaction in December 2015 that the Proxy Statement
did not disclose.”); see also id. at 486–87 (listing timeline of omitted or mischaracterized
communications spanning from November 25, 2015 through February 9, 2016 and holding
that “[b]y omitting or mischaracterizing these interactions, the Proxy Statement painted a
misleading picture of the nature and extent of the contacts between TransCanada and the
Columbia management team.”).
147 Id. at 487.
148 Id.
149 Id.
75
Giving equal weight to each disclosure violation results in TransCanada
having culpability of 42%. That allocation favors TransCanada, because the court
could legitimately view the disclosure issues where TransCanada bore 50% or 100%
of the responsibility as more significant and therefore worthy of a heavier weighting.
3. The Dollar Value Of The Settlement Credit
DUCATA entitles TransCanada to a settlement credit equal to the greater of
the $79 million that Skaggs and Smith paid in the settlement or their proportionate
share of liability. For the Sale Process Claim, the total potential liability (before
interest) was $398,436,581. Skaggs and Smith bear 50% of the liability, entitling
TransCanada to a reduction in the amount of $199,218,290.50. That figure is greater
than the $79 million, entitling TransCanada to a credit equal to the larger amount.
For the Sale Process Claim, TransCanada is liable for the remaining $199,218,290.50.
For the Disclosure Claim, the total potential liability (before interest) was
$199,218,290.50. Skaggs and Smith bear 58% of the responsibility, entitling
TransCanada to a reduction in the amount of $115,546,608.49. That figure is greater
than the $79 million, entitling TransCanada to a credit equal to the larger amount.
For the Disclosure Claim, TransCanada is liable for the remaining $83,671,682.01.
The damages awards are non-cumulative. TransCanada is only liable for the
greater amount. The damages for the Sale Process Claim are greater. TransCanada
is therefore liable for $199,218,290.50 (before interest).
B. Disclosure Damages For Stockholders Who Sought Appraisal
TransCanada contends that the members of the class who sought appraisal
cannot receive the noncumulative damages for the Disclosure Claim because the
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appraisal petitioners did not vote for the Merger and therefore could not have relied
on the Proxy Statement. Not so.
TransCanada contends that by “electing” to seek appraisal, the appraisal
petitioners foreclosed their ability to participate in any equitable remedy. The
Delaware Supreme Court rejected that argument thirty-six years ago.150 The justices
held that a stockholder who has also sought appraisal can “proceed simultaneously
with its statutory and equitable claims for relief.”151 “What the [appraisal petitioner]
may not do, however, is recover duplicative judgments or obtain double recovery.”152
To make the litigation process more straightforward, the Delaware Supreme Court
instructed trial courts to prioritize the breach of fiduciary duty claim because that
remedy was likely to be broader and render the appraisal action moot.153
Here, the appraisal petitioners and the class plaintiffs sought to consolidate
the appraisal proceeding with this case, but TransCanada successfully opposed that
motion. That meant the parties litigated the Appraisal Action first. That does not
mean that TransCanada can rely on the outcome in the Appraisal Action to prevent
the appraisal petitioners from receiving an equitable remedy. The Delaware Supreme
150 Cede & Co. v. Technicolor, Inc., 542 A.2d 1182, 1190–91 (Del. 1988).
151 Id. at 1191.
152 Id.
153 Id. (“During the consolidated proceeding, if it is determined that the merger should
not have occurred due to fraud, breach of fiduciary duty, or other wrongdoing on the part of
the defendants, then Cinerama’s appraisal action will be rendered moot and Cinerama will
be entitled to receive rescissory damages.”).
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Court has held otherwise. This court also already rejected a similar argument in
connection with certifying the class in this action.154
The Appraisal Decision determined that the fair value of Columbia for
purposes of the appraisal statute was the deal price of $25.50 per share.155 The
damages for the Sales Process Claim and the Disclosure Claim are greater than
$25.50 per share. In a consolidated action, the rulings on the fiduciary duty claims
would have rendered the Appraisal Action moot, and the appraisal petitioners could
have elected to receive the equitable remedy. The same result applies in this case.
Alternatively, TransCanada argues that because the stockholders who sought
appraisal did not vote for the deal, they could not have relied on the Proxy Statement.
That argument has several flaws. Initially, as the court held in the Liability Decision,
If corporate fiduciaries [1] distribute a disclosure document, [2] to
diffuse stockholders, [3] in connection with a request for stockholder
action, and [4] the disclosure document contains a material
misstatement or omission, then there is a presumption that the
stockholders relied on the disclosures such that individualized proof of
reliance is not required.156
Under that ruling, which is law of the case, the appraisal petitioners are presumed
to have relied on the Proxy Statement. To rebut that presumption, TransCanada “has
154 Dkt. 405 at 77–78 (citing Cede and holding that “[t]here’s nothing wrong with
including the appraisal petitioners in the class.”).
155 Appraisal Decision, 2019 WL 3778370, at *1.
156 299 A.3d at 492.
78
the burden of proving that the nonexistence of the presumed fact is more probable
than the existence of the presumed fact.”157 TransCanada offered no evidence.
More fundamentally, TransCanada’s reliance argument incorrectly assumes
that only stockholders who vote in favor of a transaction review and rely on proxy
materials. To the contrary, stockholders rely on a firm’s disclosures when deciding
whether to seek appraisal. The duty of disclosure applies when directors seek
stockholder action.158 “Stockholder action has included approving corporate
transactions (mergers, sale of assets, or charter amendments) and making
investment decisions (purchasing and tendering stock or making an appraisal
election).”159 There is no difference.
157 Id. (citing D.R.E. 301(a)).
158 E.g., In re GGP, Inc. S’holder Litig., 282 A.3d 37, 62 (Del. 2022) (“The fiduciary
duty of disclosure is a sharpened application of corporate directors’ omnipresent duties of
care and loyalty that obtains when directors seek stockholder action, such as the approval of
a proposed merger, asset sale, or charter amendment.”); Dohmen v. Goodman, 234 A.3d 1161,
1168 (Del. 2020) (“A director’s specific disclosure obligations are defined by the context in
which the director communicates, as are the remedies available when a director fails to meet
his obligations. One context is a communication associated with a request for stockholder
action.”); Malone v. Brincat, 722 A.2d 5, 12 (Del. 1998) (“The directors of a Delaware
corporation are required to disclose fully and fairly all material information within the
board’s control when it seeks shareholder action.” (collecting cases)).
159 Dohmen, 234 A.3d at 1168 (emphasis added) (citing In re Wayport, Inc. Litig., 76
A.3d 296, 314 (Del. Ch. 2013)). GGP, 282 A.3d at 63 (“‘[The duty of disclosure] is independent
from a corporation’s statutory obligation to notify its stockholders of their appraisal rights
under Section 262. It is also distinct from a director’s fiduciary duty to avoid misleading
partial disclosures. Of course, these separate obligations may overlap, especially where, as
here, corporate directors seek stockholder ratification of a proposed transaction that triggers
the statutory appraisal remedy.”); In re Orchard Enters., Inc. S’holder Litig., 88 A.3d 1, 16–
17 (Del. Ch. 2014) (“When directors submit to the stockholders a transaction that requires
stockholder approval (such as a merger, sale of assets, or charter amendment) or which
requires a stockholder investment decision (such as tendering shares or making an appraisal
79
A materially misleading misstatement or omission need not have changed the
dissenting stockholder’s mind about whether to seek appraisal. “[T]he question is not
whether the information would have changed the stockholder’s decision to accept the
merger consideration, but whether the fact in question would have been relevant to
him.”160 The omitted and misrepresented facts underlying the seven disclosure
violations found in the Liability Decision—including the acceptance of the $26 Deal—
would have been relevant to a stockholder deciding whether to seek appraisal.
The appraisal petitioners are members of the class, and the disclosure damages
are not duplicative of their recovery in the Appraisal Action. The appraisal petitioners
therefore can receive the damages for the Disclosure Claim. That possibility only will
become relevant if the Delaware Supreme Court reverses the Liability Decision’s
ruling the Sales Process Claim, but affirms its ruling on the Disclosure Claim.
C. The Tolling Of Prejudgment Interest
The plaintiffs seek a traditional award of pre-and post-judgment interest that
would begin to run on the date of the merger, accrue at the legal rate, and compound
quarterly through the date of payment.161 TransCanada only opposes the start date
election), the directors of a Delaware corporation are required to disclose fully and fairly all
material information within the board’s control.” (cleaned up)).
160 GGP, 282 A.3d at 63 (cleaned up).
161 This court began applying a quarterly compounding interval in 1999, based on a
decision in an appraisal proceeding where the expert analogized the legal rate of interest to
the rate that the company being appraised would pay on a bond and observed that bonds pay
interest quarterly. Borruso v. Commc’ns Telesystems Int’l, 753 A.2d 451, 461 (Del. Ch. 1999).
Subsequent decisions turned that case-specific ruling into a general principle. See, e.g.,
Taylor v. Am. Specialty Retailing Gp., Inc., 2003 WL 21753752, at *13 (Del. Ch. July 25, 2003)
(“Because the court has chosen to apply the legal rate of interest, however, the appropriate
80
compounding rate is quarterly. This is due to the fact that the legal rate of interest most
nearly resembles a return on a bond, which typically compounds quarterly.”). The appraisal
statute was later amended to provide presumptively for quarterly compounding. 8 Del. C. §
262(h) (“Unless the Court in its discretion determines otherwise for good cause shown, and
except as provided in this subsection, interest from the effective date of the merger,
consolidation, conversion, transfer, domestication or continuance through the date of
payment of the judgment shall be compounded quarterly and shall accrue at 5% over the
Federal Reserve discount rate (including any surcharge) as established from time to time
during the period between the effective date of the merger, consolidation or conversion and
the date of payment of the judgment.” (emphasis added)).
The statute establishing the legal rate of interest remains silent on a default
compounding interval. See 8 Del. C. § 2301(a). Scholars have called into question the bond
analogy, undercutting the presumption of quarterly compounding. Charles K. Korsmo &
Minor Myers, Interest in Appraisal, 42 J. Corp. L. 109, 129–31 (2016). A growing number of
decisions award interest compounded monthly. E.g., In re Cellular Tel. P’ship Litig., 2022
WL 698112, at *2 (Del. Ch. Mar. 9, 2022) (“The plaintiffs are entitled to that amount, plus
pre- and post-judgment interest at the legal rate, compounded monthly, from the date of the
Freeze-Out until the date of payment.”); BCIM Strategic Value Master Fund, LP v. HFF, Inc.,
2022 WL 304840, at *39 (Del. Ch. Feb. 2, 2022) (“The petitioner will receive pre- and post-
judgment interest on that amount at the legal rate, compounded monthly, from the closing
of the Merger until the date of payment, and with the legal rate of interest changing in
response to changes in the underlying reference rate.”); BTG Int’l, Inc. v. Wellstat
Therapeutics Corp., 2017 WL 4151172, at *21 (Del. Ch. Sept. 19, 2017) (“Pre- and post-
judgment interest therefore will accrue at a rate of 1% per month, compounded monthly.”),
aff’d, 188 A.3d 824 (Del. 2018); eCommerce Indus., Inc. v. MWA Intelligence, Inc., 2013 WL
5621678, at *53 (Del. Ch. Sept. 30, 2013) (“I also grant MWA pre-judgment and post-
judgment interest on the damages awarded to it at 5% over the Federal Reserve discount
rate, the legal rate of interest under 6 Del. C. § 2301, compounded monthly.”). While
approving a quarterly compounding interval on the facts of the case, Chancellor McCormick
recently noted that she too remains open to the possibility that there are good arguments for
monthly compounding. Brown v. Court Square Cap. Mgmt., L.P., 2024 WL 1655418, at *5
n.39 (Del. Ch. Apr. 17, 2024) (ORDER).
Litigants may well address this issue in a future case. To the extent shorter
compounding intervals have come to reflect the market norm, persisting in using a quarterly
compounding interval fails to fulfill the goals for an award of interest by neither fully
compensating the injured party for the loss of the use of its funds, nor forcing the
compensating party relinquish the full benefit of having had use of the money. See
Brandywine Smyrna, Inc. v. Millennium Builders, LLC, 34 A.3d 482, 486 (Del. 2011). In this
case, the plaintiff sought quarterly compounding, TransCanada does not oppose it, and the
court will not disturb that agreement.
81
and argues for tolling the running of prejudgment interest until February 24, 2020,
when the plaintiffs filed the operative complaint. TransCanada complains that the
Columbia acquisition closed in 2016 and that tolling is warranted because of the
plaintiffs’ inordinate delay in pursuing the claims. That is plainly wrong.
Prejudgment interest will run from the date the Merger closed.
“[A] successful plaintiff is entitled to interest on money damages as a matter
of right from the date liability accrues.”162 “Prejudgment interest serves two purposes:
first, it compensates the plaintiff for the loss of the use of his or her money; and,
second, it forces the defendant to relinquish any benefit that it has received by
retaining the plaintiff’s money in the interim.”163 For a damages award remedying
breaches of fiduciary duty in connection with a merger, interest begins to run at
closing.164
A court has broad discretion to establish fair terms for an award of interest.165
Among other things, a court can reduce an award of prejudgment interest for
162 In re Dole Food Co., Inc. S’holder Litig., 2015 WL 5052214, at *46 (Del. Ch. Aug.
27, 2015) (quoting Summa Corp. v. TransWorld Airlines, Inc., 540 A.2d 403, 409 (Del. 1988));
In re Mindbody, Inc., S’holder Litig., 2023 WL 7704774, at *9 (Del. Ch. Nov. 15, 2023) (“In
Delaware, prejudgment interest is awarded as a matter of right and computed from the day
payment is due.”).
163 Brandywine Smyrna, 34 A.3d at 486.
164 See, e.g., CDX Hldgs., Inc. v. Fox, 141 A.3d 1037, 1040, 1042 (Del. 2016) (affirming
award of pre- and post-judgment interest at legal rate compounding quarterly from closing
through payment); RBC, 129 A.3d at 869 (same).
165 See Energy Transfer, LP v. Williams Cos., Inc., --- A.3d ---, --- 2023 WL 6561767, at
*22 (Del. Oct. 10, 2023) (citing Summa, 540 A.2d at 409).
82
inordinate or deliberate delay that is the fault or responsibility of a plaintiff or its
attorney.166
TransCanada identifies two delays that allegedly warrant tolling the accrual
of interest. First, TransCanada argues that the plaintiffs delayed inordinately before
filing their initial complaint. That argument borders on frivolous.
“[A] plaintiff’s claim to pre-judgment interest is so inextricably bound up with
the plaintiff’s cause of action as to enjoy the convenience which the statute of
limitations affords the plaintiff in filing his cause of action within the period of the
statute.”167 A plaintiff who files within the statutory period “will not be punished for
exercising her rights timely . . . .”168 The plaintiffs had three years to file their claims
for breach of fiduciary duty.169 The Merger closed on July 1, 2016, and the plaintiffs
filed suit on July 3, 2018, comfortably within the statutory period. That is not
inordinate delay for purposes of an award of pre-judgment interest.
Nor were the plaintiffs sitting idly by during the two-year interval. They
conducted a pre-suit investigation and crafted a detailed complaint. Delaware law
does not encourage the rapid filing of hastily drafted and possibly unsupportable
166 See Ainslie v. Cantor Fitzgerald LP, 2023 WL 2784802, at *2 (Del. Ch. Apr. 5, 2023);
Williams Cos., Inc. v. Energy Transfer LP, 2022 WL 3650176, at *7 (Del. Ch. Aug. 25, 2022).
167 Getty Oil Co. v. Catalytic, Inc., 509 A.2d 1123, 1125 (Del. Super. 1986).
168 Janas v. Biedrzycki, 2000 WL 33114354, at *5 (Del. Super. Oct. 26, 2000).
169 E.g., In re Dean Witter P’ship Litig., 1998 WL 442456, at *4 (Del. Ch. July 17, 1998),
aff’d, 725 A.2d 441 (Del. 1999).
83
complaints. A potential plaintiff who proceeds diligently may determine that there is
no basis for suit, which benefits everyone. It would be perverse to penalize a plaintiff
for proceeding diligently.170
To argue otherwise, TransCanada seizes on a statement the court made about
the fiduciary duty claim being filed “quite late” when denying the plaintiffs’ motion
to consolidate this action with the Appraisal Action.171 The full sentence has a
different tenor: “In this case, however, trial in the appraisal case is relatively
imminent (October 2018), and the breach of fiduciary duty claim has been filed quite
late and by different stockholders and different counsel.”172 “Late” in that context
meant late for purposes of consolidation with an appraisal action that was headed to
trial in a matter of months, not late in the sense of warranting the tolling of interest.
Second, TransCanada argues that the plaintiffs “delayed amending their
complaint until February 24, 2020—more than 15 months after the appraisal trial
ended and more than 6 months after the Court’s appraisal decision.”173 Here again,
170 The array of lawsuits challenging the Merger illustrates what happens when
entrepreneurial plaintiffs’ firms rush to file suit. Shortly after Columbia announced the
Merger, four stockholders filed two putative class actions challenging the merger. None of
the plaintiffs used Section 220 of the DGCL to obtain books and records. Both relied
exclusively on public information. Both actions were dismissed. In re Columbia Pipeline Gp.,
Inc., 2017 WL 898382, at *1 (Del. Ch. Mar. 7, 2017) (ORDER); A similar story played out for
cases filed hastily in federal court. In re Columbia Pipeline Gp., Inc., 2021 WL 772562, at *14
(Del. Ch. Mar. 1, 2021).
171 Def.’s Reply Br. at 20 (citing Dkt. 16).
172 Dkt. 16.
173 Def.’s Reply Br. at 21.
84
the plaintiffs did not delay, much less inordinately. The plaintiffs initially attempted
to push this action forward more quickly, but TransCanada resisted, and the court
granted TransCanada’s motion to stay discovery pending the outcome of the
Appraisal Action.174 The court instructed the plaintiffs to await the ruling in the
Appraisal Action, review the trial record that would become publicly available, and
file a single, carefully drafted complaint that would avoid a multi-phased, disjointed
proceeding involving seriatim amendments.175
The plaintiffs did as the court asked. Trial in the Appraisal Action concluded
on November 2, 2018. The court issued its post-trial decision on August 12, 2019, and
entered final judgment on October 23, 2019. The time for appeal lapsed on November
22, 2019. The plaintiffs filed their amended complaint on February 24, 2020, three
months after the Appraisal Action reached its final disposition. That is not inordinate
delay.
Interest will accrue from July 1, 2016.
III. CONCLUSION
The class suffered total damages of $398,436,581.00 for the Sales Process
Claim. TransCanada is responsible for 50% of the damages for the Sales Process
Claim, resulting in a damages award against TransCanada for the Sale Process
Claim in the amount of $199,218,290.50.
174 In re Appraisal of Columbia Pipeline Gp., Consol. C.A. No. 12736, at 8–9 (Del. Ch.
Sept. 26, 2018) (TRANSCRIPT).
175 Id. at 8.
85
The class suffered total damages of $199,218,290.50 for the Disclosure Claim.
TransCanada is responsible for 42% of the damages for the Disclosure Claim,
resulting in a damages award against TransCanada in the amount of $83,671,682.01.
The two damages awards are non-cumulative, so the greater amount controls.
Judgment will be entered against TransCanada in the amount of $199,218,290.50.
Pre-and post-judgment interest will accrue at the legal rate, compounded quarterly,
from July 1, 2016, until date of payment, with the rate of interest fluctuating with
changes in the underlying reference rate.
With the benefit of these rulings, the parties should be in a position to submit
a form of final judgment that will bring this matter to a close at the trial court level.
The parties should be capable of accomplishing that task within thirty days.
86