Stephanie Galindo v. David Stover

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
STEPHANIE GALINDO and DAVID WALSH, )
Individually and For All Others Similarly )
Situated, )
)
Plaintiffs, )
)
v. ) C.A. No. 2021-0031-SG
)
DAVID L. STOVER, JEFFREY L. )
BERENSON, JAMES E. CRADDOCK, )
BARBARA J. DUGANIER, THOMAS J. )
EDELMAN, HOLLI C. LADHANI, SCOTT D. )
URBAN, WILLIAM T. VAN KLEEF, and )
MARTHA B. WYRSCH, )
)
Defendants. )
MEMORANDUM OPINION
Date Submitted: November 2, 2021
Date Decided: January 26, 2022
Blake A. Bennett, of COOCH AND TAYLOR, P.A., Wilmington, Delaware; OF
COUNSEL: Juan E. Monteverde, of MONTEVERDE & ASSOCIATES PC, New
York, New York, Attorneys for Plaintiffs Stephanie Galindo and David Walsh.
Kenneth J. Nachbar and Alexandra M. Cumings, of MORRIS, NICHOLS, ARSHT
& TUNNELL LLP, Wilmington, Delaware; OF COUNSEL: Robert S. Harrell,
Charles S. Kelley, Joseph De Simone, and Michael Rayfield, of MAYER BROWN
LLP, New York, New York, Attorneys for Defendants David L. Stover, Jeffrey L.
Berenson, James E. Craddock, Barbara J. Duganier, Thomas J. Edelman, Holli C.
Ladhani, Scott D. Urban, William T. Van Kleef, and Martha B. Wyrsch.
GLASSCOCK, Vice Chancellor
This matter is a damages action by former stockholders of Noble Energy, Inc.
(“Noble”) resulting from a stock-for-stock merger (the “Merger”) with Chevron
Corporation (“Chevron”) in late 2020. The Defendants were directors and officers
of Noble at that time. They have moved to dismiss, pointing out that the Merger was
approved by a majority of the Noble stockholders, and that, as a result, they are
entitled to application of the business judgment rule, resulting in dismissal of the
action for failure to state a claim under Rule 12(b)(6).
Since this Merger does not involve a conflicted controller, approval by the
majority cleanses any breach of duty, if—only if—the approval was informed and
uncoerced.1 Coercion is not alleged here; the Plaintiffs, however, allege the vote
was not fully informed, precluding the application of the Corwin2 cleansing doctrine.
They posit two ways in which the applicable proxy was insufficient.
First, the Plaintiffs point out that the proxy did not disclose an over-the-
transom proposal to acquire certain company assets, made two years before the
Merger. In light of the facts that Noble never responded to that proposal, that the
proposal did not contemplate a merger, and that the proposal was remote in time and
1
Assuming the complaint does not also contain a viable claim for waste. Our caselaw makes this
exception clear. I note that corporate waste, disclosed to stockholders and nonetheless
(ineffectively) ratified by majority vote, like the sasquatch, is a beast more theoretical than
manifest.
2
Corwin v. KKR Fin. Holdings, LLC, 125 A.3d 304 (Del. 2015).
1
circumstances to the Merger which the stockholders were asked to approve, I
conclude the proposal was not material. It was not required to be disclosed to invoke
Corwin, therefore.
Next, the Plaintiffs point to the fact that, at the beginning of the novel
coronavirus crisis (the “COVID-19 pandemic”), the Noble officers took a cut in
salary, and that the board of directors of Noble (the “Board”) subsequently amended
a company severance plan to provide those officers with change-in-control benefits
that reflected their pre-COVID-19-pandemic, pre-reduction salaries. While the
timing and rationale for the Board action were not themselves disclosed, the
amended severance plan was, and the precise payments that named executive
officers would receive if the stockholders approved the Merger were set forth in the
definitive merger proxy. In light of the mix of circumstances here, I conclude that
the timing and rationale for the payments was not material.
Accordingly, the transaction was approved by a majority of the stock voting
in an informed, uncoerced manner. I conclude that business judgment applies and
the motion to dismiss must be granted.
My reasoning follows a recitation of the facts, below.
I. BACKGROUND
Noble, an oil and gas exploration and production company, merged with
Chevron in October 2020, after the emergence of the COVID-19 pandemic. The
2
Plaintiffs in this action received information from a “confidential informant”
regarding an alternative proposal to acquire assets of Noble made in mid-2018.
Because this information, and certain other information regarding executive change-
of-control payments, is not disclosed in the definitive merger proxy Noble filed prior
to the closing of the Merger, the Plaintiffs contend that the stockholder vote
approving the Merger was not fully informed. The Plaintiffs additionally challenge
the Merger on the basis that the price was unfair, the process was unfair, and that
Noble management was conflicted in ignoring transaction opportunities that would
not have paid out change-of-control benefits to executives. Their theory is that a
change-of-control transaction was preferred so that executives could recoup losses
experienced in the stock market as a result of the COVID-19 pandemic’s effects on
Noble’s stock price.3
The Defendants bring a Motion to Dismiss for failure to state a claim with
respect to each count of the Plaintiff’s complaint (the “Complaint”). For the reasons
set forth in this Memorandum Opinion, I agree with the Defendants that any breaches
of fiduciary duty inherent in this transaction were cleansed by an informed and
uncoerced vote of the stockholders. Accordingly, the business judgment rule
3
See Tr. of 11.2.21 Oral Arg. on Defs.’ Mot. to Dismiss, 35:9–14, Dkt. No. 23 [hereinafter “Oral
Arg.”] (specifying that the Plaintiffs’ theory is not that Noble engineered a sale of the entire
company to obtain change-of-control benefits, but that it “ignored other transactions that were the
same or more beneficial to shareholders” because of the lack of change-of-control benefits).
3
applies, and I grant the motion to dismiss the action in its entirety without examining
whether the Complaint otherwise states a claim for breach of fiduciary duty. Facts
informing my conclusions follow.
A. Factual Overview4
1. The Parties and Relevant Non-Parties
The Plaintiffs in this action are David Walsh and Stephanie Galindo, each of
whom was a Noble stockholder at all relevant times.5
Noble, while not a party to this action, is the Delaware corporation at issue.6
Noble is now a subsidiary of Chevron, another non-party Delaware corporation,
following the Merger, which closed in October 2020.7
The Defendants in this action composed the Board of Noble at the pertinent
times: David L. Stover, a director, the Board chairman, and also the chief executive
officer (“CEO”) of Noble; Scott D. Urban, a director and also the Lead Independent
Director of Noble as of April 2019; and Jeffrey L. Berenson, James E. Craddock,
4
Unless otherwise specified, the facts in this section are drawn from the Complaint. Verified Class
Action Compl. for Breach of Fiduciary Duties, Dkt. No. 1 [hereinafter “Compl.”]. To the extent
there are any factual discrepancies between the Complaint and other pertinent materials, such as
the definitive merger proxy, this section is reflective of the Complaint, and I consider the facts to
be true as pled in the Complaint, in accordance with the applicable standard on a motion to dismiss.
This section therefore does not constitute formal findings of fact.
5
Id. ¶¶ 8–9.
6
Id. ¶ 20.
7
See id. ¶¶ 2, 21.
4
Barbara J. Duganier, Thomas J. Edelman, Holli C. Ladhani, William T. Van Kleef,
and Martha B. Wyrsch, each a director of Noble.8
Cynergy Capital, Ltd (“Cynergy”) is a non-party global investment company
based in Cyprus.9
Prior to the Merger, Noble was an oil and gas exploration and production
company with operations in the United States, Africa, and the Eastern Mediterranean
markets.10 Noble announced the discovery of certain fields of natural gas from 2009
to 2011, including the Leviathan field in the Eastern Mediterranean market.11 Noble
ultimately achieved commercial production of the Leviathan field on December 31,
2019.12
2. The 2018 Cynergy Slide Deck
According to the Complaint, in “mid-2018,” Cynergy sent a slide deck to
Noble to communicate its interest in acquiring Noble’s Eastern Mediterranean
assets.13 Notably, the slide deck became available to the Plaintiffs only thanks to a
confidential informant (the “Informant”).14 If the proposal it suggests were to have
8
Id. ¶¶ 10–19.
9
Id. ¶ 23.
10
Id. ¶ 2.
11
Id. ¶ 34. The Complaint indicates that Noble had a 39.66% “working interest” in the Leviathan
field. Id. ¶ 36.
12
Id. ¶ 35.
13
Id. ¶¶ 37–38. The Complaint specifies that Cynergy “contacted Defendant Stover” regarding its
interest. Id. ¶ 37.
14
Id. ¶ 4. The slide deck has not been made available in its entirety to the Court, but certain slides
are extracted and included in the Complaint and Answering Brief.
5
been consummated, the slide deck indicates that Noble would have realized
approximately $1.0 billion cash upon closing of the acquisition.15 Further, the
Informant indicated that Cynergy’s interest could have solidified into “up to”
$6 billion in consideration for certain of the Eastern Mediterranean assets.16 The
slide deck communicated an interest in an asset purchase solely, rather than a
change-of-control transaction.17
Noble never executed an NDA, as requested by the slides, or communicated
any interest in executing an NDA to Cynergy.18 The Complaint alleges that Noble’s
Board “fail[ed] to follow-up on the [Cynergy] Proposal or entertain discussions with
Cynergy,”19 but also questions whether the Board was even informed of Cynergy’s
proposal.20
The Cynergy proposal was never communicated to Noble stockholders.21
3. The 2019–2020 Sale Process and Chevron Merger
In fall 2019, Noble decided to explore a sale of certain of its Eastern
Mediterranean assets and reached out to various counterparties (including Chevron)
15
Id. ¶ 38.
16
Id. ¶ 5.
17
Id. ¶ 40.
18
Id. ¶ 41.
19
Id. ¶ 83.
20
Id. ¶ 65.
21
See id. ¶ 6.
6
to gauge interest.22 Three main counterparties emerged: Chevron, Company A, and
Company B.23 Each of these counterparties spoke with representatives of Noble’s
management, including Defendant Stover (Noble’s CEO) and certain other Noble
vice presidents.24
On December 11 and 12, 2019, the Noble Board met, and Defendant Stover
informed the Board of management’s discussions with Company A and Company B,
but not Chevron.25 At that time, the Board directed Defendant Stover to continue
discussions with Company A, but not Company B.26
As noted above, on December 31, 2019, Noble announced the
commercialization of the Leviathan natural gas field, a significant milestone for
Noble as a company.27 The Complaint alleges that “[w]ithin a few days” of the
commercialization of the Leviathan field, Chevron and Noble engaged in
discussions again, particularly with respect to the sale of the Eastern Mediterranean
assets.28
22
Id. ¶ 43. It is not pled whether Noble reached out to Cynergy to see whether its mid-2018 offer
was still on the table at any point. See generally Compl.
23
Compl. ¶ 43.
24
Id.
25
Id. ¶ 45.
26
Id.
27
Id. ¶ 46.
28
Id. ¶ 47.
7
In January 2020, Company A withdrew its interest in Noble.29 A subsequent
meeting of the Noble Board reiterated the conclusion, initially reached in July 2019,
that to remain competitive and to increase “value, stability, and diversification,”
Noble would need to become a consolidator or to be sold to a larger company.30
In March 2020, the COVID-19 pandemic became a worldwide concern, and
Noble’s stock price declined precipitously along with the broader stock market. 31
As a result, management’s stock holdings and options suffered.32 The Complaint
alleges that the Board began holding special meetings to monitor Noble’s stock
price.33 In April 2020, Noble announced reductions in senior leadership salaries of
ten to twenty percent.34 On April 27, 2020, Noble amended its 2016 Change of
Control Severance Plan for Executives (the “Amended Plan”), providing that any
severance awards for executives were to be calculated based on compensation prior
to the pandemic-related reductions.35 This change was not outlined in the Noble
annual proxy statement, but the Amended Plan was attached to Noble’s first quarter
public Form 10-Q filing (the “Form 10-Q”).36
29
Id. ¶ 48.
30
Id.
31
Id. ¶ 50.
32
Id.
33
Id. ¶ 53.
34
Id. ¶ 51.
35
See, e.g., id. ¶¶ 55, 56.
36
Id. ¶ 56. I note that the annual stockholder meeting for Noble was scheduled for April 28, 2020.
Id.
8
At the same time, Noble management’s discussions with Chevron
continued.37 From February to April 2020, at least four meetings occurred between
Chevron and Noble management, allegedly without the Noble Board’s knowledge.38
On April 27, 2020, the same day the amendment to the severance plan occurred, the
Noble Board was informed of management’s discussions with Chevron.39 The
Board determined not to pursue a sale of fifty to one hundred percent of Noble’s
Eastern Mediterranean “position” (at that time the focus of the Chevron discussions),
but established an “Advisory Group” to explore additional strategic options.40 Per
the Complaint, the strategic options identified at the Board meeting did not
“specifically” include a total company sale.41
On May 12, 2020, Noble’s President and Chief Operating Officer, Brent
Smolik, informed Chevron that Noble would be “willing to entertain a serious offer
to acquire the company.”42 On July 20, 2020, Chevron and Noble announced the
Merger.43
The Merger provided consideration to stockholders of 0.1191 of a share of
Chevron common stock in exchange for each one share of Noble common stock.44
37
Id. ¶ 53.
38
Id.
39
Id. ¶ 58.
40
Id.
41
See id.
42
Id. ¶ 59.
43
Id. ¶ 60.
44
Id. ¶ 3.
9
Per the Complaint, this was equal to a value of approximately $10.39 per share the
day before the signing of the transaction documents.45 In total, this was a valuation
of $5 billion for the entirety of Noble.46 The Merger documentation also
contemplated a $40 million “integration pool” for executives.47
In support of the Merger, the Defendants authorized the filing of a definitive
proxy statement (the “Merger Proxy”) on August 26, 2020, which the Plaintiffs
characterize as “materially incomplete and misleading.”48 The Cynergy proposal
was not disclosed in the Merger Proxy, nor were any other proposals predating July
2019.49 The Plaintiffs contend this omission was material.50 Obviously, the
company’s reasons for not pursuing the Cynergy proposal were not included in the
Merger Proxy, either, a fact about which the Plaintiffs also complain.51 Additionally,
the Plaintiffs complain of the lack of disclosure regarding the “changes” to the
Amended Plan, questioning the timing of the amendment and the role, if any, it
played in negotiating the Merger.52 They suggest that via the Amended Plan,
45
Id.
46
Id. ¶ 81.
47
Id. ¶ 59.
48
Id. ¶ 6.
49
Id. ¶ 83.
50
Id. ¶ 82.
51
See id. ¶ 6. I note also that the Complaint raises lack of disclosure regarding the Advisory Group
formed at the April 27, 2020 Board meeting, but the Complaint does not allege that this represents
a material breach. See id. ¶ 65; see also id. ¶ 96. As such, I do not consider this part of the claims
to be assessed and do not consider the question further.
52
Id. ¶ 84.
10
management engaged in self-dealing, and that the Board supported this conduct by
enacting the Amended Plan.53
The Merger Proxy sought, among other things, Noble stockholders’ approval
of the Merger.54 It also requested an advisory vote of stockholders in favor of the
executive compensation to be paid in connection with the Merger, consistent with
the Amended Plan.55 Noble’s stockholders approved both on October 2, 2020.56
B. Procedural History
The Plaintiffs filed their Complaint, styling the action a class action on behalf
of all other holders of Noble common stock harmed by the Defendants’ actions, on
January 12, 2021.57 The Plaintiffs bring three total direct58 claims: (1) breach of
“fiduciary duties” against the Defendants (which duties is not specified); (2) breach
of fiduciary “duties of disclosure” against the Defendants; and (3) breach of
fiduciary duty of care against Defendant Stover alone.59 The Complaint includes
53
Id. ¶ 65.
54
See Transmittal Decl. of Kenneth J. Nachbar Pursuant to 10 Del. C. § 3927 in Supp. of Defs.’
Mot. to Dismiss Pls.’ Verified Class Action Compl., Dkt. No. 7, Ex. 1, at 3 [Ex. 1 hereinafter
“Merger Proxy”].
55
See id.
56
Compl. ¶ 61.
57
See generally Compl.; see also id. ¶ 30.
58
While the Complaint is unclear with respect to whether the claims were direct or derivative in
nature, the Plaintiffs identified in their Answering Brief that the claims are direct. See Br. in Opp’n
to Mot. to Dismiss the Verified Class Action Compl. 43, Dkt. No. 13 [hereinafter “AB”].
59
Compl. ¶¶ 88–103. At oral argument and in their Answering Brief, the Plaintiffs’ counsel also
suggested that there may have been fraud on the board. See AB 16–17; Oral Arg. 28:10–11. This
was not alleged in the Complaint, so I do not consider it an appropriate cause of action to be
addressed here.
11
language regarding both an unfair process and an unfair price, and alleges (though
not in a specific count) that the Board owed stockholders a “duty of care, loyalty,
good faith, candor, and independence.”60
The Defendants filed their Motion to Dismiss on April 30, 2021.61 Briefing
followed, and I heard oral argument on November 2, 2021.62
II. ANALYSIS
This motion to dismiss comes before me under Rule 12(b)(6). The applicable
legal standard requires dismissal of the Complaint in the event the Plaintiffs cannot
recover under any “reasonably conceivable set of circumstances susceptible of
proof.”63 In assessing the facts, all well-pled factual allegations are to be accepted
as true, and the Court must draw all reasonable inferences in favor of the non-moving
party, here the Plaintiffs.64
60
See generally Compl.; see also id. ¶¶ 1, 24. I note that under Delaware’s jurisprudence, there
are only two fiduciary duties, care and loyalty. Actions taken or foregone by fiduciaries may
implicate one or both of those duties.
61
Defs.’ Mot. to Dismiss Verified Class Action Compl., Dkt. No. 5.
62
See generally Oral Arg.
63
In re GGP, Inc. S’holder Litig., 2021 WL 2102326, at *11 (Del. Ch. May 25, 2021) (internal
quotations omitted).
64
See id.12
A. The Board’s Alleged Breach of Fiduciary Duties
The Complaint’s Count I does not specify which fiduciary duties the Board
has, in the Plaintiffs’ view, breached. To my mind, each of the Counts pled in the
Complaint can be resolved by undertaking a Corwin analysis.65
Corwin stands for the general proposition that where a transaction has been
approved by a fully informed, uncoerced majority of disinterested stockholders, the
business judgment rule applies.66 This Court will not, in such a situation, second-
guess the judgment of the stockholders. Put another way, the agency problems that
support judicial review of the actions of fiduciaries are alleviated where the
principals—the stockholders—have the opportunity to, and have, approved the
transaction.
For Corwin to be applied, the stockholder approval in question must not have
been coerced.67 Such coercion is presumptively present where a “looming conflicted
controller” engages in a conflicted transaction.68 Those transactions subject to entire
fairness involving a controlling stockholder are excluded from cleansing under
Corwin.69 That is, “[c]oercion is deemed inherently present in controlling
65
See generally Corwin, 125 A.3d 304.
66
Id. at 305–06.
67
See generally id. at 306 (holding doctrine applicable where entire fairness not the standard).
68
See Larkin v. Shah, 2016 WL 4485447, at *13, *8 (Del. Ch. Aug. 25, 2016).
69
Id. at *8; see also Firefighters’ Pension Sys. of City of Kansas City, Missouri Trust v. Presidio,
Inc., 251 A.3d 212, 254 (Del. Ch. 2021) (citation omitted) (“But despite this phrasing, Corwin
precludes cleansing only when entire fairness applies ab initio because of the presence of a
13
stockholder transactions of both the one-sided and two-sided variety, but not in
transactions where the concerns justifying some form of heightened scrutiny derive
solely from board-level conflicts or lapses of due care.”70 Thus, if a plaintiff does
not plead a conflicted controller engaging in the transaction, allegations of breach of
a duty of loyalty will not preclude the application of Corwin, and (presuming the
doctrine is otherwise satisfied) will be adjudged to have been cleansed such that the
business judgment rule applies.71
I make this point to address certain allegations made by the Plaintiffs, and to
explain why I do not entertain them in further detail here. Although not expressly
pled in response to a Corwin argument, the Plaintiffs assert certain facts regarding
the change-of-control payments to be made under the Amended Plan, suggesting that
Noble management engaged in self-dealing and that the Noble Board either turned
a blind eye or “acquiesced and supported management’s misconduct.”72 Without
passing on the sufficiency of these allegations, precedent indicates that these facts
do not prevent the application of the Corwin doctrine here. It is not pled that there
is any conflicted controller associated with the Merger (indeed, the Plaintiffs do not
conflicted controlling stockholder.”); Kihm v. Mott, 2021 WL 3883875, at *11 n.70 (Del. Ch. Aug.
31, 2021) (citation omitted).
70
Larkin, 2016 WL 4485447, at *12.
71
Id. (citing In re Volcano Corp. S’holder Litg., 2016 WL 3583704, at *11 (Del. Ch. June 30,
2016)).
72
Compl. ¶ 65.
14
plead coercion at all),73 and therefore Corwin may be applicable in the event a fully
informed, uncoerced vote of the stockholders indeed occurred. I consider this in
further detail below.
1. Assessing the Merger Proxy and Stockholder Vote Under Corwin
To attain the business judgment rule standard of review under Corwin, the
stockholder vote in question must be fully informed.74 Here, the Plaintiffs argue that
the vote was not fully informed on two bases.75 Because I find that none of the
omitted information was required to be disclosed in the Merger Proxy, I conclude
that the stockholder vote was fully informed.
a. Considering the Materiality of the Omitted Information
The Plaintiffs allege that Cynergy was excluded from Noble’s proxy
description of the “sales process” such that Noble stockholders lacked “full
disclosure of the potential superior offers in the market,” and separately allege that
Noble stockholders did not fully understand the Amended Plan awarding change in
control payments to corporate officers.76 With respect to the Amended Plan, the
Plaintiffs take issue with the fact that the Merger Proxy did not “fully disclose what
73
See generally Compl.
74
See In re Columbia Pipeline Grp., Inc., 2021 WL 772562, at *11 (Del. Ch. Mar. 1, 2021)
(citation omitted) (“To defeat Corwin cleansing, a plaintiff must plead the existence of a disclosure
violation.”).
75
They also aver that these disclosure deficiencies demonstrate breaches of fiduciary duty by the
Defendants.
76
Compl. ¶ 61.
15
role the [Amended] Plan had in negotiations during the sale of” Noble.77 The
Plaintiffs therefore charge the Defendants with a failure of their “duty of
candor/disclosure” and contest whether the stockholder vote following the Merger
Proxy was fully informed.78
It is worth distinguishing the predicate issue before me—the alleged lack of
an informed vote for purposes of applying the Corwin analysis—from the closely
related issue of whether the same informational deficit represents an unexculpated
breach of fiduciary duty on the part of the Defendants. The duty to disclose material
information in way of stockholder action inheres in the fiduciary duties of care and
loyalty.79 Where a corporation seeks stockholder action, directors of Delaware
corporations are responsible for disclosing “fully and fairly all material information
within the board’s control.”80 Directors are required to provide stockholders with
“accurate and complete information material to a transaction or other corporate
event that is being presented to them for action.”81 Violation of fiduciary duties in
way of such disclosures constitutes the Plaintiffs’ substantive claim of breach of
fiduciary duty in this matter. Analysis of whether alleged misdisclosures breach
such duties would focus on the knowledge and action of the Defendant directors and
77
Id. ¶ 84.
78
See id. ¶¶ 6, 28.
79
Malone v. Brincat, 722 A.2d 5, 11 (Del. 1998).
80
Id. at 9 (quoting Zirn v. VLI Corp., 681 A.2d 1050, 1056 (Del. 1996)).
81
Id. at 10.
16
officers. For Corwin purposes, by contrast, ratification requires the informed vote
of the stockholders; as addressed below, the focus is on the knowledge of the
transaction communicated to the stockholders, and whether they were sufficiently
informed to ratify the transaction. Because, here, I find the stockholders were so
informed, the business judgment rule applies and my analysis need not go further.
The Plaintiffs here ask me to find that, without disclosure of both (1) the
Cynergy proposal and (2) further details regarding the Amended Plan, Noble
stockholders lacked accurate and complete information. In essence, their argument
is that the Merger Proxy was incomplete. However, directors need not provide
exhaustive information in seeking a stockholder vote; caselaw requires accurate and
complete disclosure of material information.82
In TSC Industries, Inc. v. Northway, Inc., the United States Supreme Court
grappled with the appropriate standard for determining whether information is
“material,” eventually rejecting the standard applied by the lower circuit court of “all
facts which a reasonable shareholder [m]ight consider important.”83 The Supreme
Court indicated that this threshold was too low: “[s]ome information is of such
82
See In re Solera Holdings, Inc. S’holder Litig., 2017 WL 57839 (Del. Ch. Jan. 5, 2017) (quoting
Skeen v. Jo-Ann Stores, Inc., 750 A.2d 1170, 1174 (Del. 2000)) (“[I]nformation is ‘not material
simply because [it] might be helpful.’”).
83
TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 445 (1976) (citing Northway, Inc. v. TSC
Indus., Inc., 512 F.2d 324, 330 (7th Cir. 1975)). The materiality standard expressed in TSC
Industries has been adopted by Delaware courts. See, e.g., Rosenblatt v. Getty Oil Co., 493 A.2d
929, 949 (Del. 1985).
17
dubious significance that insistence on its disclosure may accomplish more harm
than good . . . . [M]anagement’s fear of exposing itself to substantial liability may
cause it simply to bury the shareholders in an avalanche of trivial information[,] a
result that is hardly conducive to informed decisionmaking.”84 Ultimately, the
Supreme Court held that “[a]n omitted fact is material if there is a substantial
likelihood that a reasonable shareholder would consider it important in deciding how
to vote.”85 In order for information to be material in nature, the information must be
“of a magnitude that it would, upon disclosure, have ‘significantly altered the “total
mix” of information in the marketplace.’”86
Delaware cases have further recognized that materiality is, by its nature, a
contextual and fact-specific concept,87 requiring careful consideration of the
allegedly material nonpublic information in conjunction with the public knowledge
of the market.
While the burden of demonstrating that stockholders were fully informed for
purposes of Corwin generally lies with the defendants, cases have held that a plaintiff
challenging a stockholder vote should “‘first identify a deficiency in the operative
84
Id. at 448–49.
85
Rosenblatt, 493 A.2d at 949 (citing TSC Indus., 426 U.S. at 449).
86
In re Oracle Corp., 867 A.2d 904, 934 (Del. Ch. 2004) (quoting Rosenblatt, 493 A.2d at 944).
87
See Kihm, 2021 WL 3883875 at *11 (citing Chester Cty. Emps. Ret. Fund v. KG Holdings, Inc.,
2019 WL 2564093, at *10 (Del. Ch. June 21, 2019)) (describing the inquiry as “fact-intensive”).
18
disclosure document.’”88 Once a deficiency has been identified, the burden falls to
the defendants to establish that the alleged deficiency is not material as a matter of
law, such that the cleansing effect of the vote may be secured.89
With these standards to guide my review, I consider the two omissions the
Plaintiffs allege violated the Noble Board’s disclosure obligations, while remaining
mindful of the broader plaintiff-friendly standard of review to be applied at the
motion to dismiss stage.
I begin with the omission of the Cynergy proposal. The Cynergy proposal
was unsolicited, made in mid-2018, and predated important contextual
developments, such as the commercialization of the Leviathan field and the onset of
the COVID-19 pandemic.90 Further, the Cynergy proposal contemplated an entirely
different transaction structure than the one achieved in the Merger with Chevron.91
Additionally, the Cynergy proposal was never entertained by management or the
Board.92 Even drawing all reasonable inferences in favor of the Plaintiffs, the
alleged failure to fully inform stockholders with respect to the Cynergy proposal
cannot survive.
88
Columbia Pipeline, 2021 WL 772562, at *32 (citation omitted); see also Kihm, 2021 WL
3883875, at *11.
89
See id.90
See supra Section I.A.
91
See supra Section I.A.
92
See supra Section I.A.
19
As a threshold matter, the Plaintiffs correctly point out that the Cynergy
proposal need not have remained available to Noble at the time of the Merger Proxy
for the information regarding the proposal to have been material. One can readily
hypothesize a set of facts where a proposal sufficiently proximate in time and
circumstances to the Merger would be material to stockholders, even if no longer
available at the time of the Merger Proxy. The actual Cynergy proposal was, as
pointed out above, remote in both time and circumstances from the Merger and the
Merger Proxy, however. The Cynergy proposal, to be found material, must have
been significant enough to alter the “total mix” of information in the marketplace at
the time the stockholder vote was solicited. I do not find that it was.
The time lapse between the original Cynergy proposal and the Merger, along
with the content of the proposal, are such that a reasonable stockholder would not
be substantially likely to consider the slide deck important in voting its shares. The
slides excerpted in the Complaint call for the exploration of “the potential of a deal
for a limited initial time period on a non-exclusive basis,” and suggest “negotiat[ing]
and promptly clos[ing]” the transaction in question,93 strongly suggesting that the
Cynergy proposal would not have survived to 2020. Further, Delaware courts have
previously held that it is not “reasonably conceivable that preliminary conversations
that occurred over eighteen months before the transaction was agreed to would
93
See Compl. ¶ 38.
20
significantly alter the total mix of information available to [company]
stockholders.”94 A similar gap likely exists here, though the exact date of the
Cynergy proposal has not been provided.
Additionally, the Cynergy proposal emphasizes the opportunity to “realise an
accelerated development and monetisation of the Leviathan and Aphrodite
fields”95—something that had, at least partially, taken place as of December 31,
2019.96 Given Cynergy’s specific interest in getting in at the ground level with
respect to “existing, yet to be fully commercialised assets,”97 the changed
circumstances indicate little relevance between the Cynergy contact and the Merger
with Chevron.
Beyond this, any information disclosed about Cynergy would have been
minimally relevant at best because of the lack of engagement between the two
companies.98 Prior Delaware caselaw has held that where there was “only an
expression of interest in a friendly meeting between firms and the facts did not
suggest actual ‘merger discussions’ or ‘negotiations,’” related omitted facts were
immaterial.99 While the Cynergy proposal here may have risen slightly above that
94
Dent v. Ramtron Int’l Corp., 2014 WL 2931180, at *14 (Del. Ch. June 30, 2014).
95
Compl. ¶ 38.
96
See supra note 12 and accompanying text.
97
Compl. ¶ 38.
98
See supra notes 18–20 and accompanying text.
99
See Alessi v. Beracha, 849 A.2d 939, 946 (Del. Ch. 2004) (citing Shamrock Holdings, Inc. v.
Polaroid Corp., 559 A.2d 257, 274–75 (Del. Ch. 1989)).
21
standard (by submitting a proposal rather than merely requesting a meeting), the lack
of interest from Noble prevents the Cynergy proposal from taking on any heightened
importance, as there was an utter lack of negotiations. The United States Supreme
Court has itself indicated that the materiality of a contingent event (such as a merger,
or here, the proposed asset acquisition) “will depend at any given time upon a
balancing of both the indicated probability that the event will occur and the
anticipated magnitude of the event in light of the totality of the company activity.”100
Given the complete dearth of communications alleged between Noble and Cynergy
following “mid-2018,” the probability that the event (the original proposal) would
occur was low. Given that context, and given the existence of multiple other
companies’ having demonstrated more recent interest, including Chevron’s
willingness to enter into a definitive merger agreement, the anticipated magnitude
of the Cynergy proposal is diminished such that a reasonable investor would be
unlikely to place significance upon its disclosure.
Finally, the occurrence of the COVID-19 pandemic diminished the potential
materiality of market conditions and opportunities existing pre-COVID-19. In the
context of the stock market’s volatility and the general atmosphere of uncertainty
100
See Basic Inc. v. Levinson, 485 U.S. 224, 238 (1988) (internal quotations omitted) (quoting
SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 849 (2d Cir. 1968)).
22
that pervaded in 2020,101 I find it not reasonably conceivable that a reasonable
investor would have considered the unanswered Cynergy proposal in 2018 important
in determining how to vote on a stock-for-stock merger with Chevron in 2020. As
such, the Cynergy proposal was not material, and the fact that the Merger Proxy did
not discuss the Cynergy proposal did not render stockholders uninformed for the
purposes of Corwin cleansing, and did not violate the Defendants’ duties regarding
disclosure.
I turn now to the question of the executive change-of-control payments
available under the Amended Plan. First, for the sake of completeness, I find it
helpful to parse certain of the allegations connected with the Amended Plan in the
Complaint. The Plaintiffs have pled that the Merger involved some level of self-
dealing, stating that “it appears that [Noble] management acted in their own self-
interest in pursuing a sale to Chevron in a manner that allowed them to recoup their
losses [associated with the COVID-19 pandemic] and also maintain an ongoing
equity interest in the surviving company.”102 Further, the Noble Board enacted the
Amended Plan, which the Complaint characterizes as a “substantial windfall to
101
See, e.g., Williams Cos. S’holder Litig., 2021 WL 754593, at *4 (Del. Ch. Feb. 26, 2021) (“In
early 2020, however, the COVID-19 pandemic and the ensuing oil price war between Saudi Arabia
and Russia shocked the oil market and sent stock prices plummeting.”). Williams discussed the
trading volume in another natural gas company during the beginning stages of the COVID-19
pandemic, characterizing it as “high,” “fluctuat[ing] dramatically from day to day,” and indicative
of “a lot of unusual and short-term-type trading.” See id. (citations omitted).
102
Compl. ¶ 52.
23
Noble Energy Management.”103 According to the Plaintiffs, these facts “strongly
suggest that, while shopping the Company, management engaged in self-dealing
while the Board turned a blind eye and, perhaps worse, acquiesced and supported
management’s misconduct.”104 As discussed above, while these allegations might
give rise to a claim of the duty of loyalty in other circumstances, they do not prevent
the application of Corwin here,105 provided disclosure was sufficient to render the
(uncoerced) stockholder vote fully informed and therefore curative.
Turning then to the meat of the disclosure claim, the Complaint alleges that
the Amended Plan was not disclosed in Noble’s 2020 annual proxy statement, and
was only included as an attachment sans discussion to the Form 10-Q.106 The
Complaint also further alleges that
the proxy [seeking approval of the Merger by stockholders] fails to
disclose the changes to the [Amended Plan] . . . . The Proxy fails to
disclose whether this amendment was in due course or that it had
been in the works for some time. The Proxy further fails to fully
disclose what role the [Amended] Plan had in negotiations during
the sale of [Noble.]107
103
Id. ¶ 57.
104
Id. ¶ 65.
105
See supra notes 72–73 and accompanying text.
106
Compl. ¶ 56.
107
Id. ¶ 84. The capitalization of the term “proxy” is inconsistent in the above-quoted section. The
capitalized term “Proxy” as used throughout the Complaint refers to the Merger Proxy, and the
stockholder vote stemmed from the Merger Proxy, so I assume that the first reference to the
“proxy” also pertains to the Merger Proxy. See generally Compl.
24
The Merger Proxy includes detailed disclosure regarding potential severance
payments and benefits in connection with the Amended Plan and Merger.108 The
Merger Proxy also incorporates by reference the Form 10-Q, which had attached the
Amended Plan previously.109 Between these references and the availability of the
actual Amended Plan, the pertinent information about the Amended Plan was
accessible to Noble stockholders.
The Plaintiffs allege that more must have been disclosed. Their reading would
require discussion of the changes made to the plan comparative to the 2016 version,
the timing of the contemplated changes memorialized in the Amended Plan, and the
importance the Amended Plan had with respect to negotiations for sale of Noble.110
Even viewed in the light most favorable to the Plaintiffs, none of this gives rise to a
disclosure violation.
First, it is not necessary that the Merger Proxy (or the annual proxy)
summarize in detail every change made to the Amended Plan. Rather, the Merger
Proxy’s comprehensive information regarding the payments named executive
officers could expect to receive provides stockholders with the expected outcome,
108
See Merger Proxy 83–85.
109
Although not pled or argued by either party here, in addition to the Form 10-Q, I note that the
Merger Proxy also incorporated by reference a Form 8-K filed by Noble with the Securities and
Exchange Commission on May 1, 2020, which discusses the Amended Plan. See id. at 145; but
see In re Pattern Energy Grp. Inc. S’holders Litig., 2021 WL 1812674 (Del. Ch. May 6, 2021)
(finding that references in multiple prior Form 10-Ks were insufficient to provide full disclosure).
110
See supra note 106 and accompanying text.
25
which is the pertinent information. Again, the precise benefits of the plan flowing
to named executive officers, should the Merger be approved, were explicitly
disclosed to stockholders. Thus, not only was the text of the Amended Plan itself
provided, but the expected effects were also clearly delineated to stockholders.
“[M]ere failure to organize the documents to meet [the] plaintiff’s best case scenario
for maximizing the clarity of the information presented does not constitute the kind
of omission or misleading half truth necessary for a materially inadequate
disclosure.”111 The disclosure regarding the changes to the Amended Plan, and the
ultimate payouts in connection with the same, was sufficient here.112
I note that the Amended Plan itself had already been enacted by the Board, as
the Merger Proxy and the Form 10-Q disclosed. The information for which Plaintiffs
advocate—the timeline for contemplation of changes ultimately enshrined in the
Amended Plan—would not significantly alter the “total mix” of information for
stockholders in determining whether to vote for the Merger with Chevron, in light
of that disclosed fact. That is, even if the Noble stockholders chose to reject the
111
Salladay v. Lev, 2020 WL 954032, at *16 (Del. Ch. Feb. 27, 2020) (internal quotations omitted)
(quoting Wolf v. Assaf, 1998 WL 326662, at *3 (Del. Ch. June 16, 1998)); see also Wolf, 1998 WL
326662, at *3 (“Under no reasonable interpretation of the facts plead [sic] could the placement of
the disclosure about the [allegedly omitted information] in the 10-K accompanying the proxy
statement rather than in the statement itself serve as the basis for a disclosure violation.”).
112
Cf. In re Trans World Airlines, Inc. S’holders Litig., 1988 WL 111271, at *10 (Del. Ch. Oct.
21, 1988) (indicating that if the numbers in question could be derived from information in the
proxy statement, that disclosure might be acceptable), abrogated on other grounds by Kahn v.
Lynch Commc’n Sys., Inc., 638 A.2d 1110 (Del. 1994). As above, the numbers here were not
merely derivable but were explicitly provided in the Merger Proxy.
26
Merger with Chevron, the substance of the Amended Plan would have remained in
effect and would have applied to any change-of-control transaction contemplated in
the future.113 In my view, the only facts pertaining to the Amended Plan that were
material were the dollar-value payments to be made to the applicable members of
management, which the Plaintiffs have conceded were included in the Merger
Proxy.114 The incentives for management associated with those payments were
apparent.115 The dates on which the Amended Plan was considered would not, to
my mind, change the “total mix” of information available to the reasonable
stockholder.
***
The Complaint pleads that the Noble stockholders’ vote was less than fully
informed due to lack of disclosure regarding the Cynergy proposal as well as the
113
Cf. Solera, 2017 WL 57839, at *12. Solera involved, among other things, a disclosure claim
regarding a “Special Cash Award” paid out in connection with the Merger. See id. The Court
indicated that the Special Cash Award “logically had no impact on who the company was sold to
because it had been paid and the money was out the door before final bids were submitted and the
Merger Agreement was signed.” Id. While the change-of-control payments had not been made
before signing in this case, the Solera reasoning inures, at least in part, here as well. Regardless
of the identity of the suitor purchasing Noble, the Amended Plan was in effect and would have
applied to any change-of-control transaction. This much was apparent to stockholders.
114
See AB 35 (“The Complaint, however, does not allege the [Merger] Proxy failed to disclose the
change-in-control payments . . . .”).
115
“When a proxy statement describes the facts that create differing incentives for fiduciaries, it
need not explain how those differing incentives could produce a self-interested outcome.”
Columbia Pipeline, 2017 WL 898382, at *3 (citing Solera, 2017 WL 57839, at *11–12; then citing
Orman v. Cullman, 794 A.2d 5, 34–35 (Del. Ch. 2002)). The differing incentives for the named
executive officers were made evident in the Merger Proxy. Noble need not provide further
information regarding the “role,” if any, that the Amended Plan played in the signing of the
Merger.
27
executive change-of-control payments per the Amended Plan. I have found above
that it is not reasonably conceivable that either of these two items were material such
that they needed to be disclosed to stockholders, and the Plaintiffs plead no other
basis which might find the stockholder vote to have been less than fully informed.
The Plaintiffs also do not plead coercion of the Noble stockholders.116 I find that
Corwin applies.
b. The Results of the Application of Corwin
Given that Corwin applies to the Merger, the business judgment rule is the
appropriate standard of review117 for assessing the transaction.118 It follows that the
only kind of claim that can survive the cleansing effect of the stockholder vote is a
claim of waste.119 The Plaintiffs do not plead waste.120 Count I, which alleges a
general breach of fiduciary duty against the Noble Board, must therefore fail, as does
Count II (alleging breach of duty regarding disclosures by the Defendants, discussed
at length above) and Count III, alleging a breach of the duty of care against
Defendant Stover.
116
See generally Compl.
117
Or standard of non-review.
118
Kihm, 2021 WL 3883875, at *10.
119
See id.120
See generally Compl.
28
III. CONCLUSION
The Defendants’ Motion to Dismiss is GRANTED. An appropriate Order is
attached.
29