Teamsters Local 677 Health Services & Insurance Plan v. Frank D. Martell

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
TEAMSTERS LOCAL 677 HEALTH )
SERVICES & INSURANCE PLAN, )
individually and on behalf of all others )
similarly situated, )
)
Plaintiff, )
)
v. ) C.A. No. 2021-1075-NAC
)
FRANK D. MARTELL, )
)
Defendant. )
MEMORANDUM OPINION
Date Submitted: October 25, 2022
Date Decided: January 31, 2023
Date Corrected: February 1, 2023 ∗
Stephen E. Jenkins, Tiffany Geyer Lydon, ASHBY & GEDDES, P.A., Wilmington,
Delaware; Donald J. Enright, Elizabeth K. Tripodi, Jordan A. Cafritz, LEVI &
KORSINSKY, LLP, Washington, D.C.; Gregory Nespole, LEVI & KORSINSKY,
LLP, New York, New York; Frank Shirripa, Daniel B. Rehns, HACH ROSE
SHIRRIPA & CHEVERIE LLP, New York, New York; Counsel for Plaintiff.
Robert S. Saunders, Cliff C. Gardner, Matthew P. Majarian, Ryan M. Lindsay,
Trevor T. Nielson, SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP,
Wilmington, Delaware; Counsel for Defendant.
COOK, V.C.
∗
This corrected version of the decision fixes certain formatting and typographical errors.
It does not make any substantive changes.
Plaintiff is a former stockholder of CoreLogic, Inc. (the “Company”). In late
June 2020, two funds made an unsolicited joint proposal to acquire the Company.
The Company’s board of directors (the “Board”) rejected the proposal as
undervalued. After a proxy contest, the funds succeeded in electing three directors
to the Board.
The public announcement of the funds’ acquisition proposal stirred significant
interest in the Company. So the Board initiated a months-long strategic alternatives
process. After many months of shopping the Company, the Board narrowed the field
of bidders to a financial buyer and a strategic buyer, CoStar Group, Inc. The
financial buyer proposed an all-cash transaction. CoStar proposed an all-stock
transaction. Both proposals were disclosed to stockholders in the Company’s proxy
statement (the “Proxy Statement”).
Based on cash, antitrust, and closing considerations, the Board selected the
financial buyer. Then CoStar publicly submitted two post-signing, competing bids.
Both bids were disclosed in the Proxy Statement.
CoStar’s stock offer was nominally more valuable than the cash offer. But
that nominal value was uncertain. CoStar’s proposals also raised antitrust concerns.
Regulatory scrutiny could have delayed a closing date by up to 15 months. All these
considerations were disclosed in the Proxy Statement.
1
CoStar’s competing bids were unresponsive to the Board’s regulatory and
closing concerns and did not provide enough cash to address volatility in CoStar’s
stock. Indeed, CoStar’s stock suffered a 19% price decline at the time CoStar
submitted the competing bids. Still, the Board believed that CoStar had the potential
to make a superior proposal. So the Board encouraged CoStar to improve its terms.
But CoStar walked.
In June 2021, the financial buyer acquired the Company for $6 billion in cash
(the “Merger”). The Merger generated a 51% premium to the Company’s unaffected
stock price. The stockholders voted overwhelmingly in favor of the Merger.
CoStar’s CEO, Andrew Florance, commented publicly on the Merger. In an
online article, Florance was paraphrased as stating that the Board chose the Merger
over a CoStar deal to entrench the Company’s management. In his own words,
Florance stated generically that, in strategic mergers, “inevitably some of [senior
management’s] jobs go away” and “[t]hat’s a powerful motive to not do a deal.”
Plaintiff brought a books-and-records action against the Company to
investigate potential wrongdoing. Plaintiff obtained documents and agreed to
incorporate all of them into its complaint.
None of the Company’s 11 outside directors is alleged to be conflicted. None
of the Board’s advisors is alleged to be conflicted. None of the stockholders is
alleged to be a conflicted controller. The vote is not alleged to have been coerced.
2
And entire fairness is not alleged to apply to the Merger. As a result, the complaint
is subject to dismissal under Corwin unless the Merger vote was not fully informed.
To defeat Corwin on disclosure grounds, Plaintiff does not rely on the books
and records it obtained from the Company. The complaint’s version of the facts
obscures documents integral to Plaintiff’s claim. Plaintiff instead relies exclusively
on Florance’s statements to argue that the Board’s meeting minutes and identified
sale considerations must be false. Under this theory, the so-called “real reason”
behind the Merger was Defendant Martell’s undisclosed conflict of interest in
protecting his job. In this way, Plaintiff tries to generate a disclosure claim
concerning otherwise facially appropriate proxy disclosures made by an independent
board with its independent advisors. According to Plaintiff, I must shut my eyes to
everything but a handful of statements on the internet attributed to a senior executive
of an entity that was publicly unsuccessful in making a topping bid.
One might imagine scenarios where a post-process statement made by a
bidder could support a sale process claim. But this is not one of them. The Proxy
Statement and board materials unambiguously contradict Plaintiff’s theory. And
nothing in the complaint otherwise supports Plaintiff’s extreme inference that the
Company’s books and records and public disclosures are false. To the extent
Plaintiff sought to bring a hidden, management-level conflict to light, its own
inspection demand snuffed the wick.
3
It is not reasonably conceivable that the Board committed a disclosure
violation. So Plaintiff’s claim fails under Corwin. But even if Corwin did not apply,
the complaint would fail for another reason. Only Martell—the Board’s sole inside
director—is alleged to have been conflicted. But the Proxy Statement disclosed
Martell’s potential pecuniary interest in the Merger. And it is not clear from the
complaint what role Martell played in the Merger anyway. Save for isolated scenes,
he barely appears. In many ways, he is depicted as the Mr. Godot who never arrives.1
The complaint is devoid of specific facts from which to infer that Martell
steered the Company away from CoStar to entrench himself. Under any standard,
then, Plaintiff has failed to state a breach of fiduciary duty claim against Martell.
Accordingly, I grant Martell’s motion to dismiss.
I. FACTUAL BACKGROUND
I draw the relevant facts from the Verified Class Action Complaint (the
“Complaint”) and the documents it incorporates by reference.2 At this stage, the
1
Samuel Beckett, Waiting for Godot: A Tragicomedy in Two Acts (1953).
2
Citations in the form of “Compl. ¶ —” refer to the Complaint. See Dkt. 1. Citations in
the form of “Ex. —” refer to the exhibits submitted with Martell’s motion. See Dkt. 11–
14. Citations in the form of “Tr. —” refer to the transcript of the oral argument on Martell’s
motion. See Dkt. 30.
4
Complaint’s well-pleaded allegations are assumed to be true and Plaintiff receives
the benefit of all reasonable inferences.
A. The Parties And Relevant Non-Parties
The Company was a publicly traded Delaware corporation specializing in
property market analytics and technology.3 Plaintiff was a common stockholder of
the Company. 4 Martell was the Company’s CEO and a member of the Board. 5
The Board comprised 12 directors. The eleven directors not named as parties
to this action were all outside directors.6 Three of those directors were elected
through a proxy contest initiated by Senator Investment Group LP and Cannae
Holdings, Inc. (the “Funds”).7
3
Ex. 30 at 35 (CoreLogic, Inc., Definitive Proxy Statement (Schedule 14A) (Mar. 30,
2021)) (“Proxy Statement”).
4
Compl. ¶ 8; Dkt. 17 at 1 (Pl.’s Br. in Opp’n to Def.’s Mot. to Dismiss) (“Opp’n Br.”).
5
Compl. ¶ 9. Martell has since resigned as the Company’s CEO. See Opp’n Br. at 3 n.1.
6
CoreLogic, Inc., Annual Report (Form 10-K) at 110 (Mar. 1, 2021). Plaintiff avers that
it did not sue the outside directors due to a Section 102(b)(7) exculpatory provision in the
Company’s charter. See Compl. ¶ 22.
7
Compl. ¶ 44.
5
Evercore Group L.L.C. served as the Board’s principal financial advisor
during the sale process. 8 Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”)
served as the Board’s legal advisor during the sale process. 9
CoStar is a publicly traded Delaware corporation that specializes in property
market analytics and technology. 10 CoStar was a strategic bidder. 11
Stone Point Capital LLC and Insight Partners LLC acquired the Company in
the Merger. Stone Point and Insight were financial bidders.
B. The Sale Process
According to the Complaint, in June 2020, the Board determined to consider
offers to acquire the Company.12
On June 26, 2020, the Funds publicly announced an unsolicited joint proposal
to acquire the Company for $65 per share. 13 The Board rejected the proposal,
concluding, among other things, that it “significantly undervalued” the Company.14
8
Id. ¶ 33.
9
Id. ¶ 38.
10
CoStar Gp., Inc., Annual Report (Form 10-K) at 5 (Feb. 24, 2021).
11
E.g., Compl. ¶¶ 39, 41.
12
Id. ¶ 31.
13
Id. ¶ 32. The Funds increased their bid by $1 a few months later. Id. ¶ 40.
14
Id. ¶ 34.
6
The Funds responded with a proxy contest.15 The Funds nominated nine
directors to the Board. 16 The stockholders elected three of the Funds’ candidates. 17
According to the Complaint, the Funds’ acquisition efforts loomed over the
sale process. 18 The Funds’ offer, however, also galvanized market-wide interest in
acquiring the Company.19 The Board directed management and its advisors to
negotiate with the bidders. 20
In the fall of 2020, Martell and Florance began discussing a potential strategic
merger between the Company and CoStar. 21 At the time, the Board’s review of the
outstanding bids suggested that the Company was worth at least $80 per share. 22
On December 15, 2020, CoStar made its first bid.23 The bid contemplated,
among other terms, an all-stock merger at a projected value of $77 to $83 per share.24
15
Id. ¶¶ 36–37.
16
Id. ¶ 37.
17
Id. ¶ 44.
18
Id. ¶¶ 36, 43, 45.
19
Id. ¶ 33.
20
Id. ¶ 35.
21
Id. ¶¶ 39, 41.
22
Id. ¶ 42.
23
Id. ¶ 46.
24
Id.
7
In reviewing the bid, the Board compared the value certainty of a cash transaction
with the value certainty of an equity transaction.25 The Board also considered
whether closing a CoStar transaction would be delayed by antitrust scrutiny. 26
On December 28, 2020, the Board ratified an equity-based compensation
package for its senior executives, including Martell.27 The package contained a
$27.5 million “golden parachute” provision payable upon a change of control.28 The
“golden parachute” provision would have been triggered regardless of the buyer.29
The Proxy Statement disclosed Martell’s potential pecuniary interest in the Merger
and explained the nature and operation of management’s compensation package. 30
At a January 17, 2021, Board meeting, Martell informed the directors that
Florance and he spoke earlier that day about the prospect of post-Merger
employment with CoStar.31
25
Id. ¶ 93 (citing Proxy Statement at 47).
26
Id. (citing Proxy Statement at 47).
27
Id. ¶ 47.
28
Id. ¶¶ 73–74, 99.
29
See, e.g., id. ¶ 75; see also Opp’n Br. at 25–27.
30
Compl. ¶ 99 (copying image from Proxy Statement at 78–83).
31
Id. ¶ 48.
8
On January 19, 2021, CoStar revised its initial bid.32 The revised bid proposed
an all-stock merger nominally valued at $79 per share.33
On January 22, 2021, Stone Point itself proposed an all-cash take-private
transaction valued at $77 per share. 34
On January 23, 2021, the Board countered CoStar’s January 19 offer.35 The
Board proposed (i) an all-stock transaction at an implied value of $85 per share; (ii)
that CoStar accept remedies to obtain required regulatory approvals and agree not to
take action that would delay or increase the risk of obtaining those approvals; (iii) a
closing date of no more than 12 months from signing; and (iv) certain restrictions on
employee retention efforts prior to a closing. 36
On January 29, 2021, CoStar countered the Board. Among other terms,
CoStar proposed an all-stock transaction with an implied value of $82.53 per share.37
The Board’s discussions of CoStar’s counteroffer centered on cash consideration,
32
Id. ¶ 49.
33
Id.
34
Id. ¶ 50.
35
Id. ¶ 51.
36
Id.
37
Id. ¶ 53.
9
closing speed, and antitrust assurances.38 Based on these considerations, the Board
rejected the counteroffer.
On February 1, 2021, CoStar returned with what it described as a “best and
final” offer. 39 CoStar again proposed an all-stock transaction.40 This time, CoStar
increased the nominal purchase price to $86.30 per share.41
On February 3, 2021, Stone Point, now joined by Insight, proposed an all-cash
take-private transaction valued at $80 per share. 42
On February 3 and 4, 2021, the Board met with its advisors to consider Stone
Point and Insight’s proposal relative to CoStar’s “best and final” offer.43
On February 4, 2021, the Board unanimously accepted Stone Point and
Insight’s offer. 44 In approving the Stone Point-Insight merger agreement, “[t]he
Board considered that, while the closing of the Merger is subject to certain regulatory
approvals, there are not likely to be significant antitrust or other regulatory
38
Id. ¶ 54.
39
Id. ¶ 55.
40
Id.
41
Id.
42
Id.
43
Id. ¶¶ 56–57.
44
Id. ¶ 58.
10
impediments to the closing . . . given the respective asset mixes of Stone Point and
Insight [], as well as the Merger[’s] significant protection against any regulatory
impediments that could arise . . . .” 45
On February 16, 2021, CoStar publicly submitted a competing bid to acquire
the Company (the “Competing Proposal”). The Competing Proposal offered a stock-
for-stock transaction valued at $95.76 per share. 46 CoStar claimed that the
Competing Proposal would not present “meaningful antitrust concerns.” 47
On February 17 and 21, 2021, the Board met with its advisors to evaluate the
Competing Proposal. 48 The Board indicated interest, noting that the Company was
“prepared to pursue an all-stock transaction” at that time.49 The Board also
determined that the Competing Proposal would reasonably be expected to result in
a “Superior Proposal” under the Stone Point-Insight merger agreement and
authorized Company representatives to negotiate with CoStar.50
45
Id. ¶ 93 (quoting Proxy Statement at 62).
46
Id. ¶¶ 61–62 (citing Ex. 25 (Competing Proposal)).
47
Id. ¶ 61 (quoting Ex. 25 (Competing Proposal)).
48
Id. ¶ 62.
49
Id.
50
Id. ¶ 63.
11
On February 21, 2021, Martell communicated a Board-authorized
counteroffer to CoStar. 51 The counteroffer proposed, among other terms, that CoStar
(i) increase the “certainty of value” of the Competing Proposal by adding a cash
component; and (ii) address the Board’s previously stated antitrust concerns.52
On March 1, 2021, CoStar publicly submitted revisions to the Competing
Proposal (the “Revised Competing Proposal”).53 The Revised Competing Proposal
included a $6.00 cash component, for an implied value of $90 per share.54 CoStar
reiterated its view that a transaction would pose “no meaningful antitrust issues.” 55
On March 3, 2021, the Board met with its advisors to evaluate the Revised
Competing Proposal. The Board determined that CoStar should “substantially
increase” the cash component and address the Board’s antitrust concerns.56 The
Board continued to believe CoStar had the ability to top the Merger and directed that
the Board’s counter be conveyed to CoStar. 57
51
Id. ¶ 64.
52
Id.
53
Id. ¶ 65 (referencing Ex. 26 (Revised Competing Proposal)).
54
Id.
55
Id. (quoting Ex. 26 (Revised Competing Proposal)).
56
Id. ¶ 66.
57
Id. (referencing Ex. 18 (Mar. 3, 2021 Bd. Minutes)); id. ¶ 67 (referencing Proxy
Statement at 60).
12
CoStar did not respond.58 The Complaint alleges that the Board “rejected”
CoStar on March 4, 2021.59
C. The Closing Of The Merger
The Company’s stockholders voted overwhelmingly in favor of the Merger.
The Merger generated $6 billion or a 51% premium to the Company’s unaffected
stock price as of June 25, 2021. 60 On the closing date, Stone Point and Insight
announced that they would retain Company management.61
D. The Bisnow Article
On March 16, 2021, Florance was interviewed about the Company’s sale
process by “Bisnow” (the “Bisnow Article”). 62 The Bisnow Article stated that the
Company raised “the threat of antitrust litigation” in its negotiations with CoStar.63
But Florance reportedly was not convinced. Under a heading titled “‘People Just
58
Id. ¶ 67. As discussed later in this decision, CoStar issued a press release explaining
why it did not respond.
59
Id. ¶ 4.
60
Id. ¶ 1 (referencing Proxy Statement at 61).
61
Id. ¶¶ 103–04.
62
See, e.g., id. ¶ 67 (citing John Banister, CoStar to Look at New Sectors for Next
Acquisitions After Failed Deals, FTC Scrutiny, Bisnow (Mar. 16, 2021),
https://www.bisnow.com/national/news/technology/costar-to-look-at-new-sectors-for-
next-round-of-acquisitions-after-failed-deals-108133 (“Bisnow Article”)).
63
Bisnow Article.
13
Don’t Like CoStar’,” the Bisnow Article paraphrased Florance as stating that he
“believe[d] antitrust issues had nothing to do with [the Company’s] decision to turn
down [CoStar’s] offer.” 64 The Bisnow Article also quoted a Morningstar analyst,
who reportedly was “skeptical” of the Company’s antitrust concerns and thought
they were not “substantiated.” 65
As a reported ulterior motive for the Company’s decision to pursue the
Merger, the Bisnow Article paraphrased Florance as stating that he thought the
Company’s “executives didn’t want to be acquired by CoStar because some of them
would have lost their jobs.” 66 In his own words, Florance said:
Most of the senior management team there might earn eight digits a year of
compensation, and in a merger, especially a strategic merger, inevitably
some of those jobs go away . . . . That’s a powerful motive to not do a deal. 67
E. The 220 Action
On April 27, 2021, Plaintiff brought a books-and-records action against the
Company under Section 220 of the Delaware General Corporation Law (the “220
Action”). The purpose of the 220 Action was to investigate potential wrongdoing
64
Id.
65
Id.
66
Id.
67
Id.
14
and, if warranted, to bring a breach of fiduciary duty claim. 68 Through the 220
Action, Plaintiff sought to inspect, among other things, all Board-level materials
surrounding the Merger. Plaintiff obtained those materials and then stipulated to the
dismissal of the 220 Action.69
F. This Litigation
Having obtained the books and records it sought, Plaintiff filed the Complaint.
The Complaint does not allege that the Board’s outside directors were
conflicted. It does not allege that the Board’s advisors were conflicted. It does not
allege the presence of a conflicted controller. And it does not allege that the Proxy
Statement failed to disclose the Board’s antitrust concerns or Martell’s potential
pecuniary interests in the Merger. Instead, Plaintiff cites the Bisnow Article to posit
forensically that the Board’s meeting minutes and the Proxy Statement’s disclosures
must be false.70
68
See Dkt. 1 at 1–2, C.A. No. 2021-0360-JTL (Del. Ch. Apr. 27, 2021).
69
See Dkt. 13 (Order Granting Joint Stipulation of Dismissal), in id.
70
See Tr. at 80:6–17 ([Pl.’s Couns.]: “I don’t think I’m shocking anybody here. Absent
those statements by Mr. Florance, we would not have filed this lawsuit. That’s just the
reality. But where you have public statements by a firsthand participant in those
conversations saying one thing versus, you know, these minutes that are thirdhand—Mr.
Martell reporting to the board, and they go to the secretary and they go in the minutes, and
then they are reviewed and edited by however many lawyers—I think it’s reasonable,
certainly at this point, to credit Mr. Florance’s unvarnished public statements.”).
15
Plaintiff alleges that the Board—at Martell’s behest—caused the Proxy
Statement to make false statements and to omit material information regarding the
Board’s antitrust considerations and Martell’s interest in post-Merger employment.
As to the Board’s antitrust considerations, the Complaint calls them “phony” and
“pure malarkey” because the Board (i) “waited until December 2020” to raise
antitrust concerns; (ii) provided “no explanation” for its antitrust concerns; (iii)
failed to “retain” antitrust counsel; and (iv) failed to inform Company stockholders
that CoStar was not a competitor.71
As to post-Merger employment, the Complaint alleges the Proxy Statement
omitted that “high level executives” “would have likely lost their positions in a
merger with CoStar.”72 By the same token, the Complaint alleges that the Proxy
Statement omitted that management’s post-Merger employment with Stone Point
and Insight was “assured.” 73 To support this position, the Complaint emphasizes
that Stone Point and Insight retained management after the Merger closed. 74
71
Id. ¶¶ 81–88, 94.
72
Id. ¶ 96.
73
Id. ¶ 102.
74
Id. ¶ 106.
16
Overlapping the employment category, the Complaint alleges that Martell had
an undisclosed conflict of interest in entrenchment.75 The Complaint alleges that
Martell “spearheaded” the Company’s sale process, while the “supine” Board
deferred to “management[’s]” interest in pursuing a deal that would guarantee their
continued employment.76 The Complaint alleges that, if the Board rejected CoStar,
then Martell would have “received a change of control payment and kept his job.”77
Plaintiff thus reasons that Martell’s severance pay plus his salary motivated him to
steer the Company away from CoStar. As relief, Plaintiff seeks damages.
Martell has moved to dismiss the Complaint under Rule 12(b)(6) for failure
to state a claim. He argues that the Complaint fails under Corwin and, alternatively,
fails to state a breach of fiduciary duty claim. Plaintiff opposes the motion.
As discussed below, the Complaint fails under Corwin because Plaintiff has
not alleged a reasonably conceivable disclosure violation. And even without
Corwin, the Complaint fails to state a claim for breach of the duty of loyalty because
Plaintiff does not allege specific facts from which to reasonably infer that Martell
self-interestedly prevented a CoStar deal. So I will dismiss the Complaint.
75
Id. ¶¶ 96–106.
76
Id. ¶¶ 5, 100.
77
Id. ¶ 100 (emphasis omitted).
17
II. LEGAL ANALYSIS
In considering a Rule 12(b)(6) motion, the Court (1) accepts as true all well-
pleaded factual allegations in the complaint; (2) credits vague allegations if they give
the opposing party notice of the claim; (3) draws all reasonable inferences in favor
of the non-moving party; and (4) denies dismissal if recovery on the claim is
“reasonably conceivable.” 78 The Court, however, need not accept “every strained
interpretation of the allegations, credit conclusory allegations . . . [un]supported by
specific facts, or draw unreasonable inferences in the plaintiff’s favor.”79
Plaintiff agreed to incorporate into the Complaint all the documents Plaintiff
obtained from the 220 Action.80 The parties have debated the extent to which those
documents may be used to evaluate the pleading-stage sufficiency of the
Complaint’s allegations.
“The complaint generally defines the universe of facts that the trial court may
consider in ruling on a Rule 12(b)(6) motion . . . .” 81 Still, the Court may look outside
78
Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 535 (Del.
2011).
79
City of Fort Myers Gen. Emps.’ Pension Fund v. Haley, 235 A.3d 702, 716 (Del. 2020)
(internal quotation marks and citations omitted).
80
See Ex. 28 ¶ 11 (Confidentiality Agreement); see generally United Techs. Corp. v.
Treppel, 109 A.3d 553, 558–59 (Del. 2014) (permitting such agreements).
81
In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006).
18
the complaint to consider “the content of documents that are integral to or
incorporated by reference into the complaint.”82 “The trial court may also take
judicial notice of matters that are not subject to reasonable dispute.”83 “The public
policy behind these exceptions is plain: allegations largely predicated upon
documents not presented to the Court in the pleadings should not escape the Court’s
review under Rule 12(b)(6) . . . .” 84
Building on these principles, this Court has clarified the framework for
determining whether a document is integral to a disclosure claim:
Whether a document is integral to a claim and incorporated into a complaint
is largely a facts-and-circumstances inquiry. This Court has recently
determined that documents as varied in form as . . . a merger proxy statement,
an SEC filing, . . . and an internal corporate [document] all can, depending on
the relevant allegations of the complaint, be deemed integral to the claims and
therefore be considered by the Court on a Rule 12(b)(6) motion . . . .
[The] general tendency is that the Court may conclude a document is integral
to the claim if it is the source for the facts as pled in the complaint . . . .
In addition, this Court commonly considers extraneous documents, not for the
truth of their contents, but to test the sufficiency of allegations for disclosure-
based claims. For example, a stockholder may, in asserting that the directors
improperly failed to disclose a material fact in advance of a stockholder vote,
selectively quote or [mis]characterize the relevant proxy statement. In such
cases, this Court may consider the proxy statement as a whole, rather than
82
H-M Wexford LLC v. Encorp, Inc., 832 A.2d 129, 139 (Del. Ch. 2003).
83
Windsor I, LLC v. CWCapital Asset Mgmt. LLC, 238 A.3d 863, 875 (Del. 2020)
(alteration and internal quotation marks omitted).
84
In re Gardner Denver, Inc. S’holders Litig., 2014 WL 715705, at *2 (Del. Ch. Feb. 21,
2014).
19
merely the portions alleged in the complaint, to determine what information
was disclosed.85
In short, “a complaint may, despite allegations to the contrary, be dismissed where
the unambiguous language of documents upon which the claims are based
contradict[s] the complaint’s allegations.”86
To be sure, the incorporation-by-reference doctrine does not heighten the
motion to dismiss standard. The doctrine does not permit a court to accept the truth
of a matter asserted in an incorporated document. 87 Nor does it permit a court to
resolve competing inferences in the movant’s favor.88 To the extent incorporated
documents contradict an allegation, and the allegation is well-pleaded, the allegation
controls. To the extent incorporated documents support competing inferences, and
Plaintiff has made a well-pleaded allegation, Plaintiff is entitled to the inference.
85
Id. at *3–4 (cleaned up); accord Windsor, 238 A.3d at 873 nn.43, 45.
86
Encorp, 832 A.2d at 139 (first citing In re Wheelabrator Techs. Inc. S’holders Litig.,
1992 WL 212595, at *3 (Del. Ch. Sept. 1, 1992); and then citing Malpiede v. Townson,
780 A.2d 1075, 1083 (Del. 2001)).
87
See In re Santa Fe Pac. Corp. S’holder Litig., 669 A.2d 59, 70 (Del. 1995) (cautioning,
in the context of securities filings, that proxy statements are hearsay as to matters unrelated
to disclosure). This rule does not apply if the plaintiff concedes the truth of a matter in the
incorporated document. See id. at 69–70.
88
See In re Dell Techs. Inc. Class V S’holders Litig., 2020 WL 3096748, at *14 (Del. Ch.
June 11, 2020).
20
Even so, the incorporation-by-reference doctrine allows a court to review an
integral document as a whole “to ensure that the plaintiff has not misrepresented its
contents and that any inference the plaintiff seeks to have drawn is a reasonable
one.” 89 Otherwise, “complaints that quoted only selected and misleading portions
of such documents could not be dismissed . . . even though they would be doomed
to failure.”90 Accordingly, when “a plaintiff chooses to refer to a document in its
complaint, the Court may consider the entire document, even those portions not
specifically referenced in the complaint.”91
These principles promote efficiency. 92 And that is particularly true in a case
following an inspection demand. Delaware law empowers stockholders to “request
company books and records under Section 220 to attempt to substantiate their
allegations” before pursuing fiduciary litigation. 93 Those documents, if referenced,
89
Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752, 797 (Del. Ch. 2016), abrogated in
part on other grounds by Tiger v. Boast Apparel, Inc., 214 A.3d 933 (Del. 2019).
90
Windsor, 238 A.3d at 875 (internal quotation marks omitted).
91
Okla. Firefighters Pension & Ret. Sys. v. Corbat, 2017 WL 6452240, at *13 n.233 (Del.
Ch. Dec. 18, 2017) (quoting Donald J. Wolfe, Jr. & Michael A. Pittenger, Corporate and
Commercial Practice in the Delaware Court of Chancery § 4.06[b][2][i] (2016 ed.)). See
Winshall v. Viacom Int’l, Inc., 76 A.3d 808, 818 (Del. 2013) (“A plaintiff may not reference
certain documents outside the complaint and at the same time prevent the court from
considering those documents’ actual terms.” (cleaned up)).
92
See Yahoo! Inc., 132 A.3d at 797 (“The [incorporation-by-reference] doctrine . . . enables
courts to dispose of meritless complaints at the pleading stage.”).
93
Cal. State Tchrs.’ Ret. Sys. v. Alvarez, 179 A.3d 824, 839 (Del. 2018).
21
“necessarily shape the range” and “outcomes” of pleading-stage inferences. 94 So do
“public materials” referenced in the complaint, e.g., securities filings.95
Here, Plaintiff brought a Section 220 action against the Company before filing
this lawsuit. Through that action, Plaintiff obtained internal documents surrounding
the Merger. Those documents are the source of the Complaint’s allegations. So to
the extent the Complaint references those documents, I may consider them “in their
entirety rather than rely on the portions cherry picked” by Plaintiff. 96
The Complaint is also based on “publicly available documents,” including the
Proxy Statement.97 As a result, I may examine the entire Proxy Statement to
“establish what was disclosed” to voting stockholders 98 and to contextualize
94
In re GGP, Inc. S’holder Litig., 282 A.3d 37, 55 (Del. 2022).
95
Id. at 54–55. See Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 n.28
(Del. 2004) (“On a motion to dismiss, the court may take judicial notice of the contents of
documents required by law to be filed, and actually filed, with federal or state officials[.]”
(emphasis omitted)); see also D.R.E. 201(b)(2).
96
Teamsters Loc. 443 Health Servs. & Ins. Plan v. Chou, 2020 WL 5028065, at *2 (Del.
Ch. Aug. 24, 2020) (alteration and internal quotation marks omitted).
97
See, e.g., Compl. ¶¶ 87, 93; Compl. at 1–2 (averring that Plaintiff has drawn its
allegations from “documents filed and/or published by [Martell or the Company], news
reports, press releases, conference call transcripts, and other publicly available documents,
as well as documents produced to Plaintiff in response to” the books-and-records action).
98
Abbey v. E.W. Scripps Co., 1995 WL 478957, at *1 n.1 (Del. Ch. Aug. 9, 1995) (Allen,
C.); accord Santa Fe, 669 A.2d at 69.
22
Plaintiff’s disclosure-based allegations.99 Consistent with the incorporation-by-
reference doctrine, I also may consider the other documents to which Plaintiff refers
to ensure they support the inference Plaintiff seeks.
Earlier in this decision, I recited the factual narrative as told by the Complaint.
That narrative obscures or elides integral Section 220 documents and public filings
that are referenced in or supplied the facts for the Complaint. This approach runs
contrary to the efficiency-based rationale animating pleading-stage review of
complaints grounded on information obtained under Section 220.100 Properly
situated, the Complaint must be dismissed for failure to state a claim.
99
See In re Rural Metro Corp. S’holders Litig., 2013 WL 6634009, at *7 (Del. Ch. Dec.
17, 2013) (“In dismissing the disclosure claim, the Court of Chancery considered the entire
proxy statement, not just the portions cited in the plaintiffs’ complaint. The Delaware
Supreme Court agreed that the court properly considered the proxy statement for this
purpose . . . .” (citing Santa Fe, 669 A.2d at 69)).
100
See GGP, 282 A.3d at 54 n.84 (“Delaware’s system affirmatively encourages reliance
on factually specific pleadings as a basis for substantive evaluation of shareholder litigation
at an early stage of the proceedings . . . . [T]he Delaware system provides or depends on
mechanisms that enable and encourage the plaintiff and the defendants as well to supply
relevant information that meaningfully assists the courts in improving the fairness and
utility of that substantive, pleading stage evaluation.” (quoting Lawrence A. Hamermesh
& Michael L. Wachter, The Importance of Being Dismissive: The Efficiency Role of
Pleading Stage Evaluation of Shareholder Litigation, 42 J. Corp. L. 597, 603 (2017))).
23
A. The Complaint Fails To Plead A Disclosure Violation
“Delaware corporate law grants significant deference to the votes of
disinterested stockholders.” 101 Indeed, “the long-standing policy of our law has been
to avoid the uncertainties and costs of judicial second-guessing when the
disinterested stockholders have had the free and informed chance to decide on the
economic merits of a transaction for themselves.”102 As a result, “there is little utility
in a judicial examination of fiduciary actions ratified by” an uncoerced and fully
informed majority of disinterested stockholders.103 Under those conditions, “there
is no agency problem for a court to review[.]” 104
Synthesizing these principles, the Delaware Supreme Court in Corwin held
that “when a transaction not subject to the entire fairness standard is approved by a
fully informed, uncoerced vote of disinterested stockholders, the business judgment
rule applies.” 105 “The practical effect of Corwin cleansing is that when the doctrine
applies, a lawsuit that challenges a transaction as a breach of fiduciary duty is subject
101
Hawkins v. Daniel, 273 A.3d 792, 808 (Del. Ch. 2022), aff’d, --- A.3d ----, 2023 WL
115854 (Del. Jan. 6, 2023).
102
Corwin v. KKR Fin. Hldgs. LLC, 125 A.3d 304, 312–13 (Del. 2015).
Sciabacucchi v. Liberty Broadband Corp., 2017 WL 2352152, at *2 (Del. Ch. May 31,
103
2017).
104
In re USG Corp. S’holder Litig., 2020 WL 5126671, at *1 (Del. Ch. Aug. 31, 2020),
aff’d sub nom. Anderson v. Leer, 265 A.3d 995 (Del. 2021) (TABLE).
105
Corwin, 125 A.3d at 309.
24
to dismissal at the pleading stage.”106 Absent waste, Corwin’s version of the
business judgment rule has been described as “irrebuttable.”107
The Complaint does not allege that the Merger is subject to entire fairness
review, 108 that the approving stockholders were not disinterested, or that the vote
was coerced. So the Complaint must be dismissed under Corwin unless the
Complaint supports a reasonable inference that the vote was not fully informed.
A stockholder vote is fully informed if the corporation’s disclosures “apprised
stockholders of all material information and did not materially mislead them.” 109 A
fact is material “‘if there is a substantial likelihood that a reasonable [stock]holder
would consider it important in deciding how to vote.’”110 “The test does not require
a substantial likelihood that the disclosure would have caused the reasonable
106
Goldstein v. Denner, 2022 WL 1671006, at *19 (Del. Ch. May 26, 2022).
107
See In re Volcano Corp. S’holder Litig., 143 A.3d 727, 737 & n.16 (Del. Ch. 2016),
aff’d, 156 A.3d 697 (Del. 2017) (TABLE); see also Singh v. Attenborough, 137 A.3d 151,
152 (Del. 2016) (ORDER) (“[T]he vestigial waste exception has long had little real-world
relevance, because . . . stockholders would be unlikely to approve a transaction that is
wasteful.” (citations omitted)).
108
Although the Complaint calls the Board “supine,” Compl. ¶ 4, that bare allegation is
insufficient to elevate the standard of review to entire fairness, see In re Pattern Energy
Gp. Inc. S’holders Litig., 2021 WL 1812674, at *34 (Del. Ch. May 6, 2021).
109
Morrison v. Berry, 191 A.3d 268, 282 (Del. 2018).
Rosenblatt v. Getty Oil Co., 493 A.2d 929, 944 (Del. 1985) (quoting TSC Indus., Inc. v.
110
Northway, Inc., 426 U.S. 438, 449 (1976)).
25
investor to change his vote . . . .” 111 Instead, “there must be a substantial likelihood
that the disclosure . . . would have been viewed by the reasonable investor as having
significantly altered the ‘total mix’ of information made available.” 112 To plead a
disclosure violation, “a plaintiff must demonstrate a substantial likelihood that,
under all the circumstances, the omitted fact would have assumed actual significance
in the deliberations of the reasonable stockholder.”113
“Material” does not mean “everything.” Delaware law requires stockholders
to be fully informed, not “infinitely informed.” 114 Determining the materiality of an
alleged omission or misstatement “requires a careful balancing of the potential
benefits of disclosure against . . . the risk of information overload[.]”115 As Vice
Chancellor Zurn recently explained:
Delaware courts are cautious in balancing the benefits of additional
disclosures against the risk that insignificant information may dilute
potentially valuable information. Counterbalancing the mandate for complete
disclosure . . . is recognition of the risk of inundating the stockholder with
so much information that the proxy clouds, rather than clarifies, the
111
Goldstein, 2022 WL 1671006, at *19 (cleaned up).
112
Rosenblatt, 493 A.2d at 944 (quoting TSC Indus., 426 U.S. at 449).
113
Loudon v. Archer-Daniels-Midland Co., 700 A.2d 135, 143 (Del. 1997).
114
In re Merge Healthcare Inc., 2017 WL 395981, at *9 (Del. Ch. Jan. 30, 2017).
115
Solomon v. Armstrong, 747 A.2d 1098, 1128 (Del. Ch. 1999) (internal quotation marks
and citations omitted), aff’d, 746 A.2d 277 (Del. 2000) (TABLE).
26
stockholder’s decision. A complaint does not state a disclosure violation by
noting picayune lacunae or “tell-me-more” details left out. 116
Consistent with these principles, “[o]mitted facts are not material simply
because they might be helpful.”117 Nor is an omitted fact material if it would have
“closed a circle” or made a disclosure “somewhat more informative.” 118 “So long
as the proxy statement, viewed in its entirety, sufficiently discloses and explains the
matter to be voted on, the omission or inclusion of a particular fact is generally left
to management’s business judgment.”119
One disclosure violation is enough to defeat Corwin.120 At the pleading stage,
the operative question is whether the complaint “supports a rational inference that
material facts were not disclosed or that the disclosed information was otherwise
materially misleading.” 121 The plaintiff bears the initial burden to identify a
116
Teamster Members Ret. Plan v. Dearth, 2022 WL 1744436, at *12 (Del. Ch. May 31,
2022) (internal quotation marks and citations omitted), aff’d, 2023 WL 125659 (Del. Jan.
9, 2023) (TABLE). See Zirn v. VLI Corp., 1995 WL 362616, at *4 (Del. Ch. June 12,
1995) (Allan, C.) (“[T]he law ought [to] guard against the fallacy that increasingly detailed
disclosure is always material and beneficial disclosure. In some instances[,] the opposite
will be true.”), aff’d, 681 A.2d 1050 (Del. 1996).
117
Skeen v. Jo-Ann Stores, Inc., 750 A.2d 1170, 1174 (Del. 2000).
118
Kahn v. Lynch Commc’n Sys., 669 A.2d 79, 89 (Del. 1995) (cleaned up).
119
In re Match Gp., Inc. Deriv. Litig., 2022 WL 3970159, at *27 (Del. Ch. Sept. 1, 2022)
(internal quotation marks omitted).
120
See In re Mindbody, Inc., 2020 WL 5870094, at *26 (Del. Ch. Oct. 2, 2020).
121
Morrison, 191 A.3d at 282.
27
“deficiency in the operative disclosure document[.]”122 Only then does the burden
shift to the defendant to “establish that the alleged deficiency fails as a matter of law
in order to secure the cleansing effect of the vote.”123
1. The Disclosures Regarding The Board’s Antitrust Considerations
The Complaint alleges four deficiencies that, in Plaintiff’s view, render the
Proxy Statement’s antitrust disclosures false. None does.
a. The Alleged December 2020 Delay
The Complaint first alleges that the Proxy Statement’s antitrust disclosures
must be false because, according to Plaintiff, the Board did not raise antitrust
concerns until December 2020. This allegation is contradicted by the Proxy
Statement. Although omitted from the Complaint, the Proxy Statement disclosed
that the Board’s antitrust concerns arose before December 2020. In July 2020, the
Board rejected the Funds’ tender offer, in part, because of “regulatory concerns
raised by” the Funds’ “relationships with competitors.”124 Plaintiff concedes that
122
In re Solera Hldgs., Inc. S’holder Litig., 2017 WL 57839, at *8 (Del. Ch. Jan. 5, 2017).
123
Id.124
Proxy Statement at 39. The Complaint cites only on the Board’s determination that
the Funds’ proposal “significantly undervalued” the Company. See Compl. ¶¶ 34, 40.
28
“regulatory” and “antitrust” are used interchangeably throughout the Proxy
Statement.125 The nexus to “competitors” dispels lingering doubt.
Moreover, any purported “delay” in discussing antitrust with CoStar is no
mystery. CoStar did not make its initial bid until December 2020. 126 So the Board
had no reason to raise antitrust concerns with CoStar until then. Similarly, the Board
had no reason in December to use antitrust as a ploy to prefer Stone Point and Insight.
Stone Point and Insight did not make a joint bid until February 2021.
Neither the Complaint, itself, nor the Proxy Statement supports the delay
allegation. Accordingly, the delay allegation does not support a reasonable inference
that the antitrust disclosures are false.
b. The Alleged Failure To Explain
The Complaint next alleges that the Proxy Statement must be false because it
provides “no explanation” for the Board’s antitrust concerns. 127 It does.
For example, the Proxy Statement disclosed that CoStar proposed to extend
the target closing date to 15 months to account for regulatory scrutiny.128 Similarly,
125
See Tr. at 69:17–20.
Proxy Statement at 47. As discussed later in this decision, the Federal Trade
126
Commission commenced proceedings to block a separate CoStar acquisition in late 2020.
127
Compl. ¶ 88.
128
E.g., Proxy Statement at 54–59. See also Ex. 14 (Feb. 3, 2021 Bd. Minutes); Ex. 25
(Competing Proposal); Ex. 26 (Revised Competing Proposal).
29
the Proxy Statement disclosed that on December 18, the Board sought “certainty of
closing” from CoStar due to issues with “antitrust approval.”129
As pleaded, it is not reasonably conceivable that the Company’s disclosures
regarding this concern were false. For one thing, CoStar’s December 15 bid made
“regulatory approval” from the “U.S. antitrust authorities” “in particular” a “material
condition” to closing.130 CoStar reasserted this position in January. 131
For another, CoStar was facing antitrust-related liability in another deal at the
time. Although styled by the Complaint as an exposé, the Bisnow Article primarily
discussed the impact of domestic antitrust policy on CoStar’s 2020-2021 acquisition
efforts. Relevant here, the Bisnow Article reported that the Federal Trade
Commission sued CoStar in late 2020 to block a merger between CoStar and another
company.132 The litigation reportedly resulted in a payment of a $59.5 million
reverse termination fee to the target, which CoStar, quite notably, disputed and then
eventually paid in February 2021.133
129
Proxy Statement at 47.
130
Ex. 20 at 2 (CoStar Initial Bid).
131
See Ex. 21 (CoStar Revised Bid).
Bisnow Article (referencing Compl. for TRO and Prelim. Inj., FTC v. CoStar Gp., Inc.,
132
2020 WL 7137249 (D.D.C. Dec. 3, 2020) (No. 1:20-cv-03518-JDB)).
133
Id. (citing Dees Stribling, Redfin Pays $608M for RentPath After FTC Foils CoStar’s
Bid, Bisnow (Feb. 19, 2021), https://www.bisnow.com/national/news/multifamily/redfin-
ponies-up-608m-to-buy-rentpath-107812; John Banister, CoStar’s Revenue Grew 19%
30
The Board knew all this. It discussed the enforcement action and CoStar’s
fee dispute during a February 2, 2021, meeting. 134 Consistent with the Board’s
review, the Proxy Statement disclosed that, on February 2,
the Board discussed the regulatory-related terms proposed by CoStar, the
potential risks that regulatory authorities would propose a remedy in order to
approve a combination with CoStar, the scope of such a remedy, the timing
of such a process and the risk that CoStar would not take the actions necessary
to obtain regulatory approval. 135
Having carefully considered the allegations in and materials integral to the
Complaint, it is not reasonably conceivable that, as pleaded, the Board’s antitrust
concerns were pretextual.
To advance a contrary interpretation of the Proxy Statement, Plaintiff relies
on commentary from a Morningstar analyst. The Bisnow Article reported that the
analyst was “skeptical” that a deal between CoStar and the Company would have
“present[ed] antitrust risk.”136 The analyst acknowledged the Company’s views, but
thought they were not “substantiate[d].”137
Last Year As CRE Shifted Operations Online, Bisnow (Feb. 24, 2021),
https://www.bisnow.com/national/news/technology/costars-revenue-grew-19-last-year-
as-cre-shifted-operations-online-107869).
134
Ex. 13 at 3 (Feb. 2, 2021 Bd. Minutes).
135
Proxy Statement at 55.
136
Bisnow Article.
137
Id.31
Based on these comments, Plaintiff reasons that the Board’s antitrust concerns
were false. But the Proxy Statement disclosed that the Board developed its antitrust
considerations from information received from its advisors. And the Complaint does
not allege that those advisors were conflicted or provided the Board with incomplete
or misleading information. The Proxy Statement was not required to disclose all the
details and underlying assumptions driving Evercore and Skadden’s analyses and
recommendations. 138 The Proxy Statement also was not required to disclose the
opinions of an analyst who did not advise the Board.139 In this case, all that matters
is whether the Board considered the matters the Proxy Statement disclosed. It did.
Plaintiff next faults the Proxy Statement’s background section for using the
word “antitrust” only a handful of times. 140 But again, Plaintiff conceded that the
Board used “antitrust” and “regulatory” interchangeably. And it does not point to
138
See In re Trulia, Inc. S’holder Litig., 129 A.3d 884, 900–01 (Del. Ch. 2016); see also
In re 3Com S’holders Litig., 2009 WL 5173804, at *6 (Del. Ch. Dec. 18, 2009)
(“[Q]uibbles with a financial advisor’s work . . . cannot be the basis of a disclosure claim.”)
139
See In re Sauer-Danfoss Inc. S’holders Litig., 65 A.3d 1116, 1132 (Del. Ch. 2011); In
re MONY Gp., Inc. S’holder Litig., 853 A.2d 661, 682 (Del. Ch. 2004).
140
Compl. ¶ 93.
32
any precedent requiring disclosures to use “magic words.” In this context, then,
failure to use the word “antitrust” more frequently makes no difference. 141
The Proxy Statement’s background section provides a summary and a
“summary” is just that: a summary. It need not disclose everything. 142 Nor should
it. At a certain point, disclosure “becomes an exercise in diminishing returns.”143
Indeed, “[o]ur disclosure jurisprudence is conscious of the risks of overdisclosure”
and so does not require fiduciaries to unleash “an avalanche of trivial information”
on stockholders.144 Antitrust permeated the Proxy Statement, whether in name or
by synonym. There was no need to recite it repeatedly.145
Labeling the Board’s antitrust concerns as “vague” fares no better.146 In
Cogent,147 for example, target stockholders argued that the board’s antitrust concerns
141
See Dent v. Ramtron Int’l Corp., 2014 WL 2931180, at *11 (Del. Ch. June 30, 2014)
(“[T]he question of materiality under Delaware law is a context-specific inquiry, and . . .
differs from merger to merger.” (internal quotation marks omitted)).
142
See Trulia, 129 A.3d at 900–01.
143
Wayne Cnty. Emps.’ Ret. Sys. v. Corti, 954 A.2d 319, 330 (Del. Ch. 2008) (internal
quotation marks omitted).
144
Morrison, 191 A.3d at 283 n.65 (internal quotation marks omitted).
145
See Miami Gen. Emps. v. Comstock, 2016 WL 4464156, at *15 (Del. Ch. Aug. 24, 2016)
(“Delaware law does not require disclosure of a play-by-play of negotiations leading to a
transaction or of potential offers that a board has determined were not worth pursuing.”).
146
Compl. ¶ 92.
147
In re Cogent, Inc. S’holder Litig., 7 A.3d 487 (Del. Ch. 2010).
33
were pretextual because the board “merely perceived” antitrust risks. 148 The court,
however, observed that the board disclosed all its considerations, included that the
rejected bidder “had not addressed the regulatory risks of a merger” to the board’s
satisfaction. 149 “Given the number and magnitude of the other reasons cited by [the
board] as to why [the rejected bidder] did not present a favorable option,” the court
found that the board’s antitrust concerns—however small—were legitimate bases
for accepting an offer that would not be complicated by regulatory scrutiny:
The need for potential regulatory approvals relating to antitrust considerations
presents a legitimate risk factor for the Board to consider in determining
whether a proposed transaction would maximize stockholder value. If
regulatory approval is denied or drawn out in a costly delay, then a higher bid
price does not necessarily mean a greater return for stockholders. 150
So too here. The Complaint and Proxy Statement detail the Board’s concern
with antitrust scrutiny and its impact on closing speed. The Board also considered
CoStar’s issues with antitrust litigation and disputes over its obligation to pay a deal-
termination fee. Under these circumstances, it is not reasonably conceivable that the
Board—let alone Martell—fabricated a regulatory basis for choosing the Merger,
which contained strong antitrust assurances, over CoStar’s offers, which did not.
148
Id. at 511.
149
Id. at 512.
150
Id.34
In any event, Plaintiff’s objection is beside the point. “Delaware law does not
require that a fiduciary disclose its underlying reasons for acting.”151 As a result,
“asking ‘why’ does not state a meritorious disclosure claim.” 152 And “it is not
enough . . . to pose questions that are not answered in the proxy statement” either.153
Instead, the Complaint “must allege that facts are missing from the proxy statement,
identify those facts, state why they meet the materiality standard and how the
omission caused injury.”154 It does not. The no-explanation allegation fails to
support a reasonable inference that the Board falsified the Proxy Statement.
c. The Alleged Failure To Retain Antitrust Counsel
The Complaint next had alleged that the Proxy Statement’s disclosures must
be false because the Board failed to retain antitrust counsel. Martell, who is
represented by Skadden, observed otherwise. 155 Plaintiff commendably abandoned
151
Sauer-Danfoss, 65 A.3d at 1130. See Match Gp., 2022 WL 3970159, at *32
(“Disclosures relating to the Board’s subjective motivation or opinions are not per
se material, as long as the Board fully and accurately discloses the facts material to the
transaction.” (alteration and internal quotation marks omitted)).
152
In re KKR Fin. Hldgs. LLC S’holder Litig., 101 A.3d 980, 1001 (Del. Ch. 2014)
(alteration omitted) (quoting Sauer-Danfoss, 65 A.3d at 1131), aff’d sub nom. Corwin, 125
A.3d 304.
In re Lukens Inc. S’holders Litig., 757 A.2d 720, 736 (Del. Ch. 1999), aff’d sub nom.
153
Walker v. Lukens, Inc., 757 A.2d 1278 (Del. 2000) (TABLE).
154
Corti, 954 A.2d at 330 (alteration omitted) (quoting Skeen, 750 A.2d at 1173).
155
Dkt. 11 at 17 n.5 (Def.’s Opening Br. in Supp. of Mot. to Dismiss) (“Opening Br.”).
35
the allegation.156 Still, during oral argument, Plaintiff contended that “nothing in the
[Proxy Statement] or in the [Board] minutes ever say[s] that the [B]oard was
specifically briefed about antitrust issues by counsel.” 157 But this was not alleged in
the Complaint or raised in Plaintiff’s brief. 158 So Plaintiff’s argument is waived.159
d. The Allegation That CoStar Is Not A Company Competitor
Finally, the Complaint alleges that the Proxy Statement must be false because
CoStar was not a Company competitor. To support this allegation, Plaintiff cites the
Company’s 2020 Form 10-K, which did not list CoStar as a competitor.
Plaintiff cites no authority for the proposition that antitrust concerns cannot
exist in an M&A setting unless a potential counterparty has been formally
156
See Tr. at 68:19–22.
157
Id. at 68:23–69:1.
158
Compare id., with Compl. ¶ 88 (“[The Company] apparently failed to take any active
steps to retain counsel that specialized in [antitrust] to help analyze whether any such
‘concerns’ had any validity.” (emphasis added)), and Opp’n Br. at 38 (“[T]here was also
no indication that any . . . experts were retained to assess the [antitrust] claim—including
any experts from the antitrust department of [Skadden].” (emphasis added)).
159
See Roca v. E.I. du Pont de Nemours & Co., 842 A.2d 1238, 1242–43 (Del. 2004).
Although waiver is dispositive, I note that Plaintiff’s oral allegation would seem to require
the Board to admit it was not fully informed of antitrust issues. Delaware law, though,
does not require the Board to make “self-flagellating” disclosures. See, e.g., Stroud v.
Grace, 606 A.2d 75, 84 n.1 (Del. 1992); accord Loudon, 700 A.2d at 143. My analysis is
likely further colored by the fact that Kenneth Schwartz, an antitrust partner at Skadden,
attended four Board meetings between January and February 2021. See Opening Br. at 17
n.5; see also Exs. 4, 13–14, 17 (Bd. Minutes). Plaintiff’s counsel was apparently unaware
of this fact until oral argument. See Tr. at 68:20–22. Hence, Plaintiff’s concession.
36
denominated as a competitor in a prior SEC filing. In fact, the opposite seems true.
“It is axiomatic that the antitrust laws were passed for ‘the protection of competition,
not competitors.’”160 In other words, “antitrust laws protect consumers, not
competitors.”161 Consistent with these objectives, the Proxy Statement disclosed
that the Board was concerned with the impact of a CoStar deal on customers and,
most importantly, how regulators would view that impact. 162 And the Proxy
Statement disclosed that CoStar was a strategic bidder, with all that entails. Taken
together, the absence of pre-Merger disclosures formally designating CoStar as a
competitor neither undermines the Board’s “reasonable assumption” that a CoStar
merger could draw regulatory scrutiny, nor gives rise to a disclosure violation. 163
Even so, the Proxy Statement incorporated the 2020 10-K by reference.164
And stockholders were provided with a hyperlink to it under a heading titled “Where
160
Brooke Gp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 224 (1993)
(emphasis omitted) (quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962)).
161
Harrison Aire, Inc. v. Aerostar Int’l, Inc., 423 F.3d 374, 387 (3d Cir. 2005) (citing
Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488–89 (1977)), cert. denied,
547 U.S. 1020 (2006). See Frank H. Easterbrook, Vertical Arrangements and the Rule of
Reason, 53 Antitrust L.J. 135, 138 (1984) (Antitrust law was enacted “to protect consumers
from overcharges and the economy as a whole from harm.”); see also Reiter v. Sonotone
Corp., 442 U.S. 330, 343 (1979) (“Congress designed the Sherman Act as a ‘consumer
welfare prescription.’” (quoting Robert H. Bork, The Antitrust Paradox 66 (1978))).
162
Proxy Statement at 50.
163
Match Gp., 2022 WL 3970159, at *27 (internal quotation marks omitted).
164
See Proxy Statement at 122.
37
You Can Find More Information.” 165 So any absence of CoStar on the 2020 10-K’s
“competitor” list was disclosed, in the place one would expect to look for such
information.
Nor is it “a per se disclosure violation to disclose information in public filings
incorporated in the proxy instead of the proxy itself.”166 Where, as here, a document
referenced in a proxy statement is “explicitly incorporated” and not “buried” such
that “a reasonable stockholder reading the [proxy statement] could find it without
difficulty,” it is considered “to be a part of the total mix of information available to
stockholders.”167 The Proxy Statement was not required, in this instance, to make a
redundant, affirmative disclosure specifically flagging the absence of a competitor-
designation in the Company’s incorporated and readily available public filings.
Given all this, it appears that this allegation is really a hair-splitting critique
of the Board’s regulatory analysis. A mere disagreement with the Board’s sale
165
Id. (embedding link to CoreLogic, Inc., Annual Report (Form 10-K) (Mar. 1, 2021)).
166
Match Gp., 2022 WL 3970159, at *28 n.254 (first citing Galindo v. Stover, 2022 WL
226848, at *9 (Del. Ch. Jan. 26, 2022); and then citing Wolf v. Assaf, 1998 WL 326662, at
*3 (Del. Ch. June 16, 1998)).
167
In re Cyan, Inc. S’holders Litig., 2017 WL 1956955, at *15 & n.72 (Del. Ch. May 11,
2017) (internal quotation marks omitted). See Bren v. Cap. Realty Gp. Senior Hous., Inc.,
2004 WL 370214, at *9 (Del. Ch. Feb. 27, 2004) (explaining, in the context of public
filings, that “all material information that was previously disclosed [need not] be disclosed
again with the specific correspondence requesting action”).
38
considerations “cannot be recast as a disclosure claim.”168 To the extent Plaintiff
suggests that the Board misapprehended antitrust risk posed by a deal with CoStar,
the Proxy Statement was not required to disclose what Plaintiff now says was the
Board’s error.169 To the extent Plaintiff suggests that the Board’s antitrust analysis
was incomplete, the Proxy Statement was not required to disclose what the Board
did not consider.170
In a last gasp, Plaintiff adopts CoStar’s position that a deal with CoStar would
have presented “no meaningful antitrust concerns.” But “no meaningful antitrust
concerns” does not reasonably mean “no antitrust concerns.” Indeed, in its
competing bids, CoStar extended the closing deadline to accommodate antitrust
review. 171 I am not required to accept Plaintiff’s strained interpretations of the facts
alleged. This allegation—and all the others—fail to support a disclosure violation.
168
Dearth, 2022 WL 1744436, at *18 (internal quotation marks omitted). See MONY Gp.,
853 A.2d at 682 (“[P]roxy materials are not required to state . . . legal theories or plaintiff’s
characterization of the facts.” (internal quotation marks omitted)).
169
See Loudon, 700 A.2d at 143 (“[E]ven when material facts must be disclosed, negative
inferences or characterizations of misconduct . . . need not be articulated.”).
170
See Sauer-Danfoss, 65 A.3d at 1132 (“Omitting a statement that the board did not do
something is not material, because ‘requiring disclosure of every material event that
occurred and every decision not to pursue another option would make proxy statements so
voluminous that they would be practically useless.’” (quoting Lukens, 757 A.2d at 736)).
171
See, e.g., Ex. 26 (Revised Competing Proposal).
39
e. The Effect of Florance’s Statements
The Complaint alleged four deficiencies to undermine the Proxy Statement’s
antitrust disclosures. None of them states a disclosure claim. Perhaps recognizing
this, Plaintiff insisted at oral argument that the Complaint, combined with Florance’s
statements, is sufficient to defeat Corwin. 172 It is not.
In the Bisnow Article, Florance was paraphrased as stating that he “believe[d]
antitrust issues had nothing to do with [the Company’s] decision to turn down
[CoStar’s] offer.”173 Florance’s statement, without more, is a conclusion. I may
“ignore conclusory allegations that lack specific supporting factual allegations.”174
In my view, given the circumstances here, Plaintiff was required to substantiate
Florance’s statement in some fashion with well-pleaded facts. It did not.
To reiterate, the Proxy Statement disclosed that the Board focused on antitrust
risk before CoStar made an offer. The Proxy Statement also disclosed that CoStar
itself raised antitrust concerns in its first offer. The Proxy Statement further
disclosed that the Board requested antitrust assurances not only from CoStar, but
also from Stone Point and Insight. Contemporaneous Board minutes reflect, and
Plaintiff does not dispute, that the Board actually had antitrust discussions with its
172
See, e.g., Tr. at 31:14–17, 32:3–5, 62:3–63:3, 79:10–80:1, 80:15–19.
173
Bisnow Article.
174
Ramunno v. Cawley, 705 A.2d 1029, 1034 (Del. 1998).
40
unconflicted advisors and took notice of CoStar’s antitrust lawsuit and related fee
dispute. Florance’s statement is unambiguously contradicted and does not save the
Complaint.
Undeterred, Plaintiff points to Florance’s paraphrased remark that the Board’s
(purportedly fake) antitrust concerns caused the Company to “turn down” CoStar.175
Based on this language, Plaintiff contends that (purportedly fake) antitrust concerns
“prevented” a CoStar deal.176 This position is undermined by CoStar—and
Florance’s—own statements.
Recall that the Complaint said the Board “rejected” CoStar on March 4.177
But, on March 4, CoStar issued a public press release (the “Press Release”)
announcing that CoStar—not the Board—terminated sale discussions.178 And
CoStar did not cite antitrust concerns as the deal-breaker either. Instead, the Press
Release explained that “rising interest rates . . . [in] the mortgage refinancing
market” were likely to “negatively impact valuations for residential property
technology companies.”179 This caused CoStar to “change its view of [the
175
Bisnow Article.
176
Compl. ¶ 83.
177
Id. ¶ 4.
178
CoStar Gp., Inc., Current Report (Form 8-K) (Mar. 4, 2021) (“Press Release”).
179
Id.
41
Company’s] value.”180 Nevertheless, CoStar praised the Company and its sale
process. In the Press Release, CoStar called the Company “an excellent company
with a talented team.” 181 Even Florance added his own words of congratulations:
We wish to congratulate [Stone Point and Insight] on [the Merger] . . . . We
thank [the] Board and management team . . . and congratulate them on
achieving a strong valuation for [the Company’s] [stock]holders. 182
Plus, Plaintiff’s theory suggests that antitrust was the sole focus of the CoStar
negotiations. It was not. As the Proxy Statement disclosed, the Board also aimed
for a deal that offered a substantial premium with cash value certainty on a prompt
closing timeline:
• On December 18, 2020, the Board met with Evercore and Skadden to
assess CoStar’s initial bid. The Board compared the value certainty of
an equity transaction with the value certainty of a cash transaction.183
Based on that analysis, the Board determined that a cash transaction
would be preferable to a stock transaction.184
• On January 19, 2021, the Board met with Evercore and Skadden to
assess CoStar’s revised bid. Among other things, the Board considered:
(i) the absence of cash consideration or other price protection for
volatility in CoStar’s stock price; (ii) that CoStar would have no
obligation to accept any structural, behavioral, or other remedies to
obtain regulatory approval for the transaction; and (iii) that the bid
180
Id. (cleaned up).
181
Id.
182
Id.
183
Proxy Statement at 47.
184
Id. at 47–48; Ex. 1 at 3 (Dec. 18, 2020 Bd. Minutes).
42
contemplated an outside date of nine months from signing, plus two 90-
day extensions at CoStar’s option.185
• On February 2, 2021, the Board met with its advisors to assess CoStar’s
“best and final offer.” 186 The Board considered: (i) the offer’s price
structure and regulatory terms; (ii) the potential risks and consequences
of an antitrust challenge; (iii) the timing of a federal review process;
and (iv) the risk that CoStar would not take actions necessary to obtain
regulatory approval.187
• On February 3 and 4, the Board met with its advisors to consider the
advantages and disadvantages of the competing bids. The agenda
included: (i) the risks in the valuation of CoStar stock as compared to
cash; (ii) the risks and opportunities of obtaining synergies in a
combination with CoStar; (iii) regulatory risk; (iv) the proposed terms
of each bidder to address regulatory risk; and (v) the timing and
certainty of closing on each bid. 188 Relative to CoStar, the Board found
that Stone Point and Insight’s all-cash offer provided “certain value,”
more “regulatory certainty,” and a shorter closing time.189
• On February 17 and 21, 2021, the Board met with its advisors to
evaluate the Competing Proposal. 190 The Board indicated interest,
noting that the Company was “prepared to pursue an all-stock
transaction” at that time.191 Still, the Board concluded that a cash
component was necessary. 192
185
Proxy Statement at 50.
186
Id. at 55–56.
187
Id. at 56.
188
Id. at 57; Ex. 14 (Feb. 3, 2021 Bd. Minutes).
189
Proxy Statement at 57.
190
Id. at 58–59; Exs. 16–17 (Feb. 17 and 21, 2021 Bd. Minutes).
191
Proxy Statement at 58–59.
192
Id.; see also Ex. 12 (Graphics on CoStar Historical Stock Performance).
43
• On March 3, 2021, the Board met with its advisors to evaluate the
Revised Competing Proposal. The Board determined that, while the
offer continued to be reasonably expected to result in a Superior
Proposal, CoStar should include a substantial increase in the cash
component and shorten its closing deadline to no more than 12
months.193
It is not reasonably conceivable that the Board’s concerns were concocted. In
considering CoStar’s February 16 and March 1 bids, the Board assessed the volatility
of CoStar’s stock price. The Board and its advisors observed that, although high,
CoStar’s stock price had been declining steadily. For example, the Proxy Statement
disclosed that, between February 12 and March 2, CoStar’s stock price had declined
from $939.76 to $762.80 per share. 194 The decrease represented a 19% drop or
approximately $177 per share.195 Based on the 19% decline, the Board learned that
the implied value of the Revised Competing Proposal was $83.73 per share,
including the $6 cash component—not the $90 per share that CoStar advertised.196
Still, the Board recognized that a CoStar deal would come with synergies. So
the Board persisted. It wanted CoStar to “substantially increase” the cash
193
Proxy Statement at 60; Ex. 18 (Mar. 3, 2021 Bd. Minutes).
194
Proxy Statement at 59; Ex. 9 (Evercore Presentation on CoStar Stock Volatility); Ex.
12 (Graphics on CoStar Historical Stock Performance).
195
Proxy Statement at 59; Ex. 9 (Evercore Presentation on CoStar Stock Volatility); Ex.
12 (Graphics on CoStar Historical Stock Performance).
196
Proxy Statement at 59.
44
consideration to mitigate future volatility.197 It also wanted CoStar to reduce the 15-
month closing date to no more than 12 months.198 Through March, the Board
believed that CoStar had the ability to make a Superior Proposal. 199 Rather than
renegotiate, CoStar walked.
Given the timing and content of the CoStar negotiations, the Board’s overall
approach, and the Proxy Statement’s disclosures, it is not reasonably conceivable
that the Board’s antitrust considerations “had nothing to do” with the Merger.200
Finally, it is worth reemphasizing here that Plaintiff brought the 220 Action
before filing this lawsuit. That investigation evidently did not uncover anything to
support Florance’s statements. A plaintiff cannot then use the Rule 12(b)(6)
pleading standard to distort reality to plead a follow-on breach of fiduciary duty
claim. 201 In the face of the 220 Action, Plaintiff has essentially asked me to infer,
without any books-and-records support, that the Proxy Statement’s disclosures (and,
indeed, the Board’s minutes) were contrived as part of what amounts to a grand
197
Id. at 60.
198
Ex. 18 (Mar. 3, 2021 Bd. Minutes); Proxy Statement at 60.
199
Ex. 18 (Mar. 3, 2021 Bd. Minutes); Proxy Statement at 59–60.
200
Bisnow Article.
201
See Morgan v. Cash, 2010 WL 2803746, at *7 (Del. Ch. July 16, 2010) (“Rule 12(b)(6)
analysis does not give this court license to conjure up a reality on behalf of the plaintiff[.]”).
45
conspiracy. To be clear, I am not weighing the evidence. But I am also not required
to “blindly accept” every allegation as true. 202 Plaintiff undertook the difficult task
of claiming the Proxy Statement is false. The Bisnow Article, standing alone or
combined with the Complaint, misses that mark.
In sum, the antitrust allegations fail to state a reasonably conceivable
disclosure violation.
2. Martell’s Interests In Post-Merger Employment
The Complaint alternatively alleges that the Proxy Statement omitted material
information about Martell’s interest in obtaining post-Merger employment. This
theory does not support a claim either.
a. Martell’s Future Employment At Stone Point And Insight
The Complaint alleges that the Proxy Statement failed to disclose that Martell
had conversations with Stone Point and Insight about post-Merger employment. The
Complaint does not identify any document supporting this allegation. Instead, the
Complaint speculates that, because Stone Point and Insight retained Martell after the
Merger closed, it would be “preposterous to assume that there were no discussions
with Stone Point [and] Insight concerning continued employment of management”
202
Grobow v. Perot, 539 A.2d 180, 187 (Del. 1988), overruled on other grounds by Brehm
v. Eisner, 746 A.2d 244 (Del. 2000); accord White v. Panic, 783 A.2d 543, 549 (Del. 2001).
46
during the sale process.203 The Complaint also points to a bit of conventional
wisdom that financial buyers often retain target management post-closing. 204
Precedent rejects Plaintiff’s reasoning here. In English v. Narang,205 target
stockholders alleged that a Recommendation Statement omitted material facts
concerning “post-closing employment opportunities for [target] management.”206
The stockholder-plaintiffs had no evidence that those discussions occurred. Instead,
they theorized that those employment discussions with the acquiror—a financial
buyer—were “likely” because (i) target management “knew” that the acquiror
“routinely retains” existing management; and (ii) the acquiror, on the closing date,
announced that it decided to retain some target managers. 207 The plaintiffs further
reasoned that employment discussions “must have occurred before closing” because
the acquiror’s announcement was filed on the same day that the acquisition closed.208
The court dismissed the complaint. In doing so, the court first recited the rule
that “if a disclosure document does not say the board or its advisors did something,
203
Compl. ¶ 105.
204
Id. ¶ 102.
205
2019 WL 1300855 (Del. Ch. Mar. 20, 2019), aff’d, 222 A.3d 581 (Del. 2019) (TABLE).
206
Id. at *12.
207
Id.
208
Id.
47
then the reader can infer that it did not happen.” 209 That in mind, the court next
observed that the Recommendation Statement’s background section did not discuss
“the timing and extent of any discussions between [the target and acquiror] regarding
post-close employment.” 210 Given that absence, the court explained that the
plaintiffs’ theories would fail “unless plaintiffs allege[d] facts” suggesting that
employment discussions “occurred during the sale process.”211
They did not. Applying the governing framework, the court concluded that
the plaintiffs’ allegation was entirely speculative and missed the “key point” that
stockholders are entitled to material information about events that happened “during
the sale process,” not “at some point after execution:”
What is important . . . is whether discussions about post-close employment
occurred before the Company agreed to do a deal with [the acquiror]. This is
because the issue that could create a conflict of interest and be material to
stockholders in deciding whether to tender their shares is whether a fiduciary
of the Company . . . had a motive to play favorites during the sale process in
order to secure post-close employment . . . .
Based on the allegations of the Complaint, it would be speculative—rather
than reasonable—to infer that such discussions occurred during the sale
process simply because [the acquiror] has a reputation for retaining
management. Put differently, the only non-speculative, reasonable inference
that can be drawn from the Complaint’s allegations is that post-close
employment discussions occurred at some point after execution of the Merger
Agreement and before the announcement in the Form 8-K filing issued on the
209
Id. (alteration omitted) (quoting Sauer-Danfoss, 65 A.3d at 1132).
210
Id.211
Id.48
closing date. For the reasons explained above, however, such an omission
from the Recommendation Statement would not be material . . . . 212
English is dispositive. Like the stockholder-plaintiffs in English, Plaintiff
bases its theory on a closing-date announcement and the idea that financial buyers
retain management. Plaintiff does not allege facts suggesting that employment
discussions with Stone Point and Insight occurred during the sale process. So
Plaintiff seeks a speculative inference, not a reasonable one. I need not draw it.213
Moreover, like the Recommendation Statement in English, the Proxy
Statement contains a background section that does not mention employment
discussions with Stone Point and Insight. Consistent with the background, the Proxy
Statement disclosed that, at the time of the stockholder vote, the Company’s
managers had not entered into an employment agreement with Stone Point and
Insight. 214 Given that disclosure, the Proxy Statement was not required to
additionally disclose that the Board or management did not have conversations about
post-Merger employment. 215 If anything, the Complaint supports a reasonable
212
Id. at *12–13 (first emphasis added) (cleaned up).
213
See Arnold v. Soc’y for Sav. Bancorp, 650 A.2d 1270, 1276 (Del. 1994) (“Delaware law
does not require disclosure of . . . speculative information which would tend to confuse
stockholders or inundate them with an overload of information.”).
214
Compl. ¶ 102; Proxy Statement at 82.
215
See Abrons v. Maree, 911 A.2d 805, 813 (Del. Ch. 2006) (“Consistent and redundant
facts do not alter the total mix of information . . . .”).
49
inference that Stone Point and Insight decided to retain Martell at some point after
the sale process ended. As in English, any discussion that occurred at that point was
not material.
To distinguish English, Plaintiff cites two cases: In re Atheros
Communications, Inc. 216 and Maric Capital Master Fund, Ltd. v. Plato Learning,
Inc.217 Both are inapposite.
In Atheros, target stockholders alleged that a proxy statement
mischaracterized employment discussions between the acquiror and one of the
target’s inside directors. The proxy statement disclosed that the director “had not
had any discussions [during the sale process] with [the acquiror] regarding the terms
of his potential employment by” the acquiror.218 But the director had discussed
potential employment with the acquiror via e-mail during the sale process.219 Given
that discrepancy, the court preliminarily enjoined the stockholder vote, finding a
reasonable probability that the plaintiffs stated a meritorious disclosure violation.
216
2011 WL 864928 (Del. Ch. Mar. 4, 2011).
217
11 A.3d 1175 (Del. Ch. 2010).
218
Atheros, 2011 WL 864928, at *11.
219
Id. The director also admitted in a deposition taken for the preliminary injunction
hearing that he had intra-process employment discussions. See id. at *11 n.84.
50
The same was true in Maric. There, the proxy statement disclosed that a target
CEO “did not negotiate terms of employment” with the acquiror during the sale
process.220 But the CEO discussed an equity compensation package with the
acquiror during the sale process. 221 The court accordingly held that the proxy
statement “created the materially misleading impression that management was given
no expectations regarding” potential employment.222
This case is different. In Atheros and Maric, the stockholders had something
more than speculation—communications, testimony—that employment discussions
occurred between management and the acquiror during the sale process. To this
extent, both cases are consistent with English. English dismissed the complaint
because it did not offer the “something more”—communications, testimony—
marshaled in Atheros and Maric. Here, by contrast, Plaintiff only offers Stone Point
and Insight’s announcement at closing. That is not enough.
The Court cannot infer the existence of undisclosed, intra-process
employment discussions between a target executive and an acquiror from
speculation and innuendo. Again, Plaintiff inspected the Company’s books and
records under Section 220 before filing this action. Plaintiff apparently did not
220
Maric, 11 A.3d at 1179.
221
Id.222
Id.51
uncover the “something more” our law requires in this context. Either way, the
Complaint does not support a reasonable inference that the Proxy Statement omitted
discussions about Martell’s future employment. Accordingly, this allegation fails.
b. Martell’s Future Employment At CoStar
The Complaint alternatively alleges the Proxy Statement failed to disclose that
Martell would have been terminated if the Company merged with CoStar. As
support for this allegation, the Complaint relies exclusively on the Bisnow Article.
There, Florance was paraphrased as stating—after CoStar lost its public bid for the
Company—that a CoStar deal would have caused “some” of the Company’s
“executives” to “los[e] their jobs.”223 The Bisnow Article directly quotes Florance
as stating:
Most of the senior management team there might earn eight digits a year of
compensation, and in a merger, especially a strategic merger, inevitably
some of those jobs go away . . . . That’s a powerful motive to not do a deal.224
One major difficulty with accepting Florance’s statements is that they are
framed generically and seem to express a normative view about the consequences of
strategic mergers that may or may not have been applicable to the factual
223
Bisnow Article.
224
Id.52
circumstances surrounding this case.225 Another major difficulty with accepting
Florance’s statements is that none of the statements references Martell. Yet another
major difficulty with accepting Florance’s statements is that the books and records
that Plaintiff obtained do not support the inference that Florance or CoStar suggested
Martell would be terminated during the sale process—quite the opposite.
The Complaint alleges that, during a January 17, 2021 Board meeting, Martell
told the Board that “a potential future role for him in the surviving company was a
topic of discussion between himself and [Florance].”226 That is only half the story.
The January 17 meeting minutes report that Martell informed the Board that, during
a call earlier that day, Florance told Martell that he “wanted [Martell] to play a
significant role in the combined entity going forward.”227 Two days later, Florance
and CoStar delivered CoStar’s January 19 bid letter, which stated that CoStar
“envision[ed] ongoing and important roles for [Company] management.” 228 Less
than one month later, Florance and CoStar reasserted, in CoStar’s Competing
225
At least one decision suggested that this view may be inapt where, as here, the strategic
bidder makes representations about retaining target management. See In re BJ’s Wholesale
Club, Inc. S’holders Litig., 2013 WL 396202, at *10 n.88 (Del. Ch. Jan. 31, 2013).
226
Compl. ¶ 48 (referencing Ex. 6 (Jan. 17, 2021 Bd. Meeting Minutes)).
227
Ex. 6 (Jan. 17, 2021 Bd. Minutes). According to the January 17 minutes, Martell
responded that “his potential role in a combined company was not a consideration in
determining whether to enter into any transaction with [CoStar] or any other party[.]” Id.228
Ex. 21 (CoStar Revised Bid).
53
Proposal, that CoStar “absolutely want[ed] to retain” the Company’s “talented
management team.”229 CoStar reaffirmed this sentiment in the Press Release.230
Florance echoed it.231
The Proxy Statement was not required to disclose a fact that “did not exist.”232
And I need not credit an allegation that is unambiguously contradicted by the
documents integral to the Complaint’s allegations.
My analysis here is perhaps colored by the fact that Plaintiff relies entirely on
statements in an online article that, if anything, smack of post-process sour grapes.
In any event, the Complaint, as pleaded, does not support Plaintiff’s requested
inference that Martell would have lost his job if the Company merged with CoStar.233
So this alleged disclosure violation fails too.
229
Ex. 25 (Competing Proposal).
230
Press Release (The Company is an “excellent company with a talented team[.]”).
231
Id. (“We thank [the] Board and management team . . . and congratulate them on
achieving a strong valuation for [the Company’s] [stock]holders.”).
232
In re JCC Hldg. Co., 843 A.2d 713, 721 (Del. Ch. 2003).
233
The Complaint stresses that the Board proposed to CoStar “certain restrictions on
employee retention efforts prior to closing.” Compl. ¶¶ 51, 53. But it is unclear why that
matters. A term that would have limited some operational changes during a transition
period pre-closing does not support a reasonable inference that the Board required or even
wanted CoStar to retain Martell post-closing. Accordingly, this term is irrelevant to my
analysis.
54
Plaintiff has failed to identify an actionable deficiency in the Proxy Statement.
Corwin therefore requires dismissal of the Complaint.
B. The Complaint Fails To State A Breach Of Fiduciary Duty Claim
The Complaint fails under Corwin. But even in a pre-Corwin world, I would
find that Plaintiff has failed to state a breach of fiduciary duty claim against Martell.
The Complaint is devoid of specific facts from which to infer that Martell
(improperly or otherwise) steered the Company away from CoStar.
1. The Applicable Standard
“The starting point for analyzing fiduciary action is to determine the correct
standard of review.”234 Enhanced scrutiny presumptively applies to cash-out
mergers.235 In that setting, the board’s goal is to “get the best price for the
stockholders at a sale of the company.”236 Revlon, however, does not require that
the board “actually attain[] the best immediate value.”237 After all, “there is no single
blueprint that a board must follow to fulfill its [Revlon] duties.” 238 “[A]t bottom[,]
Firefighters’ Pension Sys. of City of Kan. City, Mo. Tr. v. Presidio, Inc., 251 A.3d 212,
234
249 (Del. Ch. 2021).
See, e.g., Paramount Commc’ns Inc. v. QVC Network Inc., 637 A.2d 34, 42–43, 45 (Del.
235
1994); Revlon, Inc. v. MacAndrews & Forbes Hldgs., Inc., 506 A.2d 173, 182 (Del. 1986).
236
Lyondell Chem. Co. v. Ryan, 970 A.2d 235, 243 (Del. 2009) (alteration and internal
quotation marks omitted).
237
In re Dollar Thrifty S’holder Litig., 14 A.3d 573, 595 (Del. Ch. 2010).
238
Barkan v. Amsted Indus., Inc., 567 A.2d 1279, 1286 (Del. 1989).
55
Revlon is a test of reasonableness; directors are generally free to select the path to
value maximization, so long as they choose a reasonable route to get there.” 239
Although enhanced scrutiny provides the standard of review, it does not
govern the standard of conduct. “A court does not apply enhanced scrutiny when
determining whether a fiduciary should be held liable” for damages.240 Indeed, there
is no “freestanding ‘Revlon claim’” for damages.241 So a viable claim for damages
“requires more [than] an allegation implying that [a fiduciary] failed to satisfy
Revlon[.]" 242 It must also state a breach of an underlying fiduciary duty.243
The Company’s charter contains a Section 102(b)(7) exculpatory provision
applicable to directors. 244 As a result, the Complaint must be dismissed, “regardless
of the standard of review[,]” unless it pleads a non-exculpated fiduciary duty
239
Dollar Thrifty, 14 A.3d at 595–96.
240
Presidio, 251 A.3d at 252.
241
USG, 2020 WL 5126671, at *28.
242
Presidio, 251 A.3d at 254 (internal quotation marks omitted).
See Malpiede, 780 A.2d at 1083–84; McMillan v. Intercargo Corp., 768 A.2d 492, 502
243
(Del. Ch. 2000).
244
Compl. ¶ 22. It is not clear whether Plaintiff has sued Martell in his director or officer
capacity. Because the Complaint fails under any title or theory, I disregard the distinction.
56
claim. 245 Duty of loyalty claims cannot be exculpated. 246 To plead a loyalty-based
damages claim in the Revlon context, “the plaintiff must plead facts supporting a
reasonable inference that the defendant failed to act reasonably to obtain the best
transaction reasonably available, either due to interestedness, because of a lack of
independence, or in bad faith.”247
“[T]he paradigmatic Revlon claim involves a conflicted fiduciary who is
insufficiently checked by the board and who tilts the sale process toward his own
personal interests in ways inconsistent with maximizing stockholder value.”248
Martell does not fit this mold.
2. The Allegations Challenging the Sale Process
Plaintiff alleges that “Martell spearheaded the sale process,” “personally
convinced the [‘supine’] Board to proceed” with the Merger, and “was motivated”
245
In re Cornerstone Therapeutics Inc. S’holder Litig., 115 A.3d 1173, 1175 (Del. 2015).
246
Plaintiff also has attempted to allege a breach of the duty of good faith. See Compl. ¶¶
110–14. I summarily reject this claim, however, because the Complaint does not allege
any “extreme set of facts” suggesting Martell “knowingly and completely failed” to obtain
the best price for the stockholders. Frank v. Elgamal, 2014 WL 957550, at *22 (Del. Ch.
Mar. 10, 2014) (internal quotation marks omitted).
247
Presidio, 251 A.3d at 254.
248
Mindbody, 2020 WL 5870084, at *13.
57
to do so by an undisclosed “self-interest” in his continued employment and executive
pay. 249 These allegations fail to state a claim for breach of fiduciary duty.
None of the Board’s 11 outside directors is alleged to be conflicted. None of
those directors is alleged to have been beholden to Martell. Three of them, in fact,
were nominated by entities in connection with a proxy contest. Plaintiff’s allegation
that three directors recently elected during a proxy fight were “supine” is not only
conclusory, but, frankly, strains belief.250
249
Compl. ¶¶ 4–5, 100; Opp’n Br. at 1–2.
250
See, e.g., Gregory H. Shill, The Independent Board As Shield, 77 Wash. & Lee L. Rev.
1811, 1861–62 (2020) (“Managers often have the capability and incentive to filter and
shape the presentation of information for director consumption . . . . Directors nominated
by activist shareholders are less vulnerable . . . . Such directors—known as designated
or activist directors—usually qualify as independent . . . but are less information-poor than
other outside directors because they can call upon the assistance of staff at the fund that
facilitated their appointment.” (citations omitted)). See also In re Zale Corp. S’holders
Litig., 2015 WL 5853693, at *13 (Del. Ch. Oct. 1, 2015) (noting “skepticism” of claim that
directors nominated by a large target stockholder, even if “beholden” to the stockholder,
would be incented to select a sale proposal less valuable than the one chosen); Air Prods.
& Chems., Inc. v. Airgas, Inc., 16 A.3d 48, 122 (Del. Ch. 2011) (finding reasonableness of
takeover response was “bolstered” by the fact that activist directors on the target board
agreed that the takeover response was appropriate); Venhill Ltd. P’Ship v. Hillman, 2008
WL 2270488, at *25 (Del. Ch. June 3, 2008) (Strine, V.C.) (observing that “outside advisors
. . . help check the potential that [a] conflicted party’s personal motivations will cause the
consummation of a transaction that should have been avoided or, at the very least, been priced
much differently”); see generally In re Williams Cos. S’holder Litig., 2021 WL 754593, at
*29–30 (Del. Ch. Feb. 26, 2021) (“Activists may pressure a corporation to make
management changes, implement operational improvements, or pursue a sale transaction .
. . . Many forms of stockholder activism can be beneficial to a corporation . . . .”), aff’d sub
nom. Williams Cos. v. Wolosky, 264 A.3d 641 (Del. 2021) (TABLE).
58
Nor does the Complaint challenge the Board’s advisors. None of those
advisors is alleged to be conflicted. None of those advisors is alleged to have been
beholden to Martell. None of those advisors is alleged to have provided inaccurate
or irrelevant information. Together with its unconflicted advisors, the concededly
independent Board sought to minimize the regulatory and closing risks inherent to
antitrust scrutiny. It concluded that cash consideration was generally preferable to
stock. And it preferred to close a deal promptly rather than be subject to an extended,
uncertain closing process. All these considerations were disclosed. And these
considerations were applied to all bidders.251
In all this, Martell is nowhere to be found. He is not alleged to have introduced
the Board’s antitrust concerns. He is not alleged to have recommended cash. And
he is not alleged to have pushed for a quick closing. The Complaint’s conclusory
allegations concerning Martell’s involvement do not support a reasonable inference
that Martell improperly tilted the playing field in favor of Stone Point and Insight or
otherwise wrote the script for the Board’s negotiations or choreographed CoStar’s
decision to walk.
251
See Proxy Statement at 57; see also Ex. 23 at 3.
59
True, Martell communicated with Florance and updated the Board. But the
Complaint portrays Martell—who is often group-pleaded with “management”252—
as another member of the negotiation team. There is no well-pleaded allegation that
Martell “personally convinced” the concededly independent Board to do anything.
By the same token, there is no well-pleaded allegation that he “spearheaded” the sale
process. The Board did.
To make something out of nothing, the Complaint presses Martell’s
compensation package. It says that salary incentives, coupled with a golden
parachute, caused Martell to “control the Company’s strategy.” 253 But the
Complaint acknowledges that those benefits would have been realized in a CoStar
deal too.254 So they could not have motivated Martell one way or the other.255
252
Compl. ¶¶ 5–7.
253
Id. ¶ 100.
254
Id. ¶ 75. See also Tr. at 37:12–18 ([Pl.’s Couns.]: “[Martell] stood to receive roughly
the same under a Stone Point[-Insight] transaction or a CoStar transaction in terms of the
mechanics of the golden parachute . . . . I think we calculated that he might get a few million
dollars more in a CoStar deal than . . . the [M]erger.”).
255
See Lukens, 757 A.2d at 730 (“More importantly, the Complaint does not challenge the
validity or enforceability of the ‘golden parachute’ contracts and acknowledges that
Allegheny was prepared to enter into a merger agreement substantially identical to the
Bethlehem merger agreement. I infer from this that Allegheny was also willing to honor
the golden parachute payments. In the circumstances, there is simply no basis for inferring
that directorial approval of a transaction providing for their payment was the product of
disloyalty or bad faith.” (emphasis in original) (cleaned up)), aff’d sub nom. Walker, 757
A.2d 1278; see also Golden Cycle, LLC v. Allan, 1998 WL 892631, at *12 (Del. Ch. Dec.
10, 1998).
60
Moreover, the Proxy Statement disclosed Martell’s potential pecuniary
interests in the Merger.256 The stockholders approved the Merger anyway.257
Assuming the (contradicted) allegation that CoStar would have fired Martell is true,
the extra salary he would obtain at Stone Point and Insight is not well-pleaded to be
the wheel that steered the Company away from CoStar.
The Complaint last highlights the implied-value differential between the
Merger price and the Revised Competing Proposal. The Complaint insists the Board
would have taken the latter had Martell not been pulling the strings. And the Board’s
failure to do so, Plaintiff says, appropriately states a claim under our Revlon-
precedent against Martell. It does not.
“Delaware law empowers directors to consider whether, under the
circumstances, ‘stock or other non-cash consideration’ is preferable to cash when
evaluating a proposal.”258 Here, the Board countered the Revised Competing
Proposal for at least two reasons. First, rather than resolving the Board’s antitrust
256
Proxy Statement at 78–83.
257
Cf. Goldstein, 2022 WL 1671006, at *19 (“[T]he version of the business judgment rule
that applies post-Corwin cannot be rebutted based on director-level conflicts that were
disclosed to stockholders.”); USG, 2020 WL 5126671, at *2 (“[A] bribe, if fully disclosed
to the stockholders in way of a non-coercive vote, . . . theoretically would result in dismissal
under Corwin despite adequate pleading of a clear breach of loyalty on the part of the
directors.”), aff’d sub nom. Anderson, 265 A.3d 995.
258
In re Essendant, Inc. S’holder Litig., 2019 WL 7290944, at *10 (Del. Ch. Dec. 30, 2019)
(quoting Paramount, 637 A.2d at 44).
61
concerns, CoStar extended its proposed closing deadline precisely because of its own
apparent regulatory concerns. Second, the Board sought more cash consideration
because CoStar’s stock price was volatile and thus CoStar’s revised bid did not
reflect the nominal value that CoStar advanced, particularly given the lengthening
closing timeline reflected in that bid. Notably, the Board based its view on financial
analyses provided by Evercore, not Martell. Cash provided the value certainty that
defined the Board’s decision-making.
Having reviewed the Complaint’s allegations and the documents integrated
therein, I conclude that Plaintiff has failed to state a claim. The Board’s choice to
accept the relative certainty of an all-cash, high-premium transaction that
contemplated a prompt closing over a nominally higher-value all-stock transaction
that posed valuation and closing risks does not, as pleaded, support a reasonable
inference of disloyalty. 259 To be clear, the Complaint’s conclusory allegations also
do not support a reasonably conceivable claim that Martell violated his fiduciary
duties in connection with the Board’s decision to counter the Revised Competing
Proposal instead of declaring it a Superior Proposal. If anything, the Complaint
259
See Citrin v. Fairchild Camera & Instrument Corp., 569 A.2d 53, 68 (Del. 1989) (In
assessing a bid, the board may consider “the proposed or actual financing for the offer,”
“the consequences of that financing,” and “the risk of nonconsummation.” (cleaned up)).
62
supports a reasonable inference that the Board desired a deal with CoStar, but on
terms CoStar was unwilling to accept.
In the end, the Board conducted a sale process that generated a substantial
premium for the Company’s stockholders. The Complaint does not support a
reasonable inference that the sale process was infected by a conflict of interest. The
Complaint does not support the extreme inference that the Board’s minutes and the
Company’s disclosures are false. And the Complaint does not allege any reasonably
conceivable facts implicating Martell personally in wrongdoing. Properly
understood, then, the Complaint evinces a mere disagreement with the Merger. That
does not state a claim under Delaware law. Accordingly, I dismiss the Complaint.
CONCLUSION
For the foregoing reasons, Martell’s motion to dismiss is GRANTED.
63