COURT OF CHANCERY OF THE SAM GLASSCOCK III STATE OF DELAWARE COURT OF CHANCERY COURTHOUSE VICE CHANCELLOR 34 THE CIRCLE GEORGETOWN, DELAWARE 19947
Date Submitted: January 9, 2015 Date Decided: January 12, 2015
Seth D. Rigrodsky, Esquire Robert S. Saunders, Esquire Brian D. Long, Esquire Arthur R. Bookout, Esquire Gina M. Serra , Esquire Michael J. Alonso, Esquire Jeremy J. Riley , Esquire Skadden, Arps, Slate, Meagher & Flom LLP Rigrodsky & Long, P.A. One Rodney Square 2 Righter Parkway, Suite 120 P.O. Box 636 Wilmington, DE 19803 Wilmington, Delaware 19801-0636
Anne C. Foster, Esquire Christopher H. Lyons, Esquire Richards, Layton & Finger, P.A. One Rodney Square 920 N. King St. Wilmington, DE 19801
Re: Parsons v. Digital River, Inc., et al. Civil Action No. 10370-VCG
Dear Counsel:
On December 31, 2014, I heard oral argument on the Plaintiff’s Motion to
Expedite. At that time, I denied the Plaintiff’s Motion as to the Revlon claims
raised therein, but I deferred ruling on the Motion as it related to the Plaintiff’s
disclosure claims. Instead, I allowed the Plaintiff to submit a few disclosure claims
in a supplemental brief, together with case law and an explanation of why such
1 claims would be material to stockholders.1 The Plaintiff’s Motion initially raised
upwards of 30 disclosure claims, approximately five of which the Plaintiff
highlighted during argument. The Plaintiff’s supplemental briefing focused on
two. Following my review of that brief, in addition to the Defendants’ responses, I
am denying the Plaintiff’s Motion to Expedite with respect to the remaining
claims.
To prevail on a motion to expedite, a plaintiff must demonstrate ―a
sufficiently colorable claim and show a sufficient possibility of threatened
irreparable injury, as would justify imposing on the defendants and the public the
extra (and sometimes substantial) costs of an expedited preliminary injunction
proceeding.‖2 This Court has observed that ―the optimal time to bring a disclosure
claim in connection with a proposed merger, or in a like context where the
company requests shareholder action or approval, is before the stockholder vote is
taken and the deal closes,‖ thus highlighting the value of expedition in disclosure
cases.3 That observation notwithstanding, I note that if a meritorious disclosure
claim is pursued post-closing, a quasi-appraisal remedy may be available.4
1 Parsons v. Digital River, Inc., C.A. No. 10370-VCG, at 32–33 (Del. Ch. Dec. 31, 2014) (TRANSCRIPT); see, e.g., Bleymeyer v. Monogram Sciences, Inc., at 31:20–32:20 (Del. Ch. July 9, 2009) (TRANSCRIPT). 2 In re 3Com S’holders Litig., 2009 WL 5173804, at *1 (Del. Ch. Dec. 18, 2009) (alteration omitted). 3 In re SunGard Data Sys., Inc. S’holders Litig., 2005 WL 1653975, at *2 (Del. Ch. July 8, 2005). 4 See, e.g., In re Orchard Enterprises, Inc. S’holder Litig., 88 A.3d 1, 42–47 (Del. Ch. 2014).
2 In her supplemental submission, the Plaintiff helpfully emphasized what I
assume are the two most significant of her three dozen disclosure claims,
relating to the failure to provide material information as to (i) what occurred during the go-shop period; and (ii) the basis for CEO Dobson’s statement to the Board that he ―believed it likely that Siris would be interested in retaining members of senior management post- closing,‖ including when he formed such belief or any communications concerning management retention prior to the Merger Agreement.5
At the times of the Plaintiff’s Motion, oral argument, and the filing of her
supplemental brief, the Company had not yet filed its Definitive Proxy. That was
filed on January 8, 2015, at which time the Company disclosed, in detail,
information about the go-shop period, including the number of parties involved,
indications of interest, and confidentiality agreements entered.6 Therefore, I find
the Plaintiff’s claim regarding the go-shop period to be moot.7
I turn, then, to the disclosure claim regarding management retention. The
Proxies—both Preliminary and Definitive—provide: ―Mr. Dobson also confirmed
that neither he nor other members of senior management had discussed any
arrangements with Siris regarding potential post-transaction employment by
5 Pl.’s Supplemental Br. in Further Supp. of Mot. for Expedited Proceedings at 1. The Plaintiff asserts a third disclosure claim, involving Morgan Stanley’s ―comparable companies‖ analysis in its fairness opinion; the Plaintiff no longer seeks expedited discovery with respect to this claim, instead asking that it proceed to a preliminary injunction hearing on the current record. 6 See Digital River Defs.’ Supplemental Br. in Opp’n to Pl.’s Mot. for Expedited Proceedings at 6; Alonso Aff. Ex. 10 at 10–11, 87–89. 7 To be clear, to the extent that she is seeking further disclosure regarding the go-shop period, the Plaintiff has not demonstrated a remaining colorable claim. She declined the opportunity to file a reply brief, post-Definitive Proxy. 3 Digital River, although he believed it likely that Siris would be interested in
retaining members of senior management post-closing.”8 The Proxies also
disclosed that the Digital River Board had directed management not to discuss
employment with Siris prior to execution of a merger agreement,9 that no such
discussion had taken place,10 and that no employment agreements had been entered
into as of the time of either proxy.11 The Plaintiff contends, however, that it is
material to know ―the basis for Dobson’s belief, when he formed it, and any
communications regarding management retention.‖12
The Plaintiff points to this Court’s decision in In re Micronetics, Inc.
Shareholder Litigation, where Vice Chancellor Parsons noted that in ―disclosing
management’s . . . expectation of continued employment with [the buyer], [the
proxy] may be neglecting to disclose pertinent parts of that full story.‖13 The
Defendants argue that Micronetics is not helpful to the Plaintiff here because, in
that case, the proxy referenced actual employment agreements and definitively
stated that management would continue their employment with the company. 14
8 Alonso Aff. Ex. 3 at 38 (Preliminary Proxy); see also Alonso Aff. Ex. 10 at 38 (Definitive Proxy). 9 See Alonso Aff. Ex. 3 at 37; see also Alonso Aff. Ex. 10 at 37. 10 See Alonso Aff. Ex. 3 at 38; see also Alonso Aff. Ex. 10 at 38. 11 See Alonso Aff. Ex. 3 at 9; see also Alonso Aff. Ex. 10 at 9. 12 Pl.’s Supplemental Br. in Further Supp. of Mot. for Expedited Proceedings at 4. 13 C.A. No. 7626-VCP, at 16:8–11 (Del. Ch. July 23, 2012) (TRANSCRIPT); see also Pl.’s Supplemental Br. in Further Supp. of Mot. for Expedited Proceedings at 4. 14 See Digital River Defs.’ Supplemental Br. in Opp’n to Pl.’s Mot. for Expedited Proceedings at 10–12. 4 Further, as these Defendants point out, this Court has noted that although a fact
was found material in one case, such a finding does not ―endow that issue with
talismanic properties or reduce it to a magic word forever after.‖15
Here, the stockholders were informed that Dobson believed, and disclosed to
the board, that Siris would offer senior management continued employment, but
that he had not discussed these matters with Siris; that the board directed
management not to speak with Siris about such employment, pre-agreement; and
that no such discussions took place. This gives stockholders the ability to consider
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COURT OF CHANCERY OF THE SAM GLASSCOCK III STATE OF DELAWARE COURT OF CHANCERY COURTHOUSE VICE CHANCELLOR 34 THE CIRCLE GEORGETOWN, DELAWARE 19947
Date Submitted: January 9, 2015 Date Decided: January 12, 2015
Seth D. Rigrodsky, Esquire Robert S. Saunders, Esquire Brian D. Long, Esquire Arthur R. Bookout, Esquire Gina M. Serra , Esquire Michael J. Alonso, Esquire Jeremy J. Riley , Esquire Skadden, Arps, Slate, Meagher & Flom LLP Rigrodsky & Long, P.A. One Rodney Square 2 Righter Parkway, Suite 120 P.O. Box 636 Wilmington, DE 19803 Wilmington, Delaware 19801-0636
Anne C. Foster, Esquire Christopher H. Lyons, Esquire Richards, Layton & Finger, P.A. One Rodney Square 920 N. King St. Wilmington, DE 19801
Re: Parsons v. Digital River, Inc., et al. Civil Action No. 10370-VCG
Dear Counsel:
On December 31, 2014, I heard oral argument on the Plaintiff’s Motion to
Expedite. At that time, I denied the Plaintiff’s Motion as to the Revlon claims
raised therein, but I deferred ruling on the Motion as it related to the Plaintiff’s
disclosure claims. Instead, I allowed the Plaintiff to submit a few disclosure claims
in a supplemental brief, together with case law and an explanation of why such
1 claims would be material to stockholders.1 The Plaintiff’s Motion initially raised
upwards of 30 disclosure claims, approximately five of which the Plaintiff
highlighted during argument. The Plaintiff’s supplemental briefing focused on
two. Following my review of that brief, in addition to the Defendants’ responses, I
am denying the Plaintiff’s Motion to Expedite with respect to the remaining
claims.
To prevail on a motion to expedite, a plaintiff must demonstrate ―a
sufficiently colorable claim and show a sufficient possibility of threatened
irreparable injury, as would justify imposing on the defendants and the public the
extra (and sometimes substantial) costs of an expedited preliminary injunction
proceeding.‖2 This Court has observed that ―the optimal time to bring a disclosure
claim in connection with a proposed merger, or in a like context where the
company requests shareholder action or approval, is before the stockholder vote is
taken and the deal closes,‖ thus highlighting the value of expedition in disclosure
cases.3 That observation notwithstanding, I note that if a meritorious disclosure
claim is pursued post-closing, a quasi-appraisal remedy may be available.4
1 Parsons v. Digital River, Inc., C.A. No. 10370-VCG, at 32–33 (Del. Ch. Dec. 31, 2014) (TRANSCRIPT); see, e.g., Bleymeyer v. Monogram Sciences, Inc., at 31:20–32:20 (Del. Ch. July 9, 2009) (TRANSCRIPT). 2 In re 3Com S’holders Litig., 2009 WL 5173804, at *1 (Del. Ch. Dec. 18, 2009) (alteration omitted). 3 In re SunGard Data Sys., Inc. S’holders Litig., 2005 WL 1653975, at *2 (Del. Ch. July 8, 2005). 4 See, e.g., In re Orchard Enterprises, Inc. S’holder Litig., 88 A.3d 1, 42–47 (Del. Ch. 2014).
2 In her supplemental submission, the Plaintiff helpfully emphasized what I
assume are the two most significant of her three dozen disclosure claims,
relating to the failure to provide material information as to (i) what occurred during the go-shop period; and (ii) the basis for CEO Dobson’s statement to the Board that he ―believed it likely that Siris would be interested in retaining members of senior management post- closing,‖ including when he formed such belief or any communications concerning management retention prior to the Merger Agreement.5
At the times of the Plaintiff’s Motion, oral argument, and the filing of her
supplemental brief, the Company had not yet filed its Definitive Proxy. That was
filed on January 8, 2015, at which time the Company disclosed, in detail,
information about the go-shop period, including the number of parties involved,
indications of interest, and confidentiality agreements entered.6 Therefore, I find
the Plaintiff’s claim regarding the go-shop period to be moot.7
I turn, then, to the disclosure claim regarding management retention. The
Proxies—both Preliminary and Definitive—provide: ―Mr. Dobson also confirmed
that neither he nor other members of senior management had discussed any
arrangements with Siris regarding potential post-transaction employment by
5 Pl.’s Supplemental Br. in Further Supp. of Mot. for Expedited Proceedings at 1. The Plaintiff asserts a third disclosure claim, involving Morgan Stanley’s ―comparable companies‖ analysis in its fairness opinion; the Plaintiff no longer seeks expedited discovery with respect to this claim, instead asking that it proceed to a preliminary injunction hearing on the current record. 6 See Digital River Defs.’ Supplemental Br. in Opp’n to Pl.’s Mot. for Expedited Proceedings at 6; Alonso Aff. Ex. 10 at 10–11, 87–89. 7 To be clear, to the extent that she is seeking further disclosure regarding the go-shop period, the Plaintiff has not demonstrated a remaining colorable claim. She declined the opportunity to file a reply brief, post-Definitive Proxy. 3 Digital River, although he believed it likely that Siris would be interested in
retaining members of senior management post-closing.”8 The Proxies also
disclosed that the Digital River Board had directed management not to discuss
employment with Siris prior to execution of a merger agreement,9 that no such
discussion had taken place,10 and that no employment agreements had been entered
into as of the time of either proxy.11 The Plaintiff contends, however, that it is
material to know ―the basis for Dobson’s belief, when he formed it, and any
communications regarding management retention.‖12
The Plaintiff points to this Court’s decision in In re Micronetics, Inc.
Shareholder Litigation, where Vice Chancellor Parsons noted that in ―disclosing
management’s . . . expectation of continued employment with [the buyer], [the
proxy] may be neglecting to disclose pertinent parts of that full story.‖13 The
Defendants argue that Micronetics is not helpful to the Plaintiff here because, in
that case, the proxy referenced actual employment agreements and definitively
stated that management would continue their employment with the company. 14
8 Alonso Aff. Ex. 3 at 38 (Preliminary Proxy); see also Alonso Aff. Ex. 10 at 38 (Definitive Proxy). 9 See Alonso Aff. Ex. 3 at 37; see also Alonso Aff. Ex. 10 at 37. 10 See Alonso Aff. Ex. 3 at 38; see also Alonso Aff. Ex. 10 at 38. 11 See Alonso Aff. Ex. 3 at 9; see also Alonso Aff. Ex. 10 at 9. 12 Pl.’s Supplemental Br. in Further Supp. of Mot. for Expedited Proceedings at 4. 13 C.A. No. 7626-VCP, at 16:8–11 (Del. Ch. July 23, 2012) (TRANSCRIPT); see also Pl.’s Supplemental Br. in Further Supp. of Mot. for Expedited Proceedings at 4. 14 See Digital River Defs.’ Supplemental Br. in Opp’n to Pl.’s Mot. for Expedited Proceedings at 10–12. 4 Further, as these Defendants point out, this Court has noted that although a fact
was found material in one case, such a finding does not ―endow that issue with
talismanic properties or reduce it to a magic word forever after.‖15
Here, the stockholders were informed that Dobson believed, and disclosed to
the board, that Siris would offer senior management continued employment, but
that he had not discussed these matters with Siris; that the board directed
management not to speak with Siris about such employment, pre-agreement; and
that no such discussions took place. This gives stockholders the ability to consider
management’s incentives and provides all information likely to be material to
stockholders. It does not implicate the concern, addressed in Micronetics, that
benefits flowing to management from a merger with a specific buyer, material to
stockholders, remain undisclosed. Attempting to raise the specter of such
undisclosed material incentives, the Plaintiff resorts to suggesting that the
disclosures are simply not credible: ―[The Court] should not . . . assum[e]‖ the
truth of the statement in the Proxies that there had been no discussions with Siris
regarding management retention; ―[e]ven if this is true . . . , [D]efendants have
avoided representing that there have been no communications with Siris regarding
management retention.‖16 The Plaintiff, however, offers no factual basis for this
15 In re Midas, Inc. S’holder Litig., C.A. No. 7346-VCP, 18:1–4 (Del. Ch. Apr. 12, 2012) (TRANSCRIPT). 16 Pl.’s Supplemental Br. in Further Supp. of Mot. for Expedited Proceedings at 6 n.3. 5 speculation. This is not a rifle shot at a clear disclosure violation, or even a wing
shot at a passing colorable claim. It is a pot-shot, and pot-shots do not provide
grounds to expedite discovery in way of a motion to enjoin a merger. In other
words, it does not appear that there is any material information to be disclosed
regarding post-transaction retention of management. The disclosure violation
posited by the Plaintiff is speculative; thus, the chance of receiving injunctive relief
based on it is low, and I do not find that the value of any potential disclosure to
stockholders outweighs the cost of expedition.
Accordingly, the remainder of the Plaintiff’s Motion to Expedite is denied.
To the extent the foregoing requires an Order to take effect, IT IS SO ORDERED.
Sincerely,
/s/ Sam Glasscock III
Sam Glasscock III