Anchorage Police & Fire Retirement System v. Rudy Adolf
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Opinion
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
ANCHORAGE POLICE & FIRE ) RETIREMENT SYSTEM and ) TEAMSTERS UNION NO. 142 PENSION ) ) FUND, on behalf of themselves and all other former stockholders of Focus ) Financial Partners Inc., ) ) Plaintiffs, ) ) v. ) C.A. No. 2024-0354-KSJM ) RUDY ADOLF, RAJINI KODIALAM, ) JAMES D. CAREY, FAYEZ S. ) MUHTADIE, STONE POINT CAPITAL ) LLC, TRIDENT FFP L.P., TRIDENT VI, ) L.P., TRIDENT VI PARALLEL FUND, ) L.P., TRIDENT VI DE PARALLEL ) FUND, L.P., GOLDMAN SACHS & CO. ) LLC, CLAYTON, DUBILIER & RICE, ) LLC, FERDINAND FFP ACQUISITIONS, ) LLC, FERDINAND FFP MERGER SUB ) 1, INC., and FERDINAND FFP MERGER ) SUB 2, LLC, ) ) Defendants. )
MEMORANDUM OPINION
Date Submitted: October 23, 2024 Date Decided: April 3, 2025
Derrick B. Farrell, Matthew L. Miller, Robert B. Lackey, BLEICHMAR FONTI & AULD LLP, Wilmington, Delaware; Christine M. Mackintosh, Vivek Upadhya, Casimir O. Szustak, GRANT & EISENHOFER P.A., Wilmington, Delaware; Javier Bleichmar, BLEICHMAR FONTI & AULD LLP, New York, New York; Counsel for Plaintiff Anchorage Police & Fire Retirement System.
Ned C. Weinberger, Michael C. Wagner, LABATON KELLER SUCHAROW LLP, Wilmington, Delaware; Craig J. Springer, ANDREWS & SPRINGER LLC, Wilmington, Delaware; Domenico Minerva, John Vielandi, LABATON KELLER SUCHAROW LLP, New York, New York; Eric L. Zagar, Cameron N. Campbell, Lauren C. Lummus, KESSLER TOPAZ MELTZER & CHECK, LLP, Radnor, Pennsylvania; Jeremy S. Friedman, David Tejtel, Christopher M. Windover, David A. Rosenfeld, FRIEDMAN OSTER & TEJTEL, Bedford Hills, New York; Counsel for Plaintiff Teamsters Union No. 142 Pension Fund.
Rolin P. Bissell, Alberto E. Chávez, YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; Craig E. Zieminski, Andrew E. Jackson, VINSON & ELKINS LLP, Dallas, Texas; Counsel for Defendants Rudy Adolf and Rajini Kodialam.
Raymond J. DiCamillo, Robert L. Burns, Matthew W. Murphy, Nicholas F. Mastria, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Craig S. Waldman, Jacob Lundqvist, SIMPSON THACHER & BARTLETT LLP, New York, New York; Counsel for Defendants James D. Carey, Fayez S. Muhtadie, Stone Point Capital LLC, Trident FFP LP, Trident VI L.P., Trident VI Parallel Fund, L.P., and Trident VI DE Parallel Fund, L.P.
A. Thompson Bayliss, E. Wade Houston, Bryan M. Blaylock, ABRAMS & BAYLISS LLP, Wilmington, Delaware; Matthew Solum, Mary T. Reale, KIRKLAND & ELLIS LLP, New York, New York; Counsel for Defendants Clayton, Dubilier & Rice, LLC, Ferdinand, FFP Acquisitions, LLC, Ferdinand FFP Merger Sub 1, Inc., and Ferdinand FFP Merger Sub 2, LLC.
S. Mark Hurd, Emily Friedman, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Robert J. Giuffra, Jr., Jonathan S. Carter, Alexander N. Gross, SULLIVAN & CROMWELL LLP, New York, New York; Counsel for Defendant Goldman Sachs & Co. LLC.
McCORMICK, C. The defendants have moved to dismiss this class-action lawsuit asserting
claims for breach of fiduciary duty in connection with a merger. The stockholder-
plaintiffs allege that the merger was a conflicted-controller transaction subject to
entire fairness review. They alternatively argue that their claims implicate enhanced
scrutiny because the merger was an all-cash transaction. They also advance claims
against the acquiror and one of the company’s financial advisors for aiding and
abetting breaches of fiduciary duties.
The plaintiffs have not adequately alleged the existence of a controller or
control group to invoke entire fairness review. A 20% stockholder, who held rights
under a credit agreement with the target company, agreed to rollover its shares and
port the company’s debt to the post-merger entity in exchange for rights in the post-
merger entity. The plaintiffs are correct that this arrangement placed the
stockholder in conflict with the company’s minority stockholders. The plaintiffs do
not sufficiently allege, however, that the 20% stockholder was a controller. To plead
that a 20% stockholder exercised actual control to give rise to fiduciary duties, a
stockholder must point to indicia in addition to share ownership to support an
inference of actual control, which the plaintiffs have failed to do. The plaintiffs also
fail to adequately allege that the 20% stockholder had a legally significant connection
with other stockholders to form a control group. This decision grants the defendants’
motions as to the controller and control group claim.
Absent a conflicted controller, the plaintiffs’ claims are presumptively subject
to enhanced scrutiny unless the transaction is approved by a fully informed, uncoerced vote of the disinterested stockholders. The defendants obtained approval
by the disinterested stockholders, but the plaintiffs allege that the vote was
uninformed because the proxy statement suffers eight disclosure deficiencies.
Of the plaintiffs’ eight theories, only one gives the court any pause. The
plaintiffs allege that a strategic buyer, which made a competing offer, was behind in
diligence compared to the ultimate acquiror because the defendants excluded the
strategic buyer from the sale process. If true, a reasonable stockholder would
consider the undisclosed facts material for a few reasons. For one, the company’s
financial advisor advised, and the stockholders were told, that strategic buyers would
not have an interest in acquiring the company. For another, the disclosed rationale
for agreeing to exclusivity with the ultimate acquiror was the strategic bidder’s lack
of progress in diligence.
The defendants maintain that the plaintiffs’ factual allegations concerning the
strategic bidder are false, citing to the documents on which plaintiffs base their
allegations. For the purposes of the present motion, however, the court must draw
reasonable inferences in the plaintiffs’ favor. Because the plaintiffs’ inferences are
reasonable, the plaintiffs have adequately alleged a viable disclosure deficiency.
That said, it seems imprudent to allow the plaintiffs full-blown discovery into
the sale process if the plaintiffs cannot prove the facts underlying their one viable
disclosure theory. The court is therefore converting the motions to dismiss into
motions for summary judgment to allow the plaintiffs limited discovery into the
issues surrounding that theory.
2 The acquiror and financial advisor have moved to dismiss the plaintiffs’ claims
for aiding and abetting breaches of fiduciary duties. These claims are predicated on
the plaintiffs’ claims for breach of fiduciary duty, which will be further analyzed on
summary judgment. The motions to dismiss the claims for aiding and abetting,
therefore, are stayed pending resolution of the summary judgment motion.
I. FACTUAL BACKGROUND
The facts are drawn from the Verified Class Action Complaint (the
“Complaint”) and the documents it incorporates by reference.1
A. The Company And Stone Point
Focus Financial Partners Inc. (“Focus” or the “Company”) acquires and
partners with wealth management firms in the registered investment advisor
industry. Focus operates through Focus Financial Partners, LLC (“Focus LLC”).
Focus’s former CEO, Defendant Rudy Adolf, founded Focus LLC in 2004. The LLC
structure allowed Focus LLC to generate and distribute profits to its unitholders in
a tax-advantaged manner.
Defendant Stone Point Capital LLC, an investment management firm (“Stone
Point”), was among Focus’s initial investors. Stone Point owns its interests in Focus
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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
ANCHORAGE POLICE & FIRE ) RETIREMENT SYSTEM and ) TEAMSTERS UNION NO. 142 PENSION ) ) FUND, on behalf of themselves and all other former stockholders of Focus ) Financial Partners Inc., ) ) Plaintiffs, ) ) v. ) C.A. No. 2024-0354-KSJM ) RUDY ADOLF, RAJINI KODIALAM, ) JAMES D. CAREY, FAYEZ S. ) MUHTADIE, STONE POINT CAPITAL ) LLC, TRIDENT FFP L.P., TRIDENT VI, ) L.P., TRIDENT VI PARALLEL FUND, ) L.P., TRIDENT VI DE PARALLEL ) FUND, L.P., GOLDMAN SACHS & CO. ) LLC, CLAYTON, DUBILIER & RICE, ) LLC, FERDINAND FFP ACQUISITIONS, ) LLC, FERDINAND FFP MERGER SUB ) 1, INC., and FERDINAND FFP MERGER ) SUB 2, LLC, ) ) Defendants. )
MEMORANDUM OPINION
Date Submitted: October 23, 2024 Date Decided: April 3, 2025
Derrick B. Farrell, Matthew L. Miller, Robert B. Lackey, BLEICHMAR FONTI & AULD LLP, Wilmington, Delaware; Christine M. Mackintosh, Vivek Upadhya, Casimir O. Szustak, GRANT & EISENHOFER P.A., Wilmington, Delaware; Javier Bleichmar, BLEICHMAR FONTI & AULD LLP, New York, New York; Counsel for Plaintiff Anchorage Police & Fire Retirement System.
Ned C. Weinberger, Michael C. Wagner, LABATON KELLER SUCHAROW LLP, Wilmington, Delaware; Craig J. Springer, ANDREWS & SPRINGER LLC, Wilmington, Delaware; Domenico Minerva, John Vielandi, LABATON KELLER SUCHAROW LLP, New York, New York; Eric L. Zagar, Cameron N. Campbell, Lauren C. Lummus, KESSLER TOPAZ MELTZER & CHECK, LLP, Radnor, Pennsylvania; Jeremy S. Friedman, David Tejtel, Christopher M. Windover, David A. Rosenfeld, FRIEDMAN OSTER & TEJTEL, Bedford Hills, New York; Counsel for Plaintiff Teamsters Union No. 142 Pension Fund.
Rolin P. Bissell, Alberto E. Chávez, YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; Craig E. Zieminski, Andrew E. Jackson, VINSON & ELKINS LLP, Dallas, Texas; Counsel for Defendants Rudy Adolf and Rajini Kodialam.
Raymond J. DiCamillo, Robert L. Burns, Matthew W. Murphy, Nicholas F. Mastria, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Craig S. Waldman, Jacob Lundqvist, SIMPSON THACHER & BARTLETT LLP, New York, New York; Counsel for Defendants James D. Carey, Fayez S. Muhtadie, Stone Point Capital LLC, Trident FFP LP, Trident VI L.P., Trident VI Parallel Fund, L.P., and Trident VI DE Parallel Fund, L.P.
A. Thompson Bayliss, E. Wade Houston, Bryan M. Blaylock, ABRAMS & BAYLISS LLP, Wilmington, Delaware; Matthew Solum, Mary T. Reale, KIRKLAND & ELLIS LLP, New York, New York; Counsel for Defendants Clayton, Dubilier & Rice, LLC, Ferdinand, FFP Acquisitions, LLC, Ferdinand FFP Merger Sub 1, Inc., and Ferdinand FFP Merger Sub 2, LLC.
S. Mark Hurd, Emily Friedman, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Robert J. Giuffra, Jr., Jonathan S. Carter, Alexander N. Gross, SULLIVAN & CROMWELL LLP, New York, New York; Counsel for Defendant Goldman Sachs & Co. LLC.
McCORMICK, C. The defendants have moved to dismiss this class-action lawsuit asserting
claims for breach of fiduciary duty in connection with a merger. The stockholder-
plaintiffs allege that the merger was a conflicted-controller transaction subject to
entire fairness review. They alternatively argue that their claims implicate enhanced
scrutiny because the merger was an all-cash transaction. They also advance claims
against the acquiror and one of the company’s financial advisors for aiding and
abetting breaches of fiduciary duties.
The plaintiffs have not adequately alleged the existence of a controller or
control group to invoke entire fairness review. A 20% stockholder, who held rights
under a credit agreement with the target company, agreed to rollover its shares and
port the company’s debt to the post-merger entity in exchange for rights in the post-
merger entity. The plaintiffs are correct that this arrangement placed the
stockholder in conflict with the company’s minority stockholders. The plaintiffs do
not sufficiently allege, however, that the 20% stockholder was a controller. To plead
that a 20% stockholder exercised actual control to give rise to fiduciary duties, a
stockholder must point to indicia in addition to share ownership to support an
inference of actual control, which the plaintiffs have failed to do. The plaintiffs also
fail to adequately allege that the 20% stockholder had a legally significant connection
with other stockholders to form a control group. This decision grants the defendants’
motions as to the controller and control group claim.
Absent a conflicted controller, the plaintiffs’ claims are presumptively subject
to enhanced scrutiny unless the transaction is approved by a fully informed, uncoerced vote of the disinterested stockholders. The defendants obtained approval
by the disinterested stockholders, but the plaintiffs allege that the vote was
uninformed because the proxy statement suffers eight disclosure deficiencies.
Of the plaintiffs’ eight theories, only one gives the court any pause. The
plaintiffs allege that a strategic buyer, which made a competing offer, was behind in
diligence compared to the ultimate acquiror because the defendants excluded the
strategic buyer from the sale process. If true, a reasonable stockholder would
consider the undisclosed facts material for a few reasons. For one, the company’s
financial advisor advised, and the stockholders were told, that strategic buyers would
not have an interest in acquiring the company. For another, the disclosed rationale
for agreeing to exclusivity with the ultimate acquiror was the strategic bidder’s lack
of progress in diligence.
The defendants maintain that the plaintiffs’ factual allegations concerning the
strategic bidder are false, citing to the documents on which plaintiffs base their
allegations. For the purposes of the present motion, however, the court must draw
reasonable inferences in the plaintiffs’ favor. Because the plaintiffs’ inferences are
reasonable, the plaintiffs have adequately alleged a viable disclosure deficiency.
That said, it seems imprudent to allow the plaintiffs full-blown discovery into
the sale process if the plaintiffs cannot prove the facts underlying their one viable
disclosure theory. The court is therefore converting the motions to dismiss into
motions for summary judgment to allow the plaintiffs limited discovery into the
issues surrounding that theory.
2 The acquiror and financial advisor have moved to dismiss the plaintiffs’ claims
for aiding and abetting breaches of fiduciary duties. These claims are predicated on
the plaintiffs’ claims for breach of fiduciary duty, which will be further analyzed on
summary judgment. The motions to dismiss the claims for aiding and abetting,
therefore, are stayed pending resolution of the summary judgment motion.
I. FACTUAL BACKGROUND
The facts are drawn from the Verified Class Action Complaint (the
“Complaint”) and the documents it incorporates by reference.1
A. The Company And Stone Point
Focus Financial Partners Inc. (“Focus” or the “Company”) acquires and
partners with wealth management firms in the registered investment advisor
industry. Focus operates through Focus Financial Partners, LLC (“Focus LLC”).
Focus’s former CEO, Defendant Rudy Adolf, founded Focus LLC in 2004. The LLC
structure allowed Focus LLC to generate and distribute profits to its unitholders in
a tax-advantaged manner.
Defendant Stone Point Capital LLC, an investment management firm (“Stone
Point”), was among Focus’s initial investors. Stone Point owns its interests in Focus
through a series of funds, each of which is named as a defendant and included, for
convenience, in the definition of “Stone Point.”2 During the relevant period, Stone
1 C.A. 2024-0354, Docket Entry (“Dkt.”) 1 (“Compl.”).
2 The funds are: Trident FFP LP, Trident VI, L.P., Trident VI Parallel Fund, L.P.,
and Trident VI DE Parallel Fund, L.P.
3 Point was Focus’s largest stakeholder, owning approximately 20.6% of outstanding
shares of Focus’s Class A and B common stock.
B. The Credit Agreement
In 2017, Focus LLC entered into a credit agreement with multiple banks (the
“Credit Agreement”). During the relevant period, Focus owed approximately $2.5
billion outstanding under the Credit Agreement, which bore a favorable 4% weighted-
average interest rate (below the 4.5% federal fund rate in place during the sale
process described below).
Under Sections 11.11 and 11.12 of the Credit Agreement, a “Change of Control”
transaction constituted an “Event of Default,” which accelerated repayment under
the Credit Agreement.3 The agreement defined “Change of Control” to include any
situation where a party acquired 35% or more of Focus’s voting stock.4 That definition
contained a carveout: Focus’s debt would not accelerate upon a change-of-control
transaction if “Permitted Holders” had “the right or the ability by voting power,
contract, or otherwise to elect or designate for election at least a majority of the board
of directors of [Focus].”5 The definition of Permitted Holders includes Stone Point,
Adolf, and Focus’s Chief Operating Officer, Rajini Kodialam.6
3 Dkt. 42 (“Defs.’ Opening Br.”), Ex. 11 (“Credit Agr.”) §§ 11.11, 11.12.
4 Compl. ¶ 63; Credit Agr. § 1.1 at 17 (Definition of “Change of Control”).
5 Id.
6 Compl. ¶ 63; see also Credit Agr. § 1.1 at 44 (Definition of “Initial Investors”), 56
(Definition of “Permitted Holders”).
4 C. The Reorganization And IPO
In July 2018, Focus LLC’s unitholders approved an Up-C reorganization. An
Up-C structure preserves some of the tax benefits conferred by an LLC structure
while giving a company access to public markets. Because of the reorganization,
Focus LLC became a wholly owned subsidiary of Focus. The reorganization allowed
Focus to conduct an initial public offering (“IPO”), which closed in July 2018.
Stone Point executed a Nomination Agreement in connection with the IPO (the
“Nomination Agreement”), which gave Stone Point the right to nominate two
directors to the Focus Board of Directors (the “Board”). The Nomination Agreement
also gave Stone Point two seats on the Board’s three-person compensation committee
(the “Compensation Committee”).
D. The Tax Receivables Agreement
After the reorganization, Focus would realize certain tax benefits when holders
of Focus LLC units exchanged those units for Focus common stock. To allow those
benefits to flow to Focus’s pre-IPO investors, Focus executed tax receivable
agreements (“TRAs”) with certain Focus LLC unitholders, including Stone Point,
Adolf, and Kodialam. The TRAs specified when the unit exchanges would occur, and
they limited the number of units that could be exchanged in any given quarter. Under
the agreements, 85% of any tax savings Focus realized from such exchanges would
go to the exchanging unitholder (the “TRA Beneficiaries”), and the remaining 15% in
value would stay with Focus.
While Focus operated in the ordinary course, the payments to the TRA
Beneficiaries varied depending on the number of Focus LLC units exchanged and the
5 price of Focus’s common stock on the exchange date. Higher stock prices resulted in
greater tax benefits, and thus, greater payouts to the TRA Beneficiaries. Because no
one could predict with certainty Focus’s future stock price, the number of Focus LLC
units exchanged, or the future status of applicable tax laws, there was no way to
determine how much the TRA Beneficiaries would receive over time. But if Focus
underwent a change-in-control transaction, the TRA Beneficiaries would be entitled
to a lump-sum payment based on the hypothetical present value of all expected future
payments under the TRAs, applying a contractually defined discount rate.
E. The Sale Process
In early 2022, the Board comprised eight members: Adolf and Kodialam (the
“Officer Directors”); two Stone Point designees, Defendants James Carey and Fayez
Muhtadie (the “Stone Point Directors”); and four outside directors, non-parties
Joseph Feliciani,7 Greg Morganroth,8 George LeMieux, and Elizabeth Neuhoff.9
Carey and Muhtadie joined the Board in 2018 under the Nomination Agreement.
Feliciani, Morganroth, LeMieux, and Neuhoff held interests in the TRAs through
Focus LLC Incentive Units or Focus LLC Common Units, which they received as part
of their compensation.
7 Feliciani, former BlackRock, Inc. COO of Finance, joined the Board in 2019. Compl. ¶ 41. 8 Morganroth, founder and CEO of the California Skin Institute, joined the Board in
2020. Id. ¶ 42. 9 LeMieux and Neuhoff joined the Board on March 7, 2022. Id. ¶ 95. LeMieux is the Chairman of a Florida-based law firm, and Neuhoff is the CEO and President of a broadcast and digital media company. Id. ¶¶ 38, 40.
6 On March 30 and 31, 2022, the Board met in Big Sky, Montana for its first
meeting since LeMieux and Neuhoff joined the board three weeks earlier. During the
meeting, the Board discussed Focus’s performance as well as its long-term plans and
strategic goals. Two bankers from Goldman Sachs & Co. LLC (“Goldman”) attended
the meeting. The Board met again on May 11 and approved retaining Goldman and
legal counsel to assist the Board in evaluating strategic options. Following the May
11 meeting, Adolf began contacting prospective M&A partners.
1. CD&R Expresses An Interest In Acquiring The Company.
Defendant Clayton, Dubilier & Rice LLC (“CD&R”)10 expressed interest in
acquiring the Company during a June 16 meeting with Adolf. CD&R is a private
equity firm that operates managed investment funds. According to its marketing
materials, CD&R “tailors its investments to meet the needs of founders, family
owners, management teams and significant shareholders.”11 CD&R also markets its
practice of providing management with equity stakes in its portfolio companies: “[A]
critical element of investment success is reward-sharing, which is why we emphasize
incentives that support alignment, including substantial equity ownership for our
portfolio company management teams.”12
10 This opinion defines “CD&R” to include defendants Ferdinand FFP Acquisitions,
LLC, Ferdinand FFP Merger Sub 1, Inc., and Ferdinand FFP Merger Sub 2, LLC, the limited liability companies through which CD&R effectuated the transaction at issue. 11 Compl. ¶ 100.
12 Id.
7 On June 30, the Board met with Goldman and Focus’s management to discuss
officially commencing a sale process. Goldman focused its presentation on potential
financial partners for a leveraged buyout or a take-private transaction. Goldman
identified CD&R as a potential transaction partner at the June 30 meeting.
2. Goldman Warns That It Is A Challenging Market To Execute A Deal.
At the same meeting, Goldman warned that it was a “[c]hallenging market to
execute a deal” and that there was “limited upside in engaging at this point[.]”13
Goldman further warned that executing a non-disclosure agreement (“NDA”) with a
potential acquiror “[m]ay create noise in the market” and have little positive effect
because of the “[c]hallenging financing market[.]”14 Goldman advised the Board that
the Company could “engage later” when the financing markets improved. 15 Despite
Goldman’s warnings, the Board executed an NDA with CD&R on July 13.
Adolf also met with other potential private-equity buyers throughout July and
August. They did not engage due to the challenging financing market. One firm was
“[u]ncomfortable putting forth a bid in August due to [the] financing market
backdrop.”16 A second firm asked to “re-engage when financing markets normalize.”17
A third firm would support a deal only as a co-investor and was unwilling to engage
before Labor Day. A fourth firm was interested in Focus, but it was looking “to pursue
13 Id. ¶ 102.
14 Id.
15 Id.
16 Id. ¶ 105.
17 Id.
8 changes to [the] business model if taken private”—forecasting a possible change in
Focus’s management.18 Of the five potential financial sponsors Goldman initially
contacted, CD&R seemed the only firm willing to move forward quickly.
3. CD&R Makes An Oral Offer To Acquire Focus.
On August 11, CD&R made an oral offer to acquire Focus in cash at a per share
price in the mid- to high-$40s. Focus informed CD&R that it was not interested in a
transaction at that price. On September 14, CD&R submitted its first written offer
at $50 per share in cash. The September 14 proposal stated that “CD&R has
established its reputation by helping management teams” and that “CD&R would be
an outstanding partner for the management team[.]”19
4. Goldman Introduces Focus To WEG, A Potential Strategic Acquiror.
On September 20, as Focus negotiated with CD&R, Goldman introduced Adolf
to Jeff Dekko, the CEO of Wealth Enhancement Group (“WEG”), a potential strategic
acquiror. The Board did not know about this introduction or that there was a
strategic acquiror interested in Focus. Dekko and Adolf met on November 15.
On September 21, the Board met with Focus management, Goldman, and the
Company’s outside counsel, Vinson & Elkins LLP (“V&E”). Two Stone Point
representatives who were not on the Board—Nikhil Dixit and Alexander Sarnoff (a
Stone Point Vice President responsible for Stone Point’s Focus investment)—also
attended. At the meeting, Goldman relayed the concerns that it had heard from
18 Id.
19 Id. ¶ 110.
9 potential acquirers regarding the challenging financing market and reiterated its
advice that poor market conditions made it a bad time to run a sale process.
Despite this advice, the Board continued with the sale process. With Dixit,
Sarnoff, the Stone Point Directors, and the Officer Directors present, the Board
authorized management to allow CD&R to conduct due diligence. Neither Goldman
nor Adolf informed the Board of WEG’s indication of interest or that WEG’s CEO had
been trying to schedule a meeting with Adolf.
5. A Focus Subsidiary Also Hires Goldman.
While the Focus sale process was underway, a Focus subsidiary, NKSFB LLC,
hired Goldman to advise on its own sale. NKSFB offered concierge-style services to
artists in music, film, and television, as well as athletes, executives, entrepreneurs,
and the like. Focus acquired NKSFB in April 2018. After, the former owners of
NKSFB managed the business through a separate entity, KSFB Management LLC
(“KSFB”). Focus pushed for KSFB to hire Goldman, which it eventually did on
September 16, 2022. The same Goldman banker working on the Focus sale acted as
the lead for the NKSFB sale.
6. The Focus Board Forms A Special Committee.
On November 1, months after CD&R signed its NDA and began performing
diligence, the Board executed a written consent forming a special committee to
negotiate, review, and evaluate potential transactions (the “Special Committee”).
The Special Committee retained Potter Anderson & Corroon LLP (“Potter Anderson”)
to serve as its legal advisor and engaged Goldman as its financial advisor.
10 The Special Committee comprised LeMieux, Neuhoff, Morganroth, and
Feliciani, with LeMieux as chair. Neuhoff and Morganroth received $40,000 to serve
on the committee; LeMieux received $80,000 to chair it. None of the committee
members had ever overseen or conducted a sale process of a publicly traded company.
Nor did any committee member have expertise in Focus’s industry. Each member of
the Special Committee stood to receive lump sum TRA payments if Focus was sold.
On November 9, CD&R made a revised oral offer to Focus for $45 per share—
five dollars less than its September 14 offer. In support of its lowered bid, CD&R
cited recent challenges in the financing markets and a revised estimate as to the cost
of the TRA payouts. With its updated offer, CD&R conveyed that it “would require a
partner or partners in connection with a transaction” and expected any deal would
include a “material roll-over of equity.”20
7. Stone Point Considers Joining CD&R On The Buy-Side.
Goldman did not immediately relay the November 9 proposal to the Special
Committee. Instead, Goldman contacted Stone Point to gauge its interest in
participating on the buy side of a sale with CD&R and rolling over some or all of its
equity interest in the potential transaction. After that conversation, Stone Point
informed LeMieux that it was interested in moving forward as a bidder.
On November 10, the Special Committee met to discuss CD&R’s November 9
proposal. LeMieux reported that Stone Point was interested in partnering with
CD&R in a potential transaction. The Special Committee granted Stone Point access
20 Id. ¶ 130.
11 to Focus’s confidential data room. For the remainder of November, Goldman, Stone
Point, and CD&R continued to discuss the November 9 offer.
On November 15, weeks after their September 20 introduction, Adolf met with
WEG’s CEO, Dekko. During the meeting, Dekko indicated that WEG was interested
in engaging in a transformative transaction with Focus. Adolf did not inform the
Special Committee that he intended to take the meeting with Dekko.
On November 23, the Special Committee met with Potter Anderson and
Goldman. At the meeting, Goldman relayed its conversations with Stone Point and
CD&R and discussed its preliminary financial analysis of the Company, including its
belief that the markets were undervaluing Focus’s stock. Goldman also flagged the
continuing poor market conditions, highlighting that the “state of the financial
markets could have a negative impact on bidders’ willingness to move forward with
exploring a potential acquisition[.]”21 Neither Goldman nor Adolf informed the
Special Committee of Adolf’s meeting with WEG’s CEO, nor of WEG’s purported
interest in participating in a transaction.
On November 30, the Special Committee met again with Potter Anderson and
Goldman. At the meeting, Goldman advised “the Committee that there were no likely
strategic buyers for the Company.”22 Goldman did not inform the Special Committee
of WEG’s interest or the November 15 meeting between Adolf and Dekko. Goldman
told the Special Committee it should view the purported lack of interest from other
21 Id. ¶ 146.
22 Id. ¶ 151.
12 potential bidders, including the private equity funds that had been previously
contacted, as “instructive for the Committee’s evaluation of a Potential
Transaction.”23 But Goldman did not relay that it had not reached out to those firms
recently, including to raise the concept of a Stone Point rollover.
On December 1, CD&R submitted a revised proposal to acquire Focus for
$47.50 per share. The proposal assumed “that all the [C]ompany’s debt for borrowed
money would remain outstanding following the closing of the proposed transaction”
and further explained that there would be a “lower per share price” if there “were
additional costs of borrowing.”24 The proposal also conveyed that CD&R was
impressed by Focus’s management team and that CD&R would discuss its
partnership with management, management agreements, and management’s
rollover of its existing equity stake.
The next day, the Special Committee met with Potter Anderson and Goldman
to discuss the December 1 proposal, including the proposed financing terms. At the
meeting, the Special Committee concluded that CD&R’s offer was not worth pursuing
and that the Committee was going “pencils down.”25
Stone Point kept pushing for a deal. Three days after the Special Committee
went pencils down, Stone Point met with CD&R. One day later, on December 6, Stone
Point Director Muhtadie met with LeMieux and conveyed his opinion that Focus
23 Id.
24 Id. ¶ 153.
25 Id. ¶ 158.
13 “could perform better as a private company.”26 He also noted, with respect to the
price of CD&R’s offer, that the Company’s average trading price was “significantly
lower than [the] $68 per share” price Focus had reached at times during 2021.27
The Special Committee next met on December 7. LeMieux reported that he
had additional conversations with Stone Point regarding CD&R’s December 1 offer.
LeMieux also told the Special Committee that Adolf told him that another private
equity firm had expressed interest in acquiring Focus. Adolf did not tell LeMieux (or
any other members of the Special Committee) about the interest of potential strategic
acquiror WEG.
On December 10, CD&R submitted a revised written proposal to acquire Focus
for the same price as the September 14 proposal, $50.00 per share. The December 10
offer requested exclusivity and conveyed CD&R’s interest in structuring any
transaction such that the Company’s debt would not accelerate under the Credit
Agreement.
The Special Committee met on December 12 and 14 to discuss the new
proposal. At the December 12 meeting, Goldman stated that it had not seen a
strategic buyer engage in discussions regarding a potential acquisition of Focus and
that it did not view the Company’s business as one that would fit well with a strategic
buyer. At the December 14 meeting, Goldman focused on the change-of-control
provision of the Credit Agreement. Muhtadie and Goldman told the Special
26 Id. ¶ 160.
27 Id.
14 Committee that “if Stone Point did not participate on the purchaser side in a Potential
Transaction, CD&R had assumed that the existing capital structure could not remain
in place.”28
8. The Special Committee Retains A Second Financial Advisor, Jefferies.
On December 16 and 17, the Special Committee discussed retaining a second
financial advisor. Jefferies LLC (“Jefferies”), Evercore, and Houlihan Lokey all made
presentations to the committee. Of the three, only Jefferies raised the issue of Focus’s
debt under the Credit Agreement and the importance of ensuring the debt remained
portable in any transaction. The Special Committee retained Jefferies. Jefferies’s
initial engagement letter with the Special Committee provided for compensation of
$4.5 million contingent on a qualifying transaction, with the potential for a bonus of
up to $1 million at the Special Committee’s discretion.
On December 18, Goldman informed the Special Committee that CD&R
requested a response to its December 10 offer. The proposal indicated that CD&R
was open to a post-signing go-shop, but Goldman told the Special Committee that it
was “rare that a go-shop would increase the consideration received by [Focus’s]
stockholders[.]”29 Goldman also informed the Special Committee that it was rare to
see another private equity bidder submit a topping bid in a transaction already
involving a private equity buyer. Goldman again reminded the Special Committee
that the Permitted Holders would need control over the post-close Board to avoid
28 Id. ¶ 167.
29 Id. ¶ 174.
15 accelerating the Company’s debt. The Special Committee determined it wanted to
speak with Jefferies before formally responding to CD&R.
9. The Company Conducts A Market Check.
Also at the December 18 meeting, the Special Committee determined to have
Jefferies conduct a market check. By that point, CD&R already had six months to
complete a “comprehensive diligence process.”30
On December 28, the Special Committee met with Potter Anderson, Goldman,
and Jefferies to discuss conducting a market check. At the meeting, which was to
discuss outreach to other potential buyers, Goldman conveyed that Stone Point was
“not agnostic with respect to potential partners in an acquisition of the Company and
had expressed certain views on potential partners.” 31 Goldman also advised that,
“since Stone Point may be participating on the buyer side, it was disincentivized to
support a higher price per share in a potential acquisition of the Company[.]” 32
Against this backdrop, the Special Committee authorized Goldman and Jefferies to
contact seven financial sponsors—four of which Focus had talked to at the beginning
of the sale process—and one strategic acquiror, WEG.
During the December 28 meeting, the Special Committee learned that Adolf
had met with WEG’s CEO in November and that WEG had expressed an interest in
acquiring Focus.
30 Id. ¶ 176.
31 Id. ¶177.
32 Id. ¶ 178.
16 Jefferies informed the Special Committee that, due to CD&R’s head-start in
the sale process, WEG and other potential bidders would need to engage in a
significant amount of diligence to be on the same footing as CD&R. Jefferies and
Goldman did not contact the potential bidders until the holiday week between
Christmas and New Year’s Day. In their communications, they relayed that “[g]iven
the current challenging financial markets, we think there is a path to roll the current,
recently-updated capital structure with Stone Point’s support.”33
On January 4, 2023, the Special Committee met with its advisors to discuss
the results of the market check and CD&R’s December 10 proposal. Goldman
reported that potential bidders had inquired about the portability of Focus’s existing
debt. After conveying this, Goldman reiterated to the Special Committee that Stone
Point was “not agnostic with respect to potential partners in an acquisition of the
Company and had expressed certain views on potential partners.”34
On January 5, CD&R made a “best and final offer” to acquire Focus for $51.50
per share.35 CD&R threatened to stop pursuing the deal if the Special Committee did
not respond within a week. The Special Committee met the next day. At the meeting,
the Special Committee discussed that other potential bidders felt that the sales
process had been skewed in CD&R’s favor. One potential bidder stated it would “only
[participate] if the process was on a level playing field, and . . . would not participate
33 Id. ¶ 183.
34 Id. ¶ 192.
35 Id. ¶ 195.
17 in a post-signing go shop.”36 Another potential bidder stated that it “did not want to
serve as a ‘stalking horse’ in a bidding process.”37
On January 7, 2023, the Special Committee held a meeting attended by the
committee members, Adolf, and Carey. Carey acknowledged that Stone Point’s
participation would likely be necessary for any financial sponsor to make a successful
bid. Adolf also informed the Special Committee that Focus management was
supportive of a deal at $51.50 per share and informed the Special Committee that if
Stone Point did not participate as a buyer, the Company would likely have to
refinance its debt.
On January 10, the Special Committee met with Potter Anderson, who
conveyed that Stone Point supported CD&R’s January 5 offer and stated it would not
participate as a buyer and rollover at any price above $51.50 per share. On January
11, Goldman told the Special Committee that it was “not worthwhile” to engage with
one potential bidder due to Stone Point’s position “that it would not make an
additional equity investment at a price per share above $51.50.”38
On January 12, the Special Committee conveyed to CD&R that it was
attempting to bridge the valuation gap between CD&R’s offer and Focus’s strong
stock price by asking Stone Point and management to forgo the TRA payouts that
would be due upon completion of a change-of-control sale. The next day, Stone Point
36 Id. ¶ 196.
37 Id.
38 Id. ¶ 275.
18 informed the Special Committee’s advisors that it would not agree to forgo or reduce
the amount of its TRA payments.
10. WEG Submits An Offer To Acquire Focus.
On January 17, 2023, WEG submitted a written proposal to acquire Focus for
$51.75 per share in cash. WEG’s proposal was predicated on “consolidat[ing]
management and operations” to achieve “meaningful cost savings[.]”39 WEG stated
that although it would support an equity rollover from Stone Point, it would not
require participation from Stone Point to complete the transaction. In other words,
WEG’s offer, unlike CD&R’s, provided no suggestion that management would
maintain their roles at Focus after the deal or that Stone Point would obtain
governance rights in the post-close company. WEG also represented that it was
“prepared to move quickly with our confirmatory due diligence . . . [w]ith the
appropriate assistance from and access to management.”40
The Special Committee discussed WEG’s proposal the next day. The Special
Committee’s advisors noted that WEG’s proposal was only worth $50.95 per share,
because it based its calculation of TRA liability on publicly available information.
Focus provided WEG with updated information concerning the TRA payouts but did
not provide any additional diligence that WEG requested.
On January 21, CD&R indicated it might offer $52.00 per share if Stone Point
and management agreed to defer—but not waive—their TRA payments. Stone Point
39 Id. ¶ 208.
40 Id.
19 and management promptly agreed. On the same day, the Special Committee met,
and Goldman advised that a WEG deal faced significant execution risk, particularly
given that CD&R had substantially completed diligence. The Special Committee
instructed its advisors to inform WEG that it would only have access to additional
diligence materials if it submitted an offer at $55.00 per share.
On January 22, WEG disclosed that it was prepared to increase its offer to
$55.00 per share. In connection with the increased offer, WEG requested exclusivity
because it “was starting at an informational disadvantage to other bidders[.]”41 On
January 24, WEG confirmed that it would up its offer to $55.00 per share only if Focus
would agree to exclusivity. Without exclusivity, WEG noted that it would continue
evaluating a potential deal at $51.75 per share—$0.25 higher than CD&R’s most
recent offer. On January 27, WEG provided the Special Committee with a draft
exclusivity agreement.
11. CD&R Submits A Final Offer.
On January 28, the Special Committee met, and Goldman expressed
skepticism regarding WEG’s offer, claiming that WEG had a “long way to go” to
finance a deal.42 Midway through the meeting, CD&R called Goldman to convey that
they would increase their offer to $53 per share if Focus agreed to exclusivity. CD&R
also indicated that it expected Stone Point to make an investment in the post-close
company in addition to rolling over its equity. The Special Committee authorized
41 Id. ¶ 215.
42 Id. ¶ 223.
20 Goldman to respond that the Special Committee was prepared to have Focus move
forward on an exclusive basis with CD&R at an offer price of $53 per share. This
offer assumed that Stone Point and management agreed to defer their TRA payouts.
Stone Point confirmed its support the same day.
On January 29, CD&R orally agreed to proceed with their $53 per share offer.
CD&R stated that it would need three to four weeks to complete diligence, arrange
equity financing, and negotiate the definitive transaction. WEG had indicated that
it only needed “three to four weeks” to complete its own diligence and financing
arrangements for its offer that was $2 higher than CD&R’s.43 The next day, Focus
signed an exclusivity agreement with CD&R that ran through February 20.
WEG contacted Jefferies and Goldman on February 2 to request permission
from the Special Committee to contact potential financing sources. On the same day,
Focus announced CD&R’s $53 per share offer and its exclusivity arrangement with
CD&R. Given the exclusivity agreement, the Special Committee did not respond to
WEG’s February 2 request.
12. The Board Increases Compensation For Special Committee Members And Jefferies.
During a February 8, 2023 meeting, the Special Committee members raised a
concern that they and Jefferies were being underpaid. On February 25, the Special
Committee met again, and Potter Anderson reported that it had discussed the Special
43 Id. ¶ 225.
21 Committee’s and Jefferies’s fees with Focus’s outside counsel. The Special Committee
agreed to raise the cap on Jefferies’s discretionary bonus from $1 million to $8 million.
On February 26, the Special Committee met to consider accepting CD&R’s
offer. Before voting to approve the transaction, the Special Committee took a break,
during which Defendants Carey, Adolf, and Kodialam executed a written consent that
increased the compensation for the Special Committee members: LeMieux’s Special
Committee compensation went from $80,000 to $280,000, and each of the remaining
committee members’ compensation increased 600%, from $40,000 to $240,000.
Defendant Muhtadie had signed the written consent before the meeting. The Special
Committee members each signed the written consent either during or shortly after
the meeting.
13. Focus And CD&R Execute The Merger Agreement.
After reconvening, the Special Committee listened to Goldman’s and Jefferies’s
fairness opinions and voted to approve the proposed transaction with CD&R (the
“Merger”). The same day, Focus’s full board met to review the Special Committee’s
recommendation and the proposed transactional documents and voted unanimously
to approve the Merger. On February 27, 2023, the parties entered into an Agreement
and Plan of Merger (the “Merger Agreement”).
Also on February 27, 2023, Stone Point entered into two additional
agreements.
First, Stone Point and the Officer Directors signed TRA Waiver and Exchange
Agreements (the “TRA Waiver Agreements”). Under the TRA Waiver Agreements,
Stone Point and the Officer Directors agreed to receive a portion of their TRA payouts 22 in the form of promissory notes at the closing of the Merger. The promissory notes
mature on September 30, 2028, and accrue interest at a favorable 8% annual rate.
Second, Stone Point executed a support agreement with CD&R that was
approved by the Board and the Special Committee (the “Support Agreement”). Under
the Support Agreement, Stone Point agreed to roll over half of its equity—or
approximately 10% of Focus’s pre-Merger equity. In exchange, and under another
agreement concerning the governance of the post-Merger entity (the “Interim
Investors Agreement”), Stone Point gained the right to appoint a majority of the post-
Merger Board.
14. Focus Issues A Proxy Statement, Obtains Stockholder Approval, And Closes The Merger.
The Merger Agreement provided for a forty-day go-shop period and gave CD&R
four days to match any superior offer. The go-shop occurred between February 27
and April 3 and expired without Focus receiving any additional offers. The Company
issued a definitive proxy statement seeking stockholder approval of the Merger
Agreement on June 12, 2023. On July 6, 2023, Focus filed a “Supplement to the
Definitive Proxy Statement” (together with the June 12 proxy statement, the “Proxy
Statement”).44 On July 14, a majority of Focus stockholders approved the
transaction, which closed on August 31.
44 Id. ¶ 263; Defs.’ Opening Br., Ex. 5 (“Proxy Statement”).
23 F. This Litigation
With the aid of documents obtained through a pre-suit investigation under
Section 220 of the DGCL, Anchorage Police & Fire Retirement System and Teamsters
Union No. 142 Pension Fund (“Plaintiffs”) filed this action on April 3, 2024.45 The
Complaint names as defendants Stone Point, the Stone Point Directors, the Officer
Directors, Goldman, and CD&R (collectively, “Defendants”).
The Complaint contains seven counts:
• In Count I, Plaintiffs claim that Stone Point, the Stone Point Directors, and the Officer Directors comprised a control group and breached their duties as controllers by causing Focus to “run an unfair sale process and by approving the unfair Merger” and “by approving and disseminating [a] materially misleading Proxy[.]”46
• In Count II, Plaintiffs claim that the Officer Directors breached their fiduciary duties as officers by “vot[ing] to approve the Merger, despite the unfair and unreasonable sale process and the unfair and inadequate Merger price” and “caus[ing] the issuance of [a] materially false and misleading Proxy.”47
• In Count III, Plaintiffs claim that the Officer Directors breached their fiduciary duties as directors by “vot[ing] to approve the Merger, despite the unfair and unreasonable sale process and the unfair and inadequate Merger price” and “caus[ing] the issuance of [a] materially false and misleading Proxy.”48
• In Count IV, Plaintiffs claim that the Stone Point Directors breached their fiduciary duties as directors by “us[ing] their positions on the Board and the Credit Agreement to undermine the sale process” and “approv[ing] the materially misleading Proxy.”49
45 See generally Compl.
46 Compl. ¶¶ 302–03.
47 Id. ¶¶ 310–11.
48 Id. ¶¶ 317–18.
49 Id. ¶ 322.
24 • In Count V, Plaintiffs claim that Goldman aided and abetted the foregoing breaches of fiduciary duty by “misleading the Board and Special Committee concerning strategic acquiror interest in Focus” and “limiting outreach to certain potential bidders and/or deterring potential bidders in favor of Stone Point and CD&R[.]”50
• In Count VI, Plaintiffs claim that CD&R aided and abetted the foregoing breaches of fiduciary duty by “failing to disclose material information to public stockholders prior to the Merger vote.”51
• In Count VII, Plaintiffs claim that if the court does not find that Stone Point acted as a controller or part of a control group, that Stone Point aided and abetted the foregoing breaches of fiduciary duty by “helping to orchestrate the Merger to obtain liquidity on [its] investment horizon and providing Stone Point with post-closing-control of the privately- owned Focus[.]”52
Defendants moved to dismiss the Complaint,53 the parties completed briefing
on September 10, and the court heard argument on October 23.54
II. LEGAL ANALYSIS
All Defendants have moved to dismiss the Complaint under Court of Chancery
Rule 12(b)(6) for failure to state a claim on which relief can be granted. “[T]he
governing pleading standard in Delaware to survive a motion to dismiss is reasonable
‘conceivability.’”55 When considering such a motion, the court must “accept all well-
pleaded factual allegations in the [c]omplaint as true . . . , draw all reasonable
inferences in favor of the plaintiff, and deny the motion unless the plaintiff could not
50 Id. ¶ 326.
51 Id. ¶ 329.
52 Id. ¶ 336.
53 Dkts. 25–28.
54 See Dkt. 89 (“Oral Arg. Tr.”).
55 Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531, 537
(Del. 2011).
25 recover under any reasonably conceivable set of circumstances susceptible of proof.”56
The court, however, need not “accept conclusory allegations unsupported by specific
facts or . . . draw unreasonable inferences in favor of the non-moving party.”57
A. Count I Against The Alleged Controllers
Count I is premised on the claim that Stone Point, the Stone Point Directors,
and the Officer Directors, acting together, exercised control over Focus and the
Merger such that they owed fiduciary duties to Plaintiffs and the Company. Plaintiffs
also argue that Stone Point, acting alone, was a controller with concomitant fiduciary
duties.58 This analysis begins with the latter assertion.
Stone Point does not hold a mathematical majority of Focus’s voting power. In
such a case, a plaintiff may plead controller status by alleging facts sufficient to
support an inference that the defendant “exercises control over the business affairs
of the corporation.”59 For this purpose, a plaintiff need not argue that the defendant
exercised general control over the business and affairs of the corporation. Although
a showing of “general control” is sufficient to establish fiduciary status, a plaintiff can
plead fiduciary status by alleging that the defendant controlled the particular
transaction at issue, referred to as “transaction-specific” control.60
56 Id. at 536 (citing Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002)).
57 Price v. E.I. du Pont de Nemours & Co., 26 A.3d 162, 166 (Del. 2011) (citing Clinton
v. Enter. Rent-A-Car Co., 977 A.2d 892, 895 (Del. 2009)). 58 Dkt. 55 (“Pls.’ Answering Br.”) at 46.
59 Ivanhoe P’rs v. Newmont Min. Corp., 535 A.2d 1334, 1344 (Del. 1987).
60 Voigt v. Metcalf, 2020 WL 614999, at *11–12 (Del. Ch. Feb. 10, 2020); Basho Techs.
Holdco B, LLC v. Georgetown Basho Invs., LLC, 2018 WL 3326693, at *25–26 (Del. 26 To successfully plead general control, a plaintiff must allege facts indicating
“that a defendant or group of defendants exercised sufficient influence ‘that they, as
a practical matter, are no differently situated than if they had majority voting
control.’”61 One way to do so is to allege “that the defendant, ‘as a practical matter,
possesses a combination of stock voting power and managerial authority that enables
him to control the corporation, if he so wishes.’”62 Among other things, the analysis
of general control looks to the alleged controller’s ability to exert influence as a
stockholder, in the boardroom, and outside the boardroom through managerial roles.
Breaking these categories down to “indicia of effective control,” the factors include:
• “ownership of a significant equity stake (albeit less than a majority),”
• “the right to designate directors (albeit less than a majority),”
• “decisional rules in governing documents that enhance the power of a minority stockholder or board-level position,” and
• “the ability to exercise outsized influence in the board room, such as through high-status roles like CEO, Chairman, or founder.”63
To successfully allege transaction-specific control, a plaintiff must plead facts
indicating that the defendant “exercise[d] actual control over the board of directors
during the course of a particular transaction[.]”64 This analysis often focuses on
Ch. July 6, 2018), aff’d sub nom. Davenport v. Basho Techs. Holdco B, LLC, 221 A.3d 100 (Del. 2019). 61 Basho, 2018 WL 3326693, at *25 (quoting In re PNB Hldg. Co. S’holders Litig.,
2006 WL 2403999, at *9 (Del. Ch. Aug. 18, 2006)). 62 Id. (quoting In re Cysive, Inc. S’holders Litig., 836 A.2d 531, 553 (Del. Ch. 2003)).
63 Id. at *27 (citations omitted).
64 In re W. Nat’l Corp. S’holders Litig., 2000 WL 710192, at *20 (Del. Ch. May 22,
2000) (citation omitted).
27 “relationships with key managers or advisors who play a critical role in presenting
options, providing information, and making recommendations[.]”65 It can also
address “the exercise of contractual rights to channel the corporation into a particular
outcome by blocking or restricting other paths,” and “commercial relationships[.]”66
Both general control and transaction-specific control call for a holistic
evaluation of sources of influence. “Rarely (if ever) will any one source of influence
or indication of control, standing alone, be sufficient to make the necessary
showing.”67 “Different sources of influence that would not support an inference of
control if held in isolation may, in the aggregate, support an inference of control.” 68
“Sources of influence and authority must be evaluated holistically, because they can
be additive.”69 “Invariably, the facts and circumstances surrounding the particular
transaction will loom large.”70
1. Plaintiffs Fail To Plead That Stone Point Exercised Control.
Plaintiffs advance theories of both general and transaction-specific control.
This analysis addresses whether Stone Point held transaction-specific control with
65 Basho, 2018 WL 3326693, at *26 (concluding on a motion to dismiss that the defendant’s relationship with management, including tips received by defendant from company’s officers that provided negotiating leverage, supported an inference of control (citing OTK Assocs., LLC v. Friedman, 85 A.3d 696, 706–07 (Del. Ch. 2014))). 66 Basho, 2018 WL 3326693, at *26 (citations omitted); see also Skye Mineral Inv’rs,
LLC v. DXS Cap. (U.S.) Ltd., 2020 WL 881544, at *26–27 (Del. Ch. Feb. 24, 2020). 67 Basho, 2018 WL 3326693, at *28 (citations omitted).
68 Voigt, 2020 WL 614999, at *13.
69 Id.
70 Basho, 2018 WL 3326693, at *28.
28 respect to the Merger. There are many reasons why a court often focuses on
transaction-specific control when addressing claims like those asserted by Plaintiffs.
For one, control allegations typically arise in the context of a transaction, making it
logical to evaluate the indicia of control in the context of events surrounding the
transaction. Moreover, where it is not reasonably conceivable that an individual or
group exercised transaction-specific control, it is hard to make a case for general
control. Additionally, because “[b]roader indicia of effective control also play a role
in evaluating whether a defendant exercised actual control over a decision[,]” 71 the
sources of influence identified by a plaintiff in support of a finding of general control
factor into the transaction-specific analysis.
Here, Plaintiffs have not adequately alleged transaction-specific control, and
it is not reasonably conceivable that Stone Point or the alleged control group exercised
general control.
Plaintiffs argue the following factors support an inference that Stone Point
exerted transaction-specific control of Focus in connection with the Merger:
• Stock Ownership: Stone Point held approximately 20.6% of the Company’s equity at the time of the Merger.72
• Influence Over Charter And Bylaw Amendments: Focus’s charter requires approval by “the holders of at least 66 2/3 % in voting power of the outstanding shares of stock of [Focus] entitled to vote generally in the election of directors” to amend the charter and “the vote of holders of not less than 66 2/3 % in voting power of the then-outstanding shares of stock entitled to vote thereon” to amend the bylaws.73 Plaintiffs argue
71 Id. at *27.
72 Compl. ¶ 25.
73 Id. ¶ 56; Defs.’ Opening Br., Ex. 26 at 6–7, 11.
29 Stone Point’s nearly 21% stake gave it “an effective veto over such amendments.”74
• The Nomination Agreement: Under the Nomination Agreement, Stone Point was entitled to appoint two directors to the Board75 and two directors to the three-member Compensation Committee.76
• The Credit Agreement: Stone Point was a Permitted Holder under the change-of-control carveout. As a Permitted Holder, Stone Point could help an acquiror avoid triggering an Event of Default by retaining, post- merger, the right or the ability by voting power, contract, or otherwise to elect or designate for election at least a majority of the board of directors of Focus. “Porting” the Credit Agreement in this way allowed an acquiror to offer $3.00–$4.00 more per share.77 Thus, Stone Point had unique negotiating leverage because Stone Point had the ability to make Focus’s debt portable.78
• Special Committee Compensation: The Compensation Committee elected to compensate Focus’s non-employee directors with Focus LLC units, making them eligible to become TRA Beneficiaries. The Merger would trigger lump-sum TRA payments to all Focus LLC unitholders and accelerate the vesting of the Special Committee members’ Focus LLC units. Plaintiffs argue this incentivized the Special Committee to recommend the Merger.79
a. Stock Ownership
“All else equal, a relatively larger block size should make an inference of actual
control more likely[.]”80 This is due to the mathematics of voting because the
existence of a larger block leaves fewer shares held by individuals who could be
74 Pls.’ Answering Br. 49–50.
75 Compl. ¶ 57.
76 Id. ¶¶ 58–59.
77 Id. ¶ 64.
78 Pls.’ Answering Br. at 56–57.
79 Id. at 58.
80 Voigt, 2020 WL 614999, at *17 (emphasis omitted).
30 convinced to oppose the blockholder’s wishes. As the blockholder’s stake increases,
opponents must poll at historically unachievable supermajority rates to overcome the
blockholder’s advantage.81 At the same time, compared to a smaller blockholder, a
larger blockholder needs the support of fewer other investors to carry a vote.82
Although not applicable here, quorum requirements and levels of voter turnout may
render some levels of ownership equivalent to majority control. With 80% turnout,
for example, a 40.0001% blockholder has the same effective voting power as the
holder of a mathematical majority.83
With these dynamics in mind, Stone Point’s just-over-20% block size is
influential. As this court has explained, “if the holder of a 21.9% block favors a
particular outcome, then the holder will win as long as holders of approximately one-
in-three shares vote the same way. By contrast, an opponent must garner
approximately 71% of the unaffiliated shares to win.”84 So, Stone Point’s 20.6%
81 Id. at *18 (citation omitted). For example, “assuming a meeting where holders with
80% of the voting power turn out, and the standard is a majority of the shares present and entitled to vote . . . if the holder of a 35% block favors a particular outcome at a meeting, then the blockholder will win as long as holders of 1-in-7 shares vote the same way. The opponents must garner over 90% of the unaffiliated shares to win.” Id. 82 See generally id. at *18–19 (discussing the mathematics behind this principle in
detail). 83 Id. at *18 (citing 8 Del. C. § 216(2) (requiring a “majority of shares present in person
or represented by proxy,” once a quorum is present, to take action), (3) (requiring “a plurality of the votes of the shares present in person or represented by proxy,” once a quorum is present, to elect directors)). “Meetings typically attract participation from just under 80% of the outstanding shares. At that level, the holder of a 40% block can deliver the vote needed to prevail at a meeting.” Id. 84 Tornetta v. Musk, 310 A.3d 430, 502 (Del. Ch. 2024).
31 interest in Focus gave it a weighty say in the outcome of any vote. That said, this
court has found that a 20% (or less) blockholder exercised sufficient control to be a
fiduciary only in rare circumstances, and only then when buttressed by other indicia
of control.85
b. Influence Over Charter And Bylaw Amendments
Stone Point’s alleged “effective veto” over amendments to Focus’s charter and
bylaws is not in play here because the Merger did not implicate Stone Point’s veto
power. Nor is there any indication that Stone Point had ever wielded this power or
threatened to use it to secure a desired outcome in this transaction or otherwise.86
85 See, e.g., In re Pattern Energy Gp. Inc. S’holders Litig., 2021 WL 1812674, at *41–
46 (Del. Ch. May 6, 2021) (finding it reasonably conceivable that a stockholder owning “slightly more than 10%” was a controller who had consent rights and threatened to use it to control decisions); FrontFour Cap. Gp. LLC v. Taube, 2019 WL 1313408, at *21–24 (Del. Ch. Mar. 11, 2019) (finding post-trial that stockholders who collectively owned “less than 15%” of the company’s stock were controllers where they were the founders and officers of the company, managed the day-to-day operations, and had control of deal structures and information flow); In re Zhongpin Inc. S’holders Litig., 2014 WL 6735457, at *7–8 (Del. Ch. Nov. 26, 2014) (finding it reasonably conceivable that a stockholder owning 17.3% block was a controller because the stockholder was the CEO, and the company’s 10-K stated that the stockholder effectively controlled the company), rev’d on other grounds sub nom. In re Cornerstone Therapeutics Inc. S’holder Litig., 115 A.3d 1173 (Del. 2015); Williamson v. Cox Commc’ns, 2006 WL 1586375, at *1 n.4, 4–5 (Del. Ch. June 5, 2006) (finding it reasonably conceivable that two stockholders, owning collectively a 17.1% block, jointly controlled the company based on their ability to nominate two of the five directors, their ability to influence the flow of revenue into the corporation, and their potential “veto” power over certain corporate decisions). 86 Cf. Tornetta, 310 A.3d at 503 n.586 (crediting a 21.9% blockholder’s influence over
charter and bylaw amendments subject to a supermajority voting provision where the blockholder had blocked amendments multiple times).
32 This factor does not favor an inference of transaction-specific control and only weakly
supports an inference of general control.
c. The Nomination Agreement
The rights conveyed through the Nomination Agreement inch a 20%
blockholder closer to a controlling influence. The Nomination Agreement only gave
Stone Point two out of the Company’s seven to nine Board seats. Although Stone
Point’s representatives were incapable of carrying or blocking any Board action.87
Stone Point’s Board seats increase its influence over the transaction and the
Company generally.
d. Special Committee Compensation
The Nomination Agreement also gave Stone Point disproportionate
representation on the Compensation Committee.88 Plaintiffs argue that this gave
Stone Point influence over the Merger in two ways.
First, the “Stone-Point-controlled Compensation Committee chose to
compensate the Company’s non-employee directors with Focus LLC units,” thus
making the Special Committee members potential TRA beneficiaries.89 Plaintiffs say
87 The Complaint states that Focus’s Board only had seven members “[i]n early 2022.”
Compl. ¶ 95. By March 7, 2022, the Focus Board comprised nine members. By July 2022, there were eight Board members. Id. The Complaint alleges that the Board did not begin discussing the possibility of engaging in an M&A transaction until March 30 and 31 (id. ¶ 97), and Adolf didn’t have his first meeting with CD&R until June 16 (id. ¶ 99). Thus, for most of the relevant period, the Board comprised eight members. 88 Id. ¶ 58 (“The Nomination Agreement required that the Stone Point Directors be
appointed to serve as two of the three members of the Compensation Committee; Muhtadie was appointed Chair.”). 89 Pls.’ Answering Br. at 58.
33 that this maneuver incentivized the Special Committee members to pursue a deal
over recommending that Focus continue as a standalone company.90 But this point
is not persuasive. The historical decision to compensate all non-employee directors
with Focus LLC units does not indicate that Stone Point controlled the process
leading to the Merger. The TRA payouts are better understood as a potential source
of conflict rather than evidence of Stone Point’s control.
Second, Plaintiffs argue that Stone Point “bribed the Special Committee
members to further incentivize them to approve the Merger” by approving a “six-fold
increase in the Special Committee members’ fees” during an adjournment of the
meeting at which the Special Committee approved the Merger.91 Plaintiffs infer from
this the Special Committee members wanted a raise, needed the non-committee
directors to approve it, and promised support for the Merger to get it.
The last-minute pay increase is an unusual fact. But what of it? Plaintiffs do
not do a great job of drawing out why this fact is relevant to the control analysis.
Plaintiffs do not argue that this alleged bribe was intended to induce the
Special Committee members to stiff-arm WEG in favor of Stone Point’s supposedly
favored bidder. And for good reason. The Special Committee jettisoned WEG weeks
earlier when they approved an exclusivity arrangement with CD&R and then worked
to “finalize the deal contracts.”92 Plaintiffs do not develop an argument that the
90 Id.
91 Id. at 59–60.
92 Compl. at ¶¶ 225, 228.
34 committee members felt some degree of owingness to Stone Point over the
compensation decision. If that argument were viable, no doubt Plaintiffs would have
advanced it. Based on the timing of the decision alone, Plaintiffs say that Stone Point
controlled the process.
Plaintiffs emphasize that the Special Committee adjourned the meeting to
wait for Carey, Adolf, and Kodialam to sign the written consent that increased their
compensation. There is no basis to infer that Stone Point had power or sway over
Adolf and Kodialam at this moment. The other Stone Point director, Muhtadie
executed the written consent before the meeting.
e. The Credit Agreement
“Contractual rights that do not amount to a significant source of general
control can, depending on the circumstances, give rise to an inference of transaction-
specific control, because the holder of the contract rights can use them to channel a
corporation into a particular outcome by blocking other paths.”93 In this way, the
Credit Agreement presents an interesting wrinkle in this analysis. To maintain the
Credit Agreement through a sale (and thus, keep Focus’s debt from accelerating), the
Permitted Holders (including Stone Point) would need to control a supermajority of
Focus’s post-transaction equity or have the right to appoint at least a majority of the
post-merger board.
Plaintiffs argue that “[b]ecause Stone Point and the Officer [Directors] wanted
to work with CD&R, they were willing to take the steps necessary to make the debt
93 Voigt, 2020 WL 614999, at *19.
35 portable,” which in turn, gave CD&R a “$2.00–$4.00 per share advantage in bidding
for the Company.”94 Defendants dispute this characterization of the Credit
Agreement, noting that Stone Point, Adolf, and Kodialam, though Permitted Holders,
were not parties to the Credit Agreement, and thus did not have to take any “steps”
to make Focus’s debt portable. Instead, “[i]t was up to third-party bidders to decide
if they wanted Focus’s debt to remain outstanding, and if so, to allocate director
appointment rights accordingly.”95
Defendants get it partly right. The decision to keep Focus’s debt in place
belonged foremost to Focus’s bidders. Portable debt was a selling point for some
bidders but not others. To be sure, Stone Point’s unique ability to prevent an Event
of Default accelerating debt under the Credit Agreement might have given Stone
Point independent leverage in negotiations with bidders, as well as a reason to favor
bidders willing to grant concessions to Stone Point. The Credit Agreement, therefore,
was another source of influence for Stone Point.
f. Conclusion Regarding Control Allegations Against Stone Point
Plaintiffs identify multiple sources of Stone Point’s influence over the
transaction, and they also identify at least one unusual fact—the pay increase. But
no individual source of influence nor interesting fact, standing alone, is enough for
the court to conclude that Stone Point exercised actual control. And Plaintiffs failed
to piece these allegations together to form a coherent theory of control under a holistic
94 Pls.’ Answering Br. at 57.
95 Dkt. 76 (“Defs.’ Reply Br.”) at 20.
36 analysis. There is no basis for the court to infer that Stone Point has the power or
influence sufficient to force a deal that the Special Committee or other directors did
not want. Plaintiffs thus have failed to allege transaction-specific control. And
because there is no reasonable inference that Stone Point determined the outcome of
the sale process, there is no reasonable inference that Stone Point controlled the
Company writ large. Plaintiffs do not adequately allege that Stone Point, standing
alone, was a controller with concomitant fiduciary allegations.
2. Plaintiffs Fail To Plead A Control Group.
Plaintiffs also assert that Stone Point, acting with the Stone Point Directors
and the Officer Directors comprised a control group. In Sheldon v. Pinto, the
Delaware Supreme Court addressed the requirements for pleading a control group,
adopting the “legally significant connection” standard:
To demonstrate that a group of stockholders exercises control collectively, the [plaintiffs] must establish that they are connected in some legally significant way—such as by contract, common ownership, agreement, or other arrangement—to work together toward a shared goal. . . . [T]here must be some indication of an actual agreement, although it need not be formal or written.96
It is safe to infer that the Stone Point Directors acted in a group with Stone
Point. Both are Senior Principals of the firm. Carey has been with Stone Point or its
predecessor entities since 1997, and Muhtadie since 2003. But that does not give
Stone Point any greater power or authority than it exercised without the Stone Point
96 Sheldon, 220 A.3d at 251–52 (internal quotation marks omitted) (quoting In re
Crimson Expl. Inc. S’holder Litig., 2014 WL 5449419, at *15 (Del. Ch. Oct. 24, 2014)).
37 Directors. Thus, including these defendants within the alleged group does not help
Plaintiffs. Plaintiffs appear to include the Stone Point Directors for the limited
purpose of building a tie to the Officer Directors to group them with Stone Point.
In support of their argument for including the Officer Directors in a group,
Plaintiffs contend that the Officer Directors and Stone Point had parallel interests in
connection with the Merger97 and formally memorialized their connection through
the Interim Investors Agreement.98 They also allege that the group members shared
historical ties with each other.99
Plaintiffs’ suite of allegations does not support the existence of a control group.
Plaintiffs have pled that the Officer Directors had parallel interests, but group
allegations look toward horizontal ties among group members. The concurrence of
self-interest might explain why group members work together, but that concurrent
interest alone is not enough to allege the existence of a group.100
97 Pls.’ Answering Br. at 41.
98 Id. at 44–45.
99 Id. at 41–43.
100 See, e.g., Gilbert v. Perlman, 2020 WL 2062285, at *6 (Del. Ch. Apr. 29, 2020) (“To
demonstrate the existence of a control group, it is insufficient to identify a group of stockholders that merely shares parallel interests.”); Garfield v. BlackRock Mortg. Ventures, LLC, 2019 WL 7168004, at *9 (Del. Ch. Dec. 20, 2019) (noting that “an array of plus factors” beyond a “mere concurrence of self-interest” could “allow[ ] the Court to infer some indication of an actual agreement” (internal quotation marks omitted) (quoting Sheldon, 220 A.3d at 252)); In re Crimson, 2014 WL 5449419, at *15 (“The law does not require a formal written agreement, but there must be some indication of an actual agreement. Plaintiffs must allege more than mere concurrence of self- interest among certain stockholders to state a claim based on the existence of a control group.”); Dubroff v. Wren Hldgs., LLC, 2009 WL 1478697, at *3 (Del. Ch. May 22, 2009) (“[I]f all a complaint alleges is that a group of shareholders have ‘parallel interests,’ such allegations are insufficient as a matter of law to support the inference 38 The Interim Investors Agreement offers no help. The Officer Directors were
not parties to the Interim Investors Agreement; it was executed by affiliates of CD&R
and Stone Point. Plaintiffs rely on Schedule A to the Interim Investors Agreement,
a term sheet for the partnership that would own the Company post-closing. The term
sheet provides that Stone Point would appoint five members of the post-Merger nine-
member board, two of whom would be “the Company’s CEO and another member of
the Company’s senior management who is a ‘Permitted Holder’ under [the Credit
Agreement].”101 Schedule A does not refer expressly to the Officer Directors, but
refers to members of Focus management generally. In a conclusory fashion, Plaintiffs
alleged, however, that “CD&R agreed to give Stone Point and the Officer [Directors]
control of the private post-Merger Focus”102 and “tied the Officer [Directors’] post-
Merger board representation to the size of Stone Point’s equity stake[.]”103 Plaintiffs
provide no factual bases to support these inferences.104 It is not reasonably
conceivable that the Interim Investors Agreement reflects an agreement among the
Officer Directors, Stone Point, and the Stone Point Directors to act as a group.
that the shareholders were part of a control group.” (quoting Cox Commc’ns, 2006 WL 1586375, at *6)). 101 Pls.’ Answering Br., Ex. 29 (Interim Investors Agreement) Schedule A at 1–2.
102 Compl. ¶ 252.
103 Pls.’ Answering Br. at 44.
104 See infra Part II.B.7 (finding that Plaintiffs failed to plead facts supporting an
inference that the Officer Directors were motivated by the promise of post-close employment).
39 As to historical ties, Plaintiffs alleged that Stone Point was an anchor investor
in Focus since its founding through the close of the Merger and that the Officer
Directors served on the Board with Carey and Muhtadie from July 2018 through the
close of the Merger.105 These are relevant considerations, but they are not enough to
infer a legally significant relationship. No Delaware decision has found that fitting
the description of an “anchor” investor or having one’s board nominee serving on a
board with management suffices to group an investor with management absent some
plus factor.
As a plus factor here, Plaintiffs allege that “Adolf, Carey, and Muhtadie were
members of the exclusive Yellowstone Club.”106 This is a juicy fact. It does not extend
to Kodialam. But one can reasonably infer that the three club members are friends.107
Even so, this sort of friendship is weaker than the kinds of relationships from which
this court has inferred the existence of a control group.108
105 Compl. ¶¶ 21–23, 45.
106 Pls. Answering Br. at 42.
107 Of course, not all persons who spend vacations in homes in the same neighborhood
are friends. In fact, sometimes neighborly relationships succeed due to a lack of contact. In the words of Robert Frost’s Mending Wall, “good fences make good neighbors.” Robert Frost, “Mending Wall,” North of Boston (1914). But the court must draw plaintiff-friendly inferences at this stage. 108 In re Tilray, Inc. Reorg. Litig., 2021 WL 2199123, at *11 (Del. Ch. June 1, 2021)
(finding plaintiffs adequately pled the existence of a control group where the members were “former classmates and long-time friends[,]” jointly managed different entities through management agreements, “held each other out as partners,” defined themselves in their group entity charter as the “Founders,” and “work[ed] on their various co-ventures just down the hall from each other”) (internal quotation marks omitted)); Garfield v. BlackRock Mortgage Ventures, LLC, 2019 WL 7168004, at *9 (Del. Ch. Dec. 20, 2019) (finding plaintiffs adequately pled the existence of a control group where plaintiffs alleged the group members had “ten-year history of co- 40 Plaintiffs’ argument for a control group becomes even less reasonable if one
accepts Plaintiffs’ position (for the sake of argument) that Stone Point is a controller
all on its own. As this court held in Almond v. Glenhill Advisors, LLC, where a single
member of an alleged control group is by itself a controller, a plaintiff must plead
facts supporting an inference that the other members of the group are necessary to
secure the desired outcome.109 In Glenhill, plaintiffs alleged that the minority
stockholder defendants formed a control group with another stockholder that had
mathematical voting control.110 The court rejected the theory, explaining that the
plaintiff sought to “glom on to a preexisting controlling stockholder additional
stockholders to give them the status of a control group.”111
Plaintiff does not adequately allege that Stone Point needed the Officer
Directors to achieve any desired outcome. Indeed, Plaintiffs argue the opposite,
asserting that “even if [the court] was not inclined to find it reasonably conceivable
that Stone Point and the [O]fficer [D]efendants acted as a group, the [c]ourt should
find that Stone Point alone was a controller.”112 Thus, the Officer Directors are
investment” in the company, which they “decided to start . . . together as the Company’s founding sponsors,” and the company repeatedly used defined terms in public documents to interchangeably and collectively refer to the group members); In re Hansen Medical, Inc. S’holders Litig., 2018 WL 3025525, at *7 (Del. Ch. June 18, 2018) (finding plaintiffs adequately pled the existence of a control group where the members shared a “twenty-one year coordinated investing history”). 109 2018 WL 3954733, at *25 (Del. Ch. Aug. 17, 2018), aff’d, 224 A.3d 200 (Del. 2019);
see also Gilbert, 2020 WL 2062285, at *6–10. 110 2018 WL 3954733, at *25.
111 Id. at *26 (internal quotation marks omitted).
112 Oral Arg. Tr. at 77:16–20; see also Pls.’ Answering Br. at 46 (“Even if Plaintiffs
had not adequately alleged that the Controller Defendants acted as a group (and they 41 merely glommed on to the party that Plaintiffs propose is the real controller—Stone
Point. Pleading no facts suggesting that the Officer Directors’ participation was
necessary to achieve Stone Point’s alleged ends, Plaintiffs have not successfully pled
the existence of a control group including them.
B. Counts II Through IV Against The Stone Point Directors And Officer Directors
Given the absence of a controller, and because Focus stockholders received
cash for their shares, the Merger is presumptively subject to enhanced scrutiny.113
Under Corwin, however, a defendant can lower the standard of review to the
irrebuttable version of the business judgment rule if the merger “has been approved
by a fully informed, uncoerced majority of the disinterested stockholders.”114 Where,
as here, a merger subject to enhanced scrutiny has been approved by an uncoerced
majority of the disinterested stockholders, a plaintiff bears the burden of pleading
disclosure deficiencies sufficient to refute a Corwin defense.115 A single well-pled
disclosure deficiency will foreclose the application of Corwin.116
At the pleading stage, the operative question in assessing a Corwin vote is
whether the complaint “supports a rational inference that material facts were not
have), that would not change the outcome. The facts alleged support an inference that Stone Point by itself had the ability to control the Company and, in fact, controlled the process leading to the Merger.”). 113 Revlon, Inc. v. MacAndrews & Forbes Hldgs., Inc., 506 A.2d 173, 184 (Del. 1986).
114 Corwin v. KKR Fin. Hldgs. LLC, 125 A.3d 304, 306 (Del. 2015).
115 In re Solera Hldgs., Inc. S’holder Litig., 2017 WL 57839, at *7–8 (Del. Ch. Jan. 5,
2017). 116 Van der Fluit v. Yates, 2017 WL 5953514, at *8 n.115 (Del. Ch. Nov. 30, 2017).
42 disclosed or that the disclosed information was otherwise materially misleading.”117
A fact is material “if there is a substantial likelihood that a reasonable shareholder
would consider it important in deciding how to vote.”118 Materiality does not demand
“a substantial likelihood that [the] disclosure . . . would have caused the reasonable
investor to change his vote.”119 Rather, the test is whether there is “a substantial
likelihood that the disclosure of the omitted fact would have been viewed by the
reasonable investor as having significantly altered the ‘total mix’ of information made
available.”120
Plaintiffs argue that the Proxy Statement suffers eight different disclosure
deficiencies.
1. WEG’s Interest
Plaintiffs’ strongest theory concerns disclosures relating to WEG. The Proxy
Statement states that WEG (identified in the Proxy Statement as “Party I”) made
non-binding offers of up to $55 per share, which the Special Committee rejected in
favor of CD&R’s $53 per share offer.121 The Proxy Statement disclosed that part of
117 Morrison v. Berry, 191 A.3d 268, 282 (Del. 2018).
118 Rosenblatt v. Getty Oil Co., 493 A.2d 929, 944 (Del. 1985) (quoting TSC Indus.,
Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976)). 119 Id.
120 Id.
121 Proxy Statement at 41 (“On January 17, 2023, Party I, along with its financial
sponsors, submitted a preliminary and non-binding proposal to acquire the Company for $51.75 per share in cash.”), 44 (“Also on January 22, 2023, Party I informed representatives of each of the Special Committee Financial Advisors that it was prepared to increase its offer price to $55.00 per share in cash but that this increased offer price would be preliminary and non-binding and would be subject to continued due diligence and Party I’s receipt of the requisite financing.”), 47 (“The Special 43 the Special Committee’s rationale for agreeing to exclusivity with CD&R in late
January 2023 was because WEG was comparatively behind in conducting due
diligence and obtaining debt and equity financing. Defendants say this is enough,
citing cases for the proposition that “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.”122
Plaintiffs allege, however, that WEG was behind compared to CD&R because
Defendants iced WEG out of the sale process. They allege that: (i) Goldman
introduced Adolf to WEG’s CEO on September 20, 2022, as a party potentially
interested in buying Focus; (ii) WEG’s CEO tried to schedule a meeting with Adolf
during September and October 2022; and (iii) WEG’s CEO and Adolf met for dinner
on November 15, 2022, and WEG expressed interest in acquiring Focus during the
meeting.123 Plaintiffs also allege that Adolf did not disclose WEG’s expression of
interest until December 28, when the indication of interest first appears in the
Committee reviewed its rationale for having the Company enter into exclusivity, including that it believed that it had engaged in a rigorous process to achieve the best price reasonably available for all of the stockholders of the Company and that a Potential Transaction at a price per share of $53.00 in cash was, in the Special Committee’s view, more likely to be consummated than a transaction with Party I at a preliminary price per share of $55.00 in cash[.]”). 122 City of Miami Gen. Emps. v. Comstock, 2016 WL 4464156, at *15 (Del. Ch. Aug.
24, 2016), aff’d, 158 A.3d 885 (Del. 2017). 123 Compl. ¶¶ 112, 147.
44 minutes of any Special Committee or Board meeting.124 The Proxy Statement did not
disclose any of these facts.
If true, a reasonable stockholder would consider these facts important,
particularly given that Goldman repeatedly advised that strategic buyers like WEG
would not have an interest in acquiring the Company. Also, given that a disclosed
rationale for agreeing to exclusivity with CD&R in late January 2023 was WEG’s
lesser progress in diligence, a reasonable stockholder would want to know if
Defendants caused this disadvantage by declining to engage with WEG during the
fall of 2022.
Defendants contend that Plaintiffs’ theory is not true. Defendants instead
point the court to a letter from V&E to Plaintiffs’ counsel regarding the settlement of
Plaintiffs’ action to enforce their demand to inspect documents under 8 Del. C. § 220
(the “V&E Letter”).125 The V&E Letter states that “Mr. Adolf and Mr. Dekko met for
dinner on November 15, 2022 . . . [w]ithin a week thereafter, Mr. Adolf orally
informed both the Special Committee and Goldman Sachs of that dinner during
ordinary-course communications.”126
Essentially, Defendants ask the court to accept a factual statement made by
its attorneys in a document produced through a Section 220 inspection as a basis for
rejecting reasonable plaintiff-friendly inferences at the pleading stage. They note
124 Compl. ¶ 180 (“These facts are not disclosed in the Proxy and are wholly absent
from any prior Board or Special Committee minutes.”). 125 Defs.’ Opening Br. at 50.
126 Id., Ex. 16 at 2.
45 that the parties agreed to incorporate the Section 220 document into the pleadings
by reference, and so it is fair for them to point to this document. But “[t]he
incorporation-by-reference doctrine does not enable a court to weigh evidence on a
motion to dismiss. It permits a court to review the actual documents to ensure that
the plaintiff has not misrepresented their contents and that any inference the
plaintiff seeks to have drawn is a reasonable one.”127
“Where a defendant improperly and extensively uses Section 220 Documents
in support of a Chancery Rule 12(b)(6) motion to support factual inferences that run
counter to those supported in the complaint, the court may either exclude the
extraneous matter from its consideration or convert the Chancery Rule 12(b)(6)
motion into a motion for summary judgment so that the plaintiff may take discovery
before the court determines if pre-trial dispositive relief is appropriate.”128
The court declines to deny the motion outright. As discussed more below,
Defendants’ motion has done the work of significantly narrowing the well-pled
allegations to a single disclosure issue. By introducing countervailing facts at the
pleading stage, however, Defendants invite the court to convert their motions to
dismiss into motions for summary judgment under Court of Chancery Rule 12(d).
Rule 12(d) provides that, where a party “moves under Rule 12(b)(6) or 12(c) and
presents matters outside the pleadings that are not excluded by the Court, then (1)
the motion must be treated as one for summary judgment under Rule 56; and (2) all
127 Voigt, 2020 WL 614999, at *9 (collecting cases).
128 In re CBS Corp. S’holder Class Action & Deriv. Litig., 2021 WL 268779, at *18
(Del. Ch. Jan. 27, 2021), as corrected (Feb. 4, 2021).
46 parties must be given a reasonable opportunity to present pertinent material under
Rule 56.”129
In this circumstance, it is appropriate to convert Defendants’ motions to
dismiss into motions for summary judgment for the limited purpose of addressing
Plaintiffs’ disclosure theory based on the WEG interactions.
2. Stone Point’s Preferences
Plaintiffs next argue that the Proxy Statement should have disclosed that
“Stone Point had conveyed that it was not agnostic with respect to potential partners
in an acquisition of the Company and had expressed certain views on potential
partners.”130 That allegation does not support a disclosure claim.
The Proxy Statement informed stockholders that Stone Point might have
preferences among bidders. An attachment to Focus’s 13e-3 filing disclosed Jefferies’s
advice that bids from other parties may “depend[] on Stone Point’s willingness to
129 Ct. Ch. R. 12(d); see also Acero Capital, L.P. v. Swrve Mobile, Inc., 2021 WL 2207197, at *3 (Del. Ch. June 1, 2021) (converting Rule 12(b)(6) motion into motion for summary judgment because defendant relied on matters outside the pleadings); Raj & Sonal Abhyanker Family Tr. ex rel. UpCounsel, Inc. v. Blake, 2021 WL 2477025, at *9 (Del. Ch. June 17, 2021) (same); Bedrock Techs., LLC v. Earthwater Tech. Int’l, Inc., 2006 WL 2521430, at *1 (Del. Ch. Aug. 24, 2006) (same); Kessler v. Copeland, 2005 WL 396358, at *4 (Del. Ch. Feb. 10, 2005) (same); Peoples Sec. Life Ins. Co. v. Fletcher, 1988 WL 26791, at *1 (Del. Ch. Mar. 16, 1988) (same); Kramer v. W. Pac. Indus., Inc., 1987 WL 17043, at *1 (Del. Ch. Sept. 11, 1987), aff’d, 546 A.2d 348 (Del. 1988) (same); Broadscale OC Invs., L.P. v. Clayton, C.A. No. 2020-0262- PAF, Dkt. 30 at 78–81 (Del. Ch. Oct. 15, 2020) (TRANSCRIPT) (same); Dawson v. Pittco Cap. P’rs, L.P., C.A. No. 3148-VCN, Dkt. 38 at 37 (Del. Ch. Dec. 7, 2007) (TRANSCRIPT) (same). 130 Compl. ¶ 192.
47 partner with other sponsors[.]”131 The Proxy Statement also disclosed that Stone
Point informed the Special Committee that “a transaction with [WEG] would involve
Stone Point conducting due diligence on and an evaluation of [WEG] if Stone Point
were asked to roll over all or a portion of its equity[.]”132 Although the Proxy
Statement did not use the phrase “not agnostic,” the information conveyed accurately
informed stockholders of this disposition.
Plaintiffs rely on Morrison v. Berry,133 but that case does not apply. There, the
company disclosed that its founder was “willing to consider any equity rollover with
a party other than Apollo[.]”134 That was false, as internal emails revealed the
opposite.135 Plaintiffs can point to no false assertions here.
Plaintiffs fail to plead that these omissions would have materially altered the
total mix of information.
3. Bankers’ Advice
Plaintiffs argue that the Proxy Statement should have disclosed the following
advice provided by the Special Committee’s financial advisors:
Goldman’s advice that it was “not worthwhile” for the Special Committee to engage with [Party E] because Stone Point had already indicated that “it would not make an additional equity investment at a price per share above $51.50” and that Goldman informed the Special Committee that, because Stone Point wanted to “participat[e] on the
131 Defs.’ Opening Br., Ex. 19 at Ex. 99.(c)(8) at 28.
132 Proxy Statement at 38.
133 191 A.3d 268 (Del. 2018).
134 Id. at 281.
135 Id. at 285–86.
48 buyer side, it was disincentivized to support a higher price per share.”136
And
Jefferies’ advice that, if Stone Point were not comfortable participating as a buyer, the Company likely would not have an actionable bid.137
As to Goldman’s advice, the Proxy Statement disclosed that Party E indicated
its offer would require that Stone Point purchase significant additional Focus equity,
Stone Point expressed its lack of interest in purchasing such additional equity for
more than $51.50 per share, and CD&R and WEG had offered $51.50 per share or
more.138 Goldman’s conclusion that it was “not worthwhile” to further engage with
Party E does not add much to this mix.139
As to Jefferies’s advice, Plaintiffs appear to be characterizing a bullet point on
a Jefferies slide deck, which states “[t]o get actionable bids, other parties will need to
undertake diligence and potentially secure committed financing depending on Stone
136 Pls.’ Answering Br. at 68.
137 Id.
138 Proxy Statement at 38 (“Party E stated that it understood that Stone Point would
need to be a part of the go-forward capital structure for the Company’s debt to be portable under the Existing Credit Documents and indicated that it would expect Stone Point to make an additional investment in the pro forma company resulting from a potential acquisition by Party E.”), 44 (“Stone Point indicated, however, that, based on the terms proposed as of such date, it was not willing to commit to a rollover of all of its equity interests in the Company in a Potential Transaction and a reinvestment in the pro forma company resulting from a Potential Transaction at a price per share higher than $51.50.”). 139 Cinerama, Inc. v. Technicolor, Inc., 1991 WL 111134, at *24 (Del. Ch. June 24,
1991), aff’d in part, rev’d in part on other grounds sub nom. Cede & Co. v. Technicolor, Inc., 634 A.2d 345 (Del. 1993) (“[C]onclusions that may be drawn from information disclosed need not be disclosed.”).
49 Point’s willingness to partner with other sponsors[.]”140 That Jefferies presentation
was disclosed it in its entirety as an attachment to the Company’s 13e-3 filing. The
Proxy Statement also told stockholders where they could find this information,
stating: “Copies of [Jefferies’s] written preliminary presentations and a copy of the
Jefferies’ presentation made to the Special Committee on February 26, 2023, have
been filed as exhibits (c)(8) – (c)(10) to the Schedule 13e-3 filed with the SEC in
connection with the proposed Mergers.”141 Plaintiffs fail to allege a disclosure
violation with respect to Jefferies’s advice.
4. Special Committee Compensation
Plaintiffs argue that the Proxy Statement should have disclosed the following
facts concerning the Special Committee’s compensation: (i) shortly before and during
a break in the Special Committee meeting to recommend the Merger, the Stone Point
Directors and management approved the Special Committee’s increased
compensation; (ii) all the Special Committee members except LeMieux approved the
increased compensation, with LeMieux approving it minutes after the meeting; and
(iii) the compensation of three of the four Special Committee members increased six-
fold.142
The Proxy Statement disclosed that
Prior to the Board meeting to consider the Special Committee’s recommendation, the Board adopted, by unanimous written consent, resolutions providing for
140 Defs.’ Opening Br., Ex. 19 at 28.
141 Proxy Statement at 83.
142 Pls. Answering Br. at 69.
50 additional compensation for the Special Committee members, in light of the work performed by the Special Committee and to be performed by the Special Committee during the go-shop period, that had exceeded the Company’s expectations when it first determined to structure compensation for each Special Committee member’s service on the Special Committee.143
Under a section titled “Special Committee Fees,” the Proxy Statement disclosed the
precise amounts of this compensation.144 The Proxy Statement does not disclose that
the increase was approved during a “break” in the Special Committee meeting and
“fifteen minutes” before the Special Committee approved the Merger, but those
details would not alter the total mix of information available.
Plaintiffs rely on In re Tele-Communications, Inc. Shareholder Litigation, but
that case is distinguishable.145 There, an allegedly conflicted director “recommended
that [the special committee members considering a deal] be reasonably compensated
for their efforts in connection with the transaction,” with the amount to be determined
after the committee gave its recommendation.146 The committee then had “four
meetings over a one-week period.”147 After the committee recommended the merger,
the board approved $1 million in compensation to each committee member.148 The
proxy statement in Tele-Communications disclosed nothing about this additional
143 Proxy Statement at 53.
144 Id. at 99.
145 2005 WL 3642727 (Del. Ch. Dec. 21, 2005).
146 Id. at *1, *4–5.
147 Id. at *15 n.52.
148 Id. at *3.
51 compensation.149 The court noted that “the uncertain, contingent, and potentially
large nature of the payments, without any objective benchmarks or other measures,
could have given [the committee] additional and undisclosed financial interests . . .
that might have affected their judgments.”150
The circumstances pled in Tele-Communications bear little resemblance to
those alleged here. The Proxy Statement disclosed the Special Committee’s
compensation, including the full amount that each member received in connection
with their work on the Merger. Additionally, the Special Committee’s compensation
was not “uncertain, contingent,” or lacking “objective benchmarks”; it had specific
base and monthly fees, which the Committee members would receive regardless of
their recommendation. For these reasons, Plaintiffs fail to allege that the information
they believe was wrongfully withheld would materially alter the total mix of
information about the nature of the Special Committee’s compensation increases.
5. Jefferies’s Fee Increase
Plaintiffs argue that the Proxy Statement should have disclosed that the
Special Committee increased Jefferies’s discretionary fee by $7 million on the same
day Jefferies presented its fairness opinion to the Special Committee.151
The Proxy Statement disclosed Jefferies’s modified fee arrangement and that
the Special Committee approved this fee modification on the day it received Jefferies’s
149 Id. at *4.
150 Id. at *5.
151 Pls.’ Answering Br. at 70–72.
52 fairness opinion.152 The Proxy Statement also explains that Jefferies’s compensation
package comprised “up to $4.5 million” in base compensation plus “a discretionary fee
of up to $8.0 million.”153
Given what was disclosed, other information Plaintiffs point to is not likely to
alter the total mix of information.154
6. Special Committee Independence
Plaintiffs assert the Proxy Statement “failed to disclose a number of facts that
undermine the disinterestedness and independence of members of the Special
Committee.”155 These facts relate to Adolf’s personal relationships with committee
members, which Plaintiffs claim Stone Point “exploit[ed]” to its benefit and certain
alleged “associations” LeMieux had with CD&R.156 As to the connections between
Adolf and the committee members, Plaintiffs contend the Proxy Statement failed to
disclose:
• Morganroth and LeMieux both self-reported that they were friends with Adolf;
• Adolf, LeMieux, and Neuhoff have overlapping social club memberships; and
152 Proxy Statement at 53.
153 Id. at 83–84.
154 In re Paramount Gold & Silver Corp. S’holders Litig., 2017 WL 1372659, at *13
(Del. Ch. Apr. 13, 2017) (finding registration statement disclosure regarding advisor’s fee sufficient where it “disclosed the total amount and the contingent nature of [the advisor’s] compensation in connection with the merger” and “stockholders were made aware of the full magnitude and nature of [the advisor’s] financial interest in the transaction”). 155 Compl. ¶ 277.
156 Pls. Answering Br. at 72.
53 • Morganroth and Adolf have neighboring vacation homes at the Yellowstone Club. 157
The Proxy Statement did not disclose this information. Defendants argue that
the Proxy Statement need not disclose this level of detail, because “[a]llegations of
mere personal friendship or a mere outside business relationship, standing alone, are
insufficient to raise a reasonable doubt about a director’s independence.”158
Plaintiffs rely on In re Orchard Enterprises, Inc., Inc. Stockholder Litigation,
where the relationships and the conflicts were much more pronounced.159 There, the
chair of the special committee had “long-standing ties” to the family that owned the
controller, including being “business associates and personal friends for
approximately twenty years” and “invest[ing] together in fifteen different
companies.”160 Here, there are no long-standing business ties, but social-circle issues
that tend not to alarm Delaware courts.161 Plus, there is no controller nor any well-
pled allegations that those relationships tainted the process.
157 Compl. ¶ 277.
158 Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040,
1050 (Del. 2004) (affirming finding that plaintiff failed to adequately plead director interestedness where directors moved in the same social circles, attended the same weddings, developed business relationships before joining the board, and described each other as “friends”). 159 Pls.’ Answering Br. at 72.
160 In re Orchard Enters., Inc. S’holder Litig., 88 A.3d 1, 9 (Del. Ch. 2014).
161 See, e.g., Zimmerman v. Crothall, 2012 WL 707238, at *13 (Del. Ch. Mar. 5, 2012),
as revised (Mar. 27, 2012) (finding that allegations that two directors “were good friends, that their families socialized, and that the two had worked closely together on previous occasions, including in founding a start-up company” to be “allegations of mere friendship and shared work experiences” and determining the directors to be “disinterested and independent”).
54 As to LeMieux’s ties to CD&R, the only connection Plaintiffs appear to raise is
that LeMieux self-reported on a director questionnaire that he is the Chairman of a
law firm that “represents CD&R in immigration matters.”162 Plaintiffs plead no other
facts alleging that this relationship affected any part of the sale process. Nor does
the Complaint suggest that the firm’s representation of CD&R resulted in fees that
would be material to LeMieux. Indeed, the Complaint hesitates to assert the firm
received compensation from CD&R at all, noting only that it “likely obtains fees.” 163
Plaintiffs fail to plead this is a fact that would be germane, yet alone material, to
stockholders when considering whether to approve the Merger.
The information to which Plaintiffs point is not material as a matter of law.
7. CD&R’s Indication Of Interest
Plaintiffs argue that the Proxy Statement should have included more
information concerning CD&R’s offer and discussed its unique benefits for Stone
Point, the Stone Point Directors, and the Officer Directors.164 Specifically, Plaintiffs
argue that the Proxy Statement should have disclosed that: (i) CD&R expected a
material rollover from management; (ii) CD&R stated it would be an “outstanding
partner” to management; and (iii) CD&R insisted on Stone Point’s equity rollover.165
162 Compl. ¶¶ 38, 277.
163 Id. ¶ 277.
164 Id. ¶ 280.
165 Pls.’ Answering Br. at 74.
55 Plaintiffs pull the statement regarding management’s equity rollover verbatim
from a deck attached to Focus’s Schedule 13e-3 filing.166 That information is,
therefore, publicly disclosed.
Plaintiffs draw the “outstanding partner” statement from CD&R’s September
14, 2022 proposal stating that it would be “an outstanding partner for the
management team as it works to increase the long-term value of the Company.”167
That was puffery and not material.168
Plaintiffs base their last subpoint on the minutes from a November 10, 2022
Board meeting. The minutes state that Goldman discussed that “CD&R would
require a partner or partners in connection with a transaction . . . [and] the potential
166 Defs.’ Opening Br., Ex. 24 at Exhibit 99.(c)(1) at 5.
167 Compl. ¶ 281.
168 See, e.g., Teamsters Local 677 Health Servs. & Ins. Plan v. Martell, 2023 WL
1370852, at *18 (Del. Ch. Jan. 31, 2023) (rejecting claim that proxy statement failed to include information regarding promises of post-close employment for target management where plaintiff “base[d] its theory on a closing-date announcement and the idea that financial buyers retain management” and did not “allege facts suggesting that employment discussions with [the acquirors] occurred during the sale process”); English v. Narang, 2019 WL 1300855, at *13 (Del. Ch. Mar. 20, 2019), aff’d, 222 A.3d 581 (Del. 2019), and aff’d, 222 A.3d 581 (Del. 2019) (dismissing claim that Recommendation Statement omitted material facts concerning post-close employment for target management where plaintiffs pled that the acquiror “routinely retains” existing management but did not allege any facts concerning the “timing and extent of any discussions between [the target and buyer] regarding post-close employment”); see also City of Warren Gen. Empls.’ Ret. Sys. v. Roche, 2020 WL 7023896, at *13 (Del. Ch. Nov. 30, 2020) (finding plaintiff failed to plead that management was conflicted due to prospect of post-transaction employment where the complaint “seize[d] on complimentary statements in . . . indications of interest” from buyers, including that the buyers were “100% supportive of the management team,” and “very enthusiastic about the opportunity to partner with [the target]” and did not allege that “any employment offers were extended or that employment discussions were had”).
56 impact that Stone Point’s participation may have on CD&R’s indication of
interest.”169 To note the obvious, the minutes only state that CD&R would require “a
partner” to close a deal, not that the partner would have to be Stone Point. Setting
that aside, it is hard to view this omission as material given what was disclosed. The
Proxy Statement already disclosed the following:
• “Having Stone Point be a part of the go-forward capital structure could allow [Focus’s] debt to be portable,” which would “potentially permit[] CD&R to submit a higher price per share offer”;170
• Goldman approached Stone Point on November 9 about “rolling over some or all of its equity interests in [Focus] or making an additional equity investment”;171
• CD&R expressed a willingness to increase its offer “in the event that Stone Point was willing to roll over its equity interests”;172
• CD&R explored “discussions with other potential sources of equity financing even if Stone Point was willing to so participate”;173 and
• The parties ultimately agreed that Stone Point would rollover a portion of its equity interest.174
These disclosures convey the correlation between the amount of equity Stone Point
would commit to rolling over and CD&R’s ability and willingness to engage in a deal.
Plaintiffs fail to plead that more was required to avoid a materially misleading
disclosure.
169 Pls.’ Answering Br. at 73–74 (quoting Pls.’ Answering Br., Ex. 4 at 3).
170 Proxy Statement at 27.
171 Id. at 28.
172 Id. at 45–46.
173 Id. at 46.
174 Id. at 99.
57 8. Effect Of Maintaining The Credit Agreement
Plaintiffs argue that the Proxy Statement should have disclosed that “keeping
the existing financing in place, which required Stone Point’s consent, would allow a
potential purchaser to avoid refinancing costs in the range of $3.00–$4.00 per
share.”175 Plaintiffs also allege that the Proxy Statement should have disclosed that
Stone Point was among the “Permitted Holders” under the Credit Agreement, and
that giving Stone Point the right to designate a majority of the post-closing board was
a way to keep the Credit Agreement in place.
The disclosure of the additional $3–$4 per share detail would not alter the total
mix of information in a material way. The Proxy Statement also detailed how Stone
Point’s involvement through the Credit Agreement might allow CD&R to increase its
bid from $45 to $50 to $51.50 to $53 per share.176 Given those disclosures, the $3–$4
range is “additional granularity” that would be “cumulative to the information
already disclosed.”177
No further disclosures about the “Permitted Holders” are warranted. The
Proxy Statement refences the potential portability of the Credit Agreement several
times,178 including that making Focus’s debt portable could allow bidders “to submit
175 Pls.’ Answering Br. at 76.
176 See Proxy Statement at 45–46 (“CD&R conveyed . . . that [it] might be able to meet
the Special Committee’s proposed price of $53.00 . . . [if] Stone Point was willing to roll over its equity interests[.]”). 177 Dent v. Ramtron Int’l Corp., 2014 WL 2931180, at *12 (Del. Ch. June 30, 2014).
178 Compl. ¶ 285 (citing Proxy Statement at 28, 30, 35–36, 38–39).
58 a higher price per share.”179 The Proxy Statement discloses that after the Merger,
the “Permitted Holders (as defined in the Existing Credit Document)” will “indirectly
own a majority of the Voting Stock of the Company and Focus LLC [and] be entitled
to designate a majority of the members of the [post-close] board[.]” 180 Exhibits to the
Company’s Schedule 13e-3 “defined ‘Permitted Holders’ to include ‘Stone Point’ and
‘Focus management.’”181
Plaintiffs fail to adequately plead that the Proxy Statement fails to disclose
that Stone Point and members of Management were Permitted Holders, and that
such information would significantly alter the total mix of information made
available to stockholders.
III. CONCLUSION
The motion to dismiss Count I is granted; Plaintiffs have failed to adequately
allege the existence of a controller or control group. But for one well-pled disclosure
violation, Defendants would be entitled to dismissal of Counts II through IV under
Corwin. Counts V through VII for aiding and abetting would fail for lack of a valid
predicate. Given the dispositive nature of Plaintiffs’ one viable disclosure issue on
the outcome of Defendants’ motions, the court is converting the motions to dismiss
into motions for summary judgment to explore the factual bases for this limited issue.
179 Proxy Statement at 28.
180 Id. at 120.
181 Defs.’ Opening Br., Ex. 25 at Ex. 99.(c)(3) at 47, Ex. 99.(c)(4) at 48.
59 The motions to dismiss Counts V through VII are stayed pending resolution of
summary judgment briefing.
Related
Cite This Page — Counsel Stack
Anchorage Police & Fire Retirement System v. Rudy Adolf, Counsel Stack Legal Research, https://law.counselstack.com/opinion/anchorage-police-fire-retirement-system-v-rudy-adolf-delch-2025.