Cindy Harcum v. John Lovoi
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Opinion
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
CINDY HARCUM, on Behalf of Herself and ) all Others Similarly Situated, ) ) Plaintiff, ) ) v. ) C.A. No. 2020-0398-PAF ) JOHN LOVOI, PAUL B. LOYD, JR., ) MICHAEL RALEIGH, ANTHONY ) TRIPODO, ROAN HOLDINGS, LLC, JVL ) ADVISORS, LLC, JOSEPH A. MILLS, and ) RICHARD GIDEON, ) ) Defendants. )
MEMORANDUM OPINION
Date Submitted: September 21, 2021 Date Decided: January 3, 2022
Blake A. Bennett, COOCH AND TAYLOR, P.A., Wilmington, Delaware; Michael J. Palestina, KAHN SWICK & FOTI, LLC, New Orleans, Louisiana; Juan E. Monteverde, Miles D. Schreiner, MONTEVERDE & ASSOCIATES PC, New York, New York; Attorneys for Plaintiff Cindy Harcum.
Rolin P. Bissell, James M. Yoch, Jr., Alberto E. Chávez, YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; Michael C. Holmes, Virginia DeBeer, VINSON & ELKINS L.L.P., Dallas, Texas; Attorneys for Defendants John Lovoi, Paul B. Loyd, Jr., Michael Raleigh, Joseph A. Mills, Anthony Tripodo, Richard Gideon, Roan Holdings, LLC, and JVL Advisors, LLC.
FIORAVANTI, Vice Chancellor Plaintiff Cindy Harcum, individually and on behalf of a purported class of
former stockholders of Roan Resources, Inc. (“Roan” or the “Company”), seeks to
recover damages for alleged breaches of fiduciary duties by certain officers,
directors, and stockholders of the Company arising from a 2019 going-private
merger (the “Merger”). In the Merger, Citizen Energy Operating, LLC (“Citizen
Buyer”) acquired the Company in an all-cash transaction through which Roan
stockholders received the right to payment of $1.52 per share of their Roan common
stock. Harcum, a former contract employee of Roan and a predecessor company,
alleges the Merger was a scheme devised to transfer control of the Company to a
few insiders for insufficient consideration. Plaintiff contends that persons and
entities affiliated with defendant John Lovoi controlled the Company, stood on both
sides of the transaction, and received unique benefits not shared with the remaining
stockholders of the Company. Plaintiff also alleges that a subset of the Company’s
board of directors (the “Board”) breached their fiduciary duties and made material
misrepresentations and omissions in the proxy statement that was disseminated to
stockholders to obtain their vote for the Merger. Plaintiff also alleges two of the
Company’s officers breached their fiduciary duties in connection with the proxy
statement disclosures. The defendants have moved to dismiss the complaint in its
entirety. This opinion grants that motion. I. BACKGROUND
The facts recited in this Memorandum Opinion are drawn from the Verified
Amended Class Action Complaint (the “Complaint”) and documents integral thereto
or otherwise subject to judicial notice.1
A. The Parties
Defendant JVL Advisors, LLC (“JVL”) is a Texas limited liability company
with its principal place of business located in Houston, Texas.2 Defendant John
Lovoi is JVL’s founder and managing partner. 3 Defendant Roan Holdings, LLC
(“Roan Holdings”) is a Delaware limited liability company with its principal place
of business in Houston, Texas. 4 At the time of the Merger, Roan Holdings owned
49.7% of Roan’s outstanding common stock. Lovoi is alleged to have controlled
Roan through his control over JVL, Roan Holdings, and his ownership of additional
shares of Roan common stock that, when combined, amounted to over 50% of
Roan’s voting power.
Roan was formed in September 2018. It is a holding company for oil and gas
assets and created through a joint venture between Linn Energy, Inc. (“LINN”) and
1 See DEL. R. EVID. 201. 2 Dkt. 34, Verified Amended Class Action Complaint (“Compl.”) ¶ 21. 3 Id. ¶ 16. 4 Id. ¶ 22.
2 Citizen Energy II, LLC (“Citizen II”). The Roan Board that approved the Merger
consisted of eight members: Defendants Lovoi, Paul B. Loyd, Michael P. Raleigh,
Anthony Tripodo (“the Director Defendants”), and Joseph A. Mills, and non-
Defendants Andrew Taylor, Matthew Bonanno, and Evan Lederman.5
Mills was Roan’s Executive Chairman and interim Principal Executive
Officer from April 15, 2019 through September 29, 2019. 6 Mills is only being sued
in his capacity as an officer and not as a director. Defendant Richard Gideon (with
Mills, the “Officer Defendants”) served as Roan’s CEO from September 29, 2019
until December 6, 2019 (the Director Defendants, the Officer Defendants, Roan
Holdings, and JVL, are hereinafter referred to as the “Defendants”).7
Plaintiff Cindy Harcum was a contract employee of Roan and held stock in
Roan throughout the time period when the Complaint alleges that wrongdoing
occurred. 8
B. Citizen II
In November 2014, James Woods, Robert Woodard, Gregory Augsburger,
and JVL formed Citizen II.9 Woods, Woodard, Augsburger (collectively, the
5 Id. ¶¶ 16–19, 23, 30–32. 6 Id. 7 Id. ¶ 24. 8 Id. ¶ 15. 9 Id. ¶¶ 25, 49.
3 “Citizen Principals”), and “their personal network of investors” contributed
approximately 76% of Citizen II’s capital, while JVL contributed the remaining
24%.10 Following recapitalizations in 2015 and 2016, JVL’s contributions made up
about 85% of Citizen II’s total capital.11 The Citizen II operating agreement
provided for four managers: three “Management Representatives” and one “Investor
Representative.” The Citizen Principals were appointed as the three Management
Representatives.12 JVL, which was entitled to appoint the one Investor
Representative, selected Kelly Loyd for that position. 13 Citizen II’s operating
agreement also provided the Citizen Principals with “incentive interests” if they
were able to return the initial capital contributions to all of Citizen II’s investors in
addition to a 9% annual preferred return. 14 The Complaint does not describe or
quantify these “incentive interests,” but repeatedly refers to them. 15 In these early
years Citizen II saw quick success, drilling over 60 horizontal wells, which produced
13,000 barrels of oil equivalent per day.16
10 Id. ¶ 49. 11 Id. ¶ 51, 54. 12 Id. ¶ 50. 13 Id. 14 Id. 15 See id. ¶¶ 50, 66, 74, 127. 16 Id. ¶ 52.
4 In mid-2017, Citizen II and LINN, a publicly traded oil and gas company
formed in a bankruptcy reorganization, entered into a joint venture (the “Joint
Venture”). As part of the Joint Venture, Citizen II and LINN would combine their
assets to develop 140,000 acres across three oil-rich formations in south and central
Oklahoma.17 Citizen II and LINN stated that they intended to take the Joint Venture
public by early 2018. 18
In light of these planned events, the Citizen Principals anticipated ceding
managerial control of Citizen II; however, they would only do so on two conditions:
(1) there would need to be a partial separation between investors affiliated with JVL
(“JVL Investors”) and those not affiliated with JVL (“Non-JVL Investors”), and (2)
the Citizen Principals would need to retain representation on the future public
company’s board of directors.19 At this time, Non-JVL Investors owned about
23.1% of Citizen II.20
C. Roan LLC Is Formed in Anticipation of the Joint Venture.
On May 30, 2017, the Citizen Principals, JVL, Paul Loyd, Kelly Loyd, and
Raleigh formed Roan Resources, LLC (“Roan LLC”), which was created to
17 Id. ¶ 56. 18 Id. 19 Id. ¶ 57. 20 Id.
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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
CINDY HARCUM, on Behalf of Herself and ) all Others Similarly Situated, ) ) Plaintiff, ) ) v. ) C.A. No. 2020-0398-PAF ) JOHN LOVOI, PAUL B. LOYD, JR., ) MICHAEL RALEIGH, ANTHONY ) TRIPODO, ROAN HOLDINGS, LLC, JVL ) ADVISORS, LLC, JOSEPH A. MILLS, and ) RICHARD GIDEON, ) ) Defendants. )
MEMORANDUM OPINION
Date Submitted: September 21, 2021 Date Decided: January 3, 2022
Blake A. Bennett, COOCH AND TAYLOR, P.A., Wilmington, Delaware; Michael J. Palestina, KAHN SWICK & FOTI, LLC, New Orleans, Louisiana; Juan E. Monteverde, Miles D. Schreiner, MONTEVERDE & ASSOCIATES PC, New York, New York; Attorneys for Plaintiff Cindy Harcum.
Rolin P. Bissell, James M. Yoch, Jr., Alberto E. Chávez, YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; Michael C. Holmes, Virginia DeBeer, VINSON & ELKINS L.L.P., Dallas, Texas; Attorneys for Defendants John Lovoi, Paul B. Loyd, Jr., Michael Raleigh, Joseph A. Mills, Anthony Tripodo, Richard Gideon, Roan Holdings, LLC, and JVL Advisors, LLC.
FIORAVANTI, Vice Chancellor Plaintiff Cindy Harcum, individually and on behalf of a purported class of
former stockholders of Roan Resources, Inc. (“Roan” or the “Company”), seeks to
recover damages for alleged breaches of fiduciary duties by certain officers,
directors, and stockholders of the Company arising from a 2019 going-private
merger (the “Merger”). In the Merger, Citizen Energy Operating, LLC (“Citizen
Buyer”) acquired the Company in an all-cash transaction through which Roan
stockholders received the right to payment of $1.52 per share of their Roan common
stock. Harcum, a former contract employee of Roan and a predecessor company,
alleges the Merger was a scheme devised to transfer control of the Company to a
few insiders for insufficient consideration. Plaintiff contends that persons and
entities affiliated with defendant John Lovoi controlled the Company, stood on both
sides of the transaction, and received unique benefits not shared with the remaining
stockholders of the Company. Plaintiff also alleges that a subset of the Company’s
board of directors (the “Board”) breached their fiduciary duties and made material
misrepresentations and omissions in the proxy statement that was disseminated to
stockholders to obtain their vote for the Merger. Plaintiff also alleges two of the
Company’s officers breached their fiduciary duties in connection with the proxy
statement disclosures. The defendants have moved to dismiss the complaint in its
entirety. This opinion grants that motion. I. BACKGROUND
The facts recited in this Memorandum Opinion are drawn from the Verified
Amended Class Action Complaint (the “Complaint”) and documents integral thereto
or otherwise subject to judicial notice.1
A. The Parties
Defendant JVL Advisors, LLC (“JVL”) is a Texas limited liability company
with its principal place of business located in Houston, Texas.2 Defendant John
Lovoi is JVL’s founder and managing partner. 3 Defendant Roan Holdings, LLC
(“Roan Holdings”) is a Delaware limited liability company with its principal place
of business in Houston, Texas. 4 At the time of the Merger, Roan Holdings owned
49.7% of Roan’s outstanding common stock. Lovoi is alleged to have controlled
Roan through his control over JVL, Roan Holdings, and his ownership of additional
shares of Roan common stock that, when combined, amounted to over 50% of
Roan’s voting power.
Roan was formed in September 2018. It is a holding company for oil and gas
assets and created through a joint venture between Linn Energy, Inc. (“LINN”) and
1 See DEL. R. EVID. 201. 2 Dkt. 34, Verified Amended Class Action Complaint (“Compl.”) ¶ 21. 3 Id. ¶ 16. 4 Id. ¶ 22.
2 Citizen Energy II, LLC (“Citizen II”). The Roan Board that approved the Merger
consisted of eight members: Defendants Lovoi, Paul B. Loyd, Michael P. Raleigh,
Anthony Tripodo (“the Director Defendants”), and Joseph A. Mills, and non-
Defendants Andrew Taylor, Matthew Bonanno, and Evan Lederman.5
Mills was Roan’s Executive Chairman and interim Principal Executive
Officer from April 15, 2019 through September 29, 2019. 6 Mills is only being sued
in his capacity as an officer and not as a director. Defendant Richard Gideon (with
Mills, the “Officer Defendants”) served as Roan’s CEO from September 29, 2019
until December 6, 2019 (the Director Defendants, the Officer Defendants, Roan
Holdings, and JVL, are hereinafter referred to as the “Defendants”).7
Plaintiff Cindy Harcum was a contract employee of Roan and held stock in
Roan throughout the time period when the Complaint alleges that wrongdoing
occurred. 8
B. Citizen II
In November 2014, James Woods, Robert Woodard, Gregory Augsburger,
and JVL formed Citizen II.9 Woods, Woodard, Augsburger (collectively, the
5 Id. ¶¶ 16–19, 23, 30–32. 6 Id. 7 Id. ¶ 24. 8 Id. ¶ 15. 9 Id. ¶¶ 25, 49.
3 “Citizen Principals”), and “their personal network of investors” contributed
approximately 76% of Citizen II’s capital, while JVL contributed the remaining
24%.10 Following recapitalizations in 2015 and 2016, JVL’s contributions made up
about 85% of Citizen II’s total capital.11 The Citizen II operating agreement
provided for four managers: three “Management Representatives” and one “Investor
Representative.” The Citizen Principals were appointed as the three Management
Representatives.12 JVL, which was entitled to appoint the one Investor
Representative, selected Kelly Loyd for that position. 13 Citizen II’s operating
agreement also provided the Citizen Principals with “incentive interests” if they
were able to return the initial capital contributions to all of Citizen II’s investors in
addition to a 9% annual preferred return. 14 The Complaint does not describe or
quantify these “incentive interests,” but repeatedly refers to them. 15 In these early
years Citizen II saw quick success, drilling over 60 horizontal wells, which produced
13,000 barrels of oil equivalent per day.16
10 Id. ¶ 49. 11 Id. ¶ 51, 54. 12 Id. ¶ 50. 13 Id. 14 Id. 15 See id. ¶¶ 50, 66, 74, 127. 16 Id. ¶ 52.
4 In mid-2017, Citizen II and LINN, a publicly traded oil and gas company
formed in a bankruptcy reorganization, entered into a joint venture (the “Joint
Venture”). As part of the Joint Venture, Citizen II and LINN would combine their
assets to develop 140,000 acres across three oil-rich formations in south and central
Oklahoma.17 Citizen II and LINN stated that they intended to take the Joint Venture
public by early 2018. 18
In light of these planned events, the Citizen Principals anticipated ceding
managerial control of Citizen II; however, they would only do so on two conditions:
(1) there would need to be a partial separation between investors affiliated with JVL
(“JVL Investors”) and those not affiliated with JVL (“Non-JVL Investors”), and (2)
the Citizen Principals would need to retain representation on the future public
company’s board of directors.19 At this time, Non-JVL Investors owned about
23.1% of Citizen II.20
C. Roan LLC Is Formed in Anticipation of the Joint Venture.
On May 30, 2017, the Citizen Principals, JVL, Paul Loyd, Kelly Loyd, and
Raleigh formed Roan Resources, LLC (“Roan LLC”), which was created to
17 Id. ¶ 56. 18 Id. 19 Id. ¶ 57. 20 Id.
5 eventually hold the Joint Venture’s assets.21 On June 27, 2017, LINN and Citizen
II announced that they had executed an agreement where each company would
contribute certain upstream assets in Oklahoma to Roan LLC in exchange for
respective 50% equity interests in Roan LLC. 22 Each 50% equity interest was valued
at approximately $1.3 billion.23 Woods and Woodard signed this agreement on
behalf of both Citizen II and Roan LLC.24 The announcement also stated that Roan
LLC would be focused on the development of the land that had already been targeted
by the Joint Venture. 25
On August 31, 2017, the Roan LLC operating agreement was amended to
provide for an eight-member board. Under the agreement, LINN and Citizen II
would each elect half of these members. 26 Citizen II initially appointed Woods,
Woodard, James Bush, and Paul Loyd. 27
21 Id. ¶ 59. 22 Id. ¶ 60. 23 Id. 24 Id. 25 Id. 26 Id. ¶ 61. 27 Id.
6 D. The Citizen Principals Negotiate a Separation Agreement with JVL
Days after the signing of Roan LLC’s Amended and Restated Limited
Liability Company Agreement, JVL proposed transferring all of Citizen II’s assets
to Crazyhorse Holdings, LLC and Roan Holdings, two entities which had recently
been created by JVL.28 Roan Holdings’ initial managers were Woods, Kelly Loyd,
Paul Loyd, and Raleigh.29 JVL asserted that it had the authority to effectuate the
transfer because it controlled the majority of Citizen II’s Class A units. Shortly
thereafter, JVL transferred all of Citizen II’s assets and units in Roan LLC to Roan
Holdings.30 JVL then informed the Citizen Principals of this development while
also notifying them that it would be replacing Woodard, Augsburger, and Bush with
Lovoi, Paul Loyd, and Raleigh as members of the Roan LLC board.31
On September 6, 2017, counsel for the Citizen Principals sent a letter to JVL
asserting that the recent transfer of Citizen II’s assets was a “sham that served no
economic or business purpose other than stripping [the Citizen Principals] of their
28 Id. ¶ 63. 29 Id. ¶ 64. 30 Id. ¶ 63. 31 Id. The Complaint is inconsistent. In Paragraph 61, it alleges that the Citizen II appointees to the Roan LLC board were Woods, Woodard, Bush, and Paul Loyd, but in Paragraph 63 alleges that Augsburger was being removed from the Roan LLC board, even though there is no allegation that he ever served on that board.
7 bargained-for governance rights.”32 The Citizen Principals also contended that JVL
“was engaging in self-dealing and other actions that were only in JVL’s interests and
not in the best interest of Citizen II . . . and that JVL’s actions were in bad faith” and
in breach of its fiduciary duties.33
On October 11, 2017, the Citizen Principals, JVL, and their affiliates entered
into an Omnibus Separation Agreement (the “Separation Agreement”).34 Under the
terms of the Separation Agreement, the Citizen Principals would convert their
incentive interests in Citizen II into “a material portion of Citizen II’s assets” that
would be transferred into a new entity, Citizen Energy III, LLC (“Citizen III”).35
Plaintiff alleges that at that time “funds managed by JVL continued to have an
interest” in Citizen III. 36 The Complaint contains no other allegations concerning
these funds or the nature of the alleged interest.
The parties to the Separation Agreement also agreed to enter into a series of
transactions, including a Second Amended & Restated LLC Agreement for Roan
32 Compl. ¶ 65. 33 Id. 34 Id. ¶ 66. The parties to the Separation Agreement were Citizen II, Woods, Woodard, Augsburger, JVL, SPQR Energy, LP, and Citizen Energy Holdings, LLC (“Citizen Holdings”), which was an affiliate of Warburg Pincus, LLC (“Warburg Pincus”). Id. 35 Compl. ¶ 66. 36 Id. (italics omitted).
8 Holdings, LLC that was executed on November 1, 2017. 37 Under that agreement,
JVL was granted three seats on the Roan Holdings board of managers while the Non-
JVL Investors were entitled to appoint one independent manager unless their
collective ownership of Roan Holdings’ Class A units fell below 10%. 38 As of May
2, 2019, Non-JVL Investors owned more than 25% of these Class A units. 39
E. Roan LLC Prepares to Go Public.
In March 2018, Roan Holdings and LINN discussed plans to take Roan LLC
public by the end of 2018.40 In general terms, the plan contemplated LINN and Roan
Holdings creating a public holding company for Roan LLC (the “Proposal”). LINN,
which was already publicly traded, would reorganize itself to form Roan as a new
publicly traded company with LINN’s stockholders and Roan Holdings each owning
half of Roan. 41 Roan, in turn, would own Roan LLC in its entirety. 42
Internal disputes continued on the Roan Holdings side of the Proposal. Woods
believed that the Non-JVL Investors in Roan Holdings should be allowed to own
their interests in Roan LLC directly, rather than indirectly through their interests in
37 Id. ¶ 68. 38 Id. 39 Id. 40 Id. ¶ 70. 41 Id. 42 Id.
9 Roan Holdings. 43 Woods also contended that the Roan Holdings Second Amended
& Restated LLC Agreement obligated “Roan Holdings and the Investor Managers”
to nominate Woods “as the designee of the Non-JVL Members” on Roan’s future
board of directors. 44
The dispute between Woods and JVL spilled over into a Roan Holdings board
meeting in August 2018. During that meeting, JVL proposed that Roan Holdings
appoint Lovoi, Paul Loyd, Raleigh, and Tripodo to the future Roan board of
directors. 45 Woods protested and argued that he should be appointed as one of
Roan’s directors.46 Woods, however, was ultimately outvoted by Paul Loyd, Kelly
Loyd, and Raleigh, who approved JVL’s proposal.47
F. Roan LLC Goes Public
On September 18, 2018, Roan LLC was introduced to the public markets
through a master reorganization agreement executed by LINN, Roan Holdings, and
Roan LLC. 48 Under this agreement, LINN and Roan Holdings’ respective 50%
equity interests in Roan LLC were reorganized into the new company Roan, which
43 Id. ¶ 71. 44 Id. 45 Id. ¶ 75. 46 Id. 47 Id. 48 Id. ¶ 77.
10 acquired all of Roan LLC’s consolidated interests. 49 Roan’s Class A common stock
was initially traded in the OTCQB market, and two months later began trading on
the New York Stock Exchange.50 Roan’s Board originally consisted of eight
directors, including four who were selected by JVL: Lovoi, Paul Loyd, Raleigh, and
Tripodo.51 JVL disbanded Roan LLC’s board of managers after Roan went public.52
G. Potential Acquirors Express Interest in Taking Roan Private
As early as April 1, 2019, potential buyers began expressing interest in
purchasing Roan. 53 On April 15, a representative of Warburg Pincus, Citizen
Holdings (to which Warburg Pincus had committed $300 million), and its wholly
owned subsidiary Citizen Buyer (the “Acquirors”), approached Lovoi to request a
meeting.54 By this time, two other potential buyers had already expressed interest
in an acquisition.55 Also on April 15, Tony Maranto, Roan’s Chairman of the Board,
49 Id. 50 Id. ¶¶ 77, 84. 51 Id. ¶ 81. 52 Id. ¶ 82. 53 Dkt. 44, Ex. 5 (“Proxy”) at 35. 54 Compl. ¶¶ 88, 67. Citizen Buyer was thus also an affiliate of Warburg Pincus. See id. ¶ 35. Plaintiff does not allege that Woods, Woodard, or Augsburger had an equity interest in Citizen Buyer, but alleges they were either “leaders” or “principals.” E.g., id. ¶¶ 128 (“principals”), 131 (“leaders”). 55 See Proxy at 35.
11 President, and CEO, resigned. 56 Roan’s press release announcing the resignation
said it was not “the result of any dispute or disagreement with the Company or any
matter related to the Company’s operations, policies or practices.” 57 Following
Maranto’s resignation, Mills became Roan’s Executive Chairman and interim
Principal Executive Officer.58
On April 17, 2019, a representative from Warburg Pincus had a conversation
with Lovoi. During the conversation, the representative explained that Warburg
Pincus and Citizen Buyer had a shared interest in pursuing an acquisition of Roan.59
The next day, Citizen Buyer delivered an initial indication of interest to acquire Roan
for $6.75 per share. 60
Around this time, the Board began exploring a possible transaction for Roan.
On April 23, 2019, the Company’s management team interviewed several “leading
investment banking firms” to assist Roan in reviewing the indications of interest that
it had been receiving.61 The Company eventually selected Citigroup Global Markets
Inc. (“Citi”) and Jeffries LLC (“Jeffries”) to be its financial advisors regarding a
56 Compl. ¶ 89. 57 Id. 58 Id. ¶¶ 89, 23. 59 Id. ¶ 90. 60 Id. 61 Proxy at 36.
12 potential transaction.62 Between May and July, representatives of the Company or
its financial advisors contacted 44 potential counterparties and entered into 20
confidentiality agreements at the Board’s direction.63
On May 2, 2019, the Citizen Principals filed an arbitration action against JVL,
Paul Loyd, Kelly Loyd, Raleigh, and Roan Holdings (the “Arbitration Action”).64
The Arbitration Action alleged that JVL, Paul Loyd, Raleigh, and Kelly Loyd
“breached fiduciary duties they owed to Woods, Woodard, Augsburger and their
associates” through “misusing [Woods, Woodard, and Augsburger’s] assets to seize
an effectively controlling interest of” Roan. 65 The Arbitration Action also sought an
order to compel Woods’s appointment to Roan’s Board. 66 In its request for relief,
the Arbitration Action sought dissolution of Roan Holdings or, alternatively, a
distribution of its Roan stock to its members. 67
Citizen Buyer’s acquisition approach came as Roan’s stock price had been
steadily falling amid flagging oil prices. On October 1, 2018, Roan closed at $18.49
62 Id. at 3, 36. 63 Id. at 38. 64 Dkt. 42, Ex. 2 (“Arbitration Action”) at 1–2; see Compl. ¶ 91. The Complaint has incorporated the Arbitration Action by reference. 65 Compl. ¶ 91 (italics and internal quotations omitted) (bracketing in original). 66 Id. 67 Arbitration Action at 16.
13 per share while oil was trading at $75.37 per barrel.68 By January 2, 2019, Roan had
lost over half its value, closing at $8.45 per share whereas oil was now trading at
only $46.31 per barrel.69 While oil prices somewhat recovered following the new
year, trading as high as $66.24 on April 23, 2019, Roan’s stock price did not follow
suit.70 On May 1, 2019, Roan closed at $5.42 per share. 71
On May 3, 2019, Citizen Buyer sent a letter to the Board reiterating its
proposal to acquire Roan at $6.75 per share. 72 In its letter, Citizen Buyer also noted
that it “would be open to allowing certain qualified [Roan] stockholders . . . to roll
over a portion of their equity interests” so long as Citizen Buyer’s equity holders
68 Compare Roan Resources Inc. Stock Price, STOCKINVEST.US, available at https://stockinvest.us/stock-price/ROAN?page=7 (last visited Dec. 27, 2021), with Crude Oil Prices, FRED ECONOMIC DATA, available at https://fred.stlouisfed.org/graph/?g=KhUv (last visited Dec. 27, 2021). The court may take judicial notice of these stock and oil prices because they are not subject to reasonable dispute. DEL. R. EVID. 201(b)(2); Lee v. Pincus, 2014 WL 6066108, at *4 n.11 (Del. Ch. Nov. 14, 2014). 69 Compare Roan Resources Inc. Stock Price, STOCKINVEST.US, available at https://stockinvest.us/stock-price/ROAN?page=6 (last visited Dec. 27, 2021), with Crude Oil Prices, FRED ECONOMIC DATA, available at https://fred.stlouisfed.org/graph/?g=KhUv (last visited Dec. 27, 2021). 70 Crude Oil Prices, FRED ECONOMIC DATA, available at https://fred.stlouisfed.org/graph/?g=KhUv (last visited Dec. 27, 2021). 71 Roan Resources Inc. Stock Price, STOCKINVEST.US, available at https://stockinvest.us/stock-price/ROAN?page=4 (last visited Dec. 27, 2021). 72 Compl. ¶ 93.
14 could maintain at least two-thirds ownership of the new company. 73 On May 20,
2019, Roan announced that it had engaged financial advisors to assist it in evaluating
strategic alternatives. 74
Also on May 3, Roan Holdings, JVL, Kelly Loyd, Paul Loyd, and Raleigh
responded to the Arbitration Action by filing a complaint seeking a declaratory
judgment in this court (the “Declaratory Judgment Action”).75 Specifically, the
plaintiffs in the Declaratory Judgment Action requested that the court permanently
enjoin the Arbitration Action,76 and on June 11, 2019, the plaintiffs moved for
expedited proceedings. 77
Roan’s stock price continued to decline through May and June. On May 31,
2019, Roan closed at $2.09 per share. 78 On June 13, Roan reached a new low for
73 Id. There is no allegation that any Roan stockholders rolled their equity interest into the new company. 74 Id. ¶ 95. 75 See Roan Hldgs., LLC v. Woods, C.A. No. 2019-0374-AGB, Dkt. 1; see also Compl. ¶ 94. The Complaint has incorporated the Declaratory Judgment Action by reference. 76 Woods, C.A. No. 2019-0374-AGB, Dkt. 3 at 26 ¶ B; see also Compl. ¶ 94. 77 See Woods, C.A. No. 2019-0374-AGB, Dkt. 10; see also Compl. ¶ 94. At an August 15, 2019 motions hearing, the court requested supplemental briefing. See Woods, C.A. No. 2019-0374-AGB, Dkt. 41; see also Compl. ¶ 100. On September 16, 2019, the parties to the Declaratory Judgment Action agreed to a stay until the Arbitration Action was resolved; neither party had submitted supplemental briefing since the August 15, 2019 hearing. See Woods, C.A. No. 2019-0374-AGB, Dkt. 43; see also Compl. ¶ 103. 78 Roan Resources Inc. Stock Price, STOCKINVEST.US, available at https://stockinvest.us/stock-price/ROAN?page=4 (last visited Dec. 27, 2021).
15 the year, closing at $1.16.79 On June 19, 2019, Roan and Citizen Buyer entered into
a mutual confidentiality agreement; Roan’s price remained virtually unchanged as
the Company closed at $1.19 that day.80
Also on June 19, 2019, Roan entered into a $100 million term loan facility
with lenders Elliott Management Corporation (“Elliott”), York Capital Management
Global Advisors, LLC (“York”), and “funds affiliated with JVL” (the “Term
Loan”). 81 Both Elliott and York owned Roan common stock when the Company
agreed to the Term Loan. 82 Under the Term Loan, Roan’s repayment obligations
would be accelerated upon a change of control transaction. 83 Specifically, if a
change of control were to occur, Roan would be required to pay the Term Loan’s
lenders: (1) all accrued and unpaid interest; (2) a 1% repayment premium; and (3)
if the Term Loan had been drawn for less than one year, the amount of interest that
would have accrued if the amount borrowed had been outstanding for one year.84
Before agreeing to the Term Loan, Roan had a “special committee of disinterested
79 Id. 80 Id. 81 Compl. ¶ 133. 82 Id. ¶ 135. At the Merger’s signing, Elliott and York owned 10.6% and 6% of Roan common stock respectively. Proxy at 115. 83 Compl. ¶ 136. 84 Id.
16 Board members” review and approve its terms.85 Plaintiff does not challenge the
Term Loan or allege that its terms were unfair to the Company. 86 On June 26, Roan
drew down $50 million from the Term Loan to repay outstanding debt under a
revolving credit facility.87
H. Roan Considers Initial Proposals from Strategic Buyers.
On July 24, 2019, three potential strategic buyers submitted initial proposals
to Roan: Company B, Company G, and Citizen Buyer. 88 Company B proposed an
all-stock, merger of equals with Roan, where Roan’s stockholders would receive
shares of Company B’s common stock.89 Company B also proposed that it would
evenly split the new company’s equity with Roan’s stockholders. 90 On August 1,
2019, the Board countered with terms that gave Roan’s stockholders a 75% equity
stake in the new company. 91 Company B responded by offering Roan’s stockholders
60% of the new company, with a caveat that the new company would also have to
85 Proxy at 76. 86 This was confirmed by Plaintiff’s counsel at oral argument. Dkt. 58 (“Hrg.”), 55:15–16 (“We’re not challenging the terms of the loan.”). 87 Compl. ¶ 134. 88 Id. ¶ 98. 89 Id. ¶ 98(a). 90 Id. 91 Id.
17 raise $300 million to repay the two parties’ combined debt. 92 The Board determined
that the proposed equity raise was “unacceptable,” and Company B consequently
withdrew from consideration on August 15, 2019.93
Company G’s proposal consisted of a stock-for-stock merger where the
combined company would continue to be publicly traded and under the supervision
of Company G’s management. 94 This proposal did not contain details regarding an
equity split among the stockholders of the two companies, but similar to Company
B’s proposal, required a $400 million equity raise by the combined company. 95 On
September 12, 2019, Company G withdrew from consideration. 96
Citizen Buyer’s initial proposal was a cash offer to acquire Roan for $2.50 per
share, significantly below its initial indication of interest in April of $6.75. 97 On
August 16, 2019, Citizen Buyer lowered its offer to $1.75 per share and
communicated shortly thereafter its desire to quickly finalize a transaction.98 Both
offers constituted significant premia compared to where Roan was trading. On July
92 Id. 93 Id. 94 Id. ¶ 98(b). 95 Id. 96 Id. 97 Id. ¶ 98(c). 98 Id. ¶ 99.
18 24, when Citizen Buyer made its initial proposal, Roan closed at $1.20 per share; on
August 16, Roan’s price had fallen to $1.09 per share.99
On August 22, 2019, Roan submitted a counteroffer of $2.50 per share to
Citizen Buyer’s second proposal. 100 The next day, Citizen Buyer responded, saying
that it would only pay as much as $1.85 per share and stressed that time was of the
essence. 101 On August 26, 2019, the Board agreed to proceed at $1.85 per share.102
On September 26, Citizen Buyer reduced its offer to $1.50 per share. 103 Eventually,
the Board and Citizen Buyer settled on a price of $1.52 per share. 104
I. The Merger Agreement Is Signed
On October 1, 2019, the Roan Board held a meeting where Citi and Jeffries
separately presented their financial analyses and stated that the merger consideration
that Roan’s stockholders would be receiving was “fair, from a financial point of
view, to such holders.” 105 During the same meeting, and following the presentations
by Citi and Jeffries, the Board unanimously voted to approve the Agreement and
99 Roan Resources Inc. Stock Price, STOCKINVEST.US, available at https://stockinvest.us/stock-price/ROAN?page=3 (last visited Dec. 27, 2021). 100 Compl. ¶ 101. 101 Id. 102 Id. 103 Id. 104 Id. 105 Proxy at 49–50.
19 Plan of Merger (the “Merger Agreement”). 106 Later that morning, before the U.S.
markets had opened, Roan and Citizen Buyer issued a joint press release announcing
the Merger. 107 The previous day, Roan’s stock closed at $1.23 per share.108
Stockholders who held approximately 77% of Roan’s common stock entered into
agreements with Citizen Buyer in which they agreed to vote in favor of the
Merger. 109 Among those stockholders were Lovoi, Elliott, and York.110 Also on
October 1, the Board approved Gideon’s hiring as CEO, which was to be effective
as of September 29.111 In the press release announcing the Merger, the Company
disclosed Gideon’s hiring, noting that he had been a former LINN executive. 112 The
press release also stated that Mills had ceased to be an officer of the Company, but
106 Id. at 50. 107 Id. 108 Roan Resources Inc. Stock Price, STOCKINVEST.US, available at https://stockinvest.us/stock-price/ROAN?page=2 (last visited Dec. 27, 2021). 109 Compl. ¶ 109. 110 Id. 111 Id. ¶ 107. On August 27, 2019, the Board decided to hire Gideon as CEO, contingent on the Merger’s completion. Id. ¶ 102. 112 See Roan Resources, Inc., Current Report (Form 8-K) (October 1, 2019) at 5, available at https://www.sec.gov/Archives/edgar/data/0001326428/000119312519259889/d808728d8 k.htm. The court may consider this press release, which is referenced in the Complaint. See Compl. ¶ 107.
20 would remain as a director.113 On October 9, 2019, the parties to the Declaratory
Judgment Action agreed to dismiss the action with prejudice.114
On November 4, 2019 the Company filed a proxy statement with the United
States Securities and Exchange Commission soliciting stockholder approval of the
Merger (the “Proxy”). On November 27, 2019, the Company filed a supplement to
the Proxy in response to multiple federal securities class action lawsuits challenging
the Merger (the “Supplement”). 115 The Company’s stockholders overwhelmingly
approved the Merger on December 4, 2019. 116 The Merger closed two days later.117
J. Procedural History
On May 22, 2020, Plaintiff filed her initial complaint.118 In the initial
complaint, Plaintiff alleged that all of Roan’s eight directors that approved the
Merger Agreement—as opposed to the four Director Defendants named in the
amended complaint—had breached their fiduciary duties to the Company’s
113 Id. 114 See Woods, C.A. No. 2019-0374-AGB, Dkt. 45; Compl. ¶ 108. 115 See Dkt. 44, Ex. 7 (“Supplement”) at 2. 116 Compl. ¶ 110; Dkt. 44, Ex. 8. There were 136,875,069 votes cast in favor of the Merger, while 540,446 shares voted against the Merger. Dkt. 44, Ex. 8. There were 21,567 shares that abstained. Id. According to the Proxy, there were 154,333,746 shares issued and outstanding and entitled to vote on the Merger. Proxy at 2. Thus, over 88% of all eligible shares were voted in favor of the Merger. 117 Compl. ¶ 110. 118 See Dkt. 1.
21 stockholders or aided and abetted others in so doing.119 The initial complaint also
alleged that Elliott and York were two of Roan’s controlling stockholders that were
liable for breaches of fiduciary duty.120 Plaintiff’s initial complaint also asserted that
Warburg Pincus, Citizen Buyer, and Citizen Energy Pressburg, Inc. (Citizen Buyer’s
acquisition vehicle) aided and abetted all eight directors in their breaches of fiduciary
duty. 121
On September 28, 2020, Plaintiff filed an amended complaint containing three
causes of action, which this opinion refers to as Counts I through III. 122 Count I
alleges that the four Director Defendants breached their fiduciary duties by engaging
in a sale process that ultimately undervalued the Company in exchange for benefits
that were unique to them. 123 Additionally, Plaintiff alleges that the Director
Defendants failed to provide the Company’s stockholders with “all material
information necessary to cast an informed vote on the Merger” via a deficient
Proxy.124 In Count II, Plaintiff alleges that Lovoi, JVL, Paul Loyd, Raleigh, and
Roan Holdings violated their fiduciary duties to the Company in their capacity as
119 Id. ¶¶ 8–15, 84–88. 120 Id. ¶¶ 21, 89–90. 121 Id. ¶¶ 22–25, 110–13. 122 See Dkt. 34. 123 See Compl. ¶¶ 158–62. 124 Id. ¶ 161.
22 controlling stockholders based on a nearly identical theory to that alleged in Count
I. 125 Count III alleges that Gideon and Mills breached their fiduciary duties in their
capacities as officers of the Company.126 Specifically, Plaintiff alleges that Mills
and Gideon failed to ensure that the Proxy disclosed all material information to
Roan’s stockholders, and thus, the stockholders could not make a fully-informed
vote on the proposed Merger. 127
See id. ¶¶ 163–67. Plaintiff asserts the same theory in two of her substantive counts. 125
Compare Compl. ¶ 161: In addition, by agreeing to the Merger, the Director Defendants capped the price of ROAN’s stock at a price that did not adequately reflect ROAN’s true value. Moreover, the Director Defendants failed to sufficiently inform themselves of ROAN’s value, or disregarded the true value of the company, in an effort to benefit themselves, with Compl. ¶ 166: In addition, by agreeing to the Merger, Lovoi/JVL, Paul Loyd, Raleigh, and Roan Holdings capped the price of ROAN stock at a price that did not adequately reflect its true value. Moreover, Lovoi/JVL, Paul Loyd, Raleigh, and Roan Holdings failed to sufficiently inform themselves of ROAN’s value, or disregarded the true value of ROAN, in an effort to benefit themselves. Plaintiff seems to have merely recycled the claim from an entirely different complaint. See In re Saba Software, Inc. S’holder Litig., 2017 WL 1201108, at *18 (Del. Ch. Mar. 31, 2017), as revised (Apr. 11, 2017) (quoting the complaint): In addition, by agreeing to the Merger, the Individual Defendants capped the price of Saba stock at a price that does not adequately reflect the Company's true value. Moreover, the Individual Defendants disregarded the true value of the Company, in an effort to benefit themselves. 126 See Compl. ¶¶ 168–73. 127 Id. ¶ 173.
23 On October 12, 2020, Defendants filed a motion to dismiss the Complaint.128
Following briefing,129 the court heard argument on Defendants’ motion on
September 21, 2021.
II. ANALYSIS
On a motion to dismiss for failure to state a claim under Court of Chancery
Rule 12(b)(6):
(i) all well-pleaded factual allegations are accepted as true; (ii) even vague allegations are well-pleaded if they give the opposing party notice of the claim; (iii) the Court must draw all reasonable inferences in favor of the non-moving party; and ([iv]) dismissal is inappropriate unless the plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances susceptible of proof.
Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (internal citations and
quotation marks omitted). Although the pleading standards are minimal, Central
Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 536 (Del.
2011), “a trial court is required to accept only those ‘reasonable inferences that
logically flow from the face of the complaint’ and ‘is not required to accept every
strained interpretation of the allegations proposed by the plaintiff,’” In re Gen.
128 See Dkt. 36. Gideon was not included in this motion, but subsequently moved to dismiss the Complaint on October 27, 2020. See Dkt. 40. 129 See Dkt. 41, Defendants’ Opening Brief in Support of Motion to Dismiss Verified Amended Class Action Complaint (“Defs.’ Op. Br.”); Dkt. 48, Brief in Opposition to Defendants’ Motion to Dismiss the Verified Amended Class Action Complaint (“Pl.’s Ans. Br.”); Dkt. 49, Defendants’ Reply Brief in Support of Motion to Dismiss Verified Amended Class Action Complaint (“Defs.’ Reply Br.”).
24 Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006) (quoting Malpiede
v. Townson, 780 A.2d 1075, 1083 (Del. 2001)). The court need not “simply accept
conclusory allegations unsupported by specific facts, nor . . . draw unreasonable
inferences in the plaintiff’s favor.” Clinton v. Enter. Rent-A-Car Co., 977 A.2d 892,
895 (Del. 2009). “Moreover, a claim may be dismissed if allegations in the
complaint or in the exhibits incorporated into the complaint effectively negate the
claim as a matter of law.” Malpiede, 780 A.2d at 1083.
The Complaint asserts claims against three groups of defendants: the Director
Defendants (Lovoi, Paul Loyd, Raleigh, and Tripodo); the “Alleged Controllers”
(Lovoi, JVL, Roan Holdings, Paul Loyd, and Raleigh); and the Officer Defendants
(Mills and Gideon). I first address Plaintiff’s claims against the alleged controlling
stockholders. Next, I consider Defendants’ argument that the Merger was approved
by a fully informed and uncoerced majority of Roan’s stockholders and, thus, was
cleansed under Corwin v. KKR Financial Holdings LLC, 125 A.3d 304, 312 (Del.
2015). I then address the fiduciary duty claims against the Director Defendants and
the Officer Defendants.
A. The Standards of Review and Exculpation
“Delaware’s default standard of review is the business judgment rule.”
Frederick Hsu Living Tr. v. ODN Holding Corp., 2017 WL 1437308, at *25 (Del.
Ch. Apr. 14, 2017). Under this deferential standard, the court examines whether a
25 business decision “was rational in the sense of being one logical approach to
advancing the corporation’s objectives.” Id. (internal citations omitted).
Delaware’s most stringent standard—entire fairness review—will override
the business judgment rule “when the board labors under actual conflicts of interest.”
In re Trados Inc. S’holder Litig. (“Trados II”), 73 A.3d 17, 44 (Del. Ch. 2013). It
also applies if the plaintiff demonstrates that a transaction involves a conflicted
controller. Tornetta v. Musk, 250 A.3d 793, 798, 800 (Del. Ch. 2019). If entire
fairness applies, the defendants must establish that the transaction was the product
of fair dealing and fair price. Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156,
1163 (Del. 1995).
Between business judgment and entire fairness lies an intermediate standard
of enhanced scrutiny. Under that standard, the fiduciaries must establish the
reasonableness of their actions. See Firefighters’ Pension Sys. of City of Kansas
City, Missouri Tr. v. Presidio, Inc., 251 A.3d 212, 249 (Del. Ch. 2021) (“Framed
generally, enhanced scrutiny requires that the fiduciary defendants ‘bear the burden
of persuasion to show that their motivations were proper and not selfish’ and that
‘their actions were reasonable in relation to their legitimate objective.’” (quoting
Mercier v. Inter-Tel (Del.), Inc., 929 A2d 786, 810 (Del. Ch. 2007)). Enhanced
scrutiny applies in the sale of a corporation for cash. See Revlon, Inc. v. MacAndrews
& Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986); In re Mindbody, Inc., 2020 WL
26 5870084, at *13 (Del. Ch. Oct. 2, 2020) (observing that a “cash-for-stock Merger
[is] a final-stage transaction presumptively subject to enhanced scrutiny under
Revlon”). In this context, the directors must establish both the reasonableness of
their decision-making process and the reasonableness of their action in light of the
existing circumstances. Paramount Commc’ns, Inc. v. QVC Network, Inc., 67 A.2d
34, 45 (Del. 1994); Presidio, 251 A.3d at 249.
As Vice Chancellor Laster recently discussed in Presidio, even when a higher
standard of review is employed to evaluate a fiduciary’s conduct, the failure to meet
that standard “does not lead ineluctably to liability for the fiduciaries who made the
decision.” Presidio, 251 A.3d at 250. Thus, even where entire fairness or enhanced
scrutiny applies, “a plaintiff can recover monetary damages for a breach of the duty
of loyalty only by proving that the fiduciary harbored self-interest adverse to the
stockholders’ interests, acted to advance the self-interest of an interested party . . . ,
or otherwise acted in bad faith.” Id. at 253 (quotations and bracketing omitted). To
recover damages for a breach of the duty of care, the plaintiff must establish that the
fiduciary was grossly negligent. Id. And, as here, where the corporation’s certificate
of incorporation contains an exculpatory provision adopted pursuant to 8 Del. C.
27 § 102(b)(7),130 no monetary liability can be had against the directors for any breach
of the duty of care. Corwin, 125 A.3d at 312. Thus, to survive a motion to dismiss,
Plaintiff’s claims against the Director Defendants must allege that these defendants
either breached their respective duties of loyalty or acted in bad faith. See In re
Essendant, Inc. S’holder Litig., 2019 WL 7290944, at *7 (Del. Ch. Dec. 30, 2019)
(citing In re Cornerstone Therapeutics Inc, S’holder Litig., 115 A.3d 1173, 1175,
1179–80 (Del. 2015)).
B. Does the Complaint State a Claim for Breach of Fiduciary Duty by a Conflicted Controlling Stockholder?
Count II alleges that Lovoi, JVL, Roan Holdings, Paul Loyd, and Raleigh i.e.,
the Alleged Controllers, breached their fiduciary duties as controlling stockholders
of Roan and their conduct is subject to entire fairness review. The Defendants have
moved to dismiss for failure to state a claim. Their primary defense relies upon
Corwin cleansing. Plaintiff argues that Corwin is inapplicable, and even if it were
applicable, Defendants cannot satisfy it.
Under Corwin, “when a transaction not subject to the entire fairness standard
is approved by a fully informed, uncoerced vote of the disinterested stockholders,
130 Dkt. 42, Ex. 1 art. IX. The court can take judicial notice of the Company’s certificate of incorporation in deciding a motion to dismiss. McPadden v. Sidhu, 964 A.2d 1262, 1273 n.28 (Del. Ch. 2008).
28 the business judgment rule applies.” Corwin, 125 A.3d at 309. Corwin cleansing is
available only if the transaction is not subject to the entire fairness standard ab initio.
Larkin v. Shah, 2016 WL 4485447, at *13 (Del. Ch. Aug. 15, 2016). “A transaction
involving a non-conflicted controlling stockholder is subject to Corwin cleansing.”
Presidio, 251 A.3d at 254–55. Therefore, as to Count II, the threshold issue is
whether Corwin cleansing is available. That issue turns on whether the Merger
involved a conflicted controlling stockholder. Thus, I will determine the
applicability of entire fairness ab initio, which, if applicable, would preclude Corwin
cleansing. In the below analysis, I will consider whether the Complaint alleges facts
from which it is reasonably conceivable that (1) at least one of the Alleged
Controllers was a controlling stockholder, and (2) if so, were they conflicted as to
the Merger. See In re Crimson Expl. Inc. S’holder Litig., 2014 WL 5449419, at *14
(Del. Ch. Oct. 24, 2014).
1. The Controller Theories
“Under Delaware law, a controller owing fiduciary duties arises in two
circumstances: (1) the alleged controller owns more than 50% of the voting power
of a corporation or (2) owns less than 50% of the voting power of the corporation
but exercises control over the business affairs of the corporation.” In re Vaxart, Inc.
S’holder Litig., 2021 WL 5858696, at *15 (Del. Ch. Nov. 30, 2021) (quoting In re
GGP, Inc. S’holder Litig., 2021 WL 2102326, at *12 (Del. Ch. May 25, 2021))
29 (internal quotations omitted). In the latter circumstance, the plaintiff must plead
facts to support a reasonable inference that the defendant either controlled (1) “the
corporation’s business affairs in general” or (2) “the corporation specifically for
purposes of the challenged transaction.” Voigt v. Metcalf, 2020 WL 614999, at *11
(Del. Ch. Feb. 10, 2020).
Plaintiff asserts that she has alleged sufficient facts to find all five Alleged
Controllers were controlling stockholders under both prongs of the test. First,
Plaintiff contends that Lovoi owns a majority of Roan’s voting power i.e., de jure
control. 131 Second, Plaintiff argues that the “Alleged Controllers collectively
exercised de facto control over the Company, even if their combined ownership of
Roan did not exceed 50%.132
Plaintiff argues that Lovoi owned a majority of Roan after aggregating his
various holdings. Plaintiff points to the Proxy as the basis for this allegation. The
relevant portion of the Proxy states:
JVL indirectly and beneficially owns approximately a 74.14% interest in Roan Holdings and has a contractual right to appoint a majority of the members of the board of managers of Roan Holdings. Mr. Lovoi may be deemed to share dispositive power over the securities held directly and indirectly by JVL, Roan Holdings and other entities
131 Pl.’s Ans. Br. 16. 132 Id.
30 managed by JVL and may therefore be deemed to be the beneficial owner of these shares of Company Common Stock. 133
Based on the Proxy, Plaintiff asserts that because JVL was entitled to appoint a
majority of the members of the Roan Holdings board of managers, Lovoi effectively
controlled Roan Holdings through his control of JVL. According to Plaintiff, Roan
Holdings owned 49.7% of Roan’s common stock, which Lovoi ultimately
controlled.134 When combined with additional Roan stock held by other entities
under Lovoi’s control, Lovoi controlled 50.8% of Roan’s voting power.135
Defendants do not dispute this contention. Defendants concede, for purposes
of this motion, that Lovoi was Roan’s controlling stockholder.136 Therefore, at this
stage of the proceedings, it is reasonably conceivable that Lovoi was a controller of
Roan.
Plaintiff also alleges that JVL, Roan Holdings, Paul Loyd, and Raleigh “were
each beneficial owners of the same 49.7% block of [Roan] stock” that was owned
by Roan Holdings. 137 Again, Plaintiff points to the Proxy in support of her
allegation:
133 Proxy at 71; see Compl. ¶ 121. 134 Compl. ¶ 120. 135 Id. ¶ 122. 136 See Defs.’ Op. Br. 24–25; Defs.’ Reply Br. 7; Hrg. 8:22–9:8. 137 Pl.’s Ans. Br. 16; see Compl. ¶ 120.
31 In addition to being directors of the Company, Messrs. Loyd and Raleigh are members of the board of managers of Roan Holdings, appointed to such position by JVL pursuant to JVL’s contractual right to appoint a majority of the members of the board of managers of Roan Holdings. Messrs. Loyd and Raleigh may be deemed to share dispositive power over the securities held by Roan Holdings and may therefore be deemed to be beneficial owners of these shares of Company Common Stock.138
Under both of Plaintiff’s controlling stockholder theories—which are not pled
alternatively—five persons (both natural and corporate) are each individual
controlling stockholders.139 Plaintiff cites no authority and no facts to support her
contention that Paul Loyd or Raleigh was a controlling stockholder of Roan or that
they were, collectively with Lovoi, controlling stockholders. At oral argument,
Plaintiff’s counsel conceded that the only basis for alleging that Raleigh and Paul
Loyd were controlling stockholders is their having been designated as directors by
138 Proxy at 71; see Compl. ¶ 121. 139 At oral argument, Plaintiff’s counsel alluded to pleading a control group. Hrg. 58:4– 12. But neither the Complaint nor Plaintiff’s briefing on this motion addresses such a theory. To have adequately pleaded a control group, Plaintiff would have had to demonstrate that the Alleged Controllers were “connected in some legally significant way—such as by contract, common ownership, agreement, or other arrangement—to work together toward a shared goal.” Sheldon v. Pinto Tech. Ventures, L.P., 220 A.3d 245, 251– 52 (Del. 2019) (internal quotations omitted). Plaintiff must have alleged “more than a mere concurrence of self-interest among” the Alleged Controllers; “there must [have been] some indication of an actual agreement.” Id. at 252 (internal quotations omitted). Plaintiff has not alleged that the Alleged Controllers had an agreement to exert their collective power toward a share goal. Just as a plaintiff may not amend her complaint through her brief, California Pub. Emps.’ Ret. Sys. v. Coulter, 2002 WL 31888343, at *12 (Del. Ch. Dec. 18, 2002), she may not do so at oral argument.
32 Lovoi.140 The Complaint does not allege that Raleigh and Paul Loyd are part of a
“control group.” Nor does the Complaint allege facts that would support their being
considered part of a control group. Plaintiff offers no legal support for the assertion
that a director becomes a controlling stockholder merely because he or she is
designated by a controlling stockholder. I reject this unsupported theory. See Frank
v. Elgamal, 2014 WL 957550, at *22 (Del. Ch. Mar. 10, 2014) (“Merely because a
director is nominated and elected by a large or controlling stockholder does not mean
that he is necessarily beholden to his initial sponsor.”).
As for JVL and Roan Holdings, the Complaint alleges they each own 49.7%
of Roan’s voting power. For purposes of this decision, I need not decide whether
Plaintiff has alleged facts to support a reasonable inference that JVL and Roan
Holdings are also controlling stockholders of Roan. Even assuming that they are,
and owed fiduciary duties to Plaintiff, the Complaint does not state a claim against
them for breach of fiduciary duty. 141
140 Hrg. 58:4–11 (“So the controllers we’re focusing is Mr. Lovoi, JVL, and the two designee directors, Mr. Raleigh and Mr. Loyd, and I think that’s who we referred to as the control group, and I think JVL and Lovoi are the easier . . . it’s easier to check the box with them too, and Raleigh and Loyd I think is just by designation that we’re including them.”). 141 Plaintiff’s authority for her de facto control theory is inapposite. While the minority stockholders in Plaintiff’s cited cases were found to be controllers, they were all also found to have dominated their respective corporations or boards of directors. In this case, Plaintiff does not explain how the Alleged Controllers under her de facto theory dominated the Board. See FrontFour Cap. Grp. LLC v. Taube, 2019 WL 1313408, at *22 (Del. Ch. Mar. 11, 2019) (“[plaintiff] has proven that at least half of the Special Committee members
33 2. The Alleged Conflicts
The presence of a controller during a transaction will not trigger entire fairness
review on its own; the controller must be conflicted as well. Crimson, 2014 WL
5449419, at *12. “A controller engages in a conflicted transaction when (1) the
controller stands on both sides; or (2) the controller competes with the common
stockholders for consideration.” In re Viacom Inc. S’holders Litig., 2020 WL
7711128, at *11 (Del. Ch. Dec. 29, 2020) (internal quotations omitted). The court
has identified three examples within this latter category: “(1) where the controller
receives greater monetary consideration for its shares than the minority stockholders;
(2) where the controller takes a different form of consideration than the minority
stockholders; and (3) where the controller gets a unique benefit by extracting
were not independent from the [controllers]”); In re Zhongpin Inc. S’holders Litig., 2014 WL 6735457, at *9 (Del. Ch. Nov. 26, 2014) (finding that the controller “possessed active control over [the company’s] day-to-day operations” and that the company “relied so heavily on him to manage its business and operations that his departure from [the company] would have had a material adverse impact on the [c]ompany”), 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, Inc., 2006 WL 1586375, at *5 (Del. Ch. June 5, 2006) (reasonable to infer controllers where the corporation “depended on their cooperation” because they were its “only significant customers” and held veto power over the board’s decision making); Calesa Assocs., L.P. v. Am. Cap., Ltd., 2016 WL 770251, at *10 (Del. Ch. Feb. 29, 2016) (“Plaintiffs have pled sufficient facts to demonstrate that a majority of the Board was under the actual control and influence of ACAS”). Here, Plaintiff has not shown how Paul Loyd or Raleigh could have individually dominated Roan or its Board. Rather, under her de jure theory of control, Lovoi was able to exert control over the other Alleged Controllers. Therefore, Plaintiff’s de facto control theory is not reasonably conceivable.
34 something uniquely valuable to the controller, even if the controller nominally
receives the same consideration as all other stockholders.” IRA Tr. FBO Bobbie
Ahmed v. Crane, 2017 WL 7053964, at *6 (Del. Ch. Dec. 11, 2017) (internal
quotations and citations omitted). A complaint pleading the latter category must also
allege an improper diversion of consideration that would otherwise have gone to the
stockholders. In re Martha Stewart Living Omnimedia, Inc. S’holder Litig., 2017
WL 3568089, at *13 & n.50 (Del. Ch. Aug. 18, 2017).
Here, Plaintiff contends that the Alleged Controllers were conflicted because
they stood on both sides of the Merger and stood to gain unique benefits to the
exclusion of the other stockholders. I have already determined that Paul Loyd and
Raleigh are not controlling stockholders. Therefore, I address Plaintiff’s controlling
stockholder theory as to Lovoi, JVL, and Roan Holdings.
a. Lovoi, JVL, and Roan Holdings Did Not Stand on Both Sides of the Merger.
Plaintiff argues that Lovoi, JVL, and Roan Holdings stood on both sides of
the transaction, but they make no allegation that any of those defendants had any
financial interest in Citizen Buyer. Instead, they conjure theories that are
unsupported. First, Plaintiff argues that Lovoi, JVL, and Roan Holdings were on
both sides of the transaction because Woods, Woodard, and Augsburger are
members of Roan Holdings, Woods serves as one of its four managers, and they had
35 “a direct say in how its 49.7% block [of Roan stock] was voted.” 142 But this theory
is directly contradicted by the allegation that Lovoi and JVL control Roan Holdings.
It is also contradicted by the allegations that Woods, Woodard, and Augsburger were
being marginalized by Lovoi and JVL in Roan Holdings. Thus, it is not reasonably
conceivable that Lovoi, JVL, or Roan Holdings stood on both sides of the transaction
on this theory.
Second, the mere fact that Woods, Woodard, and Augsburger were affiliated
with Citizen Buyer, placing them on the buy side of the Merger, does not place
Lovoi, JVL, and Road Holdings on the buy side, too. Again, Plaintiff cites no
persuasive factual or legal argument to support this theory. The allegation that JVL
and Lovoi had a prior history of co-investment with Woods, Woodard, and
Augsburger does not place JVL and Lovoi on the other side of the Merger.
Third, the fact that Lovoi and/or JVL may have owed fiduciary duties to
Woods, Woodard, and Augsburger as members of Roan Holdings does not create a
dual fiduciary conflict. The duties owed to Woods, Woodard, and Augsburger were
in their capacities as members of Roan Holdings. Roan Holdings’ only asset was its
interest in Roan.
142 Pl.’s Ans. Br. 21.
36 i. Lovoi, JVL, and Roan Holdings Did Not Have a Dual Fiduciary Conflict
A dual fiduciary conflict exists if an individual owes multiple fiduciary
obligations and the interests associated with those obligations are not aligned.
Trados II, 73 A.3d at 46–47. Plaintiff contends that Lovoi “owed conflicting
contractual and fiduciary duties to both Citizen Buyer’s Principal’s [sic] and
[Roan’s] stockholders, creating a classic dual fiduciary conflict and [] causing [him]
to stand on both sides of the Merger.”143 Plaintiff cites to three sets of facts in the
Complaint in support of her theory. First, Woods was one of Roan Holdings’ four
managers.144 Second, the Arbitration Action alleges that Lovoi owed a fiduciary
duty to Woods, Woodard, Augsburger, and Roan Holdings.145 Third, Lovoi owed a
fiduciary duty to Roan’s stockholders as Roan’s controller. 146 It is unclear, though,
how these facts show that Lovoi’s fiduciary duties were misaligned on the buy side
of the transaction.
The claimants in the Arbitration Action alleged that Lovoi and the other
respondents breached their fiduciary duties to Roan Holdings and its members,
143 Pl.’s Ans. Br. 24. 144 Id. (citing Compl. ¶¶ 64, 68, 128). 145 Id. (citing Compl. ¶¶ 65, 91); Arbitration Action at 15. 146 Pl.’s Ans. Br. 24 (citing Compl. ¶¶ 16–18, 21–22).
37 which included the Citizen Principals. 147 The Arbitration Action thus alleges that
Lovoi owed the Citizen Principals a fiduciary duty through their membership in
Roan Holdings, not via their affiliation with Citizen Buyer or any of its affiliates.
Additionally, Roan Holdings was on the same side of the Merger as Roan through
its 49.7% ownership stake in the Company, aligning the two entities’ respective
interests. Therefore, neither Lovoi, JVL, nor Roan Holdings had a dual fiduciary
conflict vis a vis the Merger. See, e.g., Trados II, 73 A.3d at 46–47 (holding that
seller’s directors were conflicted dual fiduciaries where those directors were also
partners in funds that were invested in seller and received liquidation preferences
during merger).
ii. Lovoi, JVL, and Roan Holdings’ Purported Financial Interests in Citizen Buyer
Plaintiff next argues that Lovoi, JVL, and Roan Holdings were on both sides
of the Merger because unspecified funds managed by JVL had some preexisting,
unspecified “interest” in a Citizen affiliate.148 This does not create a pleadings-stage
inference that Lovoi, JVL, or Roan Holdings stood on both sides of the Merger.
Plaintiff asserts that to be considered on both sides of the transaction, “a controller
need merely have an economic interest in the buyer—not be its owner or controller
147 See Arbitration Action at 15, 10, 6. 148 Compl. ¶ 66.
38 as well.”149 The cases upon which Plaintiff relies do not support her allegations in
this case.
In William Penn Partnership v. Saliba, 13 A.3d 749, 752 (Del. 2011), the
conflicted fiduciaries owned 50% of the equity of the seller, served as its managing
partners, owned 40% of the acquiror, and formed a majority of the acquiror’s board
of directors. Similarly, in In re BGC Partners, Inc. Derivative Litigation, 2019 WL
4745121 (Del. Ch. Sept. 30, 2019), defendant Howard Lutnick and two affiliates
owned 60% of the voting power of the buyer, controlled an affiliate of the seller, and
Lutnick “personally stood to receive almost 47% of every dollar that [the buyer]
allegedly overpaid for [the asset] because Lutnick’s economic interest in [the
affiliate of the seller] far exceeded his economic interest in [the buyer].” Id. at *9.
Contrary to Plaintiff’s assertions, and unlike in BGC, Plaintiff has not shown that
Lovoi sits “on top of a complicated web of affiliated entities and appear[s] on both
sides of the Transaction.”150 Cf. id. at *2 (explaining that Lutnick sat “on top of a
complicated web of affiliated entities and appear[ed] on both sides of the
Transaction”).
In Katell v. Morgan Stanley Group, Inc., 1993 WL 10871 (Del. Ch. Jan. 14,
1993), Morgan Stanley was “presumed interested, since it allegedly appeared on
149 Pl.’s Ans. Br. 28. 150 See id. at 29; Hrg. 51:2–10.
39 both sides of the transaction,” but only because it “was not only involved in the . . .
transaction as the seller, but had affiliates involved as the buyers.” 1993 WL 10871,
at *5. Here, Plaintiff has not alleged that Citizen Buyer is a Lovoi, JVL, or Roan
Holdings affiliate.
Unlike in Saliba, BGC, and Katell, there are no allegations that Lovoi, JVL,
or Roan Holdings were buyers or managers of Citizen Buyer. There are no
allegations that Lovoi, JVL, or Roan Holdings had a buy-side interest in the
transaction. To the contrary, the Complaint alleges that “Citizen Buyer and its
affiliated entities are managed and controlled by” Woods, Woodard, and
Augsburger.151 The allegation that “funds managed by JVL continued to have an
interest” in Citizen III, which was created in 2017,152 does not create a pleadings-
stage inference that Lovoi, JVL, or Roan Holdings stood on both sides of the
transaction.153 The Complaint does not allege anything about that supposed
“interest” held by funds managed by JVL, let alone a buy-side interest in the Merger.
Thus, Plaintiff cannot even satisfy her own (inaccurate) articulation of the law
concerning conflicted fiduciaries. The Complaint does not allege that Lovoi, JVL,
151 Compl. ¶ 3. 152 Id. ¶ 66 (italics omitted). Furthermore, this allegation is contradicted in the very next paragraph of the Complaint, 153
which alleges: “Citizen Buyer . . . appears to wholly own Citizen III.” Id. ¶ 67.
40 or Roan Holdings had “an economic interest in the buyer.”154 Accordingly, Plaintiff
has not alleged that Lovoi, JVL, or Roan Holdings stood on both sides of the
transaction, triggering entire fairness review.
b. Lovoi, JVL, and Roan Holdings Did Not Receive a Unique Benefit Not Shared with the Other Stockholders.
“The second variety of controller transactions implicating entire fairness
review involves situations where the controller does not stand on both sides of the
transaction, but nonetheless receives different consideration or derives some unique
benefit from the transaction not shared with the common stockholders.” Crimson,
2014 WL 5449419, at *12. Plaintiff contends that Lovoi, JVL, and Roan Holdings
received two forms of consideration that the remainder of Roan’s stockholders did
not receive, i.e., the resolution of the Arbitration Action and repayment of the Term
Loan.
i. Resolution of the Arbitration Action
Plaintiff contends that the Citizen Principals used the pending Arbitration
Action to pressure Lovoi, JVL, and Roan Holdings into selling Roan at an unfair
154 See Pl.’s Ans. Br. 28. Plaintiff contends she has further established that Lovoi, JVL, and Roan Holdings stood on both sides of the Merger because the parties to the Separation Agreement, including Lovoi and JVL, “agreed to enter into a series of transactions,” meaning their financial and contractual ties would persist. Id. at 26–27 (citing Compl. ¶¶ 66–68, 127). But that vague allegation as to an agreement to enter into unspecified other transactions does not create a reasonable inference that Lovoi, JVL, or Roan Holdings had a financial interest in the buy side of the Merger.
41 price. In support of her contention, Plaintiff points to the timeline of events. 155 First,
the Acquirors, including Citizen Buyer, which was led by the Citizen Principals,156
approached Lovoi to purchase Roan. Two weeks later, the Citizen Principals filed
the Arbitration Action, threatening Lovoi, JVL, and Roan Holdings’ control over
Roan. And immediately following that filing, the Acquirors offered Lovoi the
opportunity to roll over his equity in the event of a merger. Plaintiff asserts that
Lovoi, JVL, and Roan Holdings were likely to lose both the Arbitration Action and
the related Declaratory Judgment Action and were therefore incentivized to tie “the
progression of the Arbitration and Declaratory Judgment Actions to the Merger
negotiations” so as to appease the Citizen Principals.157 According to Plaintiff, the
voluntary dismissal of the Declaratory Judgment Action eight days after the signing
of the Merger Agreement is further evidence of a “classic quid pro quo.” 158
Plaintiff does not allege that Lovoi, JVL, and Roan Holdings were bound to
lose the Arbitration Action. Indeed, the facts alleged in the Complaint cannot sustain
such a claim. See In re Riverstone Nat’l, Inc. S’holder Litig., 2016 WL 4045411, at
*8 (Del. Ch. July 28, 2016) (reasoning that “[i]f a conclusory allegation” relating to
155 See Pl.’s Ans. Br. 30–31. 156 Compl. ¶ 126. 157 Pl.’s Ans. Br. 31. 158 Id.
42 potential litigation “was sufficient to show that directors were interested in [a]
merger, much ground for strike suits and other mischief would be possible”); see
also In re AmTrust Fin. Servs., Inc. S’holder Litig., 2020 WL 914563, at *11 (Del.
Ch. Feb. 26, 2020) (agreeing with the reasoning in Riverstone). Plaintiff points to
an August 15, 2019 hearing in the Declaratory Judgment Action where the court
expressed skepticism as to the plaintiffs’ ability to challenge the arbitrability of the
Arbitration Action. But the issue there was solely whether the claims were
arbitrable, not the merits of the Arbitration Action itself. 159
I am not persuaded that there are well-pleaded facts to support the theory that
Lovoi and JVL extracted a unique benefit in the Merger arising from the Arbitration
Action to the detriment of Roan’s stockholders. Nor does Plaintiff’s focus on the
timeline lend credence to her theory that Lovoi, JVL, and Roan Holdings obtained a
unique benefit by settling the Arbitration Action. The Roan Board had already been
approached with a potential offer prior to the commencement of the Arbitration
Action. Thus, the Complaint does not allege well-pleaded facts that Lovoi or JVL
initiated the sale process, let alone having done so out of concern over a potential
claim by Woods, Woodard, and Augsburger over Roan Holdings. Furthermore,
given his significant equity ownership of Roan Holdings, the loss-of-control theory
159 See Woods, 2019-0374-AGB, Dkt. 41 at 5:15–6:8, 9:17–10:13.
43 is unpersuasive. Plaintiff alleges Lovoi and JVL owned over 74% of the Roan
Holdings equity, allowing them to control 49.7% of Roan. Lovoi also owned
additional shares of Roan separate and apart from Roan Holdings. In the off chance
that Lovoi might lose mathematical control over a majority of Roan’s voting power
in a forced dissolution or distribution, he would still hold the largest block of Roan
stock with at least 37%. In addition, Lovoi, Paul Loyd, and Raleigh (two directors
that Plaintiff alleges were aligned with Lovoi and JVL) would constitute three of the
eight Roan directors, which was classified through the 2020 annual meeting. Thus,
the Arbitration Action presented no immediate threat to Lovoi’s board seat or those
of the Roan Holdings designees.160 I am therefore not persuaded that the allegations
of the Complaint support a reasonable inference that Lovoi, JVL, or Roan Holdings
was motivated to sell the Company to Citizen Buyer at an unfair price due to any
potential threat of loss of mathematical control over Roan as a result of the
Arbitration Action. See Presidio, 251 A.3d at 258 (concluding complaint did not
support a reasonable inference that controller was motivated to sell the company due
to the possibility it would own only 42% of the company’s stock and would no longer
be able to designate a mathematical majority of the board). There is also no
160 Nor was there a credible threat that Lovoi would be removed as a director. The Roan certificate provides that directors can only be removed at a meeting of stockholders, and stockholders cannot act by written consent. Dkt. 42, Ex. 1 §§ 5.3 & 6.1.
44 allegation whatsoever as to the terms of any resolution of the Arbitration Action.
There was no claim in that proceeding for money damages against Lovoi, JVL, or
Roan Holdings, and Plaintiff does not allege that Lovoi, JVL, or Roan Holdings was
motivated to sell Roan to Citizen Buyer in order to avoid a potential monetary
judgment in the Arbitration Action.
The Complaint also contains no allegations that Lovoi unfairly tilted the sale
process toward Citizen Buyer. Roan considered at least two other offers once it
began the sale process. According to the Complaint, the other two bidders exited
the sale process on their own volition. And Plaintiff does not allege that Citizen
Buyer’s bid was inferior to the other two bids. It is thus not reasonably conceivable
that Lovoi, JVL, or Roan Holdings obtained a unique benefit in the Merger due to
resolution of the Arbitration Action to the detriment of the other Roan stockholders.
ii. Repayment of the Term Loan
Plaintiff alleges that Lovoi and JVL obtained a unique financial benefit in the
Merger through repayment of the Term Loan. At the time of the Merger, Roan owed
JVL and other lenders $50 million that it drew from the Term Loan. Plaintiff does
not allege JVL’s portion of the Term Loan. Around this time, Roan’s net debt
“ballooned,” and therefore there were “concerns” regarding Roan’s ability to repay
45 the Term Loan.161 According to Plaintiff, the Term Loan’s lenders would only
receive an immediate and entire repayment of the $50 million Term Loan plus
$6,550,807.41 in interest if Roan was sold in an all-cash transaction. 162 Plaintiff
argues that Roan could have pursued a more valuable transaction for its stockholders
if not for Lovoi’s conflict that favored the Merger. 163
The Complaint only makes conclusory allegations that Roan could have
received greater value in an asset sale.164 Indeed, Roan engaged with financial
advisors to consider strategic alternatives and entertained offers from multiple
bidders. 165 Plaintiff has not pleaded that any of the other options that Roan evaluated
would have been more lucrative for its stockholders. Nor does Plaintiff allege that
these alternatives would not have constituted a change of control under the Term
Loan. The Complaint quotes a letter that was sent by one of Roan’s largest
stockholders, Pelican Bay Capital Management, LLC (“Pelican Bay”), to the Board
voicing its “strong disagreement” with the Merger to bolster its argument, but that
161 Pl.’s Ans. Br. 34; see Compl. ¶¶ 135–36. 162 See Pl.’s Ans. Br. 34; Compl. ¶¶ 136–37. 163 See Pl.’s Ans. Br. 34; Compl. ¶ 137. 164 See Compl. ¶¶ 136–37. 165 Id. ¶¶ 95, 98–99; Proxy at 37 (“On May 20, 2019, the Company publicly announced that it had engaged the Financial Advisors to assist the Company in evaluating strategic alternatives.”).
46 letter is likewise conclusory.166 While Pelican Bay argued that Roan received higher
price targets by investment banking analysts, it did not state that a better deal was
available.
Plaintiff does not contend that the terms of the Term Loan itself were unfair
and conceded as much at oral argument. 167 Instead, Plaintiff relies entirely on the
Term Loan’s existence to argue that Lovoi was improperly incentivized to pursue an
all-cash transaction, which would trigger a repayment of the Term Loan before the
Company became illiquid. 168 The Term Loan was negotiated, however, while the
Company was actively pursuing a deal that would likely result in a change in control,
and would thus be aware that a transaction would likely trigger the Term Loan’s
change in control provision. Furthermore, following the Term Loan’s negotiation,
all three initial proposals—contemplating either mergers or an acquisition—would
surely have constituted a change in control.
Plaintiff’s authority is also unpersuasive. In New Jersey Carpenters Pension
Fund v. Infogroup, Inc., 2011 WL 4825888 (Del. Ch. Sept. 30, 2011), the court held
that a director was interested in a merger where the complaint had pleaded facts
166 See id. ¶¶ 116–17. 167 Hrg. 55:15–18 (“We’re not challenging the terms of the loan. We’re saying that the fact that JVL gave a loan, which the circumstances may be suspect or not, but that’s irrelevant for me.”). 168 Pl.’s Ans. Br. 35–36; Hrg. 55:19–21 (“What’s relevant is [Lovoi] only would get it paid back if the merger took place, and that’s a unique benefit.”).
47 demonstrating the director’s “desperate need of liquidity.” Id. at *9–10. There, the
court found that the plaintiff had pleaded a “confluence of factors” evidencing that
liquidity was material to this director: he had debts exceeding $25 million, was
starting a business that would require “a significant amount of cash to fund the
company’s launch,” and “had no discernible, significant sources of cash inflow.” Id.
at *9. Additionally, the complaint also alleged that the director “could not obtain
the necessary magnitude of liquidity, absent a sale of the entire Company or a
willingness to accept a significant liquidity discount on the sale of his block of
shares.” Id. In making its determination, the court reasoned that the complaint
adequately pleaded that this alleged liquidity benefit was material to the director—a
requirement to plead that he was interested in the merger. Id. at *10. Here, however,
Plaintiff has not pleaded facts showing that Lovoi or JVL were “desperate” for cash.
Cf. Presidio, 251 A.3d at 258–59 (rejecting “liquidity-driven conflict theory” where
plaintiff pled facts showing controller’s “extensive sales of over twenty-one million
shares in four secondary offerings” and the additional liquidity that only a merger
could provide); In re Merge Healthcare Inc., 2017 WL 395981, at *8 (Del. Ch. Jan.
30, 2017) (rejecting similar theory where the complaint did not allege that the alleged
controller was in financial distress or that his previous sales of stock resembled a
“fire sale”).
48 Plaintiff’s citation to In re Ply Gem Industries., Inc. Shareholders Litigation,
2001 WL 755133 (Del. Ch. June 26, 2001), is also inapt. There, the company’s CEO
and Chairman of the Board, who owned more than a quarter of the company’s
outstanding stock, “received payment for the termination of his employment contract
and his non-competition agreement and the forgiveness of his debt to [the company]”
following the sale of the company. Id. at *6. The court determined that the CEO
was interested in the transaction because the payment he received was a personal
benefit that was not shared by the company’s other shareholders. See id. Here, the
Complaint does not allege that Lovoi secured any of the personal benefits that were
obtained by the CEO in Ply Gem. And while, in Ply Gem, the CEO owed a debt to
the company, here, Roan owed JVL a portion of the Term Loan repayment.
Plaintiff has not demonstrated that Roan’s stockholders would have otherwise
received additional consideration but for the Term Loan’s repayment—a
requirement to establish that a conflict existed. See Martha Stewart Living, 2017
WL 3568089, at *13 & n.50 (recognizing that, to sustain a disparate consideration
claim, plaintiff must allege facts that, but for an improper side payment, the
consideration would have gone to the stockholders); In re Straight Path Commc’ns,
Inc. Consol. S’holder Litig., 2018 WL 3120804, at *13 (Del. Ch. June 25, 2018)
(holding allegations that controlling stockholder insisted on settlement of
indemnification claim supported a reasonable inference that the controller
49 “improperly diverted proceeds that would have, if [he] had acted properly, ended up
in the consideration paid to the target stockholders” (quoting Golaine v. Edwards,
1999 WL 1271882, at *9 (Del Ch. Dec. 21, 1999))). It is thus not reasonably
conceivable that Lovoi or JVL obtained a unique benefit and, thus, was conflicted
due to the Term Loan.
* * *
Plaintiff has not alleged well-pleaded facts to create a reasonable inference
that Lovoi, JVL, Roan Holdings, Paul Loyd, or Raleigh either stood on both sides of
the Merger or obtained a unique benefit to the detriment of the other stockholders.
Therefore, the Complaint does not state a claim against those defendants as
conflicted controlling stockholders subject to entire fairness review of the Merger.
Accordingly, Corwin cleansing is available.
C. Corwin Cleansing Applies.
Plaintiff argues that even if the Merger is not subject to entire fairness review
ab initio, it should still be subject to heightened scrutiny under Revlon. Defendants
argue that Plaintiff has not stated a claim under Revlon, and Plaintiff’s claims must
be dismissed under Corwin.
“[W]hen a transaction not subject to the entire fairness standard is approved
by a fully informed, uncoerced vote of the disinterested stockholders, the business
judgment rule applies.” Corwin, 125 A.3d at 309. Thus, an “uncoerced, informed
50 stockholder vote is outcome-determinative, even if Revlon applied to the merger.”
Id. at 308. Plaintiff does not argue that the stockholder vote was coerced. Plaintiff
contends that Corwin does not apply because the vote was uninformed.
To determine the adequacy of the stockholder vote at the pleadings stage, the
court must consider whether the “complaint, when fairly read, supports a rational
inference that material facts were not disclosed or that the disclosed information was
otherwise materially misleading.” Morrison v. Berry, 191 A.3d 268, 282 (Del.
2018). In this context, the materiality standard text is as follows:
An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote. Framed differently, an omitted fact is material if 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. But, to be sure, this materiality test does not require proof of a substantial likelihood that disclosure of the omitted fact would have caused the reasonable investor to change his vote.
Id. at 282–83 (internal quotations and citations omitted); accord Mindbody, 2020
WL 5870084, at *26.
“[T]here must be 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.” Malpiede v. Townson, 780
A.2d 1075, 1086 (Del. 2001) (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S.
438, 449 (1976)). “While disclosure allegations ‘need not be pleaded with
51 particularity,’ some factual basis must be provided from which the Court can infer
materiality of an identified omitted fact.” In re Novell, Inc. S’holder Litig., 2013
WL 322560, at *13 (Del. Ch. Jan. 3, 2013) (quoting Loudon v. Archer-Daniels-
Midland Co., 700 A.2d 135, 146 (Del. 1997)).
“Although a defendant asserting a defense under Corwin bears the burden of
proving at trial that the stockholder vote was fully informed, a plaintiff bears the
burden to plead disclosure deficiencies.” Mindbody, 2020 WL 5870084, at *26
(citing In re Solera Hldgs., Inc. S’holder Litig., 2017 WL 57839, at *7–8 (Del. Ch.
Jan. 5, 2017)).
1. Relationships Between Roan and Citizen Buyer
Plaintiff argues that the Proxy failed to disclose numerous preexisting
relationships and conflicts of interest between Roan and Citizen Buyer’s leadership.
First, Plaintiff vaguely argues that “the Proxy failed to clearly and candidly disclose
the long-standing, preexisting relationship and conflicting contractual and
fiduciaries [sic] duties between Citizen Buyer’s Principals and the Controllers.”169
Plaintiff provides no further clarity as to this assertion beyond stating that the
Alleged Controllers had some unspecified “financial interests in a sale to Citizen
169 Pl.’s Ans. Br. 38; see Compl. ¶ 139 (“[T]he Proxy failed to clearly and candidly disclose the long-standing, preexisting relationship between the leadership of Citizen Buyer (Woods, Woodard, and Augsburger) and [Roan’s] controlling stockholders and affiliated directors (Lovoi/JVL, Paul Loyd, Raleigh, Roan Holdings, and Tripodo).”).
52 Buyer,” citing her brief’s entire statement of facts and over one-third of the
Complaint.170 See Loudon, 700 A.2d at 141 (“a pleader must allege that facts are
missing from the proxy statement, identify those facts, state why they meet the
materiality standard and how the omission caused injury”); In re Santa Fe Pac.
Corp. S’holder Litig., 669 A.2d 59, 65–66 (Del. 1995) (“Conclusory allegations will
not be accepted as true without specific supporting factual allegations. Non-
disclosure claims must provide some basis for a court to infer that the alleged
omissions were material.” (citations omitted)). I have already determined that the
Complaint lacks well-pleaded allegations that any of the Defendants was a conflicted
controlling stockholder in the Merger, and Plaintiff alleges no well-pleaded facts that
any Defendant had a financial interest in Citizen Buyer. 171
Plaintiff alleges that the Proxy should have disclosed that the Citizen
Principals “and their network of friends and family” collectively owned 26% of
Roan Holdings and that Woods served on Roan Holdings’ board of managers.172
The Proxy discloses that JVL beneficially owns approximately 74.14% of Roan
170 Pl.’s Ans. Br. 38–39. Plaintiff alleges Citizen Buyer was wholly owned by Citizen Holdings and that Citizen 171
Buyer “appears to wholly own Citizen III.” Compl. ¶ 67. There is no allegation that any Defendant has any ownership interest in any of those entities. 172 Compl. ¶ 139.
53 Holdings.173 And the Supplement discloses that “[a]n affiliate of Citizen [Buyer]
owns a 7.6% interest in Roan Holdings” and “an officer of Citizen [Buyer] is a
manager on the board of managers of Roan Holdings.”174 Plaintiff does not dispute
that these disclosures are accurate. Plaintiff does not allege that the Citizen
Principals control the collective 26% of Roan Holdings that they and their network
of friends and family own. Nor does she explain how that minority ownership
position of a holding company controlled by Lovoi would be important to a Roan
stockholder voting on the Merger. “Delaware law does not require a play-by-play
description of every consideration or action taken by a Board, especially when such
information would tend to confuse stockholders or inundate them with an overload
of information.” In re Cogent, Inc. S’holder Litig., 7 A.3d 487, 511–12 (Del. Ch.
2010). Without further, relevant context, disclosing the collective, minority
ownership of Roan Holdings would likely confuse rather than inform a reasonable
stockholder. Nor does Plaintiff explain why identifying Woods by name as a
manager of Roan Holdings’ board significantly adds to the total mix of information
already disclosed. Plaintiff has failed to show why this information would be
material.
173 Proxy at 71. 174 Supplement at 4.
54 Plaintiff further alleges that the Proxy failed to disclose that Citizen II received
a 50% equity interest in Roan that was held in Roan Holdings. 175 Additionally,
Plaintiff alleges that because Lovoi controlled Roan Holdings through JVL, the
Proxy should have also disclosed that Lovoi managed Citizen II’s equity interest in
Roan. 176 But the Proxy does disclose that Lovoi, through his interests in JVL and
Roan Holdings, “may be deemed to share dispositive power over the securities held
directly or indirectly by JVL, Roan Holdings and other entities managed by JVL.”177
This disclosure sufficiently explains both Lovoi’s and Roan Holdings’ relationship
with Roan. Indeed, Plaintiff’s allegations of Lovoi’s control over Roan are based on
the Proxy disclosures. 178
Most of these alleged omissions were either included in the Proxy or the
Supplement. Meanwhile, Plaintiff neglects to explain why any of these omissions
were material or, at a minimum, provide the court with a factual basis from which
to infer materiality. The court has remained unconvinced of Plaintiff’s theory that
the Merger was inherently conflicted due to a “complicated web of preexisting
investments and contracts” and it will not labor to infer such a theory on its own.179
175 Compl. ¶ 139. 176 Id. 177 Proxy at 71. 178 Compl. ¶¶ 120–22. 179 Id. ¶ 11; see also id. ¶¶ 4, 129, 141 (repeating this unsubstantiated theory).
55 See Novell, 2013 WL 322560, at *13 (“While disclosure allegations need not be
pleaded with particularity, some factual basis must be provided from which the
Court can infer materiality of an identified omitted fact.” (internal quotations
omitted)).
2. The Arbitration and Declaratory Judgment Actions
Plaintiff contends that the Proxy’s omission of the Arbitration and Declaratory
Judgment Actions was material. First, Plaintiff argues that these actions establish
that Lovoi and the other Director Defendants owed the Citizen Principals fiduciary
duties, which would have been important to a stockholder voting on the Merger.180
Second, Plaintiff asserts that the Arbitration Action was material because it showed
that the Citizen Principals were attempting to wrest control of Roan away from the
Alleged Controllers. 181 Plaintiff argues that this information was material to the
extent that the Arbitration Action may have incentivized the Alleged Controllers to
sway the sale process toward Citizen Buyer and the Citizen Principals.182 I have
already found, however, that both of Plaintiff’s theories are not reasonably
180 See Pl.’s Ans. Br. 43. 181 Id. 182 See id.
56 conceivable. 183 Therefore, the omission of both the Arbitration and Declaratory
Judgment Actions was not material.
3. Vinson & Elkins’s Alleged Conflict
Plaintiff argues that the Proxy should have disclosed that the law firm advising
Roan during the sale process, Vinson & Elkins (“V&E”), was conflicted while
providing legal advice to the Company.184 Plaintiff alleges that V&E was conflicted
in two ways: (1) by having an interest of its own in Roan LLC and (2) through
representing the Woods, Woodard, and Augsburger “during 2018 and/or 2019 in
conjunction with protecting their interests in [Roan LLC].”185 The Complaint
devotes only two sentences to these cursory allegations.186 Plaintiff has not
identified or described anything about V&E’s purported interest in Roan LLC. At
183 See supra II.A.2.a.i, II.A.2.b.i. 184 Pl.’s Ans. Br. 44. 185 Compl. ¶ 143; Pl.’s Ans. Br. 44. 186 The entirety of the allegation reads: Third, the Proxy failed to disclose the fact that (1) Vinson & Elkins, L.L.P.— the outside counsel that advised the Public Company [Roan] during the sales process—had represented the leadership behind Citizen Buyer—Woods, Woodard, and Augsburger—during 2018 and/or 2019 in conjunction with protecting their interests in [Roan LLC] and (2) Vinson & Elkins had an interest in [Roan LLC]. Thus, the management of [Roan] and the four directors who are not named as defendants in this action were being advised by conflicted legal counsel. Compl. ¶ 143 (italics in original). The Complaint also contains an introductory paragraph that previews this allegation, but provides no further facts. See id. ¶ 13.
57 oral argument, Plaintiff’s counsel admitted that he “doesn’t know what the interest
is of [V&E] in [Roan LLC].”187 And a Roan public filing, which is incorporated by
reference in the Proxy, directly refutes this allegation, stating that Roan LLC is a
“wholly owned subsidiary of [Roan].”188 This allegation is also directly contradicted
in the Complaint, which states that “[Roan LLC] would be reorganized under a
newly formed company, [Roan] . . . , which would fully consolidate all interests of
[Roan LLC] into [Roan].”189 Therefore, I find this first allegation to be conclusory
and not well pleaded.
Plaintiff also fails to allege any facts or circumstances concerning V&E’s past
representation of the Citizen Principals or how it presented a potential or actual
conflict of interest in advising the Roan Board on the Merger with Citizen Buyer.
Plaintiff has not alleged that V&E’s prior representation of Woods, Woodard, and
Augsburger was related at all to its representation of Roan leading up to the Merger.
In arguing that the above omissions were material, Plaintiff cites two cases,
contending that “[a]dvisor conflicts, even potential ones, must be disclosed.”190 The
187 Hrg. 54:2–3. 188 Roan Resources, Inc., Quarterly Report (Form 10-Q) (June 30, 2019) at 10, available at sec.gov/Archives/edgar/data/1326428/000132642819000015/q22019draft.htm; see Proxy at 120 (incorporating Roan’s June 30, 2019 10-Q by reference). 189 Compl. ¶ 77. 190 Pl.’s Ans. Br. 44.
58 first, In re Southern Peru Copper Corp. Shareholder Derivative Litigation, 52 A.3d
761 (Del. Ch. 2011), aff’d sub nom. Americas Mining Corp. v. Theriault, 51 A.3d
1213 (Del. 2012), analyzed the Delaware Supreme Court’s opinion Kahn v. Tremont
Corp., 694 A.2d 422 (Del. 1997), and noted that the Supreme Court, in its entire
fairness analysis, “found problematic” that “supposedly outside directors[]” had
selected “advisors who were in some capacity affiliated with the controlling
stockholder.” Southern Peru, 52 A.3d at 790 (citing Kahn, 694 A.2d at 426–27).
Here, though, Plaintiff does not contend that V&E was affiliated with Citizen Buyer.
The second case cited by Plaintiff, Morrison v. Berry, is likewise not
analogous to this case. Plaintiff asserts that Morrison stands for the proposition that
“legal advisor conflicts [are] particularly important given [the] role they play in
crafting disclosures.” 191 Although advisor conflicts should be disclosed,192 a
plaintiff must provide sufficient facts to establish that the conflict or potential
conflict was material. “Allegations that are merely conclusory and lacking factual
basis, however, will not survive a motion to dismiss.” Criden v. Steinberg, 2000
191 Id. (bracketing and quotations omitted). 192 See In re John Q. Hammons Hotels Inc. S’holder Litig., 2009 WL 3165613, at *16 (Del. Ch. Oct. 2, 2009) (“This Court, however, has stressed the importance of disclosure of potential conflicts of interest of financial advisors.”); see, e.g., RBC Capital Markets, LLC v. Jervis, 129 A.3d 816, 860–61 (Del. 2015) (holding that proxy should have disclosed seller’s financial advisor’s pursuit of financing arrangements with potential buyers). There are no allegations that the Proxy did not disclose all material information concerning the Board’s financial advisors.
59 WL 354390, at *2 (Del. Ch. Mar. 23, 2000). The Complaint’s conclusory allegations
concerning V&E’s prior representation of Woods, Woodard, and Augsburger and its
unspecified “interest” in Roan LLC do not provide any basis to conclude they would
have been material to a Roan stockholder. Therefore, they do not render the
stockholder vote uninformed under Corwin.
4. Maranto’s Departure
Plaintiff next contends that the Proxy should have disclosed that Maranto
resigned from Roan due to his “very hostile relationship” and disagreements with
the Board. 193 According to Plaintiff, the Proxy’s omission of these details makes it
appear as if Maranto’s resignation was “unilateral” and “amicable.”194 Plaintiff,
however, has not provided the court with any facts as to the nature of Maranto’s
hostile relationship or disputes with the Board i.e., a basis “to infer that the alleged
[omissions] were material.” See Malpiede, 780 A.2d at 1087 (Del. 2001) (internal
quotations omitted). Nor does the Complaint allege that Maranto’s alleged dispute
with the Board was even related to the Merger.
193 Compl. ¶¶ 89, 144 (internal quotations omitted). Initially, the Complaint alleges that a press release stated that Maranto’s resignation was “not the result of any dispute of disagreement with the Company or any matter related to the Company’s operations, policies or practices.” Id. ¶ 89. Later, the Complaint alleges that this quote came from the Proxy. Id. ¶ 144. The Proxy does not appear to include this quote while recounting Maranto’s resignation. See Proxy at 35. Therefore, I will assume that Plaintiff is alleging a material omission rather than a misstatement. 194 Compl. ¶ 144.
60 Plaintiff suggests that the timing of Maranto’s departure was suspect because
he resigned on the same day that the Acquirors first approached Lovoi about a
potential transaction.195 Thus, Plaintiff argues that due to the timing of Maranto’s
resignation and “the Proxy’s misleading characterization” it is reasonably
conceivable that Maranto resigned as a result of the Merger.196 The court need not
make such an inferential leap. Plaintiff’s cited authority is also unavailing. In
Gilmartin v. Adobe Resources Corp., 1992 WL 71510 (Del. Ch. Apr. 6, 1992), the
court held that a proxy statement materially misled investors when it did not indicate
that two of the company’s directors had expressed to other board members that they
believed it was a bad time to sell. 1992 WL 71510, at *10. Here, Plaintiff cannot
point to any such definitive statement made by Maranto or any well-pleaded facts to
infer that the Proxy’s disclosure was materially misleading.
In Malpiede v. Townson, the court held that it was reasonable to infer “for
notice pleading purposes” that two directors resigned due to a “disagreement over
corporate policy” when their resignation occurred “immediately before” the board
voted to approve a merger. 780 A.2d at 1088 (emphasis added). The court also held
that because those directors resigned three months before stockholders were asked
to approve the merger agreement, a “significant logical leap” was required “to
195 See Pl.’s Ans. Br. 45; Compl. ¶¶ 89, 144. 196 Pl.’s Ans. Br. 45.
61 suppose that reasonable stockholders would consider this information significant in
the total mix of information.” Id. Here, the Board voted to approve the Merger over
five months after Maranto resigned, and the stockholder vote came seven months
after the resignation. Thus, in this case, an even greater “logical leap” would be
required to find that Maranto’s resignation would be significant to a reasonable
stockholder.
5. The Term Loan’s Approval
Plaintiff’s last challenge to the Proxy disclosures alleges that the Proxy falsely
stated that the special committee that approved the Term Loan (the “Special
Committee”) was “disinterested.”197 Plaintiff alleges that one of the Special
Committee’s two members, Tripodo, was in fact beholden to Lovoi, and thus the
Special Committee must have been beholden to Lovoi as well.198 This assertion is
frivolous. There is no allegation that Tripodo had any interest in the approval of the
Term Loan. He was not a lender and there is no allegation that he stood to gain
financially or in any other way from its approval. The mere fact that he is alleged to
have been previously selected by JVL to serve on the Board does not even suggest
that Tripodo was interested in the approval of the Term Loan.
197 Compl. ¶ 145; Pl.’s Ans. Br. 45–46; see Proxy at 76. 198 See Compl. ¶¶ 145–46. As noted above, Plaintiff does not allege that the terms of the Term Loan were unfair or that it was the product of a fiduciary breach.
62 “It is well-settled Delaware law that a director’s independence is not
compromised simply by virtue of being nominated to a board by an interested
stockholder.” In re KKR Fin. Holdings LLC S’holder Litig., 101 A.3d 980, 996 (Del.
Ch. 2014) (collecting cases), aff’d sub nom. Corwin, 125 A.3d 304 (Del. 2015).
While “personal or other relationships” may cause a director to be beholden to an
interested party, In re Oracle Corp. Deriv. Litig., 824 A.2d 917, 938–39 (Del. Ch.
2003) (internal quotations omitted), “[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,” Beam ex rel. Martha Stewart
Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1050 (Del. 2004).
Our law is clear that mere allegations that directors are friendly with, travel in the same social circles, or have past business relationships with the proponent of a transaction or the person they are investigating, are not enough to rebut the presumption of independence. Rather, the Supreme Court has made clear that a plaintiff seeking to show that a director was not independent must meet a materiality standard, under which the court must conclude that the director in question’s material ties to the person whose proposal or actions she is evaluating are sufficiently substantial that she cannot objectively fulfill her fiduciary duties.
In re MFW S’holders Litig., 67 A.3d 496, 509 (Del. Ch. 2013) (footnotes omitted),
aff’d sub nom. Kahn v. M & F Worldwide Corp., 88 A.3d 635 (Del. 2014).
With no citation to authority, Plaintiff contends that Tripodo was conflicted
because he (1) was “hand-picked” as a Roan-director by JVL; (2) worked as a
consultant for Roan LLC in 2018; and (3) “served for almost a decade as an officer
63 and director of another company [Helix Energy Solutions Group, Inc. (“Helix”)] in
which Lovoi/JVL had significant holdings, positions from which he received
millions in compensation and retirement benefits.”199 When assessed collectively,
these allegations do not rise to the level of the materiality standard contemplated by
the caselaw. Plaintiff does not allege that Lovoi chose Tripodo to serve on the
Special Committee, but rather only the Board. Even if Lovoi had selected Tripodo
to sit on the Special Committee, that decision would not have been fatal to the
Special Committee’s independence. See Se. Pa. Transp. Auth. v. Volgenau, 2013
WL 4009193, at *5 n.39 (Del. Ch. Aug. 5, 2013) (“Although not fatal to the
independence of the Special Committee, [the controller’s] selection of the majority
of the committee’s members was not ‘the best practice.’” (citations omitted)), aff’d,
91 A.3d 562 (Del. 2014).
The remaining two allegations merely constitute, at best, attenuated past
business relationships. Nothing about Tripodo’s consulting work for Roan LLC
suggests that he would have been beholden to Lovoi. Plaintiff does not allege that
Tripodo’s position as a Roan LLC consultant was contingent on Lovoi or that Lovoi
was responsible for his hiring there. There is no allegation that Tripodo’s
compensation from this arrangement was material to him. Plaintiff similarly fails to
199 Pl.’s Ans. Br. 46; see Compl. ¶¶ 75, 125.
64 allege facts that would suggest Tripodo lacked independence from Lovoi or JVL
arising from Tripodo’s prior employment at Helix. While Lovoi and JVL are alleged
to have been “one of Helix’s largest shareholders,” Plaintiff does not allege that
Lovoi or JVL were responsible for Tripodo’s attaining or maintaining his position,
had any influence over his maintaining that position, or in setting Tripodo’s
compensation at Helix. 200 And the Complaint is devoid of allegations that Helix was
controlled by either JVL or Lovoi. There are no allegations suggesting that
Tripodo’s past employment at Helix rendered him beholden to Lovoi or JVL or that
Tripodo lacked independence from them. Furthermore, Plaintiff does not allege that
Lovoi and Tripodo had any personal or professional relationship during Tripodo’s
time at either Helix or Roan LLC. The allegations of the Complaint do not come
close to a reasonable inference that Tripodo was interested as to the Term Loan or
the Merger, or that he was not independent.
Under Corwin, the business judgment rule will be invoked when a transaction
is not subject to entire fairness ab initio and has been approved by a “fully informed,
uncoerced majority of the disinterested stockholders.” Corwin, 125 A.3d at 312.
200 Compl. ¶ 125.
65 Having concluded that the stockholders were fully informed when they voted on the
Merger, any Revlon claim is “cleansed” under Corwin.
D. Even Without Corwin Cleansing, Plaintiff’s Fiduciary Duty Claims Must be Dismissed.
Even if Corwin is not satisfied, Plaintiff has not stated a claim for breach of
fiduciary duty giving rise to money damages against any of the Defendants.
1. Plaintiff Has Not Stated a Claim Under Revlon Against the Alleged Controllers or the Director Defendants.
The parties dispute whether, absent Corwin cleansing, the complaint states a
claim against the Alleged Controllers and the Director Defendants under Revlon.
Defendants contend that, because Lovoi (or any of the other Alleged Controllers)
was not conflicted in the Merger, the business judgment standard applies. 201 For
this, Defendants rely on In re Synthes, Inc. Shareholder Litigation, 50 A.3d 1022
(Del. Ch. 2012), a pre-Corwin decision of this court, holding that the business
judgment standard applied where the controlling stockholder was not conflicted in a
merger in which all stockholders received the same consideration. 50 A.3d at 1035.
Plaintiff, however, contends that the Complaint still states a claim against the
Alleged Controllers under Revlon.202
201 Defs.’ Op. Br. 22–23. In Presidio, Vice Chancellor Laster noted that under McMullin v. Beran, 765 A.2d 910 202
(Del. 2000), the Delaware Supreme Court applied enhanced scrutiny to a controller’s
66 Defendants contend that the Complaint fails to allege a claim for breach of
fiduciary duty under Revlon against any of the Defendants. In addition, Defendants
maintain that the Complaint does not state a non-exculpated claim against the
Director Defendants.
a. Damages Claims Against the Alleged Controllers
As explained above, the Complaint does not allege well-pleaded facts creating
a reasonable inference that either Lovoi, JVL, Roan Holdings, Paul Loyd, or Raleigh
was a conflicted controlling stockholder in the Merger. “Because [their] interests
were aligned with those of the stockholders as a whole, the only possible theory of
recovery would be for a breach of the duty of care.” Presidio, 251 A.3d at 284.
Assuming, without deciding, that the Alleged Controllers could be subject to a claim
of a breach of the duty of care in this circumstance, the Complaint does not allege
facts to support one.
decision to sell its controlled subsidiary, even in a transaction in which the controller and the other stockholders received the same consideration. Presidio, 251 A.3d at 265. The Vice Chancellor reasoned that maintaining the “safe harbor” of Synthes in light of the Supreme Court’s post-Synthes decision in Corwin would “conflict with Corwin by bestowing the protections of the business judgment rule without the fully informed stockholder vote that Corwin deemed crucial.” Id. at 266. The court emphasized, however, that applying enhanced scrutiny in this context absent Corwin cleansing did not require abandoning the core holding of Synthes, which is that entire fairness does not apply to a controlling stockholder in a transaction “unless the controller either (i) stood on both sides of the transaction or (ii) used the transaction to extract a benefit not shared by the stockholders as a whole.” Id.
67 To plead a duty of care claim against the Alleged Controllers, Plaintiff must
allege well-pleaded facts to support a reasonable inference that the Alleged
Controllers acted with “gross negligence.” Id. at 287. “In the corporate context,
gross negligence means reckless indifference to or a deliberate disregard of the
whole body of stockholders or actions which are without the bounds of reason.” Id.
(quoting Tomczak v. Morton Thiokol, Inc., 1990 WL 42607, at *12 (Del. Ch. Apr. 5,
1990) (internal quotations omitted)).
The Complaint does not contend that the Alleged Controllers acted with
recklessness. Nor are there any well-pleaded allegations that either Lovoi, JVL, or
Roan Holdings engaged in any conduct rising to the level of recklessness. 203 There
are no well-pleaded allegations that any of the Alleged Controllers exercised undue
influence on the other directors, steered the process to any particular bidder, or took
action to exclude potential bidders. As alleged controllers of approximately 50% of
Roan’s outstanding common stock, the Alleged Controllers had an interest in
obtaining the best price reasonably available and, thus, their interests were aligned
203 The Complaint does not allege facts creating a reasonable inference that a majority of the Board lacked independence or were beholden to any of the Alleged Controllers. The Plaintiff concedes that the three non-Defendant directors are independent and disinterested. Plaintiff also has not asserted claims against Gideon or Mills in their capacities as directors, and there are no well-pleaded allegations that they lacked independence, were not disinterested, or were beholden to any of the Alleged Controllers. And as discussed above, the allegations of the Complaint fall far short of creating a reasonable inference that Tripodo was conflicted, lacked independence, or was beholden to Lovoi, JVL, or Roan Holdings, or anyone else for that matter.
68 with those of the other stockholders. The bare allegation that the Alleged Controllers
“capped the price of ROAN stock at a price that did not adequately reflect its true
value” is conclusory.204 Thus, the Complaint fails to state a claim for monetary
damages against the Alleged Controllers.
b. Damages Claims Against the Director Defendants
As mentioned above, Roan’s certificate of incorporation exculpates the
Company’s directors from liability arising from a breach of their fiduciary duties to
the fullest extent that Delaware law allows. 205 Delaware law permits a corporation
to exculpate its directors from “monetary liability for a breach of the duty of care,
but not for conduct that is not in good faith or a breach of the duty of loyalty.” Stone
ex rel. AmSouth Bancorporation v. Ritter, 911 A.2d 362, 367 (Del. 2006); see 8 Del.
C. § 102(b)(7). Therefore, to successfully plead a claim under Revlon as to the
Director Defendants, Plaintiff must allege that the Director Defendants breached
their duties of loyalty or acted in bad faith. Presidio, 251 A.3d at 283 (citing
Cornerstone, 115 A.3d at 1175–76); see e.g., Rudd v. Brown, 2020 WL 5494526, at
*13 (Del. Ch. Sept. 11, 2020) (dismissing complaint that failed to plead a non-
exculpated breach of fiduciary duty claim under Revlon alleging that directors were
204 Compl. ¶ 166. 205 Dkt. 42, Ex. 1 art. IX.
69 conflicted); van der Fluit v. Yates, 2017 WL 5953514, at *12 (Del. Ch. Nov. 30,
2017) (same).
Plaintiff’s argument in support of the fiduciary duty claims against the
Director Defendants merely rehashes the arguments and generally relies on the same
facts asserted against the Alleged Controllers. Plaintiff argues that three of Roan’s
eight directors were beholden to Lovoi. Because Lovoi was a director himself,
Plaintiff argues Lovoi would have “effective control over half the Board.” 206 As
explained above, however, the Complaint contains no well-pleaded allegations
creating a reasonable inference that Tripodo lacked independence, was interested in
the transaction, or was otherwise beholden to anyone.207 Furthermore, as explained
above, the Complaint lacks any well-pleaded allegations that Lovoi, JVL, or Roan
Holdings was conflicted.
Plaintiff also contends that Lovoi favored a deal with Citizen Buyer.208
Plaintiff, however, does not allege well-pleaded facts creating a reasonable inference
that anything about the sale process was unfair, let alone rising to the level of bad
206 Pl.’s Ans. Br. 56. 207 Because I conclude that there is no pleadings-stage inference that a majority of the Board lacked independence or was interested in the transaction, I need not separately reach the allegations as to Paul Loyd and Raleigh. Those allegations are essentially the same allegations against Lovoi and JVL, which Plaintiff seeks to impute to Paul Loyd and Raleigh due to their having been selected for appointment to the Roan Board by Lovoi and JVL. 208 Pl.’s Ans. Br. 56.
70 faith. Plaintiff alleges, the Board had other alternatives to a potential Merger, such
as selling individual assets, 209 but that does not constitute an unreasonable process,
let alone bad faith. See Paramount Commc’ns, 637 A.2d at 45 (“If a board selected
one of several reasonable alternatives, a court should not second-guess that choice
even though it might have decided otherwise or subsequent events may have cast
doubt on the board’s determination.”); see also In re Dollar Thrifty S’holder Litig.,
14 A.3d 573, 595 (Del. Ch. 2010) (“As is well known, Revlon does not require that
a board, in determining the value-maximizing transaction, follow any specific plan
or roadmap in meeting its duty to take reasonable steps to secure—i.e., actually
attain—the best immediate value.”). Plaintiff alleges that during substantive
negotiations “Citizen Buyer repeatedly secured concession after concession from the
Director Defendants on crucial Merger Agreement terms (like the Board’s ability to
change its recommendation absent a superior proposal).”210 But the Complaint does
not describe the concession concerning the ability to change its recommendation
absent a superior proposal and does not identify any other concession. It is, in other
words, a conclusory allegation.
Plaintiff makes no well-pleaded allegations suggesting that Lovoi steered the
process toward Citizen Buyer, interfered in the negotiations with other bidders, or
209 E.g., Compl. ¶¶ 9, 126, 133. 210 Id. ¶ 104.
71 even initiated the sale process. Nor does Plaintiff challenge, let alone identify, any
of the Merger’s deal protection measures. When the sale process had begun, the
Company negotiated with the Acquirors for over five months and considered other
offers from as well. And during that time, the Board contacted 44 potential
counterparties and entered into 20 confidentiality agreements with potential
bidders. 211
Plaintiff also argues that the Director Defendants breached their duty of
loyalty and acted in bad faith due to their “intentional failure” to disclose the Alleged
Controllers “fiduciary duties to, affiliations with, and financial interests in Citizen
Buyer’s Principals and affiliates.”212 The only allegation of bad faith is a blanket
assertion that “these bad faith disclosure violations were intentionally designed to
hide the glaring conflicts of interest that tainted the Merger.”213 As explained above,
these disclosure allegations are not well-pleaded, and in any event, do not support a
reasonable inference that any of the alleged misstatements or omissions was
intentional or constituted bad faith. Therefore, this claim also cannot survive
Defendants’ motion to dismiss.
211 Proxy at 38. 212 Pl.’s Ans. Br. 54–55. 213 Compl. ¶ 148.
72 2. The Complaint Does Not State a Disclosure Claim Against the Officer Defendants.
Count III alleges that Mills and Gideon breached their fiduciary duties as
officers of the Company. Plaintiff alleges that Mills breached his fiduciary duties
through his “conduct as an officer during the sales process.”214 Plaintiff also alleges
that Mills and Gideon breached their fiduciary duties as officers by being involved
in the preparation of the Proxy and “allow[ing] the Proxy to omit . . . material facts
and details regarding the conflicts of interest that permeated the sales process.” 215
Officers owe the same fiduciary duties as directors of Delaware corporations.
Gantler v. Stephens, 965 A.2d 695, 708 (Del. 2009). Unlike directors, they are not
covered in that capacity under an exculpation provision under 8 Del. C. § 102(b)(7).
Gantler, 965 A.2d at 709 n.37. To state a claim against the Officer Defendants, the
Complaint must allege facts from which it is reasonably conceivable that the Officer
Defendants’ conduct was grossly negligent, i.e., rising to the level of recklessness.
In re Baker Hughes Inc. Merger Litig., 2020 WL 6281427, at *15 (Del. Ch. Oct. 27,
2020).
The allegations concerning Mills’s involvement in the Merger negotiations do
not give rise to an inference of gross negligence. The Complaint merely recites
214 Id. ¶ 171. 215 Id. ¶ 173.
73 meetings he had with potential bidders about a potential transaction, informing the
Board about his discussions, seeking Board authority for certain actions, and
following the Board’s instructions to contact financial advisory firms.216 The broad,
generalized assertion that Mills allowed the Company to be sold “despite the glaring
conflicts of interest,” “failed to enact protections . . . to guard against such conflicts,”
and “acquiesced to the sale of ROAN at a price that was grossly insufficient” does
not state a claim. 217 First, the alleged conflicts are based on the faulty assertion that
Lovoi, JVL, and Roan Holdings were conflicted in the Merger. Second, the
Complaint does not allege what protections Mills was required to or could have
“enacted” as an officer. Third, Plaintiff does not even attempt to articulate how, as
an officer, Mills “acquiesced to the sale” of the Company at a “grossly insufficient”
price, or how that gives rise to a breach of duty as an officer. Nor does Plaintiff back
her allegations with any facts as to Mills’s conduct.
As discussed above, the Complaint does not state a claim that the Proxy
contained material omissions or inaccurate disclosures. Even if any of the alleged
omissions or inaccurate disclosures were material, I am not persuaded that they were
216 Id. ¶ 170. 217 See id. ¶ 171.
74 the product of gross negligence on the part of Mills or Gideon in their capacities as
officers of the Company.218
A corporate officer who prepares a materially misleading proxy statement
may be liable for breach of his or her fiduciary duties. In re Hansen Med., Inc.
S’holders Litig., 2018 WL 3025525, at *11 (Del. Ch. June 18, 2018) (holding that a
complaint stated a claim against an officer for violation of the fiduciary duty of
disclosure and noting that directors and officers of a corporation generally owe the
same fiduciary duties); see also Teamsters Loc. 237 Additional Sec. Benefit Fund v.
Caruso, 2021 WL 3883932, at *26 (Del. Ch. Aug. 31, 2021); Baker Hughes, 2020
WL 6281427, at *15–16; City of Warren Gen. Emps.’ Ret. Sys. v. Roche, 2020 WL
7023896, at *18 (Del. Ch. Nov. 30, 2020); Morrison, 2019 WL 7369431, at *25, 27.
The Complaint alleges that the Officer Defendants were “intricately involved
in the sales process and Proxy preparation process.” 219 As a threshold matter, the
allegation that Mills had any involvement in preparing the Proxy as an officer is
conclusory and contradicted by the allegations of the Complaint. Mills ceased being
218 Plaintiff did not defend this claim in her briefing or at oral argument. Indeed, Plaintiff chides Defendants for “try[ing] to bolster” Mills’s independence, insisting that the Officer Defendants have only been named for failing to fulfill their duty of disclosure. Pl.’s Ans. Br. 54 n.6; see also id. at 58 (defending claim against the Officer Defendants only to the extent that they breached their “duty of candor as officers”). 219 Compl. ¶ 173.
75 an officer no later than the date that the Board approved the Merger Agreement.220
There is no allegation that the Proxy was prepared before that date. Therefore, to
the extent that he had any role in preparing the Proxy, the Complaint alleges no well-
pleaded facts that Mills did so while he was an officer of the Company.
Gideon signed the Proxy in his capacity as Roan’s CEO.221 Therefore,
Gideon could have been liable, if any of the above disclosure claims had been well
pleaded. See Caruso, 2021 WL 3883932, at *26 (holding CEO could be liable for
breach of the duty of care for a misleading proxy disclosure where he “played an
integral role” during the merger negotiations and signed the proxy); Roche, 2020
WL 7023896, at *18 (same); Baker Hughes, 2020 WL 6281427, at *15–16 (same);
Hansen Med., 2018 WL 3025525, at *11 (“Vance affixed his signature to the Proxy
in his capacity as President and CEO and presented the information to the
stockholders for their consideration. This means he may be liable for material
misstatements in the Proxy in his capacity as an officer [and] as a director.”).
220 Roan Resources, Inc., Current Report (Form 8-K) (October 1, 2019) at 5, available at https://www.sec.gov/Archives/edgar/data/0001326428/000119312519259889/d808728d8 k.htm. The October 1 press release announcing Gideon’s hiring explains that his hiring became effective two days earlier. Id. The press release also states that Mills’s last day as an officer was retroactively adjusted to coincide with Gideon’s official September 29 start date. Id. Despite the Board’s retroactive adjustment, however, I cannot simply ignore that, during this two-day period, Mills was operating as an officer under the authority of the Roan Board. Nevertheless, it does not affect my conclusion that the Complaint fails to allege well-pleaded facts that Mills was involved in drafting the Proxy as an officer. 221 Compl. ¶¶ 172–73.
76 Although Gideon signed the Proxy in his capacity as CEO, he did not become
an officer until a few days before the Board approved the Merger Agreement. There
are no allegations that he was involved in the Merger negotiations or the events and
transactions upon which Plaintiff’s disclosure claims are based. Gideon was a
former LINN executive. There are no allegations that he had any affiliation with
Lovoi, JVL, Citizen Buyer, or any of Citizen Buyer’s affiliates. To the extent any
of Plaintiff’s disclosure claims had merit, the Complaint lacks well-pleaded facts
that Gideon was grossly negligent in preparing the Proxy statement.
III. CONCLUSION
For the foregoing reasons, Defendants’ motion to dismiss is GRANTED.
Related
Cite This Page — Counsel Stack
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