In Re Edgio, Inc. Stockholders Litigation

• Court: Court of Chancery of Delaware
• Decided: May 1, 2023
• Docket: C.A. No. 2022-0624-MTZ
• Status: Published

Opinion

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN RE EDGIO, INC. STOCKHOLDERS ) CONSOLIDATED LITIGATION ) C.A. No. 2022-0624-MTZ

MEMORANDUM OPINION Date Submitted: January 20, 2023 Date Decided: May 1, 2023

Gregory V. Varallo and Daniel E. Meyer, BERNSTEIN LITOWITZ BERGER & GROSSMAN LLP, Wilmington, Delaware; Mark Lebovitch, BERNSTEIN LITOWITZ BERGER & GROSSMAN LLP, New York, New York; Jeremy Friedman and David Tejtel, FRIEDMAN OSTER & TEJTEL PLLC, Bedford Hills, New York, Attorneys for Plaintiffs.

Rudolf Koch, Kyle H. Lachmund, John M. O’Toole, and Kevin M. Kidwell, RICHARDS LAYTON & FINGER, P.A., Wilmington, Delaware; Deborah Birnbach and Tucker DeVoe, GOODWIN PROCTER LLP, Boston, Massachusetts, Attorneys for Defendants.

ZURN, Vice Chancellor . After a period of struggle, a publicly traded telecommunications company

caught the attention of an industry investor. The two negotiated a potentially

lucrative strategic transaction in which the company acquired one of the investor’s

portfolio companies. The company paid for the acquisition in stock, issuing a 35%

stake in the post-merger entity to the investor. In connection with the stock issuance,

that entity and the investor entered into a stockholders’ agreement that restricted the

investor’s voting and transfer rights.

Two company stockholders challenge certain provisions of that stockholders’

agreement. Those stockholders argue the challenged terms comprise defensive

measures that create a significant and enduring stockholder block designed to

entrench the board and protect it from stockholder activism. They are particularly

concerned with a restriction on selling or transferring any shares to any entrant on a

particular list of the fifty “most significant” activist investors. They have asked this

Court to review the challenged provisions with enhanced scrutiny and enjoin the

challenged provisions’ enforcement.

The defendants point out that the majority of the company’s stockholders have

already reviewed and approved the stock issuance. The defendants submit that the

decision to recommend the issuance, and the negotiation and entry into the terms of

2 the stockholders’ agreement, are subject to deferential business judgment review

under Corwin v. KKR Financial Holdings LLC.1

But the claim here—a claim to enjoin enduring alleged entrenchment

devices—is not a type of claim that Corwin was designed to cleanse. In Corwin, our

Supreme Court held a stockholder vote could cleanse a post-closing claim for

damages, even if enhanced scrutiny under Revlon was warranted.2 Emphasizing that

holding was limited to claims seeking monetary relief, our Supreme Court explained

the ruling would not “impair the operation of Unocal” in its core function of

elevating scrutiny for claims for injunctive relief.3 Additionally, the Court declined

to engage with or overturn earlier precedent that has been read to preclude a

stockholder vote from cleansing a claim for injunctive relief subject to Unocal

enhanced scrutiny. Applying Corwin to such claims would not serve its underlying

policy rationale of allowing stockholders to make free and informed choices based

on the economic merits of a transaction. Rather, our law has consistently recognized

that the harm caused by entrenching measures is irreparable and evades economic

valuation. I interpret Corwin to stop short of cleansing claims seeking to enjoin

defensive measures.

1 125 A.3d 304 (Del. 2015). 2 See Revlon, Inc. v. MacAndrews & Forbes Hldgs., Inc., 506 A.2d 173 (Del. 1986). 3 Corwin, 125 A.3d at 312.

3 Having concluded stockholder approval does not operate to invoke the

business judgment rule, the final step of the analysis considers if the plaintiffs have

pled facts warranting enhanced scrutiny under Unocal. I conclude they have. In

circumstances like these, where the defensive measures are not of a sort that per se

warrant enhanced scrutiny, Unocal applies where a plaintiff has pled facts

supporting a reasonable inference that a board acted defensively in response to a

perceived threat. Here, the complaint pleads that the company experienced a

significant drop in its stock price, that it was missing analyst earnings estimates and

lowering its earnings guidance, and—up until six months before the challenged

provisions were agreed upon—that analysts were speculating the company may be

an activist target. These circumstances, coupled with the defensive nature of the

challenged provisions and in particular the bar on transferring shares to anyone on

the list of activists, supports the plaintiff-friendly inference that the board negotiated

for and obtained those provisions to defend against a perceived threat of stockholder

activism.

Enhanced scrutiny under Unocal applies. The defendants do not argue that

they have satisfied their burden under Unocal. Their motion to dismiss is denied.

4 I. BACKGROUND4

Limelight Network, Inc. (“Limelight” or the “Company”) provides network

service for delivery of digital media content and software. Limelight’s stock price

reached an all-time high of $8.19 per share in July 2020, but its fortune fell: by

January 2021, Limelight’s stock price had declined by over 47%, “closing at $4.33

per share on January 20.”5 The Company hired a new CEO, Bob Lyons, in January

2021, yet its financial performance continued to slide. On February 11, the

Company announced fourth quarter 2020 results showing a year-over-year decline

in revenue, causing Limelight’s stock price to drop another 13%, closing at $3.95 on

4 I draw the following facts from plaintiff George Assad’s Verified Class Action Complaint, available at Docket Item (“D.I.”) 1 [hereinafter “Compl.”], as well as the documents attached and integral to it. See Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 (Del. 2004). Citations in the form of “Kidwell Aff. ––” refer to the exhibits attached to the Transmittal Affidavit of Kevin M. Kidwell, Esquire in Support of Defendants’ Opening Brief in Support of Their Motion to Dismiss the Verified Complaint available at D.I. 26 (the “Kidwell Affidavit”). Citations in the form of “8-K —” refer to the Company’s Form 8-K filed March 6, 2022, attached as Exhibit A to the Kidwell Affidavit. Citations in the form of “Proxy — ” refer to the Company’s Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934, filed May 4, 2022, attached as Exhibit B to the Kidwell Affidavit. Citations in the form of “SPA” refer to the Stock Purchase Agreement by and between Limelight Networks, Inc. and College Parent, L.P., dated March 6, 2022, attached as Exhibit C to the Kidwell Affidavit. Citations in the form of “S’holders’ Agr. —” refer to the Stockholders Agreement between Limelight Networks Inc. and College Top Holdings, Inc., dated June 15, 2022, attached as Exhibit D to the Kidwell Affidavit. In adjudicating this motion to dismiss, the Court may consider these sources, as well as other publicly filed documents regarding the allegations in the Verified Class Action Complaint. See Orman v. Cullman, 794 A.2d 5, 15–16 (Del. Ch. 2002); In re Lukens Inc. S’holders Litig., 757 A.2d 720, 727 (Del. Ch. 1999), aff’d sub nom. Walker v. Lukens, Inc., 757 A.2d 1278 (Del. 2000). 5 Compl. ¶ 29.

5 February 12. On April 29, the Company announced its first quarter earnings

showing a greater per-share loss than forecasts estimated. The Company’s shares

dropped another 7%. That spring, the Company implemented a turnaround plan

“designed to simultaneously address short-term headwinds and to position [it] to

achieve near- and long-term success.”6 The Company also “retained AlixPartners

LLP, a financial advisory and consulting firm best known for turnaround work,

which was ‘digging into every facet of [the] company.’”7 Nevertheless, the

Company’s second quarter earnings again missed analysts’ forecasts. Analysts

remained neutral on the turnaround plan; the Company lowered its own guidance in

its third quarter earnings report in November.

Market commentators and analysts speculated Limelight may be a target for

activist investors. In an article dated March 12, The Deal highlighted Limelight’s

struggles, noted the potential for an activist intervention, and began including

Limelight in its weekly “The Crosshairs” list, which includes its “top 10 potential

activist targets.”8 On March 19, an investment bank issued a report echoing this

speculation, noting Limelight was “a potential activist target, given the transition

6 Limelight Networks, Quarterly Report (Form 10-Q), at 22 (April 30, 2021). 7 Compl. ¶ 34. 8 Id. ¶¶ 32–33.

6 and leadership turnover, especially at the cheap multiple.”9 No activist investors

emerged.

Instead, Limelight was approached by Apollo Global Management, Inc. On

June 27, Apollo’s financial advisor RBC Capital Markets, LLC contacted Lyons to

express Apollo’s interest in a potential combination of Limelight and one of Apollo’s

investments, Edgecast, Inc. Edgecast, a business unit of Yahoo, Inc., offered

“leading set of solutions across content delivery, cloud security, and video

streaming.”10 Yahoo’s parent company, College Parent, L.P., was 90% owned by

Apollo affiliate funds and 10% owned by Verizon Communications, Inc.11

Limelight conducted due diligence on Edgecast from July through October of

2021. On December 21, Limelight’s board of directors (the “Board”) sent College

Parent a proposed term sheet offering to acquire Edgecast for Limelight common

stock worth approximately $300 million, with the possibility for additional stock-

based earnout consideration of $100 million.12 On December 24, College Parent

sent a revised term sheet, which included terms for corporate governance rights in

the combined company after closing. The parties continued to exchange term sheets

9 Id. ¶ 34 (emphasis omitted). 10 Proxy at 10. 11 Compl. ¶ 6; Proxy at 1. 12 Proxy at 52–53.

7 and negotiate governance rights, “as well as stock transfer restrictions for College

Parent.”13

Limelight and College Parent executed a nonbinding term sheet dated

January 6, 2022, reflecting the December 21, 2021, proposed price.14 The parties

continued to exchange drafts of the purchase agreement and other related

agreements, including a stockholders’ agreement governing College Parent’s rights

after closing.

On March 6, 2022, the Limelight Board met to discuss the proposed

transaction with College Parent (the “Acquisition”).15 After Goldman Sachs

delivered an oral opinion that the Acquisition was fair to Limelight’s stockholders,

the Board approved and adopted the purchase agreement “and the transactions

contemplated thereby.”16 The parties executed the purchase agreement the same

day.17 The executed purchase agreement contemplated that Limelight would

purchase all of Edgecast’s issued and outstanding common stock as well as certain

related businesses and assets. At or around the time of the closing, Limelight would

13 Compl. ¶ 41. 14 Proxy at 53. 15 Id. at 55. 16 Id. 17 Id.

8 change its name to Edgio, Inc.18 As consideration, Limelight would issue

approximately 71.9 million shares of its common stock to College Parent, worth

approximately $300 million. The agreement also included an earnout tied to the

post-closing entity’s stock price, pursuant to which College Parent could receive up

to an additional 12.7 million Company shares, worth approximately $100 million.

Immediately after the closing, College Parent would hold approximately 35% of the

combined company’s outstanding stock. The Company announced the Acquisition

in a press release on March 7. Following that announcement, The Deal reported that

“Apollo could serve as a white squire if activists pursue Limelight.”19

As part of the Acquisition, College Parent entered into a stockholders’

agreement with the Company (the “Stockholders’ Agreement”). The Stockholders’

Agreement expanded the post-closing entity’s board of directors from eight to nine

directors, with two Limelight directors resigning and College Parent filling the three

open Board seats.20

The Stockholders’ Agreement also sets forth College Parent’s governance

rights in the Company and other rights and limitations accompanying its Company

18 Id. at 50. 19 Compl. ¶ 49. “A ‘white squire’ is an investor that acquires a significant stake in a target company to prevent a hostile takeover and/or increase the incumbent’s chance of prevailing in a proxy contest.” Id. 20 Id. ¶ 8; S’holders’ Agr. § 2.1(a).

9 stock.21 It contains a standstill provision precluding it from purchasing additional

Company stock, among other things, which the plaintiffs do not challenge “except

to the extent it is entwined” with other provisions they do challenge.22 Among other

things, the standstill states College Parent may not “seek the removal of any member

of the Board, or otherwise act, alone or in concert with others, to seek representation

or to control or influence the management, the Board or policies of the Company,”

or “otherwise act, alone or in concert with others, to seek to control or influence the

management or the policies of the Company.”23 The standstill remains in place until

“College Parent and its affiliates cease to beneficially own at least 35% of Limelight

common stock issued at closing.”24

Three provisions of the Stockholders’ Agreement are at issue in this litigation.

First, College Parent must vote in favor of the Board’s recommendations with

respect to director nominations and against any nominees not recommended by the

Board (the “Director Voting Provision”).25 Second, for other non-routine matters

submitted for a stockholder vote, College Parent must either vote in favor of the

Board’s recommendation or pro rata with all other Company stockholders (the “Vote

21 See S’holders’ Agr. 22 Id. § 4.2(a); Compl. ¶¶ 10, 61. 23 S’holders’ Agr. § 4.2(d), (g). 24 Proxy at 87; S’holders’ Agr. § 4.2. 25 S’holders’ Agr. § 3.1(a).

10 Neutralization Provision”).26 The Director Voting Provision and the Vote

Neutralization Provision remain in place so long as College Parent owns at least 35%

of the stock issued to it at the Acquisition’s closing.

Third, College Parent is restricted for two years from transferring its shares

unless it first obtains the Board’s written consent, or unless the transfer is in

connection with a third party tender offer, business combination, or other similar

transaction that is recommended by the Board.27 After those two years, College

Parent is prohibited from transferring its shares to a Company competitor or any

investor on the most recently published “SharkWatch 50” list for twelve months.28

I will refer to the transfer restrictions imposed on College Parent for these thirty-six

months as the “Transfer Restrictions.”

Upon reaching its agreement with College Parent, the Company filed an 8-K

disclosing the Acquisition, dated March 7, 2022. The 8-K included a summary of

the key terms of the deal, as well as a general description of the Stockholders’

26 Id. § 3.1(b). “Non-routine” matters include everything other than “the election of directors, the approval (on a non-binding basis) of the compensation of the Company’s named executive officers and all other business involving compensation matters (including new or amended equity plans), and the ratification of the appointment of the Company’s independent auditors.” Id. at 3 (defining “Routine Matters”). 27 S’holders’ Agr. § 4.1(a)(iii)–(iv). There are other limited exceptions not relevant here. 28 Id. § 4.2(b). The SharkWatch 50 list is “a compilation of the 50 most significant activist investors.” Compl. ¶ 59.

11 Agreement.29 The summary of the Stockholders’ Agreement included a discussion

of some of College Parent’s governance and voting rights post-closing.30 The

Stockholders’ Agreement was attached to the 8-K.

To complete the Acquisition, the Company was required to obtain stockholder

approval for the stock issuance.31 In advance of that vote, Limelight issued a proxy

statement dated May 4, 2022 (the “Proxy”), seeking approval of the issuance of

Limelight common stock to provide for the purchase of all outstanding Edgecast

shares, and explaining that the Acquisition could not be completed if the

stockholders did not approve the issuance.32 The Proxy summarized the Acquisition,

including the Stockholders’ Agreement.33 The Proxy also described the terms of the

standstill and Transfer Restrictions.34 The Proxy incorporated by reference the 8-K

29 8-K at Item 1.01, at Stock Purchase Agreement & Stockholders’ Agreement. 30 Id. at Stockholders’ Agreement. 31 Proxy at 48. The Proxy disclosed that this requirement is imposed by the NASDAQ rules, which require stockholder approval any time a company issues stock equally 20% or more of its outstanding shares in connection with an acquisition. Id. The Company and College Parent included stockholder approval of the deal as a condition to closing. SPA art. IX § 9.1(c). 32 Proxy at 48–49 (“Stockholder approval of the stock issuance proposal is a condition to completion of the transaction pursuant to the purchase agreement. If our stockholders do not approve the stock issuance proposal, we will be unable to consummate the transaction and the purchase agreement may be terminated by us or College Parent.”). 33 Id. at 50, 86–89. 34 Id. at 86–88.

12 and Stockholders’ Agreement attached to it, and encouraged stockholders to read the

Stockholders’ Agreement.35

On June 9, Limelight stockholders voted in favor of the stock issuance to pay

for the Acquisition. The Acquisition closed on June 15.36 At closing, the Company

and College Parent entered into the Stockholders’ Agreement.37 As provided in the

Stockholders’ Agreement, the Board expanded from eight to nine directors, with

three new College Parent appointees joining the Board and two Limelight directors

resigning.

Plaintiffs and Company stockholders George Assad and Dianne Botelho

(together, “Plaintiffs”) each filed a class action complaint on July 18.38 The

Plaintiffs stipulated to consolidation, and determined that Assad’s complaint would

serve as the operative complaint (the “Complaint”).39 The Complaint asserts a single

count: a direct claim for breach of fiduciary duty against Company directors Lyons,

Walter D. Amaral, Doug Bewsher, Scott A. Genereux, Patricia Parra Hadden, and

35 Id. at 86, 170. 36 Edgio, Inc., Current Report (Form 8-K) (June 16, 2022). 37 Id. at Item 1.01. 38 D.I. 1; Botelho v. Amaral, C.A. No. 2022-0626-MTZ, D.I. 1 (Del. Ch. July 18, 2022). 39 D.I. 8.

13 David C. Peterschmidt (together, the “Director Defendants”, and with defendant

Edgio, “Defendants”).40

Plaintiffs claim the Director Defendants “breached their fiduciary duties to

Plaintiff and the Class by prioritizing their own personal, financial, and/or

reputational interests and approving the Acquisition and the Stockholders’

Agreement, which they used to entrench themselves.”41 But Plaintiffs agree that the

Acquisition itself was a boon to the Company, and do not challenge most of the

Stockholders’ Agreement, including the standstill. Rather, they focus on the

Challenged Provisions, asserting the Director Defendants included them to interfere

with the stockholder franchise or entrench themselves. Plaintiffs contend the

Challenged Provisions establish a 35% voting bloc contractually committed to

protecting the Board and deter and defeat any activist threats to the incumbent

directors. They ask the Court to enjoin the enforcement of the Challenged

Provisions, but do not seek damages.42

40 Compl. ¶¶ 77–82. Plaintiffs did not assert claims against the two former Company directors who resigned upon the Acquisition closing. 41 Id. ¶ 80. 42 Id. ¶ 82, Prayer for Relief. Plaintiffs have not stated that they seek monetary damages in their briefing or at oral argument. Even when faced with Defendants’ argument that Plaintiffs’ claim should be dismissed to the extent it seeks monetary damages, Plaintiffs still did not argue they brought this action seeking damages. Rather, they argued that “the Court should reject Defendants’ baseless request that the Court prematurely curtail its broad equitable powers to fashion an appropriate remedy upon the establishment of a fiduciary breach.” D.I. 29 at 64. I interpret Plaintiffs’ claim as one for injunctive relief, and not for damages.

14 On September 2, Defendants filed a motion to dismiss the Complaint (the

“Motion”).43 Defendants argue the Court must dismiss the Complaint because the

Board’s decisions concerning the Challenged Provisions are protected by the

business judgment rule and enhanced scrutiny is not triggered under Unocal

Corporation v. Mesa Petroleum Company in the absence of a threat and defensive

action.44 Additionally, Defendants argue that even if enhanced scrutiny does apply,

the Court must dismiss the Complaint under Corwin v. KKR Financial Holdings LLC

because a fully informed, uncoerced majority of the Company’s stockholders

approved the stock issuance for the Acquisition, of which the Stockholder’s

Agreement was an integral part, cleansing any alleged breaches of fiduciary duty

and restoring business judgment review.45 The parties fully briefed the Motion46 and

the Court heard oral argument on October 12.47

On December 8, I asked the parties for supplemental briefing “on the specific

question of whether this type of claim—a post-close claim to enjoin enduring

entrenchment devices—is a claim that Corwin can or is intended to cleanse.”48 The

43 D.I. 24. 44 493 A.2d 946 (Del. 1985). 45 125 A.3d 304 (Del. 2015). 46 D.I. 25; D.I. 29; D.I. 32. 47 D.I. 38; D.I. 39. 48 D.I. 40.

15 parties submitted simultaneous opening and answering supplemental briefs, with the

last briefs filed on January 20, 2023.49

II. ANALYSIS

The standards governing a motion to dismiss under Court of Chancery Rule

12(b)(6) for failure to state a claim for relief are well settled:

(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 to proof.”50

Thus, the touchstone “to survive a motion to dismiss is reasonable

‘conceivability.’”51 This standard is “minimal”52 and “plaintiff-friendly.”53 “Indeed,

it may, as a factual matter, ultimately prove impossible for the plaintiff to prove his

claims at a later stage of a proceeding, but that is not the test to survive a motion to

dismiss.”54 Despite this forgiving standard, the Court need not “accept conclusory

49 D.I. 43; D.I. 44; D.I. 46; D.I. 47. 50 Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (footnotes omitted) (quoting Kofron v. Amoco Chems. Corp., 441 A.2d 226, 227 (Del. 1982)). 51 Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 537 (Del. 2011). 52 Id. at 536. 53 E.g., Clouser v. Doherty, 175 A.3d 86, 2017 WL 3947404, at *9 (Del. 2017) (TABLE) (citing Malpiede v. Townson, 780 A.2d 1075, 1082 (Del. 2001)). 54 Cent. Mortg., 27 A.3d at 536.

16 allegations unsupported by specific facts” or “draw unreasonable inferences in favor

of the non-moving party.”55 “Moreover, the court ‘is not required to accept every

strained interpretation of the allegations proposed by the plaintiff.’”56

A. Corwin Cannot Cleanse A Claim Seeking To Enjoin Defensive Measures Under Unocal Review.

There is “little utility in a judicial examination of the fiduciary actions ratified

by stockholders,” so I begin with Defendants’ reliance on Corwin.57 Corwin gives

rise to the irrebuttable presumption of the business judgment rule when a transaction

“is approved by a fully informed, uncoerced vote of the disinterested

stockholders.”58 As this Court has explained:

[Corwin] stands for the proposition that where the stockholder-owners of a corporation are given an opportunity to approve a transaction, are fully informed of the facts material to the transaction, and where the transaction is not coercive, there is no agency problem for a court to review, and litigation challenging the transaction is subject to dismissal under the business judgment rule.59

55 Price v. E.I. du Pont de Nemours & Co., 26 A.3d 162, 166 (Del. 2011) (citing Clinton v. Enter. Rent-A-Car Co., 977 A.2d 892, 895 (Del. 2009)), overruled on other grounds by Ramsey v. Ga. S. Univ. Advanced Dev. Ctr., 189 A.3d 1255, 1277 (Del. 2018). 56 In re Trados Inc. S’holder Litig., 2009 WL 2225958, at *4 (Del. Ch. July 24, 2009) (quoting In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006)). 57 Sciabacucchi v. Liberty Broadband Corp., 2017 WL 2352152, at *2 (Del. Ch. May 31, 2017). 58 Corwin, 125 A.3d at 309. 59 In re USG Corp. S’holder Litig., 2020 WL 5126671, at *1 (Del. Ch. Aug. 31, 2020), aff’d sub nom. Anderson v. Leer, 265 A.3d 995 (Del. 2021).

17 To obtain the protection of Corwin’s presumption, Defendants must “demonstrate

that the ‘[Acquisition] has been approved by a fully informed, uncoerced majority

of the disinterested stockholders.’”60 But our courts have not clearly resolved the

question of whether Corwin can apply to a claim governed by Unocal and seeking

injunctive relief. A careful reading of Corwin’s text and other authorities compels

the conclusion that Corwin was not intended to cleanse a claim to enjoin a defensive

measure under Unocal enhanced scrutiny.

1. Unocal Enhanced Scrutiny Is Meant For Requests To Enjoin Defensive Measures. “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.’”61 It applies in “specific, recurring, and readily identifiable situations

involving potential conflicts of interest where the realities of the decisionmaking

context can subtly undermine the decisions of even independent and disinterested

directors.”62 Unocal enhanced scrutiny is a product of the hostile takeover wave of

60 Chester Cty. Empl. Ret. Fund v. KCG Hldgs., Inc., 2019 WL 2564093, at *10 (Del. Ch. June 21, 2019) (quoting Corwin, 125 A.3d at 306). 61 Firefighters’ Pension Sys. of City of Kansas City, Mo. Tr. v. Presidio, Inc., 251 A.3d 212, 249 (Del. Ch. 2021) (quoting Mercier v. Inter-Tel (Del.), Inc., 929 A.2d 786, 810 (Del. Ch. 2007)). 62 In re Trados Inc. S’holder Litig., 73 A.3d 17, 43 (Del. Ch. 2013).

18 the 1980s.63 It was conceived of as a method to police the inherent conflict present

when a board resolves to oppose a takeover bid.64 As our Supreme Court put it:

“Because of the omnipresent specter that a board may be acting primarily in its own

interests, rather than those of the corporation and its shareholders, there is an

enhanced duty which calls for judicial examination at the threshold before the

protections of the business judgment rule may be conferred.”65 In its original

context, Unocal claims were brought when a board actively opposed a hostile

63 See Williams v. Geier, 671 A.2d 1368, 1377 (Del. 1996) (“Unocal is a landmark innovation of the dynamic takeover era of the 1980s.”); Charles R. Korsmo, Delaware’s Retreat from Judicial Scrutiny of Mergers, 10 UC Irvine L. Rev. 55, 89 (2019) (“Managers want to keep their jobs and the accompanying perquisites. In the event of a takeover, however, the new owners would boot them out of office. As a result, they may be willing to spurn an offer that would be beneficial to the stockholders. This was a dominant concern in the 1980s merger cases, including Unocal and Revlon, at a time of heated debate over the rise of leveraged buyouts, hostile takeovers, and the market for corporate control.”); Unocal, 493 A.2d 946 (evaluating defensive response to a hostile tender offer); see also Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d 1361, 1374 (Del. 1995) (“The ultimate question in applying the Unocal standard is: what deference should the reviewing court give ‘to the decisions of directors in defending against a takeover?’” (quoting E. Norman Veasey, The New Incarnation of the Business Judgment Rule in Takeover Defenses, 11 Del. J. Corp. L. 503, 504–05 (1986)); City Cap. Assocs. Ltd. P’ship v. Interco Inc., 551 A.2d 787, 796 (Del. Ch. 1988) (referring to Unocal as “the most innovative and promising case in our recent corporation law”). 64 See Unocal, 493 A.2d at 954–55. 65 Id. at 954.

19 takeover bid, or the prospect of one, often by enacting a rights plan.66 The suits

sought to enjoin the defensive measures.67

Since Unocal was conceived of nearly forty years ago, hostile tender offers

have declined,68 and the corporate world has seen the emergence and proliferation

of the activist stockholder.69 Activists use the threat of proxy contests to influence

changes to board composition and corporate policy, among other things.70

Underperforming or undervalued companies are particularly susceptible.71 This

66 See, e.g., Unitrin, 651 A.2d 1361; Moran v. Household Int’l, Inc., 500 A.2d 1346 (Del. 1985); Unocal, 493 A.2d 946; see also Marcel Kahan & Edward Rock, Anti-Activist Poison Pills, 99 B.U. L. Rev. 915, 927 (2019) (referring to hostile takeover bids as “the original context of Unocal”). 67 See, e.g., Paramount Commc’ns, Inc. v. Time Inc., 571 A.2d 1140, 1141–42 (Del. 1989). 68 See Martin Lipton & Steven A. Rosenblum, Election Contests in the Company’s Proxy: An Idea Whose Time Has Not Come, 59 Bus. Law. 67, 92 (2003) (noting the decline of hostile takeovers “at the end of the 1980s”). 69 See 1 Arthur Fleischer, Jr., et al., Takeover Defense: Mergers and Acquisitions §10.02[A], at 10-43 (9th ed. 2021) (noting “explosive growth of shareholder activism” in the 21st century); id. at 10-45 (“Today, boards recognize that the most likely proxy contest is one in aid of an activist campaign seeking changes in strategy, leadership, or governance, rather than by a bidder seeking to facilitate a takeover bid.”). 70 Williams Cos. S’holder Litig., 2021 WL 754593, at *30 (Del. Ch. Feb. 26, 2021) (“[A]ctivists’ ability to replace directors through the stockholder franchise is the reason why boards listen to activists. Most activists hold far less than a hard majority of a corporation’s stock, making the main lever at an activist's disposal a proxy fight.”), aff’d sub. nom. Williams Cos., Inc. v. Wolosky, 264 A.3d 641 (Del. 2021) (TABLE); Kahan & Rock, supra note 66, at 918 & n.6 (explaining that activists are often successful in securing board representation or having a target adopt their proposals, and stating that “[a]ctivists often secure board seats with only the explicit or implicit threat of a proxy fight, without even filing any proxy materials”). 71 John C. Coffee, Jr. & Darius Palia, The Wolf at the Door: The Impact of Hedge Fund Activism on Corporate Governance, 41 J. Corp. L. 545, 556 (2016) (“[H]edge funds are ‘offensive,’ deliberately seeking out an underperforming target in which to invest in order

20 activist-rich climate has caused some companies that are or may become activist

targets to take preventative, or defensive, steps.72 Through this shift, Unocal has

endured and evolved: board responses to activists have warranted Unocal scrutiny,

and our courts have assigned no less importance to Unocal’s function when applied

to pursue a proactive agenda and change their target’s business model.”); Fleischer, et al., supra note 69 § 10.02[A], at 10-47 (“Historically, hedge fund activists targeted ‘cash-rich,’ diversified, or seriously underperforming companies.”); id. at 10-48 (discussing “economic” or “value” activism, “which includes campaigns seeking . . . to improve a corporation’s top and bottom lines through operational changes,” among other things); 1 Martin Lipton & Erica H. Steinberger, Takeovers & Freezeouts § 1.01[8], at 1-12.8 (2009 update) (“Companies need to be acutely aware of where they stand in relation to their peers. Relatively poor performance, regardless of the reason, can make one an easy [activist] target.”); Leo E. Strine, Jr., Who Bleeds When the Wolves Bite?: A Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System, 126 Yale L.J. 1870, 1890 (2017) (“Although scholars are not in full agreement about how to characterize the companies targeted by hedge funds, with some calling them underperforming, and others calling them profitable companies undervalued by the market, some common characteristics have emerged.” (citations omitted) (footnotes omitted)); see also Brando Maria Cremona & Maria Lucia Passador, Shareholder Activism Today: Did Barbarians Storm the Gate?, 20 U.C. Davis Bus. L.J. 207, 228 (2020) (“Regardless of the risk and return models, the study shows that the negative average monthly alpha for the 3 years before the event that is statistically significant at 1% (0,8% [sic] and 0.98% respectively), which implies that companies targeted by activists systematically underperformed the market in the medium-term prior to the event.”). 72 See, Fleischer, et al., supra note 69 § 10.02[A], at 10-44 to -45 (“The combination of concentrated ownership and the ever present threat of an activist campaign for the support of that concentrated ownership base means that companies must be in a state of constant vigilance. As a result, rather than ‘defensive preparedness; (i.e., preparedness from unsolicited takeover bids for the company) boards of directors now emphasize ‘activism preparedness’ . . . .); Lipton & Steinberger, supra note 71 § 1.01[8], at 1-12.8 (describing an “environment of hedge fund activism,” and cautioning that “[t]here is no substitution for vigilance and companies must carefully monitor analyst and media reports and ISS pronouncements, particularly for suggestions of strategic changes the company could make”).

21 in furtherance of requests for injunctive relief outside of the M&A context.73

Unocal’s flexibility is a feature, not a bug: the Unocal decision itself recognized the

importance of our law growing and developing in response to a changing world.74

Unocal’s flexibility has been tested by post-close claims for damages from

directors. As Vice Chancellor Glasscock explained in Ryan v. Armstrong,

73 See, e.g., Versata Enters., Inc. v. Selectica, Inc., 5 A.3d 586, 599 (Del. 2010); Moran, 500 A.2d at 1350 (applying Unocal to the decision to adopt a pre-planned defensive mechanism); Williams Cos., 2021 WL 754593, at *21–40; Third Point LLC v. Ruprecht, 2014 WL 1922029, at *1, 15 (Del. Ch. May 2, 2014); see also Stroud v. Grace, 606 A.2d 75, 82 (Del. 1992) (“The scrutiny of Unocal is not limited to the adoption of a defensive measure during a hostile contest for control.”). 74 Selectica, 5 A.3d at 599 (“In Unocal, this Court recognized that ‘our corporate law is not static. It must grow and develop in response to, indeed in anticipation of, evolving concepts and needs.’” (quoting Unocal, 493 A.2d at 957); see also Time, 571 A.2d at 1153 (“The usefulness of Unocal as an analytical tool is precisely its flexibility in the face of a variety of fact scenarios.”).

22 It is clear . . . that Unocal enhanced scrutiny is primarily a tool for this Court to provide equitable relief where defensive measures by directors threaten the stockholders’ right to approve a value-enhancing transaction. In such a case, where directors cannot show that a defensive measure is reasonable, a plaintiff has satisfied the first, merits-based prong of an injunctive relief analysis. This permits the Court (where irreparable harm and balance in favor of relief are also shown) to impose injunctive relief to remove the unreasonable impediment to a transaction. In other words, enhanced scrutiny allows preliminary injunctive relief without a showing by the plaintiff that it is probable that a defendant has breached a fiduciary duty. The standard is modified, in the Unocal framework, because of the inherent motive for entrenchment where directors take measures to fend off a suitor. How Unocal scrutiny applies in a damages action—especially in the face of an exculpatory provision where ultimately the plaintiff must demonstrate a breach of the duty of loyalty—is less clear.75

More recently, Vice Chancellor Laster gave voice to the essential concept that in

considering a request for injunctive relief, enhanced scrutiny alone can give the

Court reason to consider whether a transaction should be enjoined, but that when

considering whether a fiduciary should be held liable, enhanced scrutiny must be

coupled with proof that a fiduciary acted with nonexculpated self-interest,

interestedness, or bad faith.76

75 Ryan v. Armstrong, 2017 WL 2062902, at *9 (Del. Ch. May 15, 2017), aff’d, 176 A.3d 1274 (Del. 2017). 76 Presidio, 251 A.3d at 251–54 (“A court does not apply enhanced scrutiny when determining whether a fiduciary should be held liable.”); see also In re USG Corp, 2020 WL 5126671, at *31 (“In order to avoid dismissal, a pleading from which I can merely infer an unreasonable sales process is not enough to overcome an exculpatory clause’s protections; to survive, such pleading must reasonably imply breach of a non-exculpated duty.”).

23 The foregoing demonstrates that regardless of the context, Unocal’s core

function is, and has always been, providing a framework for evaluating whether an

injunction should issue against defensive measures. And while our law does not

clearly state the Unocal framework is inapplicable to damages actions, its

application in that context is, at best, uncertain.

2. Corwin Restores The Business Judgment Rule In Damages Cases. More enduring than Unocal is the principle that a stockholder vote can cleanse

certain board actions.77 The separation of ownership and control is a core feature of

the corporate form, but the resulting agency relationship can present problems.78 In

77 See, e.g., Stroud, 606 A.2d at 82 (“Under Delaware law a fully informed shareholder vote in favor of a disputed transaction ratifies board action in the absence of fraud.”); Smith v. Van Gorkom, 488 A.2d 858, 890 (Del. 1985) (“The settled rule in Delaware is that “where a majority of fully informed stockholders ratify action of even interested directors, an attack on the ratified transaction normally must fail.’” (quoting Gerlach v. Gillam, 139 A.2d 591, 593 (Del. Ch. 1958)); see also Weinberger v. UOP, Inc., 457 A.2d 701, 703 (Del. 1983) (“However, where corporate action has been approved by an informed vote of a majority of the minority shareholders, we conclude that the burden entirely shifts to the plaintiff to show that the transaction was unfair to the minority.”); Saxe v. Brady, 184 A.2d 602, 610 (Del. Ch. 1962) (“When the stockholders ratify a transaction, the interested parties are relieved of the burden of proving the fairness of the transaction.”); Gottlieb v. Heyden Chem. Corp., 91 A.2d 57, 58 (Del. 1952) (“We understand that where the board members vote themselves stock options and do not obtain stockholder ratification, they themselves have assumed the burden of clearly proving their utmost good faith and the most scrupulous inherent fairness of the bargain. Where there is stockholder ratification, however, the burden of proof is shifted to the objector.”). 78 Park Emps’. & Ret. Bd. Emps’. Annuity & Benefit Fund of Chi. v. Smith, 2016 WL 3223395, at *1 (Del. Ch. May 31, 2016), aff’d sub nom. Park Emps’. & Ret. Bd. Emps’. Annuity & Benefit Fund of Chi. ex rel. BioScrip, Inc. v. Smith, 175 A.3d 621 (Del. 2017).

24 contexts in which agency problems are likely present, judicial review is warranted.79

But our law recognizes that a stockholder vote, under the right circumstances,

alleviates such agency problems and obviates the utility of judicial review.80

“Delaware corporation law gives great weight to informed decisions made by an

uncoerced electorate. When disinterested stockholders make a mature decision

about their economic self-interest, judicial second-guessing is almost completely

circumscribed by the doctrine of ratification.”81

In their most recent iteration, these concepts are embodied in the landmark

decision Corwin v. KKR Financial Holdings.82 In Corwin, the plaintiff brought a

claim seeking monetary damages based on alleged breaches of fiduciary duty in

negotiating a stock-for-stock merger.83 On appeal, our Supreme Court considered

whether a fully informed, uncoerced vote of a majority of the company’s

disinterested stockholders precluded the application of the Revlon or the entire

fairness standard of review.84 The Supreme Court reasoned that it did, stating “the

79 See In re Merge Healthcare Inc., 2017 WL 395981, at *6 (Del. Ch. Jan. 30, 2017). 80 See Liberty Broadband, 2017 WL 2352152, at *2. 81 In re Lear Corp. S’holder Litig., 926 A.2d 94, 114–15 (Del. Ch. 2007) (footnote omitted). 82 Corwin, 125 A.3d at 313 (stating that is “the long-standing policy of our law” to “avoid the uncertainties and costs of judicial second-guessing when the disinterested stockholders have had the free and informed chance to decide on the economic merits of a transaction for themselves”). 83 Id. at 305–08. 84 Id. at 308. The trial court noted the merger did not implicate Revlon; the appellant sought enhanced scrutiny for the first time on appeal. See In re KKR Fin. Hldgs LLC S’holder

25 effect of the uncoerced, informed stockholder vote [was] outcome-determinative”

because it invoked the business judgment rule.85

In my view, several aspects of Corwin preclude its application to claims for

injunctive relief under Unocal. Its plain text limits its holding to post-close damages

claims and promises to leave untouched the roles of Unocal and Revlon in claims

for injunctive relief. It also left untouched earlier Supreme Court precedent that

appears to suggest stockholder votes cannot cleanse claims brought under Unocal

seeking injunctive relief. And the policy rationales underpinning Corwin and the

cases on which it relies do not justify extending Corwin cleansing to such claims. I

will explain each of my observations in turn.

Litig., 101 A.3d 980, 989 (Del. Ch. 2014) (“Enhanced judicial scrutiny under Revlon is not implicated in this action because the stock-for-stock merger involved widely-held, publicly traded companies. Thus, the business judgment rule presumptively applies.” (footnote omitted)), aff’d sub nom. Corwin, 125 A.3d 305; Corwin, 125 A.3d at 308 & n.12. The appellant also raised for the first time on appeal that Gantler v. Stevens required that the vote be given no ratifying effect. Corwin, 125 A.3d at 311 (considering Gantler v. Stephens, 965 A.2d 695 (Del. 2009)). Nonetheless, the Delaware Supreme Court took on the appellant’s ratification argument, and concluded the analysis of whether Revlon applied “d[id] not matter” because “the effect of the uncoerced, informed stockholder vote [was] outcome-determinative.” Id. at 308, 311. And Unocal was never in play in Corwin: only Revlon could have scaled the standard of review up to enhanced scrutiny. In my view, the Delaware Supreme Court’s deliberate choice to consider the effect of the stockholder vote, and to address Unocal, commend my particular adherence to Corwin’s plain text: those words were written with the freedom to say precisely what that Court wanted to say, and no more or less. 85 Corwin, 125 A.3d at 308.

26 The Corwin opinion emphasizes the claim before it sought damages after

closing—not injunctive relief. The very first sentence reads:

In a well-reasoned opinion, the Court of Chancery held that the business judgment rule is invoked as the appropriate standard of review for a post-closing damages action when a merger that is not subject to the entire fairness standard of review has been approved by a fully informed, uncoerced majority of the disinterested stockholders.86

In relating the public policy behind the holding, Corwin explains that

the long-standing policy of our law has been to avoid the uncertainties and costs of judicial second-guessing when the disinterested stockholders have had the free and informed chance to decide on the economic merits of a transaction for themselves.87

The Delaware Supreme Court since reiterated in Morrison v. Berry that Corwin was

born out of a “post-closing damages action,” described its “doctrine” in those terms,

and cautioned in the next breath that “[c]areful application of Corwin is important

due to its potentially case-dispositive impact.”88

Corwin also made clear that its holding was not meant to “impair the operation

of Unocal and Revlon, or expose stockholders to unfair action by directors without

protection.”89 The Supreme Court suggested that applying Unocal or Revlon

doctrines to a post-closing damages claim exceeded their original purpose and

86 Id. at 305–06 (emphasis added). 87 Id. at 312–13 (emphasis added); see also id. at 314 (referencing stockholders’ “economic stake in the outcome”). 88 Morrison v. Berry, 191 A.3d 268, 274 (Del. 2018). 89 Corwin, 125 A.3d at 312 (footnote omitted).

27 purview: “Unocal and Revlon are primarily designed to give stockholders and the

Court of Chancery the tool of injunctive relief to address important M & A decisions

in real time, before closing. They were not tools designed with post-closing money

damages claims in mind.”90 Thus, Corwin made clear that its function in post-close

damages actions did not impair Unocal’s core function of enabling consideration of

injunctive relief against entrenching board actions, and that it should not be applied

in a manner that interferes with that core function. 91

Corwin also declined to engage in a “debate” over the role or fate of In re

Santa Fe Pacific Corporation Shareholder Litigation,92 a case that plausibly

supports the proposition that a stockholder vote cannot cleanse a Unocal or Revlon

claim seeking injunctive relief.93 There, the operative claims, brought after a merger

with the board’s preferred bidder closed, alleged the board took unreasonable and

disproportionate defensive measures to deflect another bidder.94 Santa Fe held that

90 Id. 91 Id.; see also Armstrong, 2017 WL 2062902, at *9 (citing Corwin, 125 A.3d at 312). 92 669 A.2d 59 (Del. 1995). 93 See Corwin, 125 A.3d at 311 n.20; J. Travis Laster, The Effect of Stockholder Approval on Enhanced Scrutiny, 40 Wm. Mitchell L. Rev. 1443, 1476–77 (2014) (“Under Santa Fe, it would appear that enhanced scrutiny will continue to apply ‘at the pleading stage,’ notwithstanding a fully informed stockholder vote. . . . As long as [Santa Fe] remain[s] good law, the case stands as an apparent impediment to the view that a fully informed stockholder vote on a merger otherwise subject to enhanced scrutiny causes the transaction to be reviewed under the business judgment rule.” (quoting Santa Fe, 669 A.2d at 73)). 94 Santa Fe, 669 A.2d at 65.

28 in voting on the merger, the stockholders did not vote in favor of those defensive

measures, and so the Delaware Supreme Court “decline[d] to find ratification.”95

The Court reasoned that the alleged defensive measures coerced the very vote that

would have ratified those defensive measures, and that the stockholders were not

asked to ratify those defensive measures, so the vote could not serve that function.96

The Delaware Supreme Court reached that holding after considering the broad

“underlying purposes” of the Revlon and Unocal doctrines.97 The Court reflected,

“The Unocal standard of enhanced judicial scrutiny rests in part on an ‘assiduous . . .

concern about defensive actions designed to thwart the essence of corporate

democracy by disenfranchising shareholders’”; reiterated that Unocal “recognize[s]

the inherent conflicts of interest that arise when shareholders are not permitted free

exercise of their franchise”; and reminded us that “the judiciary must recognize the

special import of protecting the shareholders’ franchise within Unocal’s requirement

that any defensive measure be proportionate and reasonable in relation to the threat

posed.”98 From there, the Court reasoned: “Permitting the vote of a majority of

stockholders on a merger to remove from judicial scrutiny unilateral Board action in

95 Id. at 68. 96 Id.; see Laster, supra note 93 at 1471–77 (“The Delaware Supreme Court has never explicitly called into question, much less overruled these aspects of Santa Fe.”). 97 Santa Fe, 669 A.2d at 67. 98 Id. at 67–68 (first alteration in original) (internal quotation marks omitted) (quoting Unitrin, 651 A.2d at 1378–79)).

29 a contest for corporate control would frustrate the purposes underlying Revlon and

Unocal.”99 The Court concluded the allegations in the complaint triggered enhanced

scrutiny and the board’s obligation “to justify their decisionmaking.”100 I read

Corwin’s declination to engage with Santa Fe to preserve its statements about the

importance of the “purposes underlying” Unocal when deciding whether ratification

is available.101

More broadly, the rationale underlying Corwin—that the business judgment

rule should apply when stockholders “have had the free and informed chance to

decide on the economic merits of a transaction for themselves”—is not served in the

context of a Unocal claim seeking to enjoin an enduring entrenchment device.102

Corwin explains that conduct supporting a post-closing claim for damages can be

cleansed by stockholders who were satisfied with the economic value they received

in a transaction. Inequities in a transaction’s price or process are compensable by

99 Id. at 68. 100 Id. at 72. 101 Id. at 68 (“Permitting the vote of a majority of stockholders on a merger to remove from judicial scrutiny unilateral Board action in a contest for corporate control would frustrate the purposes underlying Revlon and Unocal.”); see also In re Paramount Gold & Silver Corp. S’holders Litig., 2017 WL 1372659, at *6 (Del. Ch. Apr. 13, 2017) (declining to “address the apparent tension between Corwin and Santa Fe” because it was “apparent from the face of the Complaint and documents incorporated therein that the provisions challenged here do not constitute an unreasonable deal protection device”). 102 Corwin, 125 A.3d at 312–13 (emphasis added).

30 monetary damages,103 and therefore able to be cleansed by stockholders satisfied

with the consideration they already received.104 But Unocal scrutiny is inspired by

concerns that directors may act to “thwart the essence of corporate democracy by

103 See, e.g., In re Mindbody, Inc., S’holder Litig., 2023 WL 2518149, at *45 (Del. Ch. Mar. 15, 2023) (“As a remedy for their sale-process claim, Plaintiffs seek damages from Stollmeyer in the amount that Vista would have paid, which Plaintiffs peg at $40 per share. The lost-transaction theory of damages finds firm footing in Delaware law.”); Basho Techs. Holdco B, LLC v. Georgetown Basho Invs., LLC, 2018 WL 3326693, at *37 (Del. Ch. July 6, 2018) (“Factors such as coercion, the misuse of confidential information, secret conflicts, or fraud could lead a court to hold that a transaction that fell within the range of fairness was nevertheless unfair compared to what faithful fiduciaries could have achieved. Under those circumstances, the appropriate remedy can be a ‘fairer’ price or an award of rescissory damages.” (footnote omitted)), aff’d sub nom. Davenport v. Basho Techs. Holdco B, LLC, 221 A.3d 100 (Del. 2019); In re Dole Food Co., Inc. S’holder Litig., 2015 WL 5052214, at *2 (Del. Ch. Aug. 27, 2015) (“Under these circumstances, assuming for the sake of argument that the $13.50 price still fell within a range of fairness, the stockholders are not limited to a fair price. They are entitled to a fairer price designed to eliminate the ability of the defendants to profit from their breaches of the duty of loyalty. This decision holds Murdock and Carter jointly and severally liable for damages of $148,190,590.18, representing an incremental value of $2.74 per share.”); In re Rural/Metro Corp. S’holders Litig., 102 A.3d 205, 214, 226 (Del. Ch. 2014) (awarding damages of $4.17 per share based on quasi-appraisal remedy for claim that the defendants made “decisions that fell outside the range of reasonableness during the process leading up to the Merger and when approving the Merger” and for a disclosure-related claim). 104 See Corwin, 125 A.3d at 306 (addressing claims for damages relating to the negotiation and approval of a transaction); see also In re Massey Energy Co. Deriv. & Class Action Litig., 160 A.3d 484, 507 (Del. Ch. 2017) (“The Complaint does not challenge the economic merits of the Merger itself. It is not alleged, for example, that the Massey directors played favorites with any bidder, erected improper defensive measures, or otherwise failed to maximize value for the Company’s stockholders once a decision was made to consider strategic alternatives.”); Liberty Broadband, 2017 WL 2352152, at *21 (referring to the “failure to run an informed sales process” and “negotiation by self-interested fiduciaries” as “[b]reaches of duty inherent in [a] transaction” and therefore subject to cleansing by a stockholder vote).

31 disenfranchising shareholders,”105 which prototypically causes irreparable injury.106

Because a dollar value cannot be affixed to the harm caused by unjustifiably

entrenching actions, it cannot be said that a stockholder can consider wrongfully

entrenching actions as part of the “economic merits” of a transaction.107

Declining to extend the cleansing effects of a stockholder vote to action giving

rise to a Unocal claim puts such claims on par with other types of irreparable injuries

105 Santa Fe, 669 A.2d at 67 (“The Unocal standard of enhanced judicial scrutiny rests in part on an ‘assiduous . . . concern about defensive actions designed to thwart the essence of corporate democracy by disenfranchising shareholders.’” (alteration in original) (quoting Unitrin, 651 A.2d at 1378)). 106 Higgin v. Albence, 2022 WL 4239590, at *29 (Del. Ch. Sept. 14, 2022) (“This Court frequently finds actions by boards of directors that threaten the voting franchise for stockholders as constituting irreparable harm.”), aff’d in part, rev’d in part on other grounds, 285 A.3d 840 (Del. 2022); Pell v. Kill, 135 A.3d 764, 793 (Del. Ch. 2016) (reasoning that “pre-ordaining the results of” an annual meeting “deprive[d] stockholders of their right to vote,” and that “[t]his loss of voting power constitutes irreparable injury” (internal quotation marks omitted) (quoting Phillips v. Insituform of N. Am., Inc., 1987 WL 16285, at *11 (Del. Ch. Aug. 27, 1987)); Third Point, 2014 WL 1922029, at *24 (reasoning the loss of a proxy contest because of a rights plan constitutes irreparable injury); see also EMAK Worldwide, Inc. v. Kurz, 50 A.3d 429, 433 (Del. 2012) (“Shareholder voting rights are sacrosanct. The fundamental governance right possessed by shareholders is the ability to vote for the directors the shareholder wants to oversee the firm.”); Unitrin, 651 A.2d at 1378 (“This Court has been and remains assiduous in its concern about defensive actions designed to thwart the essence of corporate democracy by disenfranchising shareholders.”); Schnell v. Chris-Craft Indus., Inc., 285 A.2d 437, 439 (Del. 1971) (“In our view, those conclusions amount to a finding that management has attempted to utilize the corporate machinery and the Delaware Law for the purpose of perpetuating itself in office; and, to tht [sic] end, for the purpose of obstructing the legitimate efforts of dissident stockholders in the exercise of their rights to undertake a proxy contest against management. These are inequitable purposes, contrary to established principles of corporate democracy.”). 107 Corwin, 125 A.3d at 312–13 (“[W]hen a transaction is not subject to the entire fairness standard, the long-standing policy of our law has been to avoid the uncertainties and costs of judicial second-guessing when the disinterested stockholders have had the free and informed chance to decide on the economic merits of a transaction for themselves.”).

32 incapable of being cleansed by Corwin, albeit through different doctrinal routes. For

example, our Court often views the injuries flowing from material omissions in a

proxy statement to be irreparable:108 such omissions preclude cleansing because a

fully informed vote is a prerequisite to Corwin applying in the first place.109 The

same is true of a coerced vote.110 Because the injuries Unocal is designed to prevent

elude valuation, they cannot inform a stockholder vote on the economic merits of a

transaction.

And so, in my view, a careful reading of Corwin precludes its ability to restore

the business judgment rule to claims seeking enhanced scrutiny to support injunctive

relief. Defendants disagree. They rely on two Delaware Supreme Court ratification

108 In re Pure Res., Inc., S’holders Litig., 808 A.2d 421, 452 (Del. Ch. 2002) (“This court has recognized that irreparable injury is threatened when a stockholder might make a tender or voting decision on the basis of materially misleading or inadequate information.”). There are times that our Court will provide monetary damages for disclosure violations, though recognizing that precisely quantifying the harm can be impossible. See Mindbody, 2023 WL 2518149, at *47 (“Here, as in Weinberger, the Company’s stockholders were harmed by the inadequate disclosures, which deprived them of a fair opportunity to vote down the Merger. As in Weinberger, the precise extent of the harm cannot be established.”). 109 Corwin, 125 A.3d at 306 (holding the business judgment rule applies when a merger “has been approved by a fully informed, uncoerced majority of the disinterested stockholders”); Morrison, 191 A.3d at 275 (declining to apply Corwin because the defendants failed to show that the vote was fully informed). 110 Corwin, 125 A.3d at 306 (requiring absence of coercion for stockholder cleansing to take effect); Pure Res., 808 A.2d at 452 (“[T]he possibility that structural coercion will taint the tendering process also gives rise, in my view, to injury sufficient to support an injunction.”).

33 cases from nearly thirty years ago, Stroud v. Grace111 and Williams v. Geier;112 the

parties join issue on what they mean today. As Vice Chancellor Laster pointed out

in a 2014 article, both support the view that a stockholder vote can lower the standard

of review for enjoining defensive measures from enhanced scrutiny to the business

judgment rule, because the vote interjects a second, nonconflicted decisionmaker to

whom deference should be afforded.113

In Stroud, the allegedly defensive measures took the form of charter and

bylaw amendments affecting nomination procedures that stockholders approved at

the annual meeting.114 The plaintiffs challenged those amendments, asserting their

approval and recommendation constituted a breach of fiduciary duty and warranted

review under Unocal.115 The Delaware Supreme Court described Unocal’s full

range, and stated that its underlying principles operate only “in the absence of an

informed shareholder vote ratifying the challenged action,” noting that the

amendments at issue were ratified.116 The Court also reasoned that “[a]ny defensive

effects of the [challenged actions] were collateral at best,” and concluded that

111 606 A.2d 75 (Del. 1995). 112 671 A.2d 1368 (Del. 1996). 113 Laster, supra note 93, at 1465–68. 114 Stroud, 606 A.2d at 80–81. 115 Id. at 81–82. 116 Id. at 81–83.

34 Unocal did not apply at all due to the absence of any threat to the board’s control.117

The Delaware Supreme Court concluded the business judgment rule governed in the

absence of misleading disclosures or other wrongdoing that was not ratified.118

The next year, a majority of the Delaware Supreme Court in Williams

concluded a challenge to invalidate an allegedly entrenching charter amendment that

instilled tenure voting did not “implicate[]” Unocal because “the Board action was

not unilateral”—there was an informed and uncoerced stockholder vote.119

According to Williams, “[a] Unocal analysis should be used only when a board

unilaterally (i.e., without stockholder approval) adopts defensive measures in

reaction to a perceived threat.”120 Williams concluded, “The instant case does not

involve either unilateral director action in the face of a claimed threat or an act of

disenfranchisement. . . . Thus, neither Blasius nor Unocal applies.”121

117 Id. at 83. 118 Id. at 83–84. 119 Williams, 671 A.2d at 1376. Under the tenure voting at issue in Williams, “holders of common stock on the record date would receive ten votes per share,” but “[u]pon sale or other transfer . . . each share would revert to one-vote-per-share status until that share is held by its owner for three years.” Id. at 1370. 120 Id. at 1377 (citing Unocal, 943 A.2d at 954–55). I read Williams to reason that Unocal’s recognition of the omnipresent specter of a conflict between a board and its stockholders tacitly relies on an assumption that the stockholders have not themselves spoken in favor of the board’s decision. See id. at 1377 n.18. 121 Id. at 1377.

35 Stroud and Williams are inconsistent with my reading of Corwin, and, unlike

Santa Fe, neither was acknowledged in relevant part by the Corwin Court. Corwin

cites Stroud as an example of a vote required by statute or charter that affected the

standard of review, indicating the Supreme Court thought the Stroud vote properly

had that effect.122 Corwin also cites Williams, albeit for the pedestrian principle that

a vote will not have a cleansing effect if it is coerced and for the general principle

that an informed statutory vote is “the highest and best form of corporate

democracy.”123 Corwin did not explicitly resolve the apparent tension between

Santa Fe on one hand, and Stroud and Williams on the other.124

I believe I am duty-bound to follow the most recent and specific Delaware

Supreme Court authority. Notwithstanding Stroud and Williams, I read Corwin’s

plain text as reiterated in Morrison v. Berry, together with Santa Fe’s instructions

122 Corwin, 125 A.3d at 310 n.19. 123 Id. at 312 nn.27–28 (internal quotation marks omitted) (quoting Williams, 671 A.2d at 1381). 124 At least one decision has described some tension as between aspects of Corwin and Santa Fe. See Paramount Gold & Silver, 2017 WL 1372659, at *6 (“I need not address the apparent tension between Corwin and Santa Fe . . . .”); see also Korsmo, supra note 63, at 101–02 (“This problem is at the heart of the Delaware Supreme Court’s decision in Santa Fe, which the Corwin court declined to confront. As the Santa Fe court emphasized, a vote in favor of the merger was not a vote in favor of the defensive measures being challenged. The stockholders were not, and could not, be offered that choice. They were ‘merely offered a choice between the [Board’s favored] Merger and doing nothing.’ Under Corwin, however, the stockholder vote provides omnibus absolution, and any defensive measures and side-payments are ratified along with everything else.” (alteration in original) (footnotes omitted) (quoting In re Santa Fe, 669 A.2d at 68)).

36 that Corwin implicitly preserved, to take a claim to enjoin defensive measures under

Unocal enhanced scrutiny out of Corwin’s reach. I read that to compel the

conclusion that a claim for injunctive relief under Unocal enhanced scrutiny is not

susceptible to restoration of the business judgment rule under Corwin. Corwin

applies to actions seeking post-closing damages, but not to the requests to enjoin

defensive or entrenching measures for which Unocal was designed.125

3. Plaintiffs Seek Only Injunctive Relief Under Unocal Enhanced Scrutiny: Corwin Cleansing Is Not Available. Plaintiffs here seek enhanced scrutiny for their claim under Unocal, and that

claim seeks only injunctive relief. They seek enhanced scrutiny under Unocal as

evolved in the activist era. Their claim to enjoin post-close defensive measures falls

in a no-man’s-land between the area Corwin plainly cannot reach (pre-close requests

for injunctive relief) and the area it plainly does (post-close damages actions).126

And while Santa Fe offers guidance, it is not on all fours: here, the defensive

measures at issue did not pressure the vote and “work[] their effect before the

stockholders had a chance to vote,” but rather were enacted by the vote, to work their

effect for years to come.127 As pled, this case still falls squarely within the purpose

125 See Corwin, 125 A.3d at 312–14; see also Armstrong, 2017 WL 2062902, at *9 (describing difficulty of applying Unocal to post-closing damages claims). 126 Corwin, 125 A.3d at 312–14. 127 Santa Fe, 669 A.2d at 68. Additionally, according to Defendants, the Challenged Provisions were disclosed to and voted on by the stockholders as an integral and uncoerced

37 of Unocal: Plaintiffs seek to enjoin defensive measures on the grounds that the

directors unreasonably enacted them to fend off activists.128 Plaintiffs do not seek

damages for the effect of defensive measures on a sale price, for which Unocal is an

awkward fit:129 they seek to enjoin those measures, for which Unocal was built.130

Corwin promised not to interfere with Unocal or to “expose stockholders to unfair

action by directors without protection.”131 Plaintiffs seek to enjoin an enduring

entrenchment device and are not seeking monetary damages: Corwin is

inapplicable.

part of the vote on the stock issuance, which if true would move this case further from the facts of Santa Fe. 128 See supra Section II.A.1. 129 Armstrong, 2017 WL 2062902, at *7–9. 130 See supra Section II.A.1. 131 Corwin, 125 A.3d at 312.

38 D. Plaintiffs Have Pled that Unocal Governs Their Claim.

Having concluded that Corwin does not impose a presumption of the business

judgment rule, I turn to whether the claims as pled inspire enhanced scrutiny. In all

situations other than the enactment of a rights plan, triggering Unocal enhanced

scrutiny requires pleading the board acted with a subjective motivation of defending

against a perceived threat.132 In other words, the plaintiff must plead facts to support

a reasonable inference that the “board ‘perceive[d] a threat’ to corporate control and

took defensive measures in response.”133 The Court may consider all relevant

132 See Gantler v. Stephens, 965 A.2d 695, 705 (Del. 2009) (stating that for Unocal to apply, a complaint must plead facts “from which it could reasonably be inferred that the defendants acted ‘defensively’”); Santa Fe, 669 A.2d at 71 (“Enhanced judicial scrutiny under Unocal applies ‘whenever the record reflects that a board of directors took defensive measures in response to a “perceived threat to corporate policy and effectiveness which touches upon issues of control.”’” (quoting Unitrin, 651 A.2d at 1372 n.9); In re Ebix, Inc. S’holder Litig., 2016 WL 208402, at *18 (Del. Ch. Jan. 15, 2016) (“[Where] a complaint pleads nonconclusory facts sufficient to support the characterization of a given board's action as defensive, the burden shifts to the board to prove the reasonableness that action.”); see also Williams Cos. S’holder Litig., 2021 WL 754593, at *23 (“The Director Defendants’ actual and articulated reason for taking action figures prominently in the Unocal analysis.”); In re Dollar Thrifty S’holder Litig., 14 A.3d 573, 599–600 (Del. Ch. 2010) (“[T]he reasonableness standard requires the court to consider for itself whether the board is truly well motivated (i.e., is it acting for the proper ends?) before ultimately determining whether its means were themselves a reasonable way of advancing those ends.”). Rights plans are an exception to this rule, as their entrenching effects are so severe that this Court will review it under Unocal regardless of the board’s subjective motivation. Selectica, 5 A.3d at 599; Williams Cos. S’holder Litig., 2021 WL 754593, at *21 (citing Selectica, 5 A.3d at 599). 133 Stroud, 606 A.2d at 82; Armstrong, 2017 WL 2062902, at *7 (citing Stroud, 606 A.2d at 82) (same); see also Ebix, 2016 WL 208402, at *19 (considering Goggin v. Vermillion, Inc., 2011 WL 2347704 (Del. Ch. June 3, 2011), then Kahn v. Roberts, 679 A.2d 460 (Del. 1996), and then Doskocil Cos. Inc. v. Griggy, 1988 WL 85491 (Del. Ch. Aug. 18, 1988)).

39 circumstances to discern the directors’ motivations.134 This inquiry is subjective,

pragmatic, and context-specific, and the Court will look to all relevant facts. For

example, in inferring whether a board acted with the requisite intent, our courts have

considered the timing of the allegedly defensive actions135 and whether those

measures have a potentially entrenching or defensive effect,136 whether there was a

looming threat of a proxy contest,137 whether the allegedly defensive actions were

134 See Ebix, 2016 WL 208402, at *18–20. 135 Griggy, 1988 WL 85491, at *6 (reasoning “[t]he adoption of a Rights Plan within a few weeks after the Schedule 13Ds were filed and the Smith Barney engagement letter strongly suggest that the defendant directors were operating in a defensive mode”); Henley Gp., Inc. v. Santa Fe S. Pac. Corp., 1988 WL 23945, at *13 (Del. Ch. Mar. 11, 1988) (“[T]he PIK debenture component of the restructuring first originated as a concept in December, 1987. In fact, the Board approved the restructuring, including the PIK debentures, on December 8, 1987—the very day it also adopted a package of antitakeover measures, including the reduction of the Rights Plan trigger to 20%.”). 136 Ebix, 2016 WL 208402, at *19 (considering the threat of proxy contest, the timing of allegedly defensive provisions in relation to the announcement of the proxy contest, and the defensive effects of the provisions at issue); Henley Gp., 1988 WL 23945, at *13 (concluding the approval of a payment-in-kind debenture was defensive in part because “the debentures have an indisputable (though limited) antitakeover effect” and “the PIK restrictions would make [the company] less attractive to certain prospective acquirers”); Kidsco Inc. v. Dinsmore, 674 A.2d 483, 493 (Del. Ch.), aff’d and remanded, 670 A.2d 1338 (Del. 1995) (“In neither case would the amendment perpetuate the current board in office.”). 137 Gantler, 965 A.2d at 705 (“Count I does not allege any hostile takeover attempt or similar threatened external action from which it could reasonably be inferred that the defendants acted ‘defensively.’”); Roberts, 679 A.2d at 466 (“Here the corporation sought to repurchase its own shares in a situation where there was no hostile bidder. Nothing in the record indicates that there was a real probability of any hostile acquiror emerging or that the corporation was ‘in play.’” (footnote omitted)).

40 otherwise necessary to accomplish a legitimate goal,138 whether the defendants

requested the provision or provisions at issue,139 and whether there was a clear

alternative reason for acting.140

Plaintiffs do not directly plead that the Board perceived a threat and then

responded defensively. Rather, Plaintiffs ask the Court to infer a subjective

entrenchment motivation from financial difficulty or underperformance, online

commentary that the company could be a target for activists, and the execution of

the Challenged Provisions several months later. They also argue that “the objective

provisions of the Stockholders’ Agreement alone support such a reasonable

inference at this stage.”141

I begin by considering whether the Challenged Provisions have a defensive

effect: if they do not, it would be difficult to conclude the Board negotiated them in

response to a perceived threat.142 Upon the Acquisition, College Parent holds

138 Henley Gp., 1988 WL 23945, at *13 (“[T]he restructuring could have been accomplished without the PIK debentures: the entire $30 per share dividend could have been paid as cash, and the $5 per share PIK debenture component could have been conventionally financed on less stringent terms.”). 139 Griggy, 1988 WL 85491, at *6 (“Moreover, the defendant directors neither asked for nor wanted the put provision.”). 140 Roberts, 679 A.2d at 466 (“Furthermore, the board acted to remove disgruntled shareholders, not in contemplation of an ephemeral threat that could somehow materialize at some point in the future.” (citation omitted)). 141 D.I. 29 at 35. 142 See, e.g., Stroud, 606 A.2d at 83 (rejecting argument that the board approved and recommended various director-nomination bylaw amendments in response to their

41 approximately 35% of the Company’s outstanding shares and is required to attend

every meeting by person or proxy and vote those shares in favor of the Board’s

nominees.143 The guaranteed support of 35% of the outstanding shares tends to

prevent an incumbent director from losing an election, or at the very least make it

far less likely.144 The Director Voting Requirement can also deter an activist from

launching a proxy contest, if only to extract other concessions; a proxy contest is

markedly more difficult if the board has the guaranteed support of 35% of the vote.145

The other Challenged Provisions have less significant defensive effects. The

Transfer Restrictions prevent College Parent from selling a large block of shares at

one time to anyone at all for two years, and then specifically to top activists for a

third year. This closes off an easy route for an activist to target the Company.

Likewise, the Vote Neutralization Provision precludes outright opposition from a

controllers’ control where the controllers already held a majority of the company’s outstanding shares). 143 S’holders’ Agr. § 3.1. 144 See Voigt v. Metcalf, 2020 WL 614999, at *18–19 (Del. Ch. Feb. 10, 2020). 145 Williams Cos. S’holder Litig., 2021 WL 754593, at *30 (“[A]ctivists’ ability to replace directors through the stockholder franchise is the reason why boards listen to activists. Most activists hold far less than a hard majority of a corporation's stock, making the main lever at an activist’s disposal a proxy fight.”); Kahan & Rock, supra note 66, at 970 & n.6 (explaining that activists are often successful in securing board representation or having a target adopt their proposals, and stating that “[a]ctivists often secure board seats with only the explicit or implicit threat of a proxy fight, without even filing any proxy materials”); see Voigt, 2020 WL 614999, at *18–19 (analyzing impact of 35% blocholder in contested director elections).

42 35% blocholder on any nonroutine matters, which tends to stifle opposition to

corporate policy. The Challenged Provisions have defensive effects, both when

viewed together and separately.146

But “[a] corporate action with collateral effects including a tendency to

preserve incumbent control is not per se subject to Unocal scrutiny.”147 Unocal

enhanced scrutiny still requires a subjective motivation to act defensively in

response to a perceived threat.148 The Complaint pleads that in the years leading up

146 Defendants argue that the Challenged Provisions could not have a defensive effect because the Company has a classified board and certain of its directors will not be up for reelection until 2025, “by which point the Individual Defendants may not be renominated or even want to continue to serve.” D.I. 25 at 25. The irony of this argument is not lost on the Court. See Airgas, Inc. v. Air Prods. & Chems., Inc., 2010 WL 3960599, at *2 (Del. Ch. Oct. 8, 2010) (referring to a classified board as a “standard defense[]”), rev’d on other grounds, 8 A.3d 1182 (Del. 2010). And while it is correct that all the incumbent directors will not stand for reelection until 2025, the incumbent directors control only six of the nine Board seats, meaning that with College Parent’s two Board seats, the activist would need only two seats before the Defendant Directors were a minority. And if the incumbent directors lose majority Board control, they lose control of College Parent—College Parent is required only to vote with the Board’s recommendations, and so the loss of these seats would mean that the incumbent directors would lose control over College Parent’s votes. The Challenged Provisions still tend to entrench even the classified board. And the presence of a classified board has historically not precluded the application of Unocal. See, e.g., Air Prods. & Chems., Inc. v. Airgas, Inc., 16 A.3d 48 (Del. Ch. 2011). 147 Ebix, 2016 WL 208402, at *18; see also Stroud, 606 A.2d at 83 (declining to apply Unocal because “[a]ny defensive effects of the [general option agreement] and the Amendments themselves were collateral at best.”). 148 See Unocal, 493 A.2d at 955 (“In the face of this inherent conflict directors must show that they had reasonable grounds for believing that a danger to corporate policy and effectiveness existed because of another person’s stock ownership.” (emphasis added)); Williams Cos. S’holder Litig., 2021 WL 754593, at *23 (“The Director Defendants’ actual and articulated reason for taking action figures prominently in the Unocal analysis.”).

43 to the Acquisition, the Company’s stock price suffered a dramatic decline, and its

Board and management appeared to be struggling to pull off a turnaround plan.

Analysts were speculating that the Company was likely an activist target:149 activists

often target companies that have depressed stock prices or are otherwise

underperforming.150 The Company’s troubles persisted, and the Board negotiated

for the Challenged Provisions only one month after lowering its third quarter

earnings guidance in November 2021. On January 20, 2022, at least one analyst was

expressing skepticism that the Company could execute on its turnaround plan.151

The Company proceeded with the Acquisition, announcing the transaction in March

of 2022. At this time, the Company appeared to remain a potential activist target, as

following the announcement, The Deal observed that “Apollo could serve as a white

squire if activists pursue Limelight.”152 The parties closed the Acquisition in June

2022, entering into an agreement including the Challenged Provisions.

149 While it is true that the Complaint does not plead the Director Defendants were aware of the specific market commentary speculating activists may target the Company, it is reasonable to infer that as directors of a publicly traded company covered by analysts, they were aware of what those analysts were writing. Additionally, it is reasonable to infer that the Defendant Directors were aware that the Company’s financial performance could make it vulnerable to activists. 150 See supra note 71. 151 Compl. ¶ 34. 152 Id. ¶ 49.

44 These allegations support the plaintiff-friendly inference that the directors

negotiated the Challenged Provisions with the subjective motive of defending

against an activist threat. The third year of the Transfer Restrictions bear a good

deal of Plaintiffs’ burden: the Director Defendants negotiated a provision that

expressly and specifically prohibited the transfer of College Parent’s stock from a

list of entities likely to launch an activist campaign. The Board negotiated this

restriction following the well-founded observation that the Company was an activist

target, within one month of the Company lowering its earnings guidance, and after

missing earnings estimates for the two previous quarters. This series of events

supports the plaintiff-friendly inference that the Board was concerned with the

prospect of stockholder activism and negotiated with College Parent to reduce the

likelihood of activist intervention.

Thus, I find it reasonable to infer that the Board negotiated for and obtained

the Challenged Provisions to defend against a perceived threat of activism. I do so

cautiously. Inferring subjective defensive intent from the objective characteristics

of a defensive measure is not very different than the per se trigger of Unocal that to

date has been reserved for rights plans.153 And the mandate to make

153 See, e.g., Selectica, 5 A.3d at 599 (“Consequently, notwithstanding its primary purpose, a NOL poison pill must also be analyzed under Unocal because of its effect and its direct implications for hostile takeovers.”). I note that it is unlikely that the nature of the Challenged Provisions alone would be sufficient to trigger Unocal.

45 plaintiff-friendly inferences does a lot of work here, given the absence of board

minutes or other internal documents more directly reflecting the Director

Defendants’ subjective motivations.154 Still, I conclude Unocal enhanced scrutiny

applies at the pleading stage. Because Defendants have not argued that the Unocal

standard is satisfied, Plaintiffs have adequately pled this claim.

E. Next Steps

Having concluded that Plaintiffs’ claim warrants enhanced scrutiny, I pause

for a moment to consider the relief sought. Plaintiffs seek certification of a class of

all record and beneficial holders of Limelight stock injured by Defendants’ conduct,

except Defendants and their affiliates—it is unclear if the class includes College

Parent.155 According to Plaintiffs, the class is “entitled to an injunction or other

appropriate declaratory/equitable relief preventing the enforcement of the

Incumbent Voting Requirement, the Vote Neutralization Provision, and the . . .

Transfer Restrictions.”156 Those provisions are part of a much broader agreement

154 Plaintiffs chose to forgo pursuing a books and records action pursuant to 8 Del. C. § 220 before filing a complaint in this action. Had Plaintiffs done so, they may have been able to plead additional facts evincing the Director Defendants’ motivations for acting. See, e.g., Lockton v. Rogers, 2022 WL 604011, at *16 n.244 (Del. Ch. Mar. 1, 2022) (“I note that records available under Section 220, resort to which the Plaintiffs eschewed, would presumably have disclosed any participation of Graham in the Merger sufficient to bolster the implication of knowing participation in breaches of duty.”). 155 Compl. ¶¶ 68, 71. 156 Id. ¶ 82; see also id. at Prayer For Relief.

46 between the Company and College Parent to effectuate the Acquisition. And while

College Parent may be a putative member of the class, which raises its own issues,

it is yet not a party to this matter as it seems it should be if terms in a contract it

executed are in jeopardy.157 As the case develops, I ask the parties to confer and

advise the Court as to whether Plaintiffs seek an injunction against the enforcement

of the Challenged Provisions if College Parent were to breach them, or something

broader; whether College Parent should be a party to this matter; and whether

College Parent is properly part of the putative class. If the requested injunction is to

“prevent[] the enforcement of the” Challenged Provisions in the event of a breach,158

I would also ask the parties to consider the jurisdictional issue of ripeness.

III. CONCLUSION

For the foregoing reasons, Defendants’ Motion is DENIED.

157 See Germaninvestments AG v. Allomet Corp., 2020 WL 6870459, at *8 (Del. Ch. Nov. 20, 2020) (“Delaware decisions recognize that when litigation places at issue the validity or enforceability of property rights, such as a party’s rights under an agreement, then the holders of the property rights have an interest in the subject matter of the action such that they should be joined as parties.” (internal quotation marks omitted) (quoting Perry v. Neupert, 2017 WL 6033498, at *12 (Del. Ch. Dec. 6, 2017))), aff’d in part, rev’d in part on other grounds, 225 A.3d 315 (Del. 2020); Elster v. Am. Airlines, 106 A.2d 202, 204 (Del. Ch. 1954) (“All parties to a contract sought to be cancelled are indispensable parties to the suit for cancellation unless it is obvious that one not joined has no interest whatever in the subject matter of the suit.”). 158 Compl. ¶ 82.