Paul Berger, as Trustee for the Paul Berger Revocable Trust and Kevin Barnes v. James Fox
Opinion
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
PAUL BERGER, AS TRUSTEE FOR ) THE PAUL BERGER REVOCABLE ) TRUST and KEVIN BARNES, ) ) Plaintiffs, ) ) v. ) C.A. No. 2025-1183-BWD ) JAMES FOX, LUIS A. AGUILAR, ) GAYLE CROWELL, VALERIE ) MOSLEY, GREGORY SMITH, ) LAUREN TAYLOR WOLFE, ) BARBARA TURNER, and MORGAN ) STANLEY & CO. LLC, ) ) Defendants. )
MEMORANDUM OPINION GRANTING MOTIONS TO DISMISS
Date Submitted: July 1, 2026 Date Decided: July 24, 2026
Kimberly A. Evans, Lindsay K. Faccenda, Daniel M. Baker, Robert Erikson, BLOCK & LEVITON LLP, Wilmington, DE; OF COUNSEL: Jason Leviton, BLOCK & LEVITON LLP, Boston, MA; Jeremy Friedman, David Tejtel, Alexander M. Krischik, Lindsay La Marca, FRIEDMAN OSTER & TEJTEL PLLC, Bedford Hills, NY; Attorneys for Plaintiff Paul Berger.
Thomas Curry, SAXENA WHITE P.A., Wilmington, DE; OF COUNSEL: David Schwartz, David Wales, Joshua Nelson, SAXENA WHITE P.A., White Plains, NY; Adam Warden, SAXENA WHITE P.A., Boca Raton, FL; Attorneys for Plaintiff Kevin Barnes. Sabrina M. Hendershot and Miranda N. Gilbert, PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP, Wilmington, DE; OF COUNSEL: Geoffrey Chepiga, Nina Kovalenko, Marques Tracy, PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP, New York, NY; Attorneys for Defendants James Fox, Luis A. Aguilar, Gayle Crowell, Valerie Mosley, Gregory Smith, Lauren Taylor Wolfe, and Barbara Turner.
Tammy L. Mercer, Amanda K. Pooler, Alberto E. Chávez, AKERMAN LLP, Wilmington, DE; OF COUNSEL: Andrew Clubok, Blair Connelly, Anthony R. Sarna, Amanda Di, LATHAM & WATKINS LLP, New York, NY; Attorneys for Defendant Morgan Stanley & Co. LLC.
DAVID, V.C. The plaintiffs in this action attempt a feat of pleading by alleging, post-
closing, that undisputedly independent directors breached their fiduciary duties by
approving an arm’s-length merger after a months-long sales process that generated
a premium to the target company’s unaffected share price. If that task sounds
difficult, that is because it runs counter to the foundation of our corporation law—
the business judgment rule—under which Delaware courts refuse to substitute their
own judgment for the decisions of independent directors acting in good faith and
with due care.
To challenge the arm’s-length merger here, the plaintiffs attempt to allege that
independent directors acted in bad faith by engaging a financial advisor they knew
to be conflicted, then stood idly by while the advisor steered a deal to favor its
preferred bidder. This theory falls apart for two independent reasons. First, the
merger was approved by an overwhelming majority of fully informed, disinterested
stockholders. The plaintiffs argue that the proxy issued in connection with the
merger failed to disclose details about the board’s financial and legal advisors’
conflicts and the value of a competing bid, defeating Corwin cleansing. But the
proxy disclosed all material information on those topics. The stockholder vote was
fully informed, and Corwin extinguishes the plaintiffs’ claims.
Second, even if Corwin did not apply, the complaint fails to state a claim for
breach of fiduciary duty against undisputedly independent directors. An exculpation
1 provision insulates the directors from breaches of the duty of care, and the plaintiffs
do not even attempt to allege that a majority of the directors who approved the
merger were interested in, or lacked independence with respect to, that decision. The
plaintiffs’ remaining path is to plead bad faith, a difficult standard to meet. Here,
the complaint fails to adequately allege that the directors intentionally caused the
proxy to omit material information, a daunting task when independent directors have
no motive for intentionally withholding disclosures. Nor does the complaint
adequately allege that the independent directors breached a non-exculpated duty in
connection with the sales process. The plaintiffs argue that the directors breached
their “Revlon duties,” but they are still limited to pleading bad faith. The plaintiffs’
attempt to second-guess the board’s decision-making fails to support an inference
that independent directors acted in bad faith by intentionally failing to run a
reasonable sales process.
The complaint also fails to state a claim for aiding and abetting. As alleged,
the financial advisor fully disclosed its relationships with all bidders, including the
buyer, to the board. The complaint does not allege that the financial advisor had an
incentive to favor one bidder over another, let alone that it took any action without
board direction or approval, or concealed information from or otherwise misled the
board. As a result, the complaint fails to identify any breach of the duty of care in
which the financial advisor “knowingly participated.”
2 For these reasons, explained more fully below, the plaintiffs’ complaint is
dismissed in its entirety.
I. BACKGROUND1 A. Envestnet Explores A Potential Sale Of The Company But No Deal Materializes. In November 2024, funds affiliated with Bain Capital Private Equity LP
(“Bain”) acquired all outstanding shares of Envestnet, Inc. (“Envestnet” or the
“Company”) in an all-cash take-private merger (the “Merger”). Compl. at 1–2,
¶¶ 158–59.
Prior to the Merger, Envestnet was a publicly traded Delaware corporation in
the financial technology industry. Id. ¶¶ 20–21. Envestnet provided a wealth
1 The following facts are taken from the Verified Class Action Complaint (the “Complaint”) and the documents incorporated by reference therein. Verified Class Action Compl. [hereinafter Compl.], Dkt. 1; see Allen v. Encore Energy P’rs, 72 A.3d 93, 96 n.2 (Del. 2013) (“A judge may consider documents outside of the pleadings only when[] . . . the document is integral to a plaintiff’s claim and incorporated in the complaint . . . .” (citing Vanderbilt Income & Growth Assocs., L.L.C. v. Arvida/JMB Managers, Inc., 691 A.2d 609, 613 (Del. 1996))); see 8 Del. C. § 220(b)(3). Documents attached to the Transmittal Affidavit of Sabrina M. Hendershot in support of the Director Defendants’ motion to dismiss are cited as “DX __” unless otherwise defined. Transmittal Aff. of Sabrina M. Hendershot in Supp. of the Director Defs.’ Opening Br. in Supp. of Their Mot. to Dismiss Counts I and II of the Verified Class Action Compl., Dkt. 24. Documents attached to the Transmittal Affidavit of Alberto E. Chávez in support of Morgan Stanley & Co. LLC’s motion to dismiss are cited as “Chávez Aff., Ex. __”. Transmittal Aff. of Alberto E. Chávez in Supp. of Opening Br. in Supp. of Morgan Stanley & Co. LLC’s Mot. to Dismiss the Aiding and Abetting Claim in Count III of the Verified Class Action Compl., Dkt. 22. Citations to “Tr. __” refer to the transcript of the July 1, 2026 oral argument. Dkt. 53.
3 management platform using integrated technology, intelligent data, and wealth
management software to financial advisors and service providers. Id. ¶ 21; DX 1
[hereinafter Proxy] at 33–34. Envestnet’s board of directors (the “Board”)
comprised defendants James Fox, Luis A. Aguilar, Gayle Crowell, Valerie Mosley,
Gregory Smith, Lauren Taylor Wolfe, and Barbara Turner (the “Director
Defendants”). Compl. ¶¶ 12–18.
In late 2019, Envestnet’s future became uncertain after the sudden death of its
co-founder and Chief Executive Officer (“CEO”), Jud Bergman. Id. ¶ 28. The
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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
PAUL BERGER, AS TRUSTEE FOR ) THE PAUL BERGER REVOCABLE ) TRUST and KEVIN BARNES, ) ) Plaintiffs, ) ) v. ) C.A. No. 2025-1183-BWD ) JAMES FOX, LUIS A. AGUILAR, ) GAYLE CROWELL, VALERIE ) MOSLEY, GREGORY SMITH, ) LAUREN TAYLOR WOLFE, ) BARBARA TURNER, and MORGAN ) STANLEY & CO. LLC, ) ) Defendants. )
MEMORANDUM OPINION GRANTING MOTIONS TO DISMISS
Date Submitted: July 1, 2026 Date Decided: July 24, 2026
Kimberly A. Evans, Lindsay K. Faccenda, Daniel M. Baker, Robert Erikson, BLOCK & LEVITON LLP, Wilmington, DE; OF COUNSEL: Jason Leviton, BLOCK & LEVITON LLP, Boston, MA; Jeremy Friedman, David Tejtel, Alexander M. Krischik, Lindsay La Marca, FRIEDMAN OSTER & TEJTEL PLLC, Bedford Hills, NY; Attorneys for Plaintiff Paul Berger.
Thomas Curry, SAXENA WHITE P.A., Wilmington, DE; OF COUNSEL: David Schwartz, David Wales, Joshua Nelson, SAXENA WHITE P.A., White Plains, NY; Adam Warden, SAXENA WHITE P.A., Boca Raton, FL; Attorneys for Plaintiff Kevin Barnes. Sabrina M. Hendershot and Miranda N. Gilbert, PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP, Wilmington, DE; OF COUNSEL: Geoffrey Chepiga, Nina Kovalenko, Marques Tracy, PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP, New York, NY; Attorneys for Defendants James Fox, Luis A. Aguilar, Gayle Crowell, Valerie Mosley, Gregory Smith, Lauren Taylor Wolfe, and Barbara Turner.
Tammy L. Mercer, Amanda K. Pooler, Alberto E. Chávez, AKERMAN LLP, Wilmington, DE; OF COUNSEL: Andrew Clubok, Blair Connelly, Anthony R. Sarna, Amanda Di, LATHAM & WATKINS LLP, New York, NY; Attorneys for Defendant Morgan Stanley & Co. LLC.
DAVID, V.C. The plaintiffs in this action attempt a feat of pleading by alleging, post-
closing, that undisputedly independent directors breached their fiduciary duties by
approving an arm’s-length merger after a months-long sales process that generated
a premium to the target company’s unaffected share price. If that task sounds
difficult, that is because it runs counter to the foundation of our corporation law—
the business judgment rule—under which Delaware courts refuse to substitute their
own judgment for the decisions of independent directors acting in good faith and
with due care.
To challenge the arm’s-length merger here, the plaintiffs attempt to allege that
independent directors acted in bad faith by engaging a financial advisor they knew
to be conflicted, then stood idly by while the advisor steered a deal to favor its
preferred bidder. This theory falls apart for two independent reasons. First, the
merger was approved by an overwhelming majority of fully informed, disinterested
stockholders. The plaintiffs argue that the proxy issued in connection with the
merger failed to disclose details about the board’s financial and legal advisors’
conflicts and the value of a competing bid, defeating Corwin cleansing. But the
proxy disclosed all material information on those topics. The stockholder vote was
fully informed, and Corwin extinguishes the plaintiffs’ claims.
Second, even if Corwin did not apply, the complaint fails to state a claim for
breach of fiduciary duty against undisputedly independent directors. An exculpation
1 provision insulates the directors from breaches of the duty of care, and the plaintiffs
do not even attempt to allege that a majority of the directors who approved the
merger were interested in, or lacked independence with respect to, that decision. The
plaintiffs’ remaining path is to plead bad faith, a difficult standard to meet. Here,
the complaint fails to adequately allege that the directors intentionally caused the
proxy to omit material information, a daunting task when independent directors have
no motive for intentionally withholding disclosures. Nor does the complaint
adequately allege that the independent directors breached a non-exculpated duty in
connection with the sales process. The plaintiffs argue that the directors breached
their “Revlon duties,” but they are still limited to pleading bad faith. The plaintiffs’
attempt to second-guess the board’s decision-making fails to support an inference
that independent directors acted in bad faith by intentionally failing to run a
reasonable sales process.
The complaint also fails to state a claim for aiding and abetting. As alleged,
the financial advisor fully disclosed its relationships with all bidders, including the
buyer, to the board. The complaint does not allege that the financial advisor had an
incentive to favor one bidder over another, let alone that it took any action without
board direction or approval, or concealed information from or otherwise misled the
board. As a result, the complaint fails to identify any breach of the duty of care in
which the financial advisor “knowingly participated.”
2 For these reasons, explained more fully below, the plaintiffs’ complaint is
dismissed in its entirety.
I. BACKGROUND1 A. Envestnet Explores A Potential Sale Of The Company But No Deal Materializes. In November 2024, funds affiliated with Bain Capital Private Equity LP
(“Bain”) acquired all outstanding shares of Envestnet, Inc. (“Envestnet” or the
“Company”) in an all-cash take-private merger (the “Merger”). Compl. at 1–2,
¶¶ 158–59.
Prior to the Merger, Envestnet was a publicly traded Delaware corporation in
the financial technology industry. Id. ¶¶ 20–21. Envestnet provided a wealth
1 The following facts are taken from the Verified Class Action Complaint (the “Complaint”) and the documents incorporated by reference therein. Verified Class Action Compl. [hereinafter Compl.], Dkt. 1; see Allen v. Encore Energy P’rs, 72 A.3d 93, 96 n.2 (Del. 2013) (“A judge may consider documents outside of the pleadings only when[] . . . the document is integral to a plaintiff’s claim and incorporated in the complaint . . . .” (citing Vanderbilt Income & Growth Assocs., L.L.C. v. Arvida/JMB Managers, Inc., 691 A.2d 609, 613 (Del. 1996))); see 8 Del. C. § 220(b)(3). Documents attached to the Transmittal Affidavit of Sabrina M. Hendershot in support of the Director Defendants’ motion to dismiss are cited as “DX __” unless otherwise defined. Transmittal Aff. of Sabrina M. Hendershot in Supp. of the Director Defs.’ Opening Br. in Supp. of Their Mot. to Dismiss Counts I and II of the Verified Class Action Compl., Dkt. 24. Documents attached to the Transmittal Affidavit of Alberto E. Chávez in support of Morgan Stanley & Co. LLC’s motion to dismiss are cited as “Chávez Aff., Ex. __”. Transmittal Aff. of Alberto E. Chávez in Supp. of Opening Br. in Supp. of Morgan Stanley & Co. LLC’s Mot. to Dismiss the Aiding and Abetting Claim in Count III of the Verified Class Action Compl., Dkt. 22. Citations to “Tr. __” refer to the transcript of the July 1, 2026 oral argument. Dkt. 53.
3 management platform using integrated technology, intelligent data, and wealth
management software to financial advisors and service providers. Id. ¶ 21; DX 1
[hereinafter Proxy] at 33–34. Envestnet’s board of directors (the “Board”)
comprised defendants James Fox, Luis A. Aguilar, Gayle Crowell, Valerie Mosley,
Gregory Smith, Lauren Taylor Wolfe, and Barbara Turner (the “Director
Defendants”). Compl. ¶¶ 12–18.
In late 2019, Envestnet’s future became uncertain after the sudden death of its
co-founder and Chief Executive Officer (“CEO”), Jud Bergman. Id. ¶ 28. The
Board retained Goldman Sachs to conduct a strategic review process, during which
the Board considered a sale of the Company or a divestiture of its Data & Analytics
business (the “D&A Business”). Id. ¶¶ 23, 28. In May 2020, Bain submitted a non-
binding proposal to acquire the Company for $57 to $62 per share in cash, contingent
on a divestiture of the D&A Business. Id. ¶ 28. The Board was not willing to pursue
a transaction contingent on a sale of the D&A Business at that time and the strategic
review process did not result in a transaction. Id. ¶¶ 28, 36; Proxy at 36–37.
Envestnet undertook another strategic review two years later, this time led by
Piper Sandler. Compl. ¶ 29. Envestnet entered discussions with several parties,
including Bain. Id. ¶ 31; Proxy at 37. Envestnet and Bain executed a nondisclosure
agreement (the “2022 Bain NDA”) and explored a potential transaction until
April 2022, but a deal never materialized. Compl. ¶¶ 31–32; Proxy at 37. In August
4 2022, the parties amended the 2022 Bain NDA to permit Bain to acquire additional
shares of Envestnet. Compl. ¶ 33.
Five months later, in January 2023, an “unnamed financial advisory firm
representing the Company” (not Morgan Stanley) contacted Bain to discuss an
acquisition of the Company again. Id. ¶ 34; Proxy at 37. The 2022 Bain NDA was
amended to extend Bain’s standstill obligations until January 5, 2024, and Bain met
with Envestnet and conducted preliminary due diligence. Compl. ¶ 35; Proxy at 37.
On February 12, 2023, Bain notified the Company that it would not submit a bid
because it could not offer a premium to Envestnet’s trading price. Compl. ¶ 36;
Proxy at 37.
B. Envestnet Begins A Sale Process For The D&A Business.
Between February 13 and November 6, Envestnet’s stock price declined from
$65 per share to below $35 per share, due in part to “declining revenue and volatility
in [the Company’s] banking customer base.” Compl. ¶ 38 (citation omitted).
At the end of 2023, the Board engaged yet another financial advisor in
connection with a possible sale of the D&A Business. Proxy at 37. Bloomberg
leaked that the Company had hired an advisor to solicit interest in the sale of the
D&A Business, noting that “persistent deterioration in the [D&A] [B]usiness”
presented a “real concern for Envestnet.” DX 6 at 1–2.
5 In January 2024, the Company announced the departure of its interim CEO,
effective March 31. Compl. ¶ 41. The Board appointed Fox as interim CEO
beginning April 1. Proxy at 38; see Compl. ¶ 137.
The next week, Envestnet met with Bain again to discuss a potential
transaction. Compl. ¶¶ 42–43; Proxy at 38.
In February 2024, Envestnet formally launched a sale process for the D&A
Business, which “included outreach to an affiliate of Bain,” among many other
potential bidders. Compl. ¶ 44; Proxy at 38.
C. Bain Submits A Proposal To Acquire Envestnet And The Company Hires Financial And Legal Advisors.
On March 23, Bain submitted a non-binding proposal to acquire the Company
for $62 to $64 per share in cash (“Bain’s March Proposal”). Compl. ¶ 45; Proxy
at 38. Bain’s March Proposal cited Bain’s “in-depth recent evaluation” and
“extensive due diligence,” including its “participation in prior sales processes” and
“review of recent publicly available information,” as support for the proposal. DX 9
at 2. Bain’s March Proposal explained that Bain would finance the transaction with
“a combination of equity from Bain Capital-controlled funds and third-party
coinvestors, and third-party debt financing,” and expressed the “utmost confidence”
that Bain could obtain the necessary financing in advance of a signing in five weeks.
Compl. ¶ 45; Proxy at 38.
6 On March 27, the Board met to consider Bain’s March Proposal. Compl. ¶ 46;
Proxy at 38. According to the Proxy, at that meeting, the Board instructed Fox to
contact Morgan Stanley & Co. LLC (“Morgan Stanley,” and with the Director
Defendants, “Defendants”), with whom the Company “had a pre-existing and
unrelated engagement[,] to ask them to advise on [Bain’s March] Proposal and the
Board’s review of other strategic alternatives.” Proxy at 38; Compl. ¶¶ 19, 46.2
On April 2, Morgan Stanley sent the Board a relationship disclosure (the
“April 2 Disclosure”) describing its relationships with Envestnet and Bain. Compl.
¶ 48; Proxy at 38; DX 11. The April 2 Disclosure stated that in the two years prior
to the disclosure, Morgan Stanley and its affiliates had earned financial advisory and
financing fees of approximately $5 to $6 million from Envestnet and $35 to $40
million from Bain. Compl. ¶ 48; DX 11 at 1. The April 2 Disclosure further
disclosed that Morgan Stanley was a lender to Envestnet, Bain, and Bain affiliates.
Compl. ¶ 54; DX 11 at 1. In addition, the April 2 Disclosure disclosed to the Board
that the prior month, Morgan Stanley had shared materials concerning an illustrative
buyout analysis of the Company (the “Illustrative LBO Analysis”) with Bain:
In March 2024[,] Morgan Stanley prepared written discussion materials concerning the Company, which materials, among other things, showed an illustrative leveraged buyout analysis of the Company using an assumed purchase price of $60-80 per share for the Company’s
2 Plaintiffs note that the March 27 Board meeting minutes do not mention Morgan Stanley or “any discussion of alternative advisor candidates.” Compl. ¶ 47; see DX 10 at 1.
7 common stock. The materials were prepared by Morgan Stanley in the ordinary course and were shared with two financial sponsors, one of which was Bain Capital. Morgan Stanley was and is not engaged by, or otherwise providing services to, either such financial sponsor (or any other party) in connection with the Transaction.
Compl. ¶ 51; DX 11 at 2.3
On April 3, Morgan Stanley provided an updated relationship disclosure (the
“April 3 Disclosure”). Compl. ¶ 61; Proxy at 39. The April 3 Disclosure further
disclosed that Morgan Stanley owned “between 10% and 15% in the common stock
of a publicly traded Bain Capital LP related entity,” and that it owned up to 2% of
the common stock of other Bain-affiliated entities. Compl. ¶ 61.
Around the same time, the Board retained the law firm Paul, Weiss, Rifkind,
Wharton & Garrison LLP (“Paul, Weiss”) as its legal counsel to advise on a potential
transaction. Proxy at 39; see Compl. ¶ 56.4
The Board formally engaged Morgan Stanley to advise on Bain’s March
Proposal and other strategic alternatives on April 14. Compl. ¶ 65; Proxy at 39.
Morgan Stanley’s engagement letter entitled Morgan Stanley to a $3 million fee for
3 Morgan Stanley supplemented the April 2 Disclosure at least four times, on April 3, May 20, June 18, and July 10. Compl. ¶¶ 61, 96, 108, 126; Proxy at 39, 43, 45, 49. 4 The Company retained Paul, Weiss in April but did not execute an engagement letter until July 10, the day before the Merger was approved. See Compl. ¶ 57.
8 rendering a fairness opinion and an additional fee equal to 1.1% of the deal value
upon consummation of a transaction. Compl. ¶ 66.
D. Envestnet Receives Unsolicited Acquisition Proposals From FNZ And GTCR.
On April 16, Reuters published an article reporting that after receiving interest
from private equity firms, including Bain, Envestnet was exploring strategic
alternatives that could include a potential sale of the Company. Id. ¶ 70; Proxy at 39.
The next day, the Board met again to discuss Bain’s March Proposal.
Management presented preliminary draft long-range projections for the fiscal
years 2024 through 2028, and Morgan Stanley presented preliminary analyses,
including a discounted cash flow (“DCF”) analysis, based on the draft projections.
Compl. ¶ 73; Proxy at 39. Morgan Stanley’s DCF analysis implied a value range of
approximately $60.75 to $77.00 per share using a 3% growth rate (with a midpoint
of $68.88 per share), $63.50 to $80.50 per share using a 4% growth rate (with a
midpoint of $72.00 per share), and $66.50 to $84.00 per share using a 5% growth
rate (with a midpoint of $75.25 per share). Compl. ¶ 73; DX 13 at 48–50. Morgan
Stanley also identified fourteen potential strategic counterparties and ten potential
financial sponsors. Proxy at 40; DX 13 at 1–2. The Board directed Morgan Stanley
to encourage Bain to improve its March Proposal and to offer incremental diligence
materials. Proxy at 40; Compl. ¶ 74. The Board also directed Company
management to continue to develop the projections. Proxy at 40; Compl. ¶ 74.
9 On April 18, Envestnet and Bain entered into a new nondisclosure agreement
(the “2024 Bain NDA”). Compl. ¶ 75.
On April 26, private equity firm GTCR LLC (“GTCR”) submitted an
unsolicited non-binding proposal to acquire the Company for $70 to $75 per share
in cash (“GTCR’s April Proposal”). Id. ¶ 76; Proxy at 40. GTCR’s April Proposal
stated that GTCR “expected it would need to raise third-party debt financing to
finance the transaction consideration” and “was prepared to move expeditiously.”
Proxy at 40; Compl. ¶ 76. The next day, strategic party FNZ Group (“FNZ”)
submitted another unsolicited non-binding proposal to acquire the Company for $67
to $71 per share in cash (“FNZ’s April Proposal”). Compl. ¶ 77; Proxy at 40. FNZ,
which had a strategic partnership with the Company to distribute its wealth data
platform internationally, stated that FNZ’s April Proposal was “not subject to any
financing contingencies” and it expected that a transaction could be signed within 30
to 45 days. Compl. ¶ 77; Proxy at 40–41.
The Board met on April 29 to discuss the proposals. Compl. ¶ 78. “The Board
discussed the fact that the [two] proposals offered higher prices for the Company
than [Bain’s March] Proposal and also discussed that neither of the [two] proposals
had yet identified or secured financing partners to complete a transaction.” Proxy
at 41; DX 16 [hereinafter April 29 Minutes] at 2. The Board considered “whether
either [FNZ] or [GTCR] had the financial capability to potentially acquire the
10 Company without committed debt or equity financing,” “the importance of fully
committed financing at signing,” and “that each [b]idder’s ability to secure financing
directly related to deal certainty.” April 29 Minutes at 3. The Board also considered
that a transaction with GTCR or FNZ posed a greater risk of regulatory delay than a
transaction with Bain. Id. at 2–3.
The Board set a May 20 deadline for GTCR and FNZ to submit financing
proposals. Compl. ¶ 79; April 29 Minutes at 4. In the days following, the Company
entered into nondisclosure agreements with GTCR and FNZ and provided each
bidder with access to Envestnet’s virtual data room. Compl. ¶ 82.
On May 8, the Board held a meeting at which management presented revised
projections “based on management’s 2024 annual financial plan.” Id. ¶ 87. The
Board also received an update on the D&A Business sale process, in which,
following outreach to more than 80 bidders, four bidders remained in discussions
with the Company. DX 8 at 2–3. Preliminary proposals for the D&A Business
ranged from $250 million to $325 million. Id.
E. GTCR, Bain, And FNZ Submit Revised Proposals.
On May 20, GTCR submitted a revised non-binding proposal to acquire the
Company for $72.50 per share in cash (“GTCR’s May Proposal”). Compl. ¶ 88.
GTCR’s May Proposal stated that GTCR had obtained equity commitments from
GTCR-affiliated funds and third-party co-investors and secured debt financing
11 through signed debt commitment letters from Barclays Bank PLC, JPMorgan Chase
Bank, N.A., and Wells Fargo Bank. Id. ¶ 91. GTCR’s May Proposal further stated
that GTCR “expect[ed] to complete diligence within three weeks.” Id.; DX 17 at 25.
The same day, Bain submitted a revised non-binding proposal to acquire the
Company for $67.50 per share in cash (“Bain’s May Proposal”). Compl. ¶ 88.
Bain’s May Proposal reiterated that Bain would fund the purchase price with equity
from Bain funds and third-party co-investors and third-party debt financing. DX 17
at 17; see Compl. ¶ 89. Bain again expressed the “utmost confidence in [its] ability
to provide financing commitments” and sought permission to contact four banks, six
direct lenders, eleven limited partners, and four strategic investors for additional
financing. DX 17 at 17; Compl. ¶ 89. Bain’s May Proposal indicated that Bain
could sign a deal within two to three weeks. DX 17 at 16; Compl. ¶ 89.
Morgan Stanley also provided an updated relationship disclosure on May 20
(the “May 20 Disclosure”). Compl. ¶ 96; see Proxy at 43. The May 20 Disclosure
stated that in the two years prior to the disclosure, Morgan Stanley and its affiliates
had received $40 to $50 million in fees from Bain, an increase from the $35 to $40
million in fees identified in the April 2 Disclosure. Compl. ¶ 96. It also stated that
in the two years prior to the disclosure, Morgan Stanley and its affiliates had received
$40 to $50 million in fees from GTCR and its affiliates, and that a member of
12 Morgan Stanley’s senior deal team was a member of FNZ’s coverage team. Chávez
Aff., Ex. K at 1–2.
The next day, May 21, FNZ submitted a revised non-binding proposal to
acquire the Company for $71 per share in cash (“FNZ’s May Proposal”). Compl.
¶ 88. FNZ’s May Proposal enclosed a signed debt commitment letter for
approximately $4.5 billion and preferred equity support letters for approximately
$2.9 billion. Id. ¶ 90. FNZ’s May Proposal stated that FNZ would use $2.1 billion
of committed financing to refinance its own debt, its proposal would “not be
conditional on obtaining financing,” and expressed a desire to sign within four
weeks. Id.
When the Board and its advisors met to review the revised proposals,5
Morgan Stanley expressed its belief that GTCR’s and FNZ’s proposals offered more
cash per share than Bain’s because GTCR and FNZ “likely expected to achieve
significant business-operation synergies” following the merger. Compl. ¶ 92. But
Morgan Stanley also noted that “Bain was likely to be able to complete its diligence
on an expeditious timeline.” Id. The Board asked questions about the structure of
FNZ’s May Proposal, which sought to finance the entire transaction with debt and
preferred equity, and Morgan Stanley said it would seek clarity on FNZ’s financing
5 Minutes before the Board’s May 23 meeting, Bloomberg reported that Envestnet was drawing interest from potential buyers, including GTCR. DX 18.
13 structure. DX 17 at 3. The Board set a June 19 deadline to complete diligence,
secure financing, and submit final bids. Compl. ¶ 93. The Board also agreed to
permit the bidders to contact a limited number of bona fide financing sources. Id.
Days later, the Board met again to discuss the sales process. Id. ¶ 94. The
Board discussed that “widespread news reports [of a potential transaction] may have
reduced, perhaps significantly, the additional value of undertaking a pre-signing
market check or go-shop as compared to situations without such press coverage.”
DX 14 at 2. The Board also considered “strong feedback” from FNZ and Bain
rejecting a go-shop provision in their mark-ups of a draft merger agreement. Id.
“Weighing those factors, the Board determined that provided that a relatively low
(below 3%) termination fee could be agreed to be paid by the Company in the event
that a bidder wanted to acquire the Company following the signing of a merger
agreement, there would be sufficient opportunity for any bidders that had not
decided to approach the Company following the news coverage to emerge.” Id.
Paul, Weiss gave an updated regulatory analysis in which it advised that a
transaction with Bain or FNZ “posed little to no antitrust risk and that such a
transaction would very likely receive regulatory clearance,” while a transaction with
GTCR “had a greater likelihood of an extended investigation.” DX 14 at 2–3.
14 F. GTCR Withdraws From The Bidding Process.
On June 12, GTCR sent a letter to the Board stating that GTCR would not be
in a position to submit a revised proposal by the June 19 deadline due to “limited
access to Company data and management.” Compl. ¶ 97. GTCR stated that
“[s]hould these circumstances change materially,” GTCR would be “pleased to
discuss re-engaging to complete [its] diligence and submit a binding proposal to
acquire the Company.” DX 19 [hereinafter June 14 Minutes] at 7. But when Morgan
Stanley contacted GTCR the next day to discuss its concerns, GTCR declined to re-
engage and reiterated its intent to exit the process. Compl. ¶¶ 99–100.
When the Board met to discuss GTCR’s June 12 letter,
Representatives of Morgan Stanley, with input from representatives of Paul, Weiss, . . . reviewed in detail the amount of information and access to members of Company management that had been provided to [GTCR] in comparison to [Bain] and [FNZ], noting that [GTCR] had been provided substantially similar access to Company management as [Bain] and [FNZ] and that [GTCR] had been given appropriate access to the virtual data room for diligence purposes.
June 14 Minutes at 2; see Compl. ¶ 100. Morgan Stanley told the Board that GTCR
“had cancelled several hours of meetings with Company management” prior to
June 12, and GTCR “had not responded to offers from . . . Morgan Stanley to
schedule . . . additional calls with members of Company management.” June 14
Minutes at 2. The Board discussed possible reasons for GTCR’s exit from the
process, as well as the benefits and risks of further outreach to GTCR or an extension
15 of the June 19 deadline. Compl. ¶ 100; June 14 Minutes at 2. The Board decided to
continue discussions with Bain and FNZ consistent with the June 19 deadline.
June 14 Minutes at 2; see Compl. ¶ 100. The Board also directed Paul, Weiss to
communicate with GTCR to better understand its concerns and to encourage GTCR
to submit a final proposal by June 19. June 14 Minutes at 3.
On June 16 and 17, the Company informed GTCR, FNZ, and Bain that
updated proposals to acquire the D&A Business reflected a value of between $100
million and $220 million, significantly less than preliminary proposals for between
$250 million and $325 million. Proxy at 42, 45; Compl. ¶ 101.
G. Bain Submits Another Proposal.
On June 18, FNZ informed the Company that it had not secured financing to
submit a final proposal by June 19, and that, while “it may be able to submit a revised
proposal,” it “would require at least several additional weeks to secure the necessary
financing.” Proxy at 45; see Compl. ¶¶ 102–03.
On June 19, Bain submitted a proposal to acquire the Company for $62.75 per
share in cash, plus a cash amount equal to any consideration received by the
Company for the sale of the D&A Business if the divestiture was completed by
closing (“Bain’s June Proposal”). Compl. ¶ 105. Bain’s June Proposal was not
contingent on a sale of the D&A Business, and stated that the purchase price would
be funded with $1.8 billion from Bain-advised funds, third-party co-investors, and
16 strategic partners, plus committed debt and preferred equity. Proxy at 45. Bain’s
June Proposal stated that Bain had completed diligence and obtained internal
approvals, and was prepared to sign a deal within one week. Id. at 45–46.
Over the next two days, the Board met to consider Bain’s June Proposal and
the D&A Business sale process. DX 20–21; see Compl. ¶¶ 106, 111. The Board
and its advisors concluded that Bain likely decreased its offer due to lower valuations
received for the D&A Business. DX 21 at 2. The Board reviewed an updated
relationship disclosure that Morgan Stanley delivered on June 18 (the “June 18
Disclosure”), which disclosed that Morgan Stanley had received $15 to $30 million
in fees from GTCR in the two years prior to the disclosure, down from $40 to $50
million in the May 20 Disclosure. Compl. ¶ 108; Chávez Aff., Exs. K–L. The
June 18 Disclosure also disclosed $30 to $50 million in fees from Bain, down
from $40 to $50 million in the May 20 Disclosure. Compl. ¶ 108; Chávez Aff., Exs.
K–L. Morgan Stanley presented the Board with a revised DCF analysis yielding a
valuation range of $60.75 to $76.50 per share, with a midpoint of $68.63. Compl.
¶ 112. The Board agreed to reconvene after the weekend to allow time for an
additional bid from FNZ, but also instructed Morgan Stanley to counter Bain’s June
Proposal at $64 per share, confirm that the deal would not be conditioned on a sale
of the D&A Business, and ensure Bain would have committed financing at signing.
DX 20 at 4.
17 H. FNZ Submits Another Proposal, GTCR Confirms It Is Out, And The Board Counters Bain’s June Proposal. On June 21, FNZ told Fox that it would submit a proposal to acquire the
Company the following day. Compl. ¶ 114. The next day, FNZ submitted a revised
proposal to acquire the Company for $70 per share in cash (“FNZ’s June Proposal”).
Id. ¶ 115. FNZ’s June Proposal asked for three to four weeks to secure financing
and an exclusivity period of up to four weeks. DX 22 at 7–8. FNZ’s June Proposal
proposed a rollover in which BlackRock, a substantial Envestnet stockholder, would
exchange its Envestnet shares for FNZ shares and an additional equity commitment.
Compl. ¶ 115. Although BlackRock agreed to “evaluate” a rollover, it had not
committed to one. DX 22 at 6–7. FNZ’s June Proposal was also contingent on the
sale of the D&A Business and contemplated that proceeds from the sale would be
distributed to Envestnet stockholders. Compl. ¶ 115. FNZ’s June Proposal stated
that FNZ valued its proposal at approximately $72 to $73 per share, assuming the
divestiture of the D&A Business yielded proceeds of $100 million to $160 million.
Id.
On Monday, June 24, the Board reconvened to discuss the sales process. Id.
¶ 116. Morgan Stanley reported that FNZ’s financial advisor had asked for feedback
on FNZ’s June Proposal and Morgan Stanley relayed concerns about FNZ’s
financing. Id. FNZ’s advisor told Morgan Stanley that FNZ was attempting to
secure financing commitments but had not yet done so. DX 22 at 2. The Board
18 agreed that it would require fully committed financing at signing, and also
considered that FNZ’s June Proposal was contingent on the sale of the D&A
Business, “introducing closing risks not present in the [Bain] proposal.” Id.
In addition, Fox told the Board that he had spoken with a representative at
GTCR, who told him GTCR would not be able to make another offer for the
Company in the near term and that it had gotten “ahead of [its] skis” when it made
its earlier proposals. Id. Morgan Stanley also reported that it tried to connect with
GTCR on multiple occasions but had not heard back. Id.
In weighing the viability of a transaction with FNZ or GTCR, the Board
considered that Bain “had been consistent, straightforward and timely in its
proposals.” Id. Morgan Stanley informed the Board that Bain’s valuation of the
Company had in fact been affected by the recent proposals for the D&A Business,
and while Bain’s June Proposal was not contingent on a sale of the D&A Business,
Bain expected consent rights over the sale of the D&A Business prior to closing.
Compl. ¶ 116.
The Board again considered whether it should extend the transaction timeline
to accommodate FNZ’s attempt to secure financing, but concluded that even if FNZ
were to obtain financing, its offer was contingent on a sale of the D&A Business,
which was uncertain. DX 22 at 3; see Compl. ¶ 117. The Board also discussed that
19 media reports surrounding the Company’s process created uncertainty for
employees, business partners, and customers. DX 22 at 3.
The Board then discussed the Company’s standalone prospects and Morgan
Stanley’s “advice and financial analyses.” Id. The Board concluded that “the
amount and certainty of Bain’s offer was likely to provide greater value to the
Company’s shareholders” than the Company’s standalone plan when considering
the execution risk associated with Envestnet’s turnaround plans and the potential
that the D&A Business may realize a lower-than-expected transaction value. Id.
The Board again directed Morgan Stanley to attempt to negotiate a price increase
from Bain. Id.; see Compl. ¶ 118.
I. The Board Accepts Bain’s “Best And Final” Proposal.
On June 25, Bain provided Morgan Stanley with a “best and final” offer to
acquire the Company for $63.15 per share in cash, conditioned on exclusivity
through July 10 (the “Final Bain Proposal”). Compl. ¶ 120; Proxy at 48.
The Board met to consider the Final Bain Proposal the same day. Id. ¶ 121.
At the meeting, Morgan Stanley informed the Board that GTCR had reaffirmed that
it would not submit another proposal. DX 15 at 2. Morgan Stanley and Paul, Weiss
further informed the Board that FNZ would require additional weeks to arrange
committed financing and could not provide a definite response regarding its
expected financing sources. Id.
20 The Board considered whether to attempt to solicit revised bids from GTCR
or FNZ but concluded that neither bidder had demonstrated the same level of interest
in the Company as Bain. Id. The Board noted that it had already pushed Bain on
price, waiting on a revised proposal from FNZ risked jeopardizing a transaction with
Bain, and a transaction with FNZ was still conditioned on a sale of the D&A
Business. Id.
After concluding that further efforts to extract price increases from Bain were
unlikely to be successful, the Board determined to accept the Final Bain Proposal
and grant Bain limited exclusivity through July 10. Id. at 2–3.
Beginning on June 26, Envestnet and Bain exchanged drafts of a merger
agreement (the “Merger Agreement”). Compl. ¶ 122. On July 9, the Board held a
meeting at which it received an update on negotiations and a presentation from
Morgan Stanley on valuation. Id. ¶ 124. Morgan Stanley’s presentation showed that
Bain’s $63.15 per share offer represented a 4.8% discount to the Company’s 52-
week share price high of $66.31, but an 11.7% premium to the unaffected share price
of $56.54 and a 12.1% premium to the unaffected 30-day volume-weighted average
share price of $56.35. Id.; DX 23 at 34.
On July 10, Morgan Stanley provided another relationship disclosure (the
“July 10 Disclosure”), which disclosed:
Morgan Stanley is mandated on a large number of advisory and financing assignments for certain Bain Related Entities . . . , in each
21 case unrelated to the Transaction, for which we would expect to receive customary fees if such transactions are completed. We expect that such fees from the Bain Related Entities would be significantly more, in the aggregate, than the fees Morgan Stanley would receive from the Company in the Transaction.
Compl. ¶ 126; Proxy at 49.
On July 11, the Board met again and discussed the July 10 Disclosure,
concluding that the relationships disclosed therein “would not interfere with Morgan
Stanley’s ability to provide advisory services or render a fairness opinion to the
Board.” Compl. ¶ 128. Morgan Stanley subsequently provided an updated valuation
presentation and fairness opinion to the Board. Id. ¶ 129. Following Morgan
Stanley’s presentation, the Board unanimously approved entry into the Merger
Agreement. Id. ¶ 132. The Board also authorized a $900,000 discretionary cash
bonus to Fox for his work on the transaction. Id.
Later that day, the Company publicly announced the Merger. Id. ¶ 133.
J. Envestnet Stockholders Approve The Transaction. On August 23, 2024, Envestnet filed a definitive proxy statement (the
“Proxy”) with the Securities and Exchange Commission in connection with the
Merger. Id. ¶ 151. With respect to Morgan Stanley’s fee, the Proxy disclosed:
Envestnet has agreed to pay Morgan Stanley for its services in connection with the Merger an aggregate fee, a significant portion of which is contingent upon the closing of the Merger, which is estimated, as of the date of this Proxy Statement, to be approximately $50 million (which we refer to as the “Morgan Stanley Transaction Fee”), $3 million of which was payable upon the rendering of a financial opinion
22 to the Board, which will be credited against the Morgan Stanley Transaction Fee payable if the Merger is consummated.
Proxy at 65. With respect to prior fees Morgan Stanley had earned from Envestnet
and Bain, the Proxy disclosed:
In the two years prior to the date of Morgan Stanley’s opinion, Morgan Stanley and its affiliates provided financial advisory and financing services to Envestnet and received aggregate fees of approximately between $5 million and $6 million for such services. In the two years prior to the date of Morgan Stanley’s opinion, Morgan Stanley and its affiliates . . . provided financial advisory and financing services for the Bain Related Entities and received aggregate fees of approximately between $30 million and $50 million for such services . . . .
Id. As for Morgan Stanley’s current engagements with Bain, the Proxy stated:
As of the date of Morgan Stanley’s opinion, Morgan Stanley has been engaged for certain financial advisory services for Bain Related Entities . . . , in each case unrelated to the Merger, for which Morgan Stanley expects to receive customary fees if such transactions are completed. Morgan Stanley expects that such fees from the Bain Related Entities would be significantly more, in the aggregate, than the fees Morgan Stanley would receive from Envestnet in the Merger.
Id. at 66.
On September 24, 75.3% of all Envestnet shares outstanding and entitled to
vote, excluding shares held by the Company’s directors and officers, voted to
approve the Merger. Compl. ¶ 158; The Director Defs.’ Opening Br. in Supp. of
Their Mot. to Dismiss Counts I and II of the Verified Class Action Compl.
[hereinafter OB] at 27, Dkt. 23. The Merger closed on November 25. Compl. ¶ 159.
23 Nearly a year after the Board approved the Merger with Bain, on June 25,
2025, the post-Merger Company announced an agreement to sell the D&A Business
to private equity firm STG for an undisclosed sum. DX 26 at 1.
K. Procedural History In August 2024, Envestnet stockholders Paul Berger, as trustee for the Paul
Berger Revocable Trust, and Kevin Barnes (together, “Plaintiffs”) served demands
under 8 Del. C. § 220 to inspect the Company’s books and records concerning the
Merger. Compl. at 2 & n.1. Envestnet produced documents to Plaintiffs in response
to those demands. Id. at 2.
On October 17, 2025, Plaintiffs initiated this action through the filing of the
Complaint.6 Compl., Dkt. 1. The Complaint advances three counts. Count I alleges
that the Director Defendants breached their fiduciary duties in connection with the
Merger. Id. ¶¶ 173–77. Count II alleges that Fox, in his capacity as an officer of the
Company, breached his fiduciary duties in connection with the Merger. Id. ¶¶ 178–
82. Count III alleges that Morgan Stanley aided and abetted the Director
Defendants’ breaches of fiduciary duty. Id. ¶¶ 183–87.
Defendants moved to dismiss the Complaint (the “Motions to Dismiss”) on
November 12 and 13, and filed opening briefs in support of the Motions to Dismiss
6 The parties have agreed that the documents produced in response to the Section 220 demands are incorporated by reference in the Complaint. DX 2 ¶ 20; DX 3 ¶ 20.
24 on January 16, 2026.7 Plaintiffs filed an answering brief in opposition to the Motions
to Dismiss on March 17 and an amended answering brief on April 10, and
Defendants filed reply briefs in further support of the Motions on May 1.8 The Court
heard oral argument on July 1.
II. ANALYSIS
Defendants have moved to dismiss the Complaint under Court of Chancery
Rule 12(b)(6) for failure to state a claim. When reviewing a motion to dismiss under
Rule 12(b)(6), Delaware courts “(1) accept all well pleaded factual allegations as
true, (2) accept even vague allegations as ‘well pleaded’ if they give the opposing
party notice of the claim, [and] (3) draw all reasonable inferences in favor of the
non-moving party.” Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs.
LLC, 27 A.3d 531, 535 (Del. 2011) (citing Savor, Inc. v. FMR Corp., 812 A.2d 894,
896–97 (Del. 2002)).
Defendants offer two bases for dismissal. First, they argue that Corwin v.
KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015), compels dismissal
7 OB, Dkt. 23; Opening Br. in Supp. of Def. Morgan Stanley & Co. LLC’s Mot. to Dismiss the Aiding and Abetting Claim in Count III of the Verified Class Action Compl., Dkt. 22. 8 Pls.’ Am. Omnibus Answering Br. in Opp’n to Defs.’ Mots. to Dismiss the Verified Class Action Compl. [hereinafter AB], Dkt. 31; The Director Defs.’ Reply Br. in Further Supp. of Their Mot. to Dismiss Counts I and II of the Verified Class Action Compl., Dkt. 36; Reply Br. in Supp. of Def. Morgan Stanley & Co. LLC’s Mot. to Dismiss the Aiding and Abetting Claim in Count III of the Verified Class Action Compl., Dkt. 38.
25 because the Merger was approved by a fully informed, uncoerced vote of
disinterested stockholders. Second, they argue that even if Corwin does not require
dismissal, the Complaint fails to state a claim for breach of fiduciary duty or aiding
and abetting.
A. Dismissal Is Warranted Under Corwin.
The Director Defendants first argue that dismissal is warranted under the
Corwin doctrine. OB at 29–45. In Corwin, the Delaware Supreme Court confirmed
that the business judgment rule applies when a transaction that does not involve a
controller “is approved by a fully informed, uncoerced vote of the disinterested
stockholders.” 125 A.3d at 309. Delaware courts will not “second-guess the
judgment of a disinterested stockholder majority that determines that a transaction
with a party other than a controlling stockholder is in their best interests.” Id. at 306.
1. The Stockholder Vote Was Fully Informed. The stockholder vote on the Merger was fully informed if the Company’s
disclosures “apprised stockholders of all material information and did not materially
mislead them.” Morrison v. Berry (Morrison I), 191 A.3d 268, 282 (Del. 2018).
“An omitted fact is material if there is a substantial likelihood that a reasonable
[stockholder] would consider it important in deciding how to vote.” Id. (quoting
Rosenblatt v. Getty Oil Co., 493 A.2d 929, 944 (Del. 1985)). There must be “a
substantial likelihood that the disclosure of the omitted fact would have been viewed
26 by the reasonable [stockholder] as having significantly altered the ‘total mix’ of
information made available.” Id. at 283 (quoting Getty Oil, 493 A.2d at 944).
“Assessing materiality is a difficult practice that requires balancing the benefits of
additional disclosures against the risk that insignificant information may dilute
potentially valuable information.” In re Volcano Corp. S’holder Litig., 143 A.3d
727, 749 (Del. Ch. 2016). “Delaware law requires stockholders to be fully informed,
not ‘infinitely informed.’” Teamsters Loc. 677 Health Servs. & Ins. Plan v. Martell,
2023 WL 1370852, at *10 (Del. Ch. Jan. 31, 2023) (quoting In re Merge Healthcare
Inc., 2017 WL 395981, at *9 (Del. Ch. Jan. 30, 2017)).
At the pleading stage, the Court must determine whether the complaint
“supports a rational inference that material facts were not disclosed or that the
disclosed information was otherwise materially misleading.” Morrison I, 191 A.3d
at 282. The plaintiff bears the burden of identifying a “deficiency in the operative
disclosure document.” In re Solera Hldgs., Inc. S’holder Litig., 2017 WL 57839, at
*8 (Del. Ch. Jan. 5, 2017). Only then does the burden shift to the defendant to
“establish that the alleged deficiency fails as a matter of law in order to secure the
cleansing effect of the vote.” Id.
Plaintiffs identify three alleged disclosure deficiencies that, in their view,
make it “at least reasonably conceivable that the Merger vote was uninformed,”
foreclosing Corwin cleansing. AB at 27. Those alleged deficiencies concern
27 (1) Morgan Stanley’s relationship and conduct with Bain; (2) Paul, Weiss’s
engagements with Bain; and (3) the value of FNZ’s June Proposal.
a. Morgan Stanley’s Relationship With Bain Plaintiffs maintain that the Proxy should have disclosed (1) additional
information about Morgan Stanley’s “concurrent representations” with Bain and
(2) that Morgan Stanley shared the Illustrative LBO Analysis with Bain in
March 2024. Id. at 28–41.
First, Plaintiffs argue that the Proxy should have disclosed additional details
about Morgan Stanley’s concurrent engagements with Bain. “When a financial
advisor faces a conflict, this Court has generally required disclosure of the
relationship itself and the amount of fees the advisor received.” Kihm v. Mott, 2021
WL 3883875, at *18 (Del. Ch. Aug. 31, 2021), aff’d, 276 A.3d 462 (Del. 2022)
(TABLE). The Proxy disclosed the fees Morgan Stanley stood to receive in
connection with the Merger; the fees Morgan Stanley earned from Envestnet in the
two years prior to the Merger; and the fees Morgan Stanley received from Bain in
the two years prior to the Merger. Proxy at 65. The Proxy further disclosed that
Morgan Stanley was presently engaged to provide financial advisory services for
Bain and its affiliates unrelated to the Merger and expected to receive fees in the
future if transactions were completed:
28 As of the date of Morgan Stanley’s opinion, Morgan Stanley has been engaged for certain financial advisory services for Bain Related Entities . . . , in each case unrelated to the Merger, for which Morgan Stanley expects to receive customary fees if such transactions are completed. Morgan Stanley expects that such fees from the Bain Related Entities would be significantly more, in the aggregate, than the fees Morgan Stanley would receive from Envestnet in the Merger.
Id. at 66 (emphasis added). Plaintiffs claim “the failure to disclose the amount of
Morgan Stanley’s expected fees from Bain-related entities ‘prevented stockholders
from contextualizing and evaluating [Morgan Stanley’s] concurrent conflicts of
interest’” with Bain against “Morgan Stanley’s $50 million fee from the Merger.”
AB at 37 (citation omitted).9 But the Proxy did provide context by explaining that
the amount of fees Morgan Stanley expected to receive from Bain would be
“significantly more” than the fees it would receive from Envestnet in the Merger.
Proxy at 66. Plaintiffs say this description is “vague,” but greater precision is not
required. AB at 37. “[T]he disclosure of the specific fees a financial advisor
received from unrelated work for a transactional counterparty is immaterial where
the relationship and its rough scale are disclosed.” Assad v. Botha, 2023
WL 7121419, at *6 (Del. Ch. Oct. 30, 2023) (emphasis added); see also English v.
Narang, 2019 WL 1300855, at *14 (Del. Ch. Mar. 20, 2019) (finding an omission
9 Plaintiffs acknowledge that the Proxy did not need to disclose “the specific services Morgan Stanley provided to Bain” or “the precise identities of the ‘specific counterparties’” involved in the engagements. Id. at 39–41.
29 was immaterial where the proxy disclosed that a financial advisor’s fees from a
transaction counterparty were “in an aggregate amount significantly less” than the
fee earned for the fairness opinion), aff’d, 222 A.3d 581 (Del. 2019) (TABLE). That
is particularly true where, as here, the disclosure of future fees for unrelated
concurrent engagements would require guesswork, and imprecise disclosure itself
could be misleading to stockholders.
Additionally, Plaintiffs contend that the above disclosure “exclude[d] ongoing
matters between Morgan Stanley and Bain during the sales process that concluded
prior to July 11,” the date of Morgan Stanley’s fairness opinion. AB at 38. Plaintiffs
claim that, as a result, stockholders cannot tell whether “Morgan Stanley
concurrently represented Bain on separate engagements during the entirety of the
sale process.” Id. at 39. The Proxy disclosed the fees Morgan Stanley received from
Bain in the two years prior to its fairness opinion, and that the fees Morgan Stanley
expected to receive from current engagements would be “significantly more” than
the fee it would earn in connection with the Merger. Plaintiffs cite no authority
requiring an additional breakdown of the specific fees earned between
commencement of the deal process and delivery of a fairness opinion. Such a
granular disclosure would not alter the total mix of information available to
stockholders deciding whether to approve the Merger. See, e.g., In re Saba Software,
Inc. S’holder Litig., 2017 WL 1201108, at *11 (Del. Ch. Mar. 31, 2017) as revised
30 (Apr. 11, 2017) (finding disclosure was sufficient where the proxy identified “the
prior working relationship and the amount of fees” received from the buyer “in the
two previous years”).
Second, Plaintiffs contend that the Proxy should have disclosed that
Morgan Stanley shared the Illustrative LBO Analysis with Bain in March 2024, the
same month Bain’s March Proposal was provided to the Board. Morgan Stanley
disclosed the Illustrative LBO Analysis to the Board in its April 2 Disclosure, before
the Board formally retained Morgan Stanley as its financial advisor, explaining:
In March 2024[,] Morgan Stanley prepared written discussion materials concerning the Company, which materials, among other things, showed an illustrative leveraged buyout analysis of the Company using an assumed purchase price of $60-80 per share for the Company’s common stock. The materials were prepared by Morgan Stanley in the ordinary course and were shared with two financial sponsors, one of which was Bain Capital.
DX 11 at 2. Failing to mention the Illustrative LBO Analysis in the Proxy did not
render the stockholder vote uninformed. Plaintiffs’ theory of materiality relies on
unreasonable inferences that the Illustrative LBO Analysis may have given Bain
informational and timing advantages.10 However, Morgan Stanley shared the
10 See AB at 30–31 (“By revealing the assumptions under which a financial sponsor could achieve its target returns, the analysis allowed Bain to calibrate its bid more precisely and quickly than competing firms that lacked this analysis.”); id. at 35–36 (“The failure to disclose the [Illustrative LBO Analysis] concealed from stockholders that Bain received a
31 Illustrative LBO Analysis with Bain before it was retained to serve as Envestnet’s
financial advisor. The Complaint fails to allege facts supporting a reasonable
inference that Morgan Stanley possessed recent confidential information that Bain
did not already have through years of diligence under multiple NDAs. See Compl.
¶¶ 51–53.
Because Bain’s March Proposal referenced undergoing an “in-depth
evaluation” of the Company, Plaintiffs allege the Illustrative LBO Analysis
conceivably “tip[ped]” Bain to “non-public Company information.” Id. ¶¶ 52–53;
AB at 68. The contents of Bain’s March Proposal do not support that inference.
Rather, Bain’s March Proposal stated that it was based on “extensive due diligence
on Envestnet, both from [Bain’s] participation in prior sale processes as well as from
[Bain’s] review of recent publicly available information regarding the business.”
DX 9 at 2.
The Proxy fully informed stockholders of Bain’s diligence on Envestnet
during prior sales processes in 2020 through 2024. Proxy at 37–38, 40. At the very
most, disclosing the Illustrative LBO Analysis could have “change[d] the degree” of
clear head start and informational advantage from the Board’s own financial advisor.”). Plaintiffs’ “informational advantage” argument is not particularly compelling because although Plaintiffs argue that the Illustrative LBO Analysis “allowed Bain to calibrate its bid more precisely,” the range of $60 to $80 per share in the analysis was so broad that it encompassed every bid received from all three bidders, not just Bain.
32 Bain’s informational “head start,” but stockholders were well aware that one existed.
Volcano, 143 A.3d at 749. Even that is a stretch, and additional disclosure would
not have significantly altered the total mix of information available to stockholders
voting on the Merger.
b. Paul, Weiss’s Engagements With Bain
Plaintiffs next argue that the Proxy failed to disclose that Paul, Weiss
“concurrently represented Bain on at least two separate transactions.” AB at 41. As
alleged, at the same time Paul, Weiss advised on the Merger, lawyers in its London
office advised Bain portfolio companies on three European transactions unrelated to
the Merger. Compl. ¶ 58; Tr. at 14:3–10.
Plaintiffs base this argument on the Delaware Supreme Court’s decision in
City of Dearborn Police and Fire Revised Retirement System v. Brookfield Asset
Management Inc., 314 A.3d 1108 (Del. 2024). In Brookfield, the Delaware Supreme
Court reversed this Court’s dismissal of a complaint challenging a squeeze-out
merger, finding judicial cleansing under MFW was unavailable where material facts
were not disclosed in a proxy. Id. at 1113. Among the material facts omitted, the
proxy failed to disclose that the law firm representing the special committee that
approved the transaction had simultaneously represented the controller in unrelated
transactions. Id. at 1117. The Supreme Court agreed the issue was a “close call,”
but ultimately concluded that under those facts, the law firm’s concurrent
33 representations were “material facts for stockholders that required disclosure.” Id.
at 1113, 1134.
I do not understand Brookfield to suggest that even in an arm’s-length deal
negotiated by an undisputedly independent board, the failure to specifically disclose
all (even immaterial) concurrent engagements of the lawyers will automatically
defeat Corwin cleansing. “Although advisor conflicts should be disclosed, a plaintiff
must provide sufficient facts to establish that the conflict or potential conflict was
material.” Harcum v. Lovoi, 2022 WL 29695, at *21 (Del. Ch. Jan. 3, 2022)
(footnote omitted).
Here, Plaintiffs have not even attempted to allege facts supporting an
inference that the identified engagements were material to Paul, Weiss, raising a
potential “concern that [the firm] might not want to push [Bain] too hard given the
nature of their ongoing lawyer-client relationship which includes the ethical duty of
zealous advocacy.” Brookfield, 314 A.3d at 1134–35. The failure to disclose Paul,
Weiss’s unrelated European representations did not render the stockholder vote
uninformed.
c. Hypothetical Value Of FNZ’s June Proposal Plaintiffs allege that the Proxy failed to disclose that FNZ’s June Proposal
“represented approximately $72 per share assuming proceeds of $100 million from
the sale of the D&A Business . . . and . . . approximately $73 per share assuming
34 $160 million from the sale of the D&A Business.” AB at 45–46 (emphasis omitted).
Plaintiffs argue that the Proxy should have disclosed that by July 9, 2024, Morgan
Stanley “illustrat[ed] approximately $112 million in D&A Business net proceeds”
in its analysis based on negotiations with a “potential finalist” in the D&A Business
sale process, and that the potential finalist’s $112 million offer would have made
FNZ’s June Proposal worth more than $72 per share. Id. at 46; see Compl.
¶¶ 125, 129.
The Proxy accurately disclosed that FNZ “submitted a revised non-binding
proposal . . . to acquire the Company for $70.00 per share, in cash . . . , assuming no
additional consideration was paid in respect of the sale of the D&A Business.” Proxy
at 47. That disclosure made clear that FNZ’s $70 per share proposal did not include
any additional consideration stockholders might receive in connection with a sale of
the D&A Business, which at the time was uncertain. The Proxy also disclosed the
range of bids the Company received for the D&A Business on May 8 and June 12,
and that, at the direction of the Board, Morgan Stanley’s DCF analysis accounted
for potential proceeds from a sale of the D&A Business. Id. at 42, 44, 46, 62. Those
disclosures were adequate to understand FNZ’s June Proposal, possible proceeds of
a sale of the D&A Business, and the basis for Morgan Stanley’s analysis. The
hypothetical valuation Plaintiffs say should have been disclosed was “inherently
speculative and thus not required to be disclosed under Delaware law.” IRA Tr. FBO
35 Bobbie Ahmed v. Crane, 2017 WL 7053964, at *17 (Del. Ch. Dec. 11, 2017) as
revised (Jan. 26, 2018).
2. The Business Judgment Rule Applies. Plaintiffs do not assert that the Merger involved a conflicted controlling
stockholder. They do not argue that the Envestnet stockholder vote was coerced.
And they have not claimed that the Merger constituted corporate waste. 11 The
Merger was approved by a majority of Envestnet’s disinterested stockholders. As
explained above, that vote was fully informed. The business judgment rule applies,
and Plaintiffs’ claims must be dismissed.12
B. The Complaint Fails To State A Claim For Breach Of Fiduciary Duty Or Aiding And Abetting.
Defendants separately argue that even if Corwin does not compel dismissal,
the Complaint fails to state a claim for breach of fiduciary duty against the Director
Defendants or aiding and abetting breach of fiduciary duty against Morgan Stanley.
11 See In re KKR Fin. Hldgs. LLC S’holder Litig., 101 A.3d 980, 1001 (Del. Ch. 2014) (explaining that the “legal effect of a fully-informed stockholder vote of a transaction with a non-controlling stockholder is that the business judgment rule applies and insulates the transaction from all attacks other than on the grounds of waste”), aff’d sub nom. Corwin v. KKR Fin. Hldgs. LLC, 125 A.3d 304 (Del. 2015). 12 A dismissal under Corwin disposes of the entire Complaint, including the aiding and abetting claim asserted against Morgan Stanley. See Singh v. Attenborough, 137 A.3d 151, 153 (Del. 2016) (ORDER) (“Having correctly decided . . . that the stockholder vote was fully informed and voluntary, the Court of Chancery properly dismissed the plaintiffs’ claims against all parties.”).
36 For the sake of completeness, I address this alternative argument and conclude that
it, too, requires dismissal.
1. The Complaint Fails To Plead A Non-Exculpated Claim Against The Director Defendants.
Envestnet’s certificate of incorporation contains an exculpatory provision
under 8 Del. C. § 102(b)(7) that insulates the Director Defendants from liability for
breaches of the duty of care. DX 27 Art. VI ¶ 1.13 Consequently, to state a claim
for breach of fiduciary duty, Plaintiffs must plead a non-exculpated claim—that is,
one that implicates the Director Defendants’ duty of loyalty. In re Cornerstone
Therapeutics Inc. S’holder Litig., 115 A.3d 1173, 1175 (Del. 2015).14
“In the context of a sales process, a plaintiff can plead that a board breached
its duty of loyalty by alleging non-conclusory facts, which suggest that a majority of
the board either was interested in the sales process or acted in bad faith in conducting
13 Effective May 9, 2024, Envestnet amended its certificate of incorporation to exculpate both directors and officers for breaches of the duty of care. DX 28. As a result, even assuming Fox acted in his capacity as an officer and not a director, Plaintiffs cannot bring a claim for breach of the duty of care against him outside of an approximately five-week period, from April 1, 2024, when Fox assumed the interim CEO position, to May 9, 2024, when the amended certificate of incorporation took effect. The Complaint does not plead facts supporting an inference that Fox took any actions during that time period, let alone actions that amount to a breach of the duty of care. 14 See id. (“A plaintiff seeking only monetary damages must plead non-exculpated claims against a director who is protected by an exculpatory charter provision . . . , regardless of the underlying standard of review for the board’s conduct—be it Revlon, Unocal, the entire fairness standard, or the business judgment rule.” (footnotes omitted)).
37 the sales process.” In re Answers Corp. S’holder Litig., 2012 WL 1253072, at *7
(Del. Ch. Apr. 11, 2012). Plaintiffs do not allege that a majority of the Board was
interested in or lacked independence with respect to the Merger,15 leaving only the
possibility for a bad faith claim. See In re USG Corp. S’holder Litig., 2020 WL
5126671, at *26 (Del. Ch. Aug. 31, 2020) (“Other than pleading lack of
independence or interestedness, the [p]laintiffs can survive the [d]efendants’ Motion
to Dismiss [only] by pleading facts supporting a rational inference that the
[d]efendants acted in bad faith.”), aff’d sub nom. Anderson v. Leer, 265 A.3d 995
(Del. 2021) (TABLE).
“A demonstration of bad faith requires acts or omissions taken against the
interest of the Company, with scienter.” Morrison v. Berry (Morrison II), 2019
WL 7369431, at *14 (Del. Ch. Dec. 31, 2019). “A director acts in bad faith where
he or she ‘intentionally fails to act in the face of a known duty to act, demonstrating
a conscious disregard for his [or her] duties.’” van der Fluit v. Yates, 2017
WL 5953514, at *8 (Del. Ch. Nov. 30, 2017) (alteration in original) (quoting
15 Plaintiffs allege that only one director—Fox—had a financial interest in the Merger. As interim CEO, Fox received a $350,000 per month salary through the close of the Merger. Compl. ¶¶ 137–38. The Board also approved paying Fox a one-time discretionary bonus of $900,000 when it approved the Merger. Id. ¶ 132. As Defendants argue, it is not reasonable to infer that Fox was incentivized to push through a bad deal in the hope of a discretionary bonus when extending the sales process while he continued to receive a salary would have resulted in an even greater financial benefit to him. Tr. at 85:21–86:14.
38 Answers, 2012 WL 1253072, at *7). Alternatively, “[b]ad faith will be found when
‘the decision under attack is so far beyond the bounds of reasonable judgment that
it seems essentially inexplicable on any ground other than bad faith.’” Kahn v.
Stern, 2017 WL 3701611, at *10 (Del. Ch. Aug. 28, 2017) (emphasis added)
(quoting In re Cyan, Inc. S’holders Litig., 2017 WL 1956955, at *8 (Del. Ch.
May 11, 2017)), aff’d, 188 A.3d 715 (Del. 2018) (TABLE).
“Bad faith is not a light pleading standard.” In re Crimson Expl. Inc. S’holder
Litig., 2014 WL 5449419, at *23 (Del. Ch. Oct. 24, 2014); see also In re
MeadWestvaco S’holders Litig., 168 A.3d 675, 684 (Del. Ch. 2017) (“This is a
difficult standard to meet.”). “When challenging a transaction, it takes an ‘extreme
set of facts . . . to sustain a disloyalty claim premised on the notion that disinterested
directors were intentionally disregarding their duties.’” Crimson, 2014 WL
5449419, at *23 (alteration in original) (quoting Lyondell Chem. Co. v. Ryan, 970
A.2d 235, 243 (Del. 2009)). “Even gross negligence, without more, does not
constitute bad faith.” Id. “Allegations that directors failed to do all they should have
state merely a violation of the duty of care.” Id.
Plaintiffs offer two theories of bad faith here. First, they argue that the
Director Defendants acted in bad faith by approving false and misleading disclosures
in the Proxy. Second, they argue that the Director Defendants acted in bad faith in
39 connection with the sales process. Both theories fall short of stating a claim for
breach of the duty of loyalty to act in good faith.
a. Omissions In The Proxy To plead a breach of the duty of loyalty to act in good faith based on
disclosures, Plaintiffs must allege facts supporting an inference that the Director
Defendants intentionally caused the Proxy to contain false information or
intentionally disregarded their obligation to ensure that the Proxy disclosed all
material information. See USG, 2020 WL 5126671, at *26 (“An adequate pleading
of bad faith must plead that the maldisclosure was ‘intentional and constitute[d]
more than an error of judgment or gross negligence.’” (quoting Morrison II, 2019
WL 7369431, at *18)); see also In re AmTrust Fin. Servs., Inc. S’holder Litig., 2020
WL 914563, at *13 (Del. Ch. Feb. 26, 2020) (finding a complaint failed to plead bad
faith without allegations that the directors “intended to disregard [their] obligation
to ensure that the Company disclosed all material information to its stockholders”).
“[E]ven if allegations of omissions or misleading disclosures are sufficient to
preclude business judgment review under Corwin, where the same omissions or
misleading disclosures are pled as evincing bad faith, the pleading is subject to a
finer-toothed comb—that of scienter—which is among our law’s most
straightened.” USG, 2020 WL 5126671, at *26.
40 Plaintiffs contend that the Director Defendants acted in bad faith by failing to
ensure that the Proxy disclosed Morgan Stanley’s relationship with Bain; Paul,
Weiss’s engagements with Bain; and the hypothetical value implied by FNZ’s June
Proposal. Plaintiffs argue only that the Director Defendants had knowledge of the
facts that were allegedly omitted, but not that they believed those facts were material
or were aware they were omitted from a dense, 126-page Proxy. See AB at 52–53.16
As set out above, I am not convinced that the Proxy did, in fact, omit any
material information. See supra pp. 26–36. But even if I am wrong about that, the
purported omissions are not so egregious as to support an inference that the Director
Defendants acted in bad faith by intentionally withholding information or abdicating
their responsibility to ensure an accurate Proxy. Without identifying any motive for
independent directors to intentionally withhold disclosures, and having failed to
demonstrate a glaring omission, it is difficult to see how the allegations in the
Complaint could support an inference that any purported omissions were intentional,
rather than an error of judgment or negligence. See Ligos v. Tsuff, 2022 WL
17347542, at *11 (Del. Ch. Nov. 30, 2022) (explaining that where a “[p]laintiff can
16 See also id. at 59 (“Because the Board had knowledge of, received, and would have reviewed Morgan Stanley’s conflict disclosure memoranda and Paul[,] Weiss’s engagement letter, as well as FNZ’s June 22 topping offer, it is ‘reasonably conceivable that all of the Director Defendants knew that the disclosures . . . were false and misleading because they participated in those events.’” (citation omitted)).
41 point to no motive for an intentional omission in the proxy,” “bad faith must be
demonstrated (if at all) by the extreme nature of the proxy omission itself”); see also
USG, 2020 WL 5126671, at *28 (dismissing claims where it was “not reasonably
conceivable that such non-disclosure rises to the level of conscious disregard of
duty”); Morrison II, 2019 WL 7369431, at *20 (dismissing claims where it was “not
. . . reasonable to infer that the omissions . . . demonstrate[d] an intentional
derogation of duty or an intent to create a misleading document”); In re Essendant,
Inc. S’holder Litig., 2019 WL 7290944, at *13 (Del. Ch. Dec. 30, 2019) (dismissing
bad faith disclosure claims where inferences drawn were “a far cry from implying
bad faith”); Nguyen v. Barrett, 2016 WL 5404095, at *5 (Del. Ch. Sep. 28, 2016)
(“The [p]laintiff has failed to plead facts such that it is reasonably conceivable that
the allegedly incomplete disclosure was made by the board disloyally or in bad faith,
as is required to sustain this claim post-close.”).
This theory of bad faith therefore fails to support a non-exculpated claim for
breach of fiduciary duty.
b. Revlon Claims
Plaintiffs also argue that the Director Defendants breached a non-exculpated
duty in connection with the sales process. Although Plaintiffs describe this as a
breach of the Director Defendants’ “Revlon duties,” they are still limited to pleading
bad faith. As Vice Chancellor Glasscock explained in USG, discussing “Revlon
42 duties” post-closing “is something of a misnomer” because “the fiduciary duties are
loyalty and care, in any situation.” 2020 WL 5126671, at *28.17 “[T]o comply with
Revlon, ‘when a board engages in a change of control transaction, it must not take
actions inconsistent with achieving the highest immediate value reasonably
attainable.’” Id. (quoting C & J Energy Servs., Inc. v. City of Miami Gen. Empls.’
& Sanitation Empls.’ Ret. Tr., 107 A.3d 1049, 1067 (Del. 2014)). “[A]lthough
‘Revlon can provide a contextual inquiry about whether the . . . [d]efendants’ choices
were reasonable under the circumstances as a good faith attempt to secure the highest
value reasonably attainable,’” after closing, “Plaintiffs still bear the burden to plead
a non-exculpated claim.” Id. at *29 (quoting Morrison II, 2019 WL 7369431, at
*15). As a result, “[a]n allegation implying that [] Defendant[s] failed to satisfy
Revlon is insufficient on its own to plead a non-exculpated breach of the duty of
loyalty, and a sufficient pleading must reasonably imply that the directors’ failure to
act reasonably to maximize price was tainted by interestedness or bad faith.” Id.
(footnotes and citations omitted).
“In the context of a sale of corporate control, bad faith is qualitatively different
from ‘an inadequate or flawed effort’ to obtain the highest value reasonably available
17 Id. (“Revlon ‘duties’ should not be confused with the Revlon standard of review, applicable principally outside the damages context, under which directors must act reasonably.”).
43 for a corporation.” Essendant, 2019 WL 7290944, at *13 (quoting Lyondell, 970
A.2d at 243). “Absent direct evidence of an improper intent, a plaintiff must point
to ‘a decision [that] lacked any rationally conceivable basis’ associated with
maximizing stockholder value to survive a motion to dismiss.” Id. (quoting Chen v.
Howard-Anderson, 87 A.3d 648, 684 (Del. Ch. 2014)). In other words, “for []
Plaintiffs to adequately plead a non-exculpated breach of duty, they must not only
allege that the Board’s sales process was unreasonable, they must also allege that the
Board’s alleged failure to run a Revlon-compliant sales process was an
‘intentional failure or a conscious disregard of the duty to seek the highest price
reasonably available.’” USG, 2020 WL 5126671, at *29 (emphasis in original)
(quoting Essendant, 2019 WL 7290944, at *14).
The allegations of the Complaint here fail to support a reasonable inference
that the Director Defendants acted in bad faith by intentionally failing to run a
reasonable sales process. Plaintiffs primarily contend that the Director Defendants
failed to “maintain continuous and diligent oversight” of their purportedly conflicted
advisors. AB at 63 (citation omitted). According to Plaintiffs, “Morgan Stanley
disclosed a host of serious conflicts that should have precluded its engagement,” and
“[a]ny reasonable board would have taken steps to investigate and address those
glaring red flags.” Id. at 63–64. Plaintiffs claim that “the record reflects no analysis,
discussion, investigation, or questioning as to whether Morgan Stanley could act
44 independently of Bain despite its shared history, concurrent representations, and role
in engineering Bain’s most recent bid.” Id. at 64. Plaintiffs further suggest that the
Board put Morgan Stanley “into the driver’s seat of the Company’s sale process,”
“turn[ing] a blind eye” to its supposed conflicts. Id. at 64–65.
The Board’s selection of Morgan Stanley and Paul, Weiss as its advisors does
not support an inference of bad faith. Both are leading public M&A advisors.
Morgan Stanley provided the Board with at least five conflicts disclosures.
See supra note 3. It is not without the bounds of reason to expect that independent
directors considered those disclosures and determined that Morgan Stanley’s
experience outweighed the risk of a potential conflict, particularly after the Company
had retained at least three other financial advisors in processes that did not culminate
in a transaction. See supra pp. 4–5. Further, the Complaint does not even adequately
allege that Paul, Weiss faced a material conflict, let alone that the Board acted in bad
faith by retaining the firm as its legal advisor. See supra pp. 33–34.
Even Plaintiffs’ cited authority acknowledges that a board is “free to consent
to certain conflicts” so long as it remains “active and reasonably informed when
overseeing the sale process.” RBC Cap. Mkts., LLC v. Jervis, 129 A.3d 816, 855
(Del. 2015). Despite Plaintiffs’ arguments to the contrary, the Complaint fails to
allege any facts supporting a reasonable inference that the Board failed to oversee
its advisors. Plaintiffs’ position largely rests on conclusory rhetoric—that the Board
45 supposedly “placed Morgan Stanley into the driver’s seat of the Company’s sale
process,” allowed Morgan Stanley’s conflicts to “infect[] the process,” and stood by
while Morgan Stanley “orchestrate[d] the sale process to benefit” Bain. AB at 64–
65, 68. The only facts pled to support those conclusions are that Morgan Stanley
(1) advised the Board (in Plaintiffs’ words, “manufactured criticism”) about GTCR’s
and FNZ’s financing sources, (2) imposed a timeline on bids (per Plaintiffs, to
benefit Bain’s informational “head start”), and (3) limited GTCR’s access to
diligence and management. Id. at 68–69, 72–73. Plaintiffs fail to plead any facts
suggesting the fully independent Board deferred to Morgan Stanley rather than
reaching its own decisions. Nor does the Complaint support an inference that the
Director Defendants acted in bad faith by weighing each bidder’s ability to obtain
financing or by setting deadlines that, as alleged, the Board extended to permit
additional bids. See supra pp. 10–11, 13–14, 18–19.
Plaintiffs seize on GTCR’s June 12, 2024 letter complaining of “limited
access to diligence and Company management.” See supra pp. 15–16. Plaintiffs
argue that “[a]ny reasonable board seeking to maximize value would have done so
by . . . providing better access to management in the face of credible topping bids.”
AB at 70. But the Complaint and documents incorporated by reference therein show
that the Board met to discuss GTCR’s June 12 letter, “reviewed in detail the amount
of information and access to members of Company management that had been
46 provided to [GTCR] compared to [Bain] and [FNZ],” and directed Paul, Weiss (not
Morgan Stanley) to communicate with GTCR to better understand its concerns and
to encourage GTCR to submit a final proposal. See supra pp. 15–16. Fox also later
told the Board that GTCR conveyed to him that it had gotten “ahead of [its] skis”
when making its earlier proposals. See supra p. 19. Nothing about that course of
events supports an inference of bad faith conduct or abdication on the part of the
Board.
In addition to challenging the Board’s purportedly conflicted advisors,
Plaintiffs attempt to second-guess the Board’s independent decision-making under
the guise of bad faith. Plaintiffs identify a number of supposed process failures,
none of which support a reasonable inference of bad faith. See, e.g., In re NYMEX
S’holder Litig., 2009 WL 3206051, at *7 (Del. Ch. Sep. 30, 2009) (explaining that
allegations “that the Board’s process was not perfect” do not demonstrate bad faith).
For instance, Plaintiffs argue that the Director Defendants “facilitated and rushed to
accept Bain’s underpriced offer instead of seriously exploring (or even soliciting)
other feasible superior bids.” AB at 67. According to Plaintiffs, “the Board failed
to run a real process,” “ran no auction[,] and did not even solicit alternative bidders.”
Id. at 68. Again, the factual allegations of the Complaint refute this argument. As
alleged, Reuters and Bloomberg publicly reported that the Company was considering
strategic alternatives; the Company separately ran a process to sell the D&A
47 Business in which it contacted 80 potential bidders; and the Board ultimately
received two unsolicited bids to acquire the Company. See supra pp. 5, 9–11. The
Board also considered a pre-signing market check, but after considering widespread
news of its process, the risk of additional delay, and “strong feedback” from FNZ
and Bain rejecting a go-shop provision, it decided instead to negotiate a low break
fee. See supra p. 14. That decision, made by a fully independent Board, is not
inexplicable, without the bounds of reason, or otherwise indicative of bad faith.
Plaintiffs argue that the Board acted in bad faith because it “never seriously
considered pursuing FNZ’s bid.” AB at 71. That argument is conclusory and
unsupported by the factual allegations of the Complaint. Plaintiffs also argue that
the Board acted in bad faith because “[t]he Merger price fell below market analysts’
$64.57 average price target for the standalone Company and the $70.63 midpoint of
Morgan Stanley’s DCF analysis.” Id. at 72. Decades of cases in Delaware have held
that a plaintiff cannot plead bad faith simply by pointing to a supposedly insufficient
merger price. See, e.g., Essendant, 2019 WL 7290944, at *14 (“[C]riticizing the
price at which a board agrees to sell a company, without more, does not a bad [] faith
claim make.”); In re CompuCom Sys., Inc. S’holders Litig., 2005 WL 2481325, at
*7 (Del. Ch. Sep. 29, 2005) (“Nor is the fact that the final price per share was below
the market price on the day of sale enough to rebut the business judgment
presumption.”).
48 In short, the factual allegations of the Complaint paint a picture of a fully
independent Board retaining experienced advisors, informing itself of potential
conflicts, engaging with multiple bidders, and meeting over a dozen times before
reaching a deal. “The process pursued by the Director Defendants that is reflected
in the Complaint, considered as a whole and taking as true the well-pleaded
allegations of fact, provides no support for any inference of bad faith . . . .” In re
Lukens Inc. S’holders Litig., 757 A.2d 720, 729 (Del. Ch. 1999), aff’d sub nom.
Walker v. Lukens, Inc., 757 A.2d 1278 (Del. 2000) (TABLE).
* * *
Because the Complaint fails to plead facts supporting a reasonable inference
that the Director Defendants breached a non-exculpated duty, Counts I and II of the
Complaint must be dismissed, even if Corwin does not apply.
2. The Complaint Fails To State An Aiding And Abetting Claim Against Morgan Stanley.
Count III of the Complaint alleges a claim against Morgan Stanley for aiding
and abetting breach of fiduciary duty.
To state a claim for aiding and abetting under Delaware law, Plaintiffs must
allege: “(1) the existence of a fiduciary relationship, (2) a breach of the fiduciary’s
duty, . . . (3) knowing participation in the breach by the defendants, and (4) damages
proximately caused by the breach.” In re Mindbody, Inc. S’holder Litig., 332
49 A.3d 349, 389 (Del. 2024) (quoting Malpiede v. Townson, 780 A.2d 1075, 1096
(Del. 2001)).
The Complaint fails to allege a non-exculpated claim for breach of the duty
of loyalty against the Director Defendants. See supra Part II.B.1. The Delaware
Supreme Court has held that an aiding and abetting claim also may be premised on
an exculpated claim for breach of the duty of care. See RBC Cap. Mkts., 129 A.3d
at 862 (“[I]f the third party knows that the board is breaching its duty of care and
participates in the breach by misleading the board or creating the informational
vacuum, then the third party can be liable for aiding and abetting.” (citation
omitted)). Count III still must be dismissed because the Complaint fails to allege
any breach of the duty of care in which Morgan Stanley “knowingly participated.”
As recent authority from the Delaware Supreme Court makes clear, knowing
participation is “difficult to prove and involves two distinct concepts that are
sometimes analyzed separately: knowledge and participation.” Mindbody, 332 A.3d
at 390. Pleading “knowledge” requires allegations supporting an inference that the
alleged aider and abettor “know[s] that the primary party’s conduct constitutes a
breach” and knows that “its own conduct regarding the breach was legally
improper.” Id. at 390–91 (emphasis omitted). Pleading participation requires
allegations “that the aider and abettor provide[d] ‘substantial assistance’ to the
primary violator.” Id. at 392.
50 Plaintiffs do not argue that Morgan Stanley aided and abetted the Director
Defendants’ alleged disclosure breaches. Instead, Plaintiffs premise their aiding and
abetting claim on myriad purported sales process violations. The Director
Defendants’ alleged care breaches include (1) hiring conflicted advisors,
(2) permitting Morgan Stanley to have “unsupervised discussions with bidders,”
(3) permitting Morgan Stanley to impose a timeline on bids, (4) permitting Morgan
Stanley to give GTCR inadequate access to diligence and management, (5) accepting
Morgan Stanley’s “pretextual reasons for discrediting the other bidders,” and
(6) accepting Morgan Stanley’s valuation.
Morgan Stanley did not aid and abet the Board’s decision to hire purportedly
conflicted advisors. Morgan Stanley provided the Board with five relationship
disclosures in which it disclosed its representations and interests regarding Bain,
GTCR, and FNZ. See supra pp. 7–8, 12, 17, 21–22. After making appropriate
disclosures, Morgan Stanley had no reason to know that the Director Defendants’
decision to retain it “constitute[d] a breach,” or that its agreement to serve as the
Company’s financial advisor was “legally improper.” Mindbody, 332 A.3d at 390–
91. Boards have broad discretion to use their business judgment to weigh the risks
of potential conflicts and select advisors they believe will maximize value for
stockholders. See, e.g., In re Zale Corp. S’holders Litig., 2015 WL 6551418, at *5
(Del. Ch. Oct. 29, 2015) (rejecting a challenge to the retention of a purportedly
51 conflicted advisor); In re Inergy L.P., 2010 WL 4273197, at *14–15 (Del. Ch.
Oct. 29, 2010) (same). Moreover, simply “having a conflict” is not wrongful. See
In re Goldman Sachs Gp., Inc. S’holder Litig., 2011 WL 4826104, at *20 (Del. Ch.
Oct. 12, 2011) (explaining that “[a] conflict of interest . . . is not wrongdoing itself”).
Morgan Stanley similarly had no reason to know that any other aspect of the
Board’s conduct in running the sales process—approving a premium deal after
engaging with multiple bidders over several months—constituted a breach. Nothing
about the way the process allegedly unfolded supports “clear and direct knowledge”
of a fiduciary breach. See In re Columbia Pipeline Gp., Inc. Merger Litig., 342
A.3d 324, 356 (Del. 2025).
Plaintiffs argue that Morgan Stanley “steered” or “tilted” the sales process to
Bain, but the Complaint does not even support a reasonable inference that Morgan
Stanley had a financial incentive to do so. Not only did Morgan Stanley’s contingent
fee incentivize it to maximize price,18 but Morgan Stanley also had similar
relationships with both GTCR and FNZ. See supra pp. 12–13. As of May 20 (more
than halfway through the sales process), Morgan Stanley had earned the same
18 Though Plaintiffs also take issue with the incentive fee structure, this Court has “reject[ed] [the] proposition that the Court may infer that a financial advisor knowingly participated in a breach of fiduciary duty merely because the advisor negotiated a fee structure that incented it to assist its client in reaching the goal of a consummated transaction.” Tilden v. Cunningham, 2018 WL 5307706, at *18 (Del. Ch. Oct. 26, 2018).
52 amount in fees from GTCR as from Bain. See supra pp. 12–13. But even assuming
Morgan Stanley had an incentive to favor Bain over its other clients, the Complaint
still fails to allege that Morgan Stanley took any action without Board direction or
approval or concealed information from or otherwise misled the Board.
Plaintiffs argue that Morgan Stanley had “unsupervised discussions with
bidders.” AB at 81; Compl. ¶ 162 (alleging the Board “permitted” Morgan Stanley
to “privately handle” bidder communications). Beyond unsupported supposition,
however, they do not allege that misconduct occurred during those discussions.19
Plaintiffs claim that Morgan Stanley improperly “impose[d] a timeline” on bids, but
the only reasonable inference to be drawn from the Complaint and the documents
incorporated by reference therein is that the Board, not Morgan Stanley, made that
decision.20 Compl. ¶ 93; DX 17 at 3. It is not reasonable to infer that setting a
19 Plaintiffs ask the Court to infer that Morgan Stanley tipped Bain because Bain “reduced its bid once th[e] [other] bidders withdrew or reported they were unable to proceed.” AB at 81. That is not a reasonable inference in my view. As alleged, FNZ’s message that it would require additional time to secure financing and Bain’s reduced offer followed significantly diminished second-round bids for the D&A Business, and in either event, FNZ submitted a revised bid just days later. See supra pp. 16–18. 20 The Complaint alleges that “[t]he Board discussed its options” and “declined to conduct a pre-market check or insist on a go-shop[,]” “the Board directed” Morgan Stanley to set up meetings with bidders, “[t]he Board further determined” to permit the bidders to contact equity and debt financing sources, “[t]he Board imposed a deadline” for bidders to submit financing proposals, “[t]he Board directed Morgan Stanley” to ask bidders to submit final proposals by June 19, “[t]he Board expressed skepticism” at the other bidders’ ability to finance a transaction, and “[t]he Board directed” Morgan Stanley to try to increase Bain’s offer. Compl. ¶¶ 74, 79, 93–94 (emphasis added).
53 deadline for bids was grossly negligent, rather than an appropriate measure for
managing the sales process, let alone that Morgan Stanley knew its participation in
that decision was legally improper.
Plaintiffs allege that Morgan Stanley aided and abetted a breach of duty by
giving GTCR inadequate access to diligence and management. But the Complaint
alleges that immediately after receiving GTCR’s June 12 letter, the Board met to
discuss the letter, “reviewed in detail” with Morgan Stanley “the amount of
information and access to members of Company management that had been
provided to [GTCR] compared to [Bain] and [FNZ],” and directed Paul, Weiss (not
Morgan Stanley) to communicate with GTCR to better understand its concerns. See
supra pp. 15–16. The Complaint does not support an inference that the Director
Defendants acted in a grossly negligent manner, and Morgan Stanley could not aid
and abet a breach that did not occur.21
Plaintiffs also allege that Morgan Stanley gave the Board “pretextual reasons
for discrediting the other bidders,” which the Director Defendants unwittingly
21 Plaintiffs also allege that Morgan Stanley aided and abetted a breach of fiduciary duty by providing the Illustrative LBO Analysis to Bain before Morgan Stanley was engaged as the Company’s financial advisor. This argument admittedly confounds me. Morgan Stanley could not have aided and abetted a breach of fiduciary duty that had not yet occurred, and the Director Defendants could not have breached a fiduciary duty in connection with a sales process that had not yet begun. Certainly, Morgan Stanley could not have known at that time that it was advancing a breach when it had not yet been retained.
54 accepted. AB at 84. This argument fails because the Complaint does not allege that
Morgan Stanley misled the Board about any material facts, creating an informational
vacuum that could lead the Director Defendants to breach their duty of care. The
factual allegations of the Complaint show only that a fully independent Board
received advice, weighed financing, regulatory, and other closing risks (including
risks associated with bids conditioned on an uncertain sale of the D&A Business),
and reached reasonable conclusions. This supports neither a breach of the duty of
care nor an aiding and abetting claim.
In a similar vein, Plaintiffs argue that Morgan Stanley downwardly adjusted
its valuation of the Company to steer a transaction to Bain. Again, Plaintiffs fail to
identify any information hidden from the Board. As alleged, Morgan Stanley’s
valuation was adjusted after the Company received diminished second-round bids
for the D&A Business, at the direction of the Board. See DX 20 at 2, 18. And, in
any event, an “advisor revis[ing] its analysis during the course of its engagement in
a manner that is supportive of a proposed transaction” does not on its own support
“an inference of knowing participation.” Tilden, 2018 WL 5307706, at *18.
Because the Complaint fails to state a claim against Morgan Stanley for aiding
and abetting a breach of fiduciary duty, Count III of the Complaint is dismissed.
55 III. CONCLUSION
The Motions to Dismiss are granted. Because the Merger was approved by a
fully informed vote of the unaffiliated stockholders, Corwin compels dismissal.
Even if it did not, the Complaint fails to allege that the undisputedly independent
Board acted in bad faith or that Morgan Stanley aided and abetted any breach of
fiduciary duty. The Complaint is therefore dismissed.
Paul Berger, as Trustee for the Paul Berger Revocable Trust and Kevin Barnes v. James Fox (Paul Berger, as Trustee for the Paul Berger Revocable Trust and Kevin Barnes v. James Fox) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.