- Delaware Chancery Court Clarifies that Disclosure Claims Should Be Brought Pre-Closing
- October 20, 2016
- Law Firm: Greenberg Traurig LLP - New York Office
In an opinion issued Sept. 28, 2016, the Court of Chancery of Delaware clarified its position that claims challenging the sufficiency of proxy solicitation disclosures should be brought during the pre-closing period of a merger transaction in order to insure a fully informed vote of the stockholders.
Following the closing of the merger transaction, the plaintiff sought damages for two purported disclosure violations:
- a claim that the Court had previously rejected at the preliminary injunction phase, and
- a second claim which had been initially included in the complaint, but which had not been pursued pre-closing.
In finding against the plaintiff’s argument, the Court clarified that “¿where a plaintiff has a claim, pre-close, that a disclosure is either misleading or incomplete in a way that is material to stockholders, that claim should be brought pre-close, not post-close.” The Court stated that while damages for a disclosure violation claim may be remedied post-close, the right of the stockholders to a fully informed vote is irrevocably lost following a stockholder vote. Therefore, the Court added that “[t]he preferred method for vindicating truly material disclosure claims is to bring them pre-close, at a time when the Court can insure an informed vote. Because of this interest, a salutary incentive could be provided by considering claims based on disclosure, pled but not pursued pre-close, to be waived.”