Court of Chancery Applies Business Judgment Review to Disparate Consideration Received by a Selling Controlling Stockholder
By Emily V. Burton, Young Conaway Stargatt & Taylor, LLP
In re Martha Stewart Living Omnimedia, Inc. Stockholder Litigation, Consol. C.A. No. 11202-VCS, Opinion (Del. Ch. Aug. 18, 2017), reviewed a controlling stockholder’s receipt of disparate consideration in a merger under the business judgment standard and granted defendants’ motion to dismiss, because the transaction effectively employed the protections laid out in Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014). In December 2015, Sequential Brands Group, Inc. acquired Martha Stewart Living Omnimedia, Inc. (MSLO). Martha Stewart, MSLO’s controlling stockholder, negotiated for and received disparate consideration from Sequential. The minority stockholder plaintiff brought suit and argued that the transaction should be reviewed for entire fairness, based upon Ms. Stewart’s position as a controlling stockholder. The court rejected this argument because the protections outlined in M&F Worldwide, including negotiation by an independent board committee and a non-waivable majority-of-the-minority stockholder approval condition, had been effectively implemented in the transaction. The Court of Chancery’s expansion of the M&F Worldwide doctrine to transactions in which controlling stockholders are sellers but not buyers is both consistent with the rationale for the doctrine and also suggests that the doctrine should apply in other contexts as well.
How to Kill a Rule 68 Offer Once and for All: Just Say “No”
By Stuart M. Riback, Wilk Auslander
The Supreme Court last year held in Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016), that an unaccepted offer of judgment under Fed. R. Civ. P. 68 was a nullity. That meant (among other things) that a class-action defendant could not “pick off” a named individual plaintiff and would-be class representative by offering him under Rule 68 the full relief he was seeking individually, in the expectation that that would moot the action. In Geisman v. ZocDoc, Inc., 850 F.3d 507 (2d Cir. 2017), the Second Circuit recently held that under Campbell-Ewald, a plaintiff’s rejection of a Rule 68 offer of judgment rendered the offer a nullity. The Second Circuit’s ruminations in Geisman may signify that the door is closing on defendants’ ability to moot as-yet-uncertified class actions by satisfying the claims of individual plaintiffs. A more detailed discussion of the Geisman decision is available in the Summer 2017 issue of the Business and Corporate Litigation Committee’s Network Newsletter.