The Chancery Court disagreed with the plaintiff’s claim because changes to the business model in this case were driven by information the board received after the merger, not, as in other cases like Multiplan, before. The Chancery Court noted that in Multiplan and similar cases, “concrete facts about the merger target’s prospects were kept from public stockholders” even though “[t]he information was known or knowable by directors and officers.” The Chancery Court contrasted that with the facts in this case, in which “[n]o such material facts that were known or knowable by the defendants” were raised.
Multiplan made waves when it came out in early 2022 because in it, the Chancery Court applied the entire fairness standard rather than the more lenient business judgment rule. This and similar denials of motions to dismiss involving SPAC-related cases that followed caused a wave of copycat filings in Delaware. In her decision in Hennessy, Vice Chancellor Lori W. Will puts it mildly: “The success of a few cases,” she says referring to Multiplan and its progeny, “begat a host of others.” She laments how although the SPAC market is a shadow of its former self, SPAC cases in Delaware have not subsided. She also seems to be surprised by complaints that are “[r]emarkably similar” and that all “accuse SPAC directors of breaching their fiduciary duties based on flaws in years-old proxy statements that became problematic only when the combined company underperformed.”
It is no mystery to SPAC market participants that these remarkably similar complaints are in fact thinly disguised “cut & paste” jobs automatically cranked out by the plaintiffs’ bar in the hopes that one or two of them might stick. It is also no surprise to most SPAC teams and their attorneys that the heavy toll many of the defendants in these cases had to carry in defending and/or settling them is now causing most new SPACs to reconsider incorporating in Delaware.
With the Hennessy decision, the Delaware Court of Chancery may be signaling that it is finally fed up with the problem it created with Multiplan. Perhaps acknowledging that SPAC plaintiffs’ opportunism in Delaware needs to be reined in, Vice Chancellor Will concluded that, in this case, “the plaintiff has failed to plead a reasonably conceivable breach of fiduciary duty claim against the SPAC’s fiduciaries.” She has dismissed the action with prejudice with a statement that “[t]o allow this faulty claim to proceed would fuel perverse incentives and invite strike suits.”
