August 08, 2016 Articles

Delaware Supreme Court Sets a High Bar for Financial Advisor Aiding and Abetting Liability

Significant misconduct is likely required to find scienter by a financial advisor

by John A. Sensing and Andrew H. Sauder

The Delaware Supreme Court continues to clarify the scope of Delaware’s aiding and abetting law under which a financial advisor can be liable for “knowingly participating” in a board of directors’ breach of fiduciary duty. Most recently, in Singh v. Attenborough, 2016 WL 2765312 (Del. May 6, 2016), the court affirmed dismissal of an aiding and abetting claim against a financial advisor because “a fully informed, uncoerced vote of the disinterested stockholders invoked the business judgment rule standard of review” for the underlying transaction and therefore removed the predicate breach of fiduciary duty. The court reiterated, however, that alleged aiders and abettors can be held liable based on a board’s breach of its situational fiduciary duties, without regard to the more exacting standards used to determine whether a director can be held liable for damages. The court cushioned this holding by implying that it may be difficult for a plaintiff to demonstrate that a financial advisor acted with scienter without significant misconduct.  

Background: Signet Purchases Zale
Zale Corporation was purchased by Signet Jewelers Limited in a $690 million transaction in which Signet purchased all of Zale’s stock for $21 per share. Zale, via merger, became a wholly owned Signet subsidiary. The merger was announced on February 19, 2014, and five plaintiffs filed suit seeking to enjoin the merger in the Delaware Court of Chancery. The court refused to enjoin the transaction, 53.1 percent of Zale’s stockholders voted in favor of the merger, and it was consummated on May 30, 2014. 

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