Teamsters Local 677 Health Servs. & Ins. Plan v. Martell
| Decision Date | 31 January 2023 |
| Docket Number | C. A. 2021-1075-NAC |
| Court | Court of Chancery of Delaware |
| Parties | TEAMSTERS LOCAL 677 HEALTH SERVICES & INSURANCE PLAN, individually and on behalf of all others similarly situated, Plaintiff, v. FRANK D. MARTELL, Defendant. |
Date Submitted: October 25, 2022
Date Corrected: February 1, 2023 [*]
Stephen E. Jenkins, Tiffany Geyer Lydon, ASHBY & GEDDES P.A., Wilmington, Delaware; Donald J. Enright, Elizabeth K Tripodi, Jordan A. Cafritz, LEVI & KORSINSKY, LLP Washington, D.C.; Gregory Nespole, LEVI & KORSINSKY, LLP, New York, New York; Frank Shirripa, Daniel B. Rehns, HACH ROSE SHIRRIPA & CHEVERIE LLP, New York, New York; Counsel for Plaintiff.
Robert S. Saunders, Cliff C. Gardner, Matthew P. Majarian, Ryan M. Lindsay, Trevor T. Nielson, SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Wilmington, Delaware; Counsel for Defendant.
COOK, V.C.
Plaintiff is a former stockholder of CoreLogic, Inc. (the "Company"). In late June 2020, two funds made an unsolicited joint proposal to acquire the Company. The Company's board of directors (the "Board") rejected the proposal as undervalued. After a proxy contest, the funds succeeded in electing three directors to the Board.
The public announcement of the funds' acquisition proposal stirred significant interest in the Company. So the Board initiated a months-long strategic alternatives process. After many months of shopping the Company, the Board narrowed the field of bidders to a financial buyer and a strategic buyer, CoStar Group, Inc. The financial buyer proposed an all-cash transaction. CoStar proposed an all-stock transaction. Both proposals were disclosed to stockholders in the Company's proxy statement (the "Proxy Statement").
Based on cash, antitrust, and closing considerations, the Board selected the financial buyer. Then CoStar publicly submitted two post-signing, competing bids. Both bids were disclosed in the Proxy Statement.
CoStar's stock offer was nominally more valuable than the cash offer. But that nominal value was uncertain. CoStar's proposals also raised antitrust concerns. Regulatory scrutiny could have delayed a closing date by up to 15 months. All these considerations were disclosed in the Proxy Statement.
CoStar's competing bids were unresponsive to the Board's regulatory and closing concerns and did not provide enough cash to address volatility in CoStar's stock. Indeed, CoStar's stock suffered a 19% price decline at the time CoStar submitted the competing bids. Still, the Board believed that CoStar had the potential to make a superior proposal. So the Board encouraged CoStar to improve its terms. But CoStar walked.
In June 2021, the financial buyer acquired the Company for $6 billion in cash (the "Merger"). The Merger generated a 51% premium to the Company's unaffected stock price. The stockholders voted overwhelmingly in favor of the Merger.
CoStar's CEO, Andrew Florance, commented publicly on the Merger. In an online article, Florance was paraphrased as stating that the Board chose the Merger over a CoStar deal to entrench the Company's management. In his own words, Florance stated generically that, in strategic mergers, "inevitably some of [senior management's] jobs go away" and "[t]hat's a powerful motive to not do a deal."
Plaintiff brought a books-and-records action against the Company to investigate potential wrongdoing. Plaintiff obtained documents and agreed to incorporate all of them into its complaint.
None of the Company's 11 outside directors is alleged to be conflicted. None of the Board's advisors is alleged to be conflicted. None of the stockholders is alleged to be a conflicted controller. The vote is not alleged to have been coerced.
And entire fairness is not alleged to apply to the Merger. As a result, the complaint is subject to dismissal under Corwin unless the Merger vote was not fully informed.
To defeat Corwin on disclosure grounds, Plaintiff does not rely on the books and records it obtained from the Company. The complaint's version of the facts obscures documents integral to Plaintiff's claim. Plaintiff instead relies exclusively on Florance's statements to argue that the Board's meeting minutes and identified sale considerations must be false. Under this theory, the so-called "real reason" behind the Merger was Defendant Martell's undisclosed conflict of interest in protecting his job. In this way, Plaintiff tries to generate a disclosure claim concerning otherwise facially appropriate proxy disclosures made by an independent board with its independent advisors. According to Plaintiff, I must shut my eyes to everything but a handful of statements on the internet attributed to a senior executive of an entity that was publicly unsuccessful in making a topping bid.
One might imagine scenarios where a post-process statement made by a bidder could support a sale process claim. But this is not one of them. The Proxy Statement and board materials unambiguously contradict Plaintiff's theory. And nothing in the complaint otherwise supports Plaintiff's extreme inference that the Company's books and records and public disclosures are false. To the extent Plaintiff sought to bring a hidden, management-level conflict to light, its own inspection demand snuffed the wick.
It is not reasonably conceivable that the Board committed a disclosure violation. So Plaintiff's claim fails under Corwin. But even if Corwin did not apply, the complaint would fail for another reason. Only Martell-the Board's sole inside director-is alleged to have been conflicted. But the Proxy Statement disclosed Martell's potential pecuniary interest in the Merger. And it is not clear from the complaint what role Martell played in the Merger anyway. Save for isolated scenes, he barely appears. In many ways, he is depicted as the Mr. Godot who never arrives.[1]
The complaint is devoid of specific facts from which to infer that Martell steered the Company away from CoStar to entrench himself. Under any standard, then, Plaintiff has failed to state a breach of fiduciary duty claim against Martell. Accordingly, I grant Martell's motion to dismiss.
I draw the relevant facts from the Verified Class Action Complaint (the "Complaint") and the documents it incorporates by reference.[2] At this stage, the Complaint's well-pleaded allegations are assumed to be true and Plaintiff receives the benefit of all reasonable inferences.
The Company was a publicly traded Delaware corporation specializing in property market analytics and technology.[3] Plaintiff was a common stockholder of the Company.[4] Martell was the Company's CEO and a member of the Board.[5]
The Board comprised 12 directors. The eleven directors not named as parties to this action were all outside directors.[6] Three of those directors were elected through a proxy contest initiated by Senator Investment Group LP and Cannae Holdings, Inc. (the "Funds").[7] Evercore Group L.L.C. served as the Board's principal financial advisor during the sale process.[8] Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden") served as the Board's legal advisor during the sale process.[9]
CoStar is a publicly traded Delaware corporation that specializes in property market analytics and technology.[10] CoStar was a strategic bidder.[11]
Stone Point Capital LLC and Insight Partners LLC acquired the Company in the Merger. Stone Point and Insight were financial bidders.
According to the Complaint, in June 2020, the Board determined to consider offers to acquire the Company.[12]
On June 26, 2020, the Funds publicly announced an unsolicited joint proposal to acquire the Company for $65 per share.[13] The Board rejected the proposal, concluding, among other things, that it "significantly undervalued" the Company.[14] The Funds responded with a proxy contest.[15] The Funds nominated nine directors to the Board.[16] The stockholders elected three of the Funds' candidates.[17]
According to the Complaint, the Funds' acquisition efforts loomed over the sale process.[18] The Funds' offer, however, also galvanized market-wide interest in acquiring the Company.[19] The Board directed management and its advisors to negotiate with the bidders.[20]
In the fall of 2020, Martell and Florance began discussing a potential strategic merger between the Company and CoStar.[21] At the time, the Board's review of the outstanding bids suggested that the Company was worth at least $80 per share.[22]
On December 15, 2020, CoStar made its first bid.[23] The bid contemplated, among other terms, an all-stock merger at a projected value of $77 to $83 per share.[24] In reviewing the bid, the Board compared the value certainty of a cash transaction with the value certainty of an equity transaction.[25] The Board also considered whether closing a CoStar transaction would be delayed by antitrust scrutiny.[26]
On December 28, 2020, the Board ratified an equity-based compensation package for its senior executives, including Martell.[27] The package contained a $27.5 million "golden parachute" provision payable upon a change of control.[28] The "golden parachute" provision would have been triggered regardless of the buyer.[29] The Proxy Statement disclosed Martell's potential pecuniary interest in the Merger and explained the nature and operation of management's compensation package.[30]
At a January 17, 2021, Board meeting, Martell informed the directors that Florance and he spoke earlier that day about the prospect of post-Merger employment with CoStar.[31] On January 19, 2021, CoStar revised its initial bid.[32] The revised bid proposed an all-stock merger nominally valued at $79 per share.[33]
On January...
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