CURRENT MONTH (June 2025)
Delaware Supreme Court Reverses Aiding and Abetting Judgment Against M&A Acquirer for Lack of Knowing Participation in the Breaches
By K. Tyler O’Connell, Morris James LLP
The Delaware Supreme Court recently reversed a post-trial decision by the Court of Chancery awarding damages against an M&A acquirer for aiding and abetting breaches of fiduciary duties because the acquirer did not have the required “actual knowledge” of the sell-side fiduciaries’ breaches. See In re Columbia Pipeline Grp., Inc. Merger Litig., __ A.3d __, 2025 WL 1693491 (Del. June 17, 2025). After trial, the Court of Chancery found that corporate officers nearing retirement breached their fiduciary duty of loyalty by prioritizing their interest in obtaining lucrative change-in-control payments, and the acquirer aided and abetted the breaches. After the Court of Chancery’s decision, however, the Delaware Supreme Court rendered its decision in In re Mindbody, Inc. S’holder Litig., 332 A.2d 349 (Del. 2024), which discussed the element of an acquirer’s “knowing participation” in an underlying breach. As such, the Court of Chancery did not have the benefit of the Supreme Court’s Mindbody decision when ruling.
Here, the Supreme Court reasoned that, consistent with Mindbody, an aider and abettor must have both (i) “actual knowledge” of the underlying breach of fiduciary duty, and (ii) knowledge that “its own conduct regarding the breach was improper.” The Court reasoned that these requirements can make it difficult to prove an aiding and abetting claim against a third-party acquirer, who typically has “limited visibility into the seller’s internal governance dynamics,” and who also has a duty to its own stockholders “to extract the best reasonably available price.”
In regard to the “participation” required for liability, the Supreme Court reasoned that there must be substantial assistance in the sell-side breach, as opposed to mere “passive observation of the seller’s eagerness to strike a deal or its negotiators’ want of bargaining acumen.” The Court reasoned that an acquirer does not risk aiding and abetting liability simply by “taking advantage of the other side’s weakness and negotiating aggressively for the lowest possible price.” Similarly, the Supreme Court reasoned that “taking advantage of a personal relationship and superior negotiating skills and experience to secure the best reasonably available price” will not expose an acquirer to aiding and abetting liability. The Court emphasized that even “disquieting” bargaining tactics would not suffice for liability without actual knowing participation “in the breach” (emphasis in original).
Here, the Court of Chancery’s liability ruling turned on its finding that the acquirer had “constructive knowledge” of the breaches through “a series of signals” in the negotiation process. The Supreme Court reasoned, however, that a question of “constructive knowledge” involves charging a party with such knowledge that a reasonable person exercising due care and diligence would have had, which differs from the “actual knowledge” standard for aiding and abetting liability. Here, the Court of Chancery acknowledged that actual knowledge was lacking with respect to the officers’ plans to retire. The Supreme Court also reasoned that various of the supposed “signals” of their breaches were ambiguous, and thus did not show actual knowledge.
The Delaware Supreme Court similarly reversed the Court of Chancery’s ruling that the acquirer aided and abetted sell-side breaches of the fiduciary duty of disclosure via deficiencies in the seller’s proxy statement. Again following its Mindbody decision, the Supreme Court reasoned that a third-party acquirer’s “knowing participation” in disclosure violations requires more than “passive awareness” of deficiencies from reviewing the disclosures. Here, as in Mindbody, the merger agreement required the acquirer to review and correct misstatements in draft proxy materials. But as in Mindbody, the Supreme Court reasoned here that supposed violations of a contractual obligation should not be conflated with the requisite substantial assistance in a fiduciary breach. The Supreme Court reasoned, among other things, that the circumstances showed the alleged material facts at issue were known to the seller, and the drafting history of the proxy statement showed that the seller, not the acquirer, was the primary drafter of the disclosures at issue. The Supreme Court thus held the acquirer was not liable as an aider and abettor.
Accordingly, in light of its rulings with respect to “knowing participation,” the Delaware Supreme Court reversed and entered judgment for the acquirer.
Tyler O’Connell is a Partner at Morris James LLP in Wilmington, Delaware. Any views expressed herein are not necessarily those of the firm or any of its clients.
