Cadwalader, Wickersham & Taft LLP
MONTH-IN-BRIEF (Nov 2023)
Business Litigation
Delaware Court of Chancery Recognizes Potential Consequences of Excluding Officers from Fiduciary Duty Waivers
By Gurtej Grewal, Penn State Law
In Cygnus Opportunity Fund, LLC v. Washington Prime Group, LLC, the Delaware Court of Chancery denied dismissal of claims alleging that company officers breached their fiduciary duties by failing to provide adequate information to minority investors in connection with a tender offer by the controlling member (“Controller”) and a subsequent squeeze-out merger. In doing so, the Court recognized a significant tension between company officers’ duties owed to the board of managers versus officers’ fiduciary duties owed to the members of the corporation.
This lawsuit arose in connection with a squeeze-out merger that eliminated the minority investors in Washington Prime Group, LLC (the “Company”), a Delaware limited liability company. The Controller initially offered a two-tiered tender offer to purchase the minority holders’ shares. Notably, no recommendation was made by the Controller or the board in connection with the tender offer, and no financial information was provided to the minority investors. The minority investors’ numerous attempts to contact Company counsel yielded no new information beyond what had already been disclosed in an eight-page document sent to investors several months after the tender offer was made. Additionally, the Court noted that there were legitimate concerns relating to the independence of the minority-approved manager.