Delaware Ruling Marks Potential Shift in Approach to SPAC-Related Claims

The Delaware Court of Chancery has just ruled on a case involving a de-SPAC (Special Purpose Acquisition Company) merger, dismissing a complaint alleging breach of fiduciary duty claims. The case marks a potential shift in how Delaware courts approach SPAC-related claims.

In a post on the firm’s website, the Sidley firm dives into the specifics of the White V. Hennessy case and how they compare with the decision in the 2022 landmark SPAC case: re MultiPlan Corp. S’holders Litig.

In the MultiPlan Corp case, the Court set rules for assessing claims that SPAC directors breached their fiduciary duties in connection with de-SPACs. Those cases generally concerned the redemption right: whether stockholders were properly informed about the future prospects of the company when they had to decide to redeem their shares or remain invested in the new public company after a de-SPAC merger.

Since Multiplan, the Court has applied the “entire fairness” review to these claims, which requires defendants to show that the process and price were entirely fair. That requirement often precludes dismissal at the pleadings stage. But, as Sidley explains, not always.

Recently, in White v. Hennessy, the Court dismissed allegations of breach of fiduciary duty similar to those in Multiplan. “Vice Chancellor Will clarified that allegations that SPAC insiders were conflicted and the merged company’s stock fell below the $10 redemption price—facts common to nearly every de-SPAC that spawns a Multiplan claim—are not enough to survive a motion to dismiss,” Sidley explained.

Despite the entire fairness review standard, the plaintiff must plead facts showing an impairment of the stockholders’ redemption rights, the law firm wrote.

The Court noted that the plaintiff made a shaky argument, claiming that a crucial decision to change the business model had been made before the merger. But that was contradicted by board materials and other public documents; and even if a decision had been made before the merger, the plaintiff failed to allege any facts showing that this was known to the SPAC officers and directors.

According to Sidley, the decision may mean a shift in the Delaware Court of Chancery’s receptiveness to “Multiplan-style” allegations. The opinion clarifies that an entire fairness review does not mean plaintiffs can fall short of the ordinary Delaware pleading standards.

Read more Today’s General Counsel coverage of the Delaware Court of Chancery here and here.