Delaware Court Settles M&A Dispute By Assessing Equal Damages

According to an article by law firm McCarter & English, a ruling in an M&A dispute over fiduciary duty clarified that Delaware law does not prioritize fiduciary duties over contractual obligations. The case was In re Columbia Pipeline Group, Inc. Merger Litigation before the Delaware Court of Chancery. 

Columbia Pipeline was sold to TC Energy Corp. (TransCanada). The sale price of $25.50 per share prompted several lawsuits from Columbia stockholders. One claimed the Columbia officers breached their fiduciary duties by pursuing the transaction at an unfair price in their own self-interest. Another claimed the officers made misleading disclosures in Columbia’s proxy statement.

The same stockholders alleged corresponding claims against TransCanada. The Columbia officers settled before trial for $79 million, and the stockholders went to trial against TransCanada.

The Delaware Court of Chancery found in their favor and awarded non-cumulative damages of $1 per share, a total of $398,436,581, for sales process claims; and $0.50 per share, $199,218,290, for disclosure violations.

After the trial, TransCanada tried to minimize its liability under the Delaware Uniform Contribution Among Tortfeasors Act (DUCATA), which is implicated when a plaintiff recovers damages after previously releasing some, but not all, joint tortfeasors.

The court therefore had to determine the relative degrees of fault for the Columbia officers and TransCanada. TransCanada claimed it had less culpability because it was not a fiduciary, and only breached contractual obligations.

In its decision, the court examined decades’ worth of key Delaware precedent and determined that fiduciary duties do not override binding contractual commitments. It allocated 50% responsibility to TransCanada for its knowing participation in the Columbia officers’ breach of fiduciary duty, and 42% for its involvement with breaches of the duty of disclosure.