While M&A transactions give rise to many different types of litigation, including disputes between the merger parties and statutory appraisal actions, the most common type of litigation stemming from public company mergers is a stockholder class action alleging breaches of fiduciary duty by corporate directors in connection with the sales process and approval of the transaction. The incidence of this type of litigation has increased considerably in recent years, with some studies indicating that over 90% of public company M&A transactions become the subject of stockholder class action litigation, typically with multiple suits being filed, often in more than one jurisdiction. With the prevalence of such litigation at an all time high and showing no sign of abating, M&A practitioners must have an appreciation of how the written record of a board’s or committee’s deliberative process will be treated and viewed by a court in litigation. Such an understanding will better enable M&A deal lawyers to aid their clients in creating a comprehensive and consistent written record that best positions their clients to prevail in the almost-inevitable breach of fiduciary duty litigation.
It is fair to say that the role of M&A deal lawyers today includes working with the board, management, and the board’s other advisors to “write the script” upon which a court will eventually rely to understand and evaluate the director’s decision-making process. While courts frequently view meeting minutes as a critical component of this written record, and sometimes consider them to be the best and most reliable evidence of a board’s (or committee’s) process, other aspects of the written record can be equally important. These include more “formal” components of the written record, such as meeting agendas, financial advisor presentations, and other presentations, memoranda, and outlines prepared for the directors, as well as less “formal” components of the record, such as notes and emails. A comprehensive, consistent, and timely prepared written record that evidences a thorough and careful process, and that corroborates witness testimony, will ordinarily provide a formidable defense to directors facing stockholder litigation alleging breaches of fiduciary duty. On the other hand, the written record can engender judicial skepticism and substantially undermine the directors’ defense if it is vague, incomplete, or inconsistent, or if it conflicts with witness testimony. It is the task of deal counsel to endeavor to ensure that each component of the “script” supports a cohesive story that will bolster the directors’ future litigation position, rather than undermine it.
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