On January 4, 2023, and again on March 1, 2023, Vice Chancellor Lori Will of the Delaware Court of Chancery denied motions to dismiss claims against directors and controlling shareholders of GigCapital-affiliated special purpose acquisition companies (“SPACs”) for alleged fiduciary duty breaches. Delman v. Gigacquisitions3, LLC, et. al., C.A. No. 2021-0679-LWW (Del. Ct. Ch. Jan. 4, 2023) (“Gigacquisitions3”); Laidlaw v. Gigacquisitions2, LLC, et. al., C.A. No. 2021-0821-LWW (Del. Ct. Ch. Mar. 1, 2023) (“Gigacquisitions2”).
In the second of the two decisions, Gigacquisitions2, the Court noted that the “legal theories presented and defendants named are largely indistinguishable” between the two cases. In both, the Court held that Delaware’s most stringent standard of review—entire fairness—applied in the SPAC context where plaintiffs sufficiently pleaded facts making it reasonably conceivable that the transaction involved both a conflicted controller and a conflicted board, and, in so doing, further re-affirmed its own ruling in In re MultiPlan Corp. Stockholders Litigation 268 A.3d 784 (Del. 2022), as discussed here, also decided by Vice Chancellor Will.
In both cases, plaintiffs asserted that defendants—including the founder and controller of seven SPAC endeavors (including the two at issue in these cases)—undertook value-destructive de-SPAC mergers at the expense of the public stockholders who would have benefited from exercising their redemption rights. Vice Chancellor Will held that it was reasonably conceivable that defendants breached their fiduciary duties by failing to provide stockholders with necessary information to decide whether to exercise their redemption rights.
Following the reasoning of MultiPlan, the Court found that entire fairness review was warranted because the controlling SPAC sponsor stood to realize a “unique benefit” at the expense of public stockholders, generating significant returns for itself even with a value-decreasing merger. Because the sponsor would lose all of its investment if the SPAC failed to complete the merger, the Court concluded that it was reasonably conceivable that the sponsor’s interest in minimizing redemptions to reduce the chance that the de-SPAC mergers would fail conflicted with the public stockholders’ interest. The Court further found in both cases that entire fairness was the appropriate standard of review because plaintiffs adequately pleaded that a majority of each SPAC’s board lacked independence from the owner and controller of the SPAC sponsors.
Plaintiffs contended that defendants interfered with the public stockholders’ ability to exercise their redemption rights by failing to fully disclose material information about the de-SPAC mergers, omitting material and reasonably available information about the target corporations and their finances. Plaintiffs alleged that defendants provided inadequate disclosures to increase the likelihood that the merger would be completed, thereby maximizing their profits. The Court found plaintiffs’ disclosure claims were “inextricably intertwined with issues of loyalty” and therefore were not exculpated under the 8 Del. C. § 102(b)(7) provisions in either SPAC’s charter.
The Court further confirmed in both cases that plaintiffs’ claims were direct in nature, and therefore not subject to dismissal for failure to plead demand futility, because public stockholders suffered an alleged impairment of their right to redeem, an injury that could not run to the corporation.
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Delman v. Gigacquisitions3, LLC
Laidlaw v. Gigacquisitions2, LLC
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