October 10, 2016
Latham & Watkins’ New York Litigation & Trial Department secured an important dismissal of a Delaware lawsuit challenging the December 2015 transaction in which Books-A-Million, Inc. was taken private by its majority stockholders, the Anderson Family.
Following the announcement of the take-private transaction, plaintiffs asserted claims against certain individual defendants, including members of Books-A-Million’s Board of Directors for breaches of fiduciary duty in approving the transaction and the Anderson Family for aiding and abetting such alleged breaches. The defendants, led by Latham, moved to dismiss the amended complaint. The central issue in the case was the application of the Delaware Supreme Court’s recent decision in Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014), which applied the business judgment rule (as opposed to the more exacting “entire fairness” standard of review) to a controlling stockholder take-private transaction where the transaction was conditioned from the outset on certain minority protections, including approval of the transaction by an adequately-empowered special committee of independent directors and a majority-of-the-minority stockholder vote.
On October 10, 2016, Vice Chancellor Laster of the Delaware Court of Chancery issued a 42-page opinion dismissing the case with prejudice. VC Laster concluded that the transaction met the requirements of M&F Worldwide, the business judgment rule therefore applied, and the plaintiffs did not meet their weighty burden under the business judgment rule. In so ruling, VC Laster rejected the plaintiffs’ contention that the independent directors must have acted in bad faith by approving the deal given that another bidder – Party Y – offered to pay a higher price per share for the company. VC Laster concluded that there was no reasonably conceivable inference of bad faith, given that Party Y’s offer was conditioned on the Anderson Family selling their controlling interest in the company – something the Anderson Family was not obligated to do and said it would not do. VC Laster found that the premium paid by the Anderson Family was reasonable and concluded that accepting the offer did not evidence gross negligence by the special committee. Indeed, he found that the special committee’s decision to test the waters by exploring a transaction with Party Y “definitively undercuts any possible inference of gross negligence.” VC Laster also rejected the plaintiffs’ efforts to taint the special committee by pointing to the actions of a director who resigned from the special committee due to his social and civic relationships with the Anderson Family. Not only did his minor involvement not taint the special committee, but VC Laster praised the resignation as “commendable” to the integrity of the special committee’s process.
This case is a crucial victory in the application of M&F Worldwide at the motion to dismiss stage in controlling stockholder take-private transactions. The Latham team was led by New York partners Jimmy Brandt and Blair Connelly (who argued the motion) and associates Blake Denton, Jessica Rostoker, and Amy Deroo.