M&A Cases To Watch In 2015

In the year ahead, mergers and acquisitions attorneys expect the courts to clear up how they'll interpret fiduciary duties in the deal-making context and how much leeway public corporations have to restrict shareholder litigation.

Aside from new decisions, practitioners will closely track the next phase of ongoing debates over financial advisers' conflicts of interest and monitor certain much-anticipated legislative action after significant developments in the past year.

Here, Law360 examines four of the high-profile matters that will keep practitioners captivated in 2015.

Chancery Surprises Market by Upending Deal

The Delaware Court of Chancery in November put a rare hold on an active deal when a judge ruled C&J Energy Services Inc. didn't go far enough to shop itself ahead of its $2.9 billion merger with a Nabors Industries Ltd. unit.

Vice Chancellor John Noble cited the deal's unusual structure — though C&J is the buyer, the stock portion of the consideration will give Nabors a controlling stake in C&J — when he sent C&J back out into the marketplace for 30 days to sniff out other prospective buyers.

Shareholders in C&J are entitled to a sale process because of the change in control, the vice chancellor said in his rationale for mandating a go-shop period. The case is on expedited appeal to the Delaware Supreme Court, with a decision from the panel expected in coming weeks.

The Chancery decision sparked widespread discussion over the rationale for holding up the transaction and the implications for similarly structured tie-ups. In particular, deal watchers questioned the go-shop when the merger was publicly announced over the summer, giving dark-horse suitors almost half a year to lob competing bids.

"It wasn't as though the board couldn't entertain other offers and it's not as if the market didn't know the company was in a transitional state," Shearman & Sterling LLP partner Alan Goudiss said.

But weeks later the Delaware Supreme Court reversed the lower court's ruling. Days after hearing oral arguments, the high court found Vice Chancellor Noble incorrectly applied the preliminary injunction standard requiring plaintiffs to demonstrate a reasonable probability of success, and misinterpreted the fiduciary duties the C&J board allegedly breached.

The high court resolved the case's central issue, though more courtroom wrangling could come in 2015. Questions remain over the fairness of the deal, in particular because of the murkiness surrounding who was the buyer and who was the seller.

The appellate case is C&J Energy Services Inc. et al. v. City of Miami General Employees' and Sanitation Employees' Retirement Trust, case number 655, 2014, in the Delaware Supreme Court.

The case is City of Miami General Employees' and Sanitation Employees' Retirement Trust v. C&J Energy Services Inc. et al., case number 9980, in the Court of Chancery of the State of Delaware.

Fee-Shifting Returns to the Limelight

Delaware lawmakers this legislative session will finally vote on a controversial amendment to ban public companies from requiring losing plaintiffs to cover attorneys' fees in shareholder litigation, a lightning-rod prospect that stirred debate over the summer before policymakers asked for more time to review the terms.

Legislators originally planned to decide on the hotly contested proposal in June but punted amid sharp blowback from companies and advocacy groups arguing that fee-shifting provisions could be a powerful tool to rein in frivolous shareholder litigation. But proponents of the ban say widespread fee-shifting could chill even meritorious claims.

"There's extreme interest [in fee-shifting] for obvious reasons," Kirkland & Ellis LLP partner Yosef Riemer said. "People are really being deliberate about it to see what, if any, legislative response it draws."

The saga traces back to a Delaware Supreme Court decision in May that affirmed tennis nonprofit ATP Tour Inc. could enforce a fee-shifting bylaw. To prevent public companies from applying the ruling to themselves, the Delaware Corporation Law Council — a faction of the bar that helps shape the state's corporate law — quickly drafted the amendment and sent it to the Capitol.

Depending on how long the Legislature waits to take action, the courts could factor into the picture. At least a couple of public companies have integrated the much-discussed provisions, potentially opening the door to enterprising plaintiffs firms looking for the courts to weigh in on fee-shifting before legislators decide.

Attorneys say better-defined parameters for fee-shifting will redefine the landscape no matter what, but especially if the proposed ban doesn't hold up with lawmakers. In that case, the bylaws could become the next major issue tackled by the Delaware judiciary, home the most business-savvy bench in the country -- and a longtime incubator for novel corporate techniques.

"I think Delaware would be an excellent laboratory for corporate and judicial innovation in the area of putting limits on shareholder litigation," said Brad Voss, a Delaware-based corporate and commercial lawyer.

Financial Adviser Conflicts Go Under the Microscope

A $76 million judgment leveled in the fall against Royal Bank of Canada fleshed out the Chancery's finding this year that the bank gave shoddy advice to push ambulance operator Rural/Metro Corp. into a lowballed buyout, underscoring a low tolerance for bankers' deal-making miscues.

Now, practitioners are glued to RBC's appeal while deal makers are more sensitive than ever to potential conflicts of interest. In the Rural/Metro case, the court found RBC dressed up a Warburg Pincus LLC buyout offer to pump up its fees as Rural/Metro's adviser and because it was in the running to finance the private equity firm's bid.

 Through RBC's appellate proceedings, attorneys said they expect additional clarity on the Chancery's landmark decision. There's ambiguity surrounding what the court sees as a conflict of interest, as well as what can be rectified through disclosures and what irreparable — and potentially costly — conflicts could lurk.

In an appeal filed in November, RBC questioned Vice Chancellor J. Travis Laster's finding in March that it gave faulty advice and his October decision putting the bank on the hook for more than 80 percent of the total damages in the case. The high court said the challenge came too early, but that RBC could revive it later.

The initial appellate case is In re: Rural Metro Corp. Shareholder Litigation, case number 625, 2014, in the Delaware Supreme Court.

Court Guidance Sought as Appraisals Stay Hot

An influx of appraisal claims feeding into post-closing litigation has companies eager for more clarity on how the courts will treat such proceedings, a risky tactic increasingly used by enterprising shareholders to squeeze more value from public company deals.

Hedge funds generally start the process by buying into a target company after a deal announcement then asking a judge for a heftier payout based on an independent valuation. Proceedings in a handful of high-profile transactions, including Dell Inc.'s $24.9 billion go-private deal and Dole Inc.'s $1.6 billion sale, are working their way through the Delaware judiciary.

"People are keeping a close eye on these proceedings to understand how they will affect appraisal decisions going forward," Solum said.

Midway through last year, the number of appraisal claims already passed the total for all of 2013 — momentum practitioners expect to carry into 2015, ramping up interest in how the courts will treat such plays, especially where the shareholders bringing them purchased stock after the record date.

A central issue in the pending cases is whether investors jumping into a company after a sale — and after the record date — can prove the shares they bought were not voted in favor of the transaction at issue, a central piece of bringing an appraisal claim.

If parties have more room to wring more money through appraisals, the door will open wider to post-closing claims and damages cases, attorneys said.

The Forum Selection Debate Continues

Questions over companies' leeway to restrict litigation to the jurisdictions of their choosing have simmered for years, and attorneys say they expect continued evolution over the next year in how the judiciary and the marketplace treat such provisions.

Since the Delaware courts upheld the use of forum-selection clauses in a pair of landmark cases back in 2013, the issue has slowly gained definition. It's a welcome evolution for corporations long frustrated by shareholder suits that, according to data released last year, rise out of virtually all deals worth $100 million or more.

The frequency of deal challenges puts a bright spotlight on the forum-selection issue. Delaware corporations say investors frequently bring suits in other jurisdictions or even multiple jurisdictions, seeking to tip the litigation process their way.

A case in 2014 added contours to the issue when the Chancery ruled First Citizens BancShares Inc. could enforce a requirement that almost all intracorporate disputes be litigated in North Carolina, where it keeps its headquarters. The facts were a bit of departure from most forum-selection disputes, where companies try to stay within Delaware's well-developed business courts, but the decision confirmed shareholders face a tough fight in striking down the provisions.

"Does that mean there will be more litigation in Delaware or will other corporations think about pushing litigation into other fora as well?" said Matthew Solum, another Kirkland litigator. "Seeing what effect those provisions have on the state of play in M&A litigation is going to be interesting."

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