Legal Firestorm Hits Delaware SPACs
In re MultiPlan Corp. Stockholders Litig., 2022 Del. Ch. LEXIS 1; 2022 WL 24060
Well a firestorm hit the legal world of special purpose acquisition corporations (SPACs) when the Delaware Court of Chancery (Lori W. Will, VC) denied motions to dismiss various allegations of some of the public stockholders of Churchill Capital Corp. (subsequently known as MultiPlan Corp.) alleging various damage claims and breaches of fiduciary duties against MultiPlan and against its directors and certain of its officers for the failure of the defendants to disclose certain information related to MultiPlan’s primary customer’s intention to build its own data platform. The lack of disclosure, according to the plaintiffs, caused them to not be able to make an informed decision on whether to redeem their shares as opposed to going along with the MultiPlan merger. By not redeeming, the plaintiffs incurred a post-merger loss of value in their holdings in MultiPlan.
Sounds like a not-so-unusual securities lawsuit, doesn’t it? So why the firestorm? Because SPACs were thought to be “different” in their structure from the ordinary corporation. Ordinary corporations having similar suits against them would be held to the entire fairness standard (a broader standard) rather than the business judgment standard. However, in MultiPlan, the chancellor applied the entire fairness doctrine to the motions to dismiss.
To be fair (no pun intended), this case is at the pleading stage and not at the trial stage. The issues that allow the case to move forward will be fully vetted during a trial. But it is a signal to sponsors of SPACs to be more cautious in the manner in which they conduct both the formation of the SPAC and the subsequent merger transaction. One of the prime allegations is that the proxy statement for the merger did not disclose the potential loss of the primary customer. This will strike a chord with those of us in the valuation community. When in doubt, disclose, disclose, disclose. Another large factor here was the lack of independence of the directors and the large financial gain they would all reap upon completion of a merger.
There is much more meat to the story that is found in the opinion and in the digest. For subscribers to BVLaw, the opinion and digest can be found in the database. In re Multiplan Corp. Stockholders Litig., 2022 Del. Ch. LEXIS 1; 2022 WL 24060.