This week, I offer miscellaneous collection of things that caught my attention recently….

In Connection With.  I’ve been keeping track of cases involving a pattern where, roughly, company A and company B are somehow related; company B makes fraudulent statements that affect company A’s price; and shareholders of company A sue company B.  Blog posts here and here and here and here and here and here – also, Mike Levin and I discussed the issue in a Shareholder Primacy podcast (here at Apple, here at Spotify, here at YouTube).

Anyhoo, the latest entry in this series is In re General Motors Co. Securities Litigation, 2025 WL 952479 (E.D. Mich. Mar. 28, 2025), where shareholders of GM brought Section 10(b) claims against both GM and its majority-owned subsidiary, Cruise, alleging that both companies made false statements about the state of Cruise’s autonomous vehicle technology, and that the truth was disclosed when a Cruise car struck and dragged a pedestrian in San Francisco.  Though the court concluded that plaintiffs failed to identify any false statements made by GM or its officers, Cruise officers – and the Cruise company, on its blog – had falsely described the state of the technology and the circumstances surrounding the accident, including disseminating a misleadingly-edited video of the crash.  Without much trouble, the court went on to hold that Cruise’s statements had been made in connection with the sale of GM securities, and allowed the claims against Cruise and its officers to proceed.

Which seems obviously correct!  But I do point out that, without much coherence, the court in In re Volkswagen AG, 661 F. Supp. 3d 494 (E.D. Va. 2023), dismissed claims against Volkswagen’s wholly owned American subsidiary, VWGoA, after VWGoA made that stupid joke about Volkswagen changing its name to Voltswagen.  The court agreed the statements were false, made with scienter, in connection with trading in Volkswagen securities, but seemed to believe that if there was no claim against the parent, there could not be against the subsidiary either.

Meanwhile, of course, in Klein v Altria Group, 2021 WL 955992 (E.D. Va. Mar. 12, 2021), shareholders of the publicly-traded Altria were able to bring claims against JUUL, in which Altria had a minority stake, for making false representations about its business – but the Klein court had to distinguish Ontario Public Service Employees Union Pension Trust Fund v. Nortel Networks Inc., 369 F.3d 27 (2d Cir. 2004), where shareholders of JDS Uniphase, which held a minority stake in Nortel, were not permitted to sue Nortel when JDS Uniphase’s stock price dropped in the wake of revelations about Nortel’s fraud.

So. You know.

Nano, Nano.

Chancellor McCormick’s decision in Desktop Metal v. Nano Dimension has attracted some attention; Nano agreed to acquire Desktop Metal; a disgruntled Nano shareholder then obtained control of the board and sought to avoid the merger, largely by regulatory foot-dragging with CFIUS.

It’s a colorful set of facts but two things stood out for me.  First, several weeks ago, I blogged about another broken deal, between Kroger and Albertsons, and how Albertsons also accused Kroger of regulatory foot-dragging.  In that blog post, I pointed out that, even though – by its text – the merger agreement appeared to contemplate different levels of “effort” that the parties would apply to complete the merger, with a higher level imposed for obtaining regulatory approval, Delaware caselaw has traditionally refused to recognize “effort” distinctions in merger contracts.

Well, not anymore.  I don’t think it’s relevant to the outcome, really – in Nano, the acquiring company was actively trying to avoid the merger, not merely applying imperfect effort – but in her decision, Chancellor McCormick casually acknowledged and accepted that the merger contract expected especially high efforts to satisfy CFIUS with lower levels of effort for other aspects of deal completion.  See Op. at 15, 111. Albertsons will be happy.

The other thing that jumped out in Nano was, well, the chutzpah.  In order to avoid Desktop’s claims for specific performance, Nano argued that Desktop itself was in breach of the “Company Transaction Expenses” covenant, which prohibited Desktop from incurring expenses in excess of $15 million in connection with the agreement itself.  What expenses did Desktop incur, do you suppose?  If you guessed, litigation expenses to sue Nano to enforce the agreement, you are correct!

And nothing in the contract specifically … contradicted? … that interpretation, but McCormick was not having it:

Desktop’s argument is consistent with the parties’ contractual scheme.  The parties stipulate to specific performance in the event of breach. Nano’s reading of Company Transaction Expenses would effectively preclude Desktop from seeking specific enforcement of the agreement by limiting its litigation budget.  Nano has spent more than $17 million on this litigation.  Nano’s reading effectively means that only Nano has a right to zealously enforce the Merger Agreement due to the asserted cap on litigation fees. This is the sort of non-sensical result that would defy any party’s reasonable expectations.

If Nano correctly interpreted the definition of Company Transaction Expenses, the prevention doctrine precludes Nano from terminating the Merger Agreement based on a failure of the Transaction-Expenses Covenant. That is because Desktop never would have incurred “legal fees and expenses spent on this litigation” but for Nano’s breaches of the Merger Agreement.  Allowing Nano to benefit from its own breach by counting enforcement costs against the transaction expense cap would improperly reward contractual violations.

Empirical researchers: Lemme know if future merger agreements define capped “company transaction expenses” to exclude litigation expenses associated with enforcement, would you?

Investment Company Act vs. Takeover Defenses. I’ve blogged a couple of times about When Takeover Defenses Meet the Investment Company Act, in connection with Saba’s activism at various closed end funds. Well, we have a third instance.  Section 18(d) of the Investment Company Act says:

It shall be unlawful for any registered management company to issue any warrant or right to subscribe to or purchase a security of which such company is the issuer, except in the form of warrants or rights to subscribe expiring not later than one hundred and twenty days after their issuance and issued exclusively and ratably to a class or classes of such company’s security holders…

Which was given a workout when ASA tried to fend off Saba’s activist attack by creating a flip in poison pill – all the usual features, rights to all shareholders, but if Saba increased its stake, Saba’s rights would become void and everyone else’s would be triggered.  And, to get around the 120 day statutory limit, ASA’s pill expired after 120 days, but the board just adopted a new one.  And then another new one.

In Saba Capital Master Fund, LTD. et al v. ASA Gold and Precious Metals, 2025 WL 951049 (S.D.N.Y. Mar. 28, 2025), Saba argued that the successive pills violated the statute, and further that because Saba’s rights exclusively were nullified after a triggering event, the rights were not distributed “ratably” among share classes.

Now, Section 18(d) of the Investment Company Act was part of the original statute in 1940, long before the poison pill was a twinkle in anyone’s eye.  The concern at the time, as far as I can tell, was substantive: closed-end investment companies had developed a reputation for adopting complex and manipulative capital structures, frequently for the benefit of insiders and affiliates.

Nonetheless, whatever its origin, the provision is there now and Saba argued it prohibited ASA’s pill. 

And it got a partial win!  The court agreed that ASA’s tacking scheme violated the Act; to interpret the Act to permit successive pills would render the expiration provisions meaningless.  In so doing, the court relied on SEC v. Sloan, 436 U.S. 103 (1978), where the Supreme Court rejected a similar tactic by the SEC to get around a ten-day limit on trading suspensions. The court distinguished (unconvincingly) a 2007 decision out of Maryland, but mostly just seemed to think the Maryland court had got it wrong.

But the court rejected Saba’s claim that the fundamental design of the pill, which nullified Saba’s own rights, violated the ratable requirement, because Saba did, in fact, receive rights ratably with everyone else:

Section 18(d) requires only that rights be issued proportionally, and in the context of this case, required only that Plan Rights be allocated on a pro rata basis to all shareholders.  The Rights Plans issued a Plan Right, per share, to Saba just as it issued them to other shareholders, and accordingly, there is no violation.

I mean, especially given the original concerns of the ICA – special rights to insiders – I have my doubts about a statutory interpretation that allows the issuance of rights to everyone, but that are only exercisable by some.  That said, any other interpretation would mean that closed-end funds can’t issue pills at all, even for a limited duration, and I can see why the court might have been uncomfortable with that interpretation.

Still, the story’s not over.  Not only is ASA appealing, but it also just adopted another pill!  Saba is now moving to enforce the original order.

Courts really don’t like it when you intentionally issue false projections in order to make a merger look better, again.  Hey, remember that time Vista Equity Partners kind of induced the CEO of Mindbody to breach his fiduciary duties when selling the company, and then got dismissed out of the Delaware case because of some odd procedural choices by the plaintiffs?  (Mike Levin and I discussed that case in a podcast, too: here at Apple, here at Spotify, here at Youtube).  Anyway, there was also a securities fraud
case, in which the target shareholders alleged that Mindbody intentionally lowballed its future prospects in order to persuade shareholders to vote for the deal (that case settled).

Well, the Ninth Circuit just reversed a district court’s dismissal of another case involving a Vista acquisition, where shareholders alleged, you’ll never believe this, that the target lowballed its future prospects in order to persuade shareholders to vote for the deal. 

As with the Mindbody case, the court almost seemed to go out of its way to redefine “forward looking” to avoid application of the PSLRA safe harbor. It held that representations as to how projections are prepared – in good faith, management’s best judgment, etc – are not forward looking statements, and therefore, if false, are actionable.  Here, they were, because the target had a business model of acquiring other companies, but inexplicably omitted acquisition growth in its latest (and only its latest) set of projections, without disclosing that fact to investors. 

Also interestingly, the plaintiffs were permitted to proceed on a claim that the target misrepresented the contents of an ISS report.  ISS had recommended that shareholders vote in favor of the merger, but only qualifiedly, with a scathing analysis; the target touted the headline but not the details.  The reason this stands out is because ISS reports are, like, semi public.  They’re sold to institutional clients, and that means lots of people see them and have access to them – especially the kind of investors who are most likely to make an impact – even if they aren’t made generally available.

Ordinarily, that’s the kind of scenario that’s ripe for a truth on the market argument, but this wasn’t a fraud on the market case – it was a proxy fraud case!  And in a proxy fraud case, the issue is whether shareholders were actually adequately informed, not whether information was incorporated into stock prices via informed trading. (Once, in the context of 10(b), the Ninth Circuit nicely drew the distinction).

That said, if the case goes much further, I do wonder if defendants will argue that, because the ISS report was made available to most of the largest shareholders, their votes were informed, and their votes were enough to win majority approval of the deal.

And another thing. On this week’s Shareholder Primacy podcast, Mike Levin and I talk (again) about the amendments to Delaware law: what the final versions do, and What It All Means.  Here at Apple, here at Spotify, and here at YouTube.