Aug. 25 — C&J Energy Services Inc. directors and officers don't have to face claims that they breached their fiduciary duties in connection with the company's $2.86 billion merger with a unit of Nabors Industries Ltd., the Delaware Chancery Court ruled Aug. 24 ( City of Miami Gen. Emps. & Sanitation Emps. Ret. Trust v. Comstock, 2016 BL 274867, Del. Ch., No. 9980-CB, 8/24/16 ).
Chancellor Andre G. Bouchard dismissed the shareholder lawsuit after determining the deferential business judgment standard of review applied. In reaching the ruling, he cited two recent Delaware Supreme Court decisions that limit judicial review of transactions when they are approved by a fully informed, uncoerced stockholder vote— Corwin v. KKR Fin. Holdings LLC, 2015 BL 323544 (41 CARE, 10/6/15) and Singh v. Attenborough, 2016 BL 145197 (89 CARE, 5/9/16).
Bouchard also found no basis for applying the entire-fairness standard of review. He rejected the plaintiff's claims that a majority of the company's directors were interested in the Nabors transaction and that the process by which the board considered the deal was tainted.
The court further determined that the company was entitled to over $542,000 in damages as a result of a preliminary injunction issued earlier in the lawsuit.
Michael Holmes, a Dallas-based partner at Vinson & Elkins LLP who represented the defendants, told Bloomberg BNA in an Aug. 25 e-mail that the litigation had a “number of twists and turns,” at one point resulting in an opinion by the state high court.
The chancery court's “award of fees underscores that an injunction bond is there to ensure that parties like C&J are adequately protected during the injunction process when they undertake to comply with an injunction that is later overturned,” Holmes said. “Hopefully, the Court's opinion will make it less burdensome for parties like C&J to recover such costs in the future.”
Counsel for the plaintiff shareholder didn't immediately respond to a request for comment.
In November 2014, the chancery court issued a preliminary injunction preventing C&J from proceeding with the merger (12 CARE 1612, 12/5/14). In addition to issuing the injunction, the court blue-penciled a mandatory “go-shop” provision into the merger agreement.
Less than a month later, the Delaware Supreme Court reversed, finding that C&J's directors didn't have to shop for other offers (13 CARE 19, 1/2/15).
The transaction was subsequently approved by over 97 percent of C&J stockholders who voted. Several months after the deal closed, the plaintiff amended its complaint.
In its Aug. 24 holding, the chancery court determined that the preliminary injunction was “wrongful” because the Delaware Supreme Court reversed it on appeal.
Under Delaware law, applicants for a preliminary injunction must post a bond in a sum that the court deems proper to cover the costs that may incur to parties that are wrongfully enjoined or restrained. The court found that C&J was entitled to recover damages against the bond for costs C&J incurred over the court-ordered solicitation process.
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