Del. Ch. Nixes Aiding Claims Against Merrill Lynch

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By Michael Greene

Oct. 30 — Merrill Lynch won't have to face aiding and abetting claims arising out of Zale Corp.'s $1.4 billion merger with Signet Jewelers Ltd., after a Delaware Chancery Court judge Oct. 29 determined he had applied the wrong standard of review to the underlying breach of fiduciary duty claims.

In an Oct. 1 ruling, Vice Chancellor Donald F. Parsons Jr. held that claims could proceed against Merrill Lynch, Zale's financial adviser, for allegedly aiding and abetting the Zale board's breach of duty (30 CCW 300, 10/7/15).

In that decision, Parsons concluded that under a Revlon reasonableness standard, the investor plaintiffs had adequately alleged that the directors breached their duty of care in the transaction.

Parsons reversed his decision Oct. 29. He found that in light of a Delaware Supreme Court ruling that was issued Oct. 2—Corwin v. KKR Fin. Holdings LLC (30 CCW 299, 10/7/15)—he should have applied the business judgment rule to the underlying breach claims.

“This misapprehension was both material and potentially outcome-determinative as to Merrill Lynch's aiding and abetting liability because I incorrectly applied Revlon rather than BJR when I reviewed the Complaint to determine whether it adequately alleged that the Director Defendants breached their fiduciary duties,” Parsons wrote.

No Gross Negligence

Applying Corwin, Parsons held that when a merger is approved by a fully informed, statutorily required vote of a majority of disinterested stockholders, the correct standard for finding a breach of the duty of care under the business judgment rule is gross negligence.

He reasoned that this was the same approach the chancery court adopted in a decision that came just after Corwin was decided—In re TIBCO Software Inc. Stockholders Litigation (30 CCW 325, 10/28/15). In TIBCO, Chancellor Andre G. Bouchard allowed an investor plaintiff's merger-related aiding and abetting claims to proceed against Goldman, Sachs & Co. because the financial adviser didn't notify the acquired company's board that the acquirer had relied on an erroneous share count in making its bid.

Distinguishing the Merrill case from TIBCO—Parsons concluded that the director defendants' conduct in examining whether Merrill Lynch would be an appropriate financial adviser didn't amount to reckless indifference or a gross abuse of discretion, even though he found Merrill Lynch's conduct to be “troubling.”

“Whereas in TIBCO the Court focused on the board's duty to investigate and inquire further after the disclosure of the share count error, the focus of the inquiry in this case was on whether the Director Defendants discharged their duty of care when they first engaged Merrill Lynch,” Parsons wrote.

To contact the reporter on this story: Michael Greene in Washington at

To contact the editor responsible for this story: Yin Wilczek at

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