Del. High Court Affirms$16M Award to Caris Option Holder

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By Michael Greene

June 7 — Caris Life Sciences Inc. won't be able to escape a ruling requiring it to pay over $16.2 million in damages to a class of stock option holders, a majority of the Delaware Supreme Court ruled June 6 ( CDX Holdings Inc. (f/k/a Caris Life Sciences Inc.) v. Fox, 2016 BL 180519, Del., No. 526, 6/6/16 ).

In a rare divided decision, the state high court affirmed 4-1 a July 2015 ruling in which the Delaware Chancery Court concluded that the medical diagnostics company undervalued two spun-off business units when it used a complex spin/merger to effectuate the sale of its pathology unit.

Although the dissenting judge mounted a vigorous argument, the majority deferred to the chancery court's factual findings. Writing for the majority, Delaware Supreme Court Judge Randy Holland said the lower court's findings were supported by the record and were the product of sound reasoning.

The chancery court found that Caris breached a stock incentive plan requiring the company to reimburse employees for stock options cancelled in the merger, in the amount that the stocks' fair market value exceeded the exercise price (13 CARE 1712, 7/31/15).

The lower court said Caris's board failed to make “Fair Market Value” determinations it was supposed to make under the plan.

Dissenting Opinion

After the company's spin/merger transaction was completed, a Caris employee option holder filed a class action claiming that the share value attributed to the spin-offs wasn't made in good faith.

The chancery court found that Caris Chief Financial Officer Gerard Martino made option-value determinations that undervalued two spin-offs to minimize the tax liabilities of Chief Executive Officer David Halbert, who owned 70.4 percent of the company.

In her dissent, Judge Karen Valihura said the chancery court's decision should be reversed because it made no factual findings supporting a conclusion that the board acted in bad faith. She specifically disagreed with the lower court's finding that the board hadn't acted at all.

“If the trial court believed that the Board had not acted, then it should have proceeded to analyze whether a majority of the Board intentionally failed to act in the face of a known duty to act,” she wrote. “This typically requires an extraordinary set of facts. Such facts, as to the Board's conduct, are not present here.”

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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