In Fortis Advisors LLC, v. Allergan W.C. Holding Inc., C.A. No. 2019-0159-NTZ (Del. Ch. Might 14, 2020), a shareholder consultant appointed pursuant to a merger settlement asserted a declare on behalf of promoting stockholders for sure contingent funds. The defendant surviving company introduced a movement within the Delaware Courtroom of Chancery (the “Courtroom”) to (i) compel the promoting stockholders to take part in discovery as parties-in-interest to the motion and to be topic to trial subpoenas as events or (ii) compel the shareholder consultant to obtain and produce discovery from the promoting stockholders. The Courtroom denied the movement in full.
Defendant Allergan W.C. Holding Inc. (“Allergan”) and Oculeve, Inc. (“Oculeve”) executed a merger settlement in July 2015 (the “Merger Settlement”), which included appointment and authorization of plaintiff Fortis Advisors LLC (“Shareholder Consultant”) because the shareholder consultant. In such capability, Shareholder Consultant was designated because the “sole, unique, true and lawful agent, consultant and attorney-in-fact” of the previous Oculeve stockholders (“Promoting Stockholders”) with respect to “any and all issues regarding, arising out of, or in reference to” the Merger Settlement, together with contingent funds.
The Merger Settlement contemplated that Allergan would make sure post-closing milestone funds to Promoting Stockholders ought to pending regulatory authorization be granted. Nonetheless, after receiving an authorization, Allergan declined to make the corresponding milestone fee, arguing that the authorization didn’t meet the circumstances set forth within the Merger Settlement. In October 2019, the Courtroom declined to dismiss a declare by Shareholder Consultant alleging that Allergan materially breached the Merger Settlement with respect to such funds. In December 2019, Allergan served its preliminary discovery requests to Shareholder Consultant. The requests sought paperwork from over fifty non-party particular person Promoting Stockholders, to which Shareholder Consultant objected.
In reviewing Allergan’s movement to compel discovery from Promoting Stockholders, the Courtroom famous that Delaware regulation presumes that refined events participating in arms-length negotiations can be sure by the language of the agreements they negotiate. Right here, the Merger Settlement appointed Shareholder Consultant to litigate on behalf of Promoting Stockholders as the actual party-in-interest to such actions. The Courtroom acknowledged that this construction creates transactional efficiencies that profit each consumers and sellers post-closing. As Allergan had bargained for this construction, the Courtroom stated that Allergan couldn’t displace the construction now with the argument that it created “tangential inefficiency” to the litigation. Accordingly, the Courtroom declined to compel Promoting Stockholders to take part in discovery as parties-in-interest to the motion or to be topic to trial subpoenas as events.
Subsequent, the Courtroom famous that the Merger Settlement didn’t give Shareholder Consultant any potential to compel discovery from Promoting Stockholders. Courtroom of Chancery Rule 34 requires a celebration to supply all paperwork inside its possession, custody or management in discovery. A celebration has possession and management over paperwork held by third events if it might power manufacturing of paperwork with out counting on a court docket, reminiscent of pursuant to a contractual obligation. The Courtroom discovered the Merger Settlement didn’t grant such possession and management of Promoting Stockholders’ paperwork to Shareholder Consultant; Allergan had not bargained for such phrases. The Courtroom distinguished circumstances from exterior of Delaware through which the appointment of administrative brokers below credit score agreements didn’t stop discovery from the lenders, noting that the relevant agreements didn’t ponder litigation preparations as offered within the Merger Settlement. As such, the Courtroom declined to compel Shareholder Consultant to obtain and produce discovery from Promoting Stockholders.
Lastly, the Courtroom famous that (i) Shareholder Consultant had restricted substantive relationships or communications with Promoting Stockholders, (ii) Shareholder Consultant had engaged counsel by itself behalf, not on behalf of Promoting Stockholders and (iii) as a sensible matter, dismissing the movement wouldn’t considerably prejudice Allergan within the litigation as a result of it already had entry to nearly all of Oculeve’s books and information. The Courtroom acknowledged that these information bolstered its conclusions.