Fresenius As “Event Driven” Litigation; The Delaware Supreme Court Rapidly Affirms the T
Over the last couple of years, defense oriented commentators have used the meme “event driven securities litigation” as part of complaining about the increasing volume of class action litigation. From my perspective, there could be merit to some complaints, but the meme is far too broad and all “event driven” cases are not equal. Why? Because the events at issue may range from allegedly causing massive fires to allegedly concealing product liability risks to allegedly failing to disclose accurate facts regarding regulatory interactions with agencies such as FDA to losing verdicts in cases alleging perpetration of massive fraudulent conveyances. Simply put, one size memes do not fit all fact patterns.
That said, the “event driven” meme also came to mind while reading a December 5, 2018 article in LAW360 regarding oral arguments in the Delaware Supreme Court regarding the Fresenius case. There, a would be buyer terminated a corporate m&a deal based on the plummeting value of a target due to regulatory failures, which caused the buyer to invoke a “material adverse event” clause. The issues went to trial, and a Delaware chancery judge (Lasker) upheld the termination based on adverse outcomes in events prior to the intended closing date for the transaction. In a nutshell, “What mattered was the root of this shortfall. Fresenius claimed that Akorn made misrepresentations when it claimed to be in compliance with Food and Drug Administration regulations and making progress in fixing manufacturing shortfalls. In particular, according to a NYT article of October 2, 2018, Fresenius said that Akorn had been sloppy with — or, worse, fabricated — the data that underlies F.D.A. drug approvals.”
Now, in just three days, the Delaware Supreme Court has affirmed the Fresenius ruling by Judge Lasker, in a brief three page order by Chief Justice Strine. It therefore seems logical to infer that the Delaware Supreme court found it easy to conclude that “event driven” problems could indeed alter the value of an entity so much that the material adverse event clause was properly invoked to terminate the deal. Therefore, one might see merit to at least some “event driven” securities suits.