Expedition Doesn't Extend to Non-Colorable Claims

The Delaware Court of Chancery has long expressed its preference that the time to bring a disclosure claim regarding a proposed merger is before the stockholders vote and the deal closes. Such prompt pleading enables the court to fix any potential harm before the merger occurs. In part for that reason, the court follows the practice of “‘erring on the side of more [expedited hearings] rather than fewer,’” as it wrote in Ehlen v. Conceptus, C. A. No. 8560, slip op. at 3 (Del. Ch. May 24, 2013). While the standard to obtain expedition is minimal — the plaintiff must demonstrate a colorable claim and a sufficient possibility of irreparable harm — a plaintiff fails to meet it with rote pleading or conduct inconsistent with a demand for expedition. As Ehlen illustrates, the court will require a greater showing of colorability if a plaintiff unduly delays in seeking expedition, even if the delay itself does not constitute laches, and deny as colorable disclosure claims if the plaintiff cannot demonstrate that allegedly omitted information would alter the total mix of information available to the stockholders.

Ehlen involved a merger transaction that the board of the selling company announced April 29. The transaction will occur in two steps, with the first closing today. The plaintiff filed its complaint May 15. The court rejected the defendant’s argument that the delay in filing of the complaint justifies denying expedition on the ground of laches, finding no fault with the plaintiff’s decision “to await a final proxy and file a complaint with strong claims.” The court was troubled, however, that the plaintiff waited an additional week to file the motion to expedite May 21, which the court scheduled for oral argument May 23. “With only three weeks between complaint and closing, a week’s delay is significant,” the court wrote in the opinion. Thus, while the court did not deny the motion to expedite based on this delay, it held that the plaintiff bore an extra burden to justify the substantial costs of expedition through the strength of the plaintiff’s claims of wrongdoing.