After a series of successful applications of the Corwin doctrine in Delaware’s Court of Chancery, a plaintiff has finally survived a motion to dismiss where Corwin was applied. In In re Saba Software Stockholder Litigation, the Court of Chancery held, for the first time, that a shareholder-approved all-cash merger did not satisfy Corwin. While limited by the unique facts at issue, the Saba decision provides useful guidance to practitioners as to the parameters of Corwin when analyzing the likelihood of success of challenges to third party mergers. The court’s decision in denying a motion to dismiss in Saba, coupled with the court’s decision dismissing a complaint under Corwin in In re Columbia Pipeline Group Stockholder Litigation, provide great insight into what constitutes material disclosures in the post-Corwin world.

In 2014, the SEC filed a complaint against Saba Software Inc., alleging that a Saba subsidiary engaged in millions of dollars of financial fraud between 2008 and 2012. Saba was accused of overstating its pretax earnings by $70 million. These accusations prompted Saba to make repeated promises to its stockholders that the company would restate its earnings, however, Saba never fulfilled those promises. Prior to the SEC complaint, in 2013, NASDAQ suspended trading of Saba stock due to Saba’s failure to restate its financial earnings. NASDAQ ultimately delisted Saba in June 2013, leaving Saba’s stock to trade OTC. In September 2014, Saba announced that it reached a settlement with the SEC which, in addition to paying a $1.75 million penalty, would require Saba to restate its financial earnings by Feb. 15, 2015. Failure to meet the Feb. 15, deadline would result in the SEC deregistering Saba’s stock. Days following the announcement of the SEC settlement, Saba’s stock was trading at $14.08 per share.

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