2022 Developments in Securities and M&A Litigation

2022 was an active year for both securities and M&A litigation.

With respect to securities litigation, the Supreme Court granted certiorari in two cases: Pirani v. Slack Technologies, Inc. and SEC v. Cochran. In Slack, the Court will consider the application of Section 11’s tracing requirement in the context of direct listings. In Cochran, the Court may resolve a circuit split regarding whether federal district courts have jurisdiction to hear suits concerning ongoing SEC administrative proceedings.

At the circuit court level, courts clarified issues related to scheme liability in SEC v. Rio Tinto plc, what duties corporations have to disclose their cybersecurity efforts in In re Marriott International, Inc., and loss causation pleading standards in In re Nektar Therapeutics Securities Litigation, among others.

In the world of M&A litigation, Twitter v. Musk promised to be a blockbuster decision concerning the ability of a buyer to terminate a merger agreement (and a seller to specifically enforce one)—until Elon Musk mooted the case by agreeing to close on his $44 billion acquisition of Twitter on the original terms. Even though the case did not result in a decision, the outcome confirmed for many M&A practitioners that Delaware courts will strictly enforce merger agreements.

While the Twitter case may have received the most attention, the Delaware courts were busy issuing notable decisions in other cases related to M&A in 2022. For example, in one case, the Delaware Court of Chancery found that an expressed desire for immediate liquidity by a private equity firm was enough to trigger entire fairness review of a sale of one of its controlled portfolio companies that would otherwise have been subject to the deferential business judgment rule, while in another case (this one also involving Elon Musk) the court found that even though the merger process was flawed, the transaction satisfied the entire fairness test because the price was ultimately fair. In yet another case arising from a busted merger resulting from the COVID-19 pandemic, the Court of Chancery interpreted an “ordinary course” covenant to allow a seller to substantially modify its business practices in light of the pandemic because it did so in a manner that was consistent with the way it handled prior crises (even though the business had never before encountered anything like the pandemic itself before).

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