About two years ago, we wrote a post about a series of high-profile M&A cases in the Delaware Court of Chancery that highlighted the potential liability of third-party acquirors for aiding and abetting breaches of fiduciary duties by the board and executives of target corporations. More recently, the Delaware courts have provided additional guidance on how a third-party acquiror may become liable for aiding and abetting a target-side breach of fiduciary duties. The principles laid out in these new cases will facilitate the defense of aiding and abetting claims. Nonetheless, the risk of aiding and abetting claims against M&A acquirors remains and therefore guidance for mitigating this risk continues to be relevant.
What’s the State of Play Now?
The elements of a claim against an acquiror for aiding and abetting a breach of a fiduciary duty by the target corporation’s officers or directors are:
- Existence of a fiduciary relationship on the part of the party whose conduct is being aided and abetted (i.e., the target’s officers and directors);
- A breach of this fiduciary’s duty of care or loyalty to the target corporation;
- Knowing participation in that breach by the defendant acquiror; and
- Damages (typically to the stockholders of the target corporation) proximately caused by the breach.[1]
The Delaware courts have previously recognized that the third element above (i.e., that the aider and abettor acted with knowledge) “makes an aiding and abetting claim among the most difficult to prove.”[2] This element means “that the third-party act[ed] with the knowledge that the conduct [of such third-party] advocated or assisted” the underlying breach by the fiduciary of the target corporation.[3] Until recently, however, it was not clear what level of knowledge would be sufficient to fulfill this “knowledge” element, particularly in the context of an aiding and abetting claim against a third-party acquiror. Specifically, does a plaintiff have to show that the defendant third-party acquiror had actual knowledge that its conduct was improper, or is constructive knowledge (i.e., the defendant “should have known”) sufficient?
The Delaware Supreme Court in its recent Mindbody[4] and Columbia Pipeline[5] opinions resolved that question. In the opinions, the high Court held that actual knowledge is required.[6] Constructive knowledge (which was the standard used to establish aiding and abetting liability in the Columbia Pipeline opinion from the Delaware Court of Chancery[7]) is not sufficient. Even before the Delaware Supreme Court’s opinions in Mindbody and Columbia Pipeline, Delaware case law was clear that a successful aiding and abetting claim against a third-party buyer had to pass a high bar. The Delaware Supreme Court has re-affirmed this notion.
What Does This Mean for the Future of Aiding and Abetting Claims Against M&A Acquirors?
Even though establishing actual knowledge is harder than establishing constructive knowledge, vigilance by M&A acquirors is nonetheless warranted. As discussed in our previous post, M&A acquirors are attractive targets for plaintiffs because, among other reasons, these aiding and abetting defendants (i) may serve as a deep pocket for a plaintiff to pursue and (ii) are not exculpated for damages arising from a breach of the duty of care by the fiduciary who was allegedly aided and abetted. In addition, the recent SB 21 amendments to Delaware corporate law do not provide any safe harbors from aiding and abetting liability.[8]
In view of this ongoing risk, the following guidelines for M&A acquirors remain advisable:
- Be on the lookout for acts by representatives of the target that constitute unwarranted favoritism toward you as acquiror or that are indicative of questionable loyalty to the target corporation.
- If you detect conduct by the target’s representatives that seems questionable from a fiduciary duty perspective, consider insisting on receipt of a quick, good faith confirmation that the target board is aware of and signed off on such conduct, and sense check whether business rationales exist for such conduct.
- If you believe there were questionable elements of the sale process, consider asking the target’s outside counsel to confirm that the target board’s understandings of these elements have been memorialized in the target board’s meeting minutes.
- Ensure that the “Background” section of the proxy statement discloses all material facts, including any awkward interactions with the target, so that the opportunity under the Corwin doctrine to cleanse any material missteps by the target’s fiduciaries remains available. If the disclosure cleanses the target’s fiduciaries, then the alleged aider and abettor will be cleansed as well.
- Be circumspect about gloating about how your acquiror team navigated the sale process to the disadvantage of the target and its stockholders.
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[1] Malpiede v. Townson, 780 A.2d 1075, 1096 (Del. 2001) (quoting Penn Mart Realty Co. v. Becker, 298 A.2d 349, 351 (Del. Ch. 1972)).
[2] RBC Cap. Mkts., LLC v. Jervis, 129 A.3d 816, 861-62, 865-66 (Del. 2015).
[3] Malpiede, 780 A.2d at 1097.
[4] In re Mindbody, Inc., S’holder Litig., 332 A.3d 349, 391 (Del. 2024).
[5] In re Columbia Pipeline Grp., Inc. Merger Litig., --- A.3d ----, 2025 WL 1693491 (Del. June 17, 2025).
[6] Id. at *23; Mindbody, 332 A.3d at 391.
[7] In re Columbia Pipeline Grp., Inc. Merger Litig., 299 A.3d 393, 476 (Del. Ch. 2023).
[8] 8 Del. C. § 144(d)(6) (“Nothing in this subsection (a), (b), or (c) of [8 Del. C. § 144] shall . . . [l]imit or eliminate the right of any person to seek relief on the grounds that a stockholder or other person knowingly aided and abetted a breach of fiduciary duty by 1 or more of the directors of the corporation.”).