In re Multiplan Corp. Stockholders Litig.

In re Multiplan Corp. Stockholders Litig.

Opinion

WILL, Vice Chancellor

 [*791]  Churchill Capital Corp. [**2]  III—a special purpose acquisition company, or SPAC—was formed as a Delaware corporation in October 2019. Lacking operations of its own, the SPAC's primary purpose was to seek out and combine with a private operating company. The SPAC closed its $1.1 billion initial public offering in February 2020.

The SPAC's sponsor, led by Michael Klein, was compensated for its anticipated efforts in the form of "founder" shares constituting 20% of the SPAC's equity and purchased for a nominal price. The SPAC's directors were hand-picked by Klein and given valuable economic interests in the sponsor.

The SPAC's initial public stockholders, on the other hand, purchased IPO units consisting of one common share and a fractional warrant for $10 per unit. The IPO proceeds were placed into a trust account. The SPAC was structured around giving public stockholders the choice between redeeming their $10 investment from the trust and investing in the post-combination entity after an acquisition target was identified.

If the SPAC entered into a business combination within its two-year completion window, the founder shares would convert into common shares upon closing. But if no transaction was completed, the SPAC [**3]  would liquidate—leaving the founder shares worthless. Public stockholders, on the other hand, would receive back the full value of their investment with interest.

 [*792]  The SPAC's sponsor team selected MultiPlan, Inc. as its target. The SPAC issued a proxy statement that solicited stockholder votes on the deal and informed public stockholders' redemption decisions. Few stockholders redeemed and the stockholder vote on the merger was overwhelmingly in favor. The business combination closed in October 2020 and the SPAC's non-redeeming stockholders became stockholders in the combined entity. After closing, these shares declined in value to several dollars below the $10 plus interest the public stockholders could have received had they chosen to redeem. By contrast, the founder shares, which converted into shares of the post-merger entity, were pure upside to the SPAC's insiders.

The plaintiffs allege that the SPAC's fiduciaries—motivated by financial incentives not shared with public stockholders—impaired the public stockholders' right to divest their shares before the business combination occurred. According to the Complaint, material information indicating that MultiPlan's largest customer [**4]  was building an in-house platform to compete with MultiPlan was withheld. The defendants have moved to dismiss the plaintiffs' claims on several grounds—primarily, that the plaintiffs have alleged derivative claims but failed to plead demand futility and that the business judgment rule applies.

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