Law School Case Brief
Third Point Ltd. Liab. Co. v. Ruprecht - Nos. 9469-VCP, 9497-VCP, 9508-VCP, 2014 Del. Ch. LEXIS 64 (Ch. May 2, 2014)
To obtain a preliminary injunction a plaintiff must demonstrate: (1) a reasonable probability of success on the merits; (2) that absent injunctive relief, they will suffer irreparable harm; and (3) that the balance of the parties' harms weighs in favor of injunctive relief. An injunction will not issue unless all three elements are satisfied.
In response to an apparent threat posed by increasing hedge fund activity in its stock, the corporation adopted a rights plan that would be triggered at a lower percentage of ownership for those stockholders who file a Schedule 13D with the U.S. Securities and Exchange Commission (SEC) than those stockholders who file a Schedule 13G. The rights plan has remained in full force since its adoption despite at least one entity, the primary plaintiff in this litigation, having sought a waiver from certain of its requirements. The primary plaintiff is an activist hedge fund and stockholder of the corporation. According to plaintiff hedge fund, the corporation's board violated their fiduciary duties by adopting the rights plan and refusing to provide it with a waiver from the rights plan's terms, so that the board could obtain an impermissible advantage in an ongoing proxy contest with the hedge fund. In response, the defendant directors, who comprise the corporation's board, assert that, at all relevant times, the hedge fund posed a number of different legally cognizable threats to the corporation, and that the board responded proportionately to those threats in both adopting the rights plan and refusing to grant the hedge fund a waiver from certain of its provisions. The defendants also argue that the rights plan's two-tiered structure is reasonable based on the source of the threats to the corporation. Plaintiff filed a motion for a preliminary injunction.
Did the Stockholder Plaintiffs meet the relevant requirement of the preliminary injunction standard?
Plaintiff shareholders were not entitled to enjoin the corporation's annual meeting until an expedited trial could be conducted because the shareholders had not demonstrated that they had a reasonable probability of success on the merits of their claims. Plaintiffs did not have a reasonable probability of success as to the first prong of Unocal. There was sufficient support for the corporate Board of Director's assertion that its good faith investigation led it to determine that the primary plaintiff, a hedge fund, posed a legally cognizable threat, and the threat was objectively reasonable. The facts did not support the conclusion that plaintiffs had a reasonable probability of demonstrating that the Board had adopted a stockholder rights plan for the primary purpose of interfering with the franchise of any stockholder, including the hedge fund.
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