S. Muoio & Co. LLC v. Hallmark
Entertainment Investments Co., C.A. No.
4729-CC ( Del. Ch. Mar. 9, 2011), read 63-page
Delaware Court of Chancery opinion here. Hat
tip to Wilmington corporate litigator Kurt Heyman for sending me this opinion
today. He and his partners Patricia Enerio and Dominick Gattuso represented
some of the prevailing defendants in this case.
This suit challenged the fairness of a recapitalization of Crown Media
Holdings, Inc. that was orchestrated by Crown's controlling shareholder and
primary debt holder, Hallmark Cards, Inc. Crown's inability to make debt
payments presented it with choice between default on the debt or
bankruptcy--unless the recapitalization plan worked. That plan provided for
Hallmark to exchange its Crown debt for an increased percentage of Crown's
Class A common stock, new preferred stock and a new and far smaller amount of
debt with a longer maturity. Muoio filed this action in July 2009 seeking to
enjon the transaction, a few weeks after it was announced. But the parties
agreed to a stay of the litigation to allow time for a special committee to
consider the recapitalization plan. The parties also agreed that Muoio would be
given sufficient time to pursue a preliminary injunction before the transaction
proceeded. Instead, after notice of the transaction was given, Muoio amended
its complaint to seek rescissory and related damages. Muoio argued,
unsuccessfully, that Crown was undervalued, and that the deal suffered from an
unfair process with an ineffective special committee.
Entire fairness, the parties conceded, was the
appropriate standard of review for the Court to apply. After a four-day trial
in September 2010, and post-trial briefing completed in December 2010, the
court issued this opinion today.
The Court observed that its opinion turned on the
following factual findings:
Bottom line: The Court
found that the recapitalization was "entirely fair."
Selected Highlights of Legal Principles and
Court's Legal Analysis
Postscript: As an aside,
regular readers recognize the modest challenge of highlighting a decision of
this length in a manner that does not compete with the opinion itself in
duration. The length of this opinion is not uncommon in Chancery so the typical
practice on these pages has been to provide bullet points or selected
highlights of key provisions and then return later for fuller treatment when
and where appropriate.
Read more Delaware business
litigation case summaries and commentary on Delaware
Corporate and Commercial Litigation Blog, a blog hosted by Francis G.X.
Pileggi, of Fox Rothschild LLP.
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