Lawsuit over acquisition of Bank One by JP Morgan Chase

• Deal page

Alleged that JPM overpaid for ONE

• By paying a premium when a no-premium deal was on offer
• No-premium deal was contingent on ONE's CEO becoming CEO of combined company

• According to press accounts

• Plaintiffs also claimed that proxy statement failed to disclose the possibility of a no-premium alternative

Chancery dismissed the complaint 2005

• Claim was derivative and not direct

• As any harm was to the acquiring corporation
• Not to the shareholders of the acquirer

• Majority of board was independent

• Despite presence of business relationships with JPM
• Despite connections with charitable institutions that were recipients of JPM corporate giving

• Chancery also rejected the disclosure claim

• As any damages recoverable for a wrongful failure of disclosure would belong to the corporation, not the shareholders

• See Delaware Chancery Decision below

Supreme Court rejected plaintiff's disclosure claim 2006

• Plaintiffs appealed their disclosure claim

• Sought compensatory damages of $7 billion, or
• Alternatively, an award of nominal damages

• Supreme Court rejected claim that earlier Delaware precedent created a per se rule requiring at least nominal damages for disclosure violations

• Nominal damages are available when "directors have breached their disclosure duties in a corporate transaction that has in turn caused impairment to the economic or voting rights of stockholders," such as when "a significant stockholders interest is increased at the sole expense of the minority."
• Not available in the case of a merger of two independent entities

• Thus, a breach by corporate directors of their disclosure obligations in merger proxy statements must allege actual damages to the shareholder, separate and distinct from damages suffered by the corporation, in order to state a claim
• See Delaware Supreme Court Decision below

Opinion ____ A.2d ___ Del Sup 3.08.06

• PDF version 
• Affirms Delaware Chancery decision

The following indexes the Opinion: 

Background (+)

Facts (+)

Court of Chancery opinion (+)

Contentions and issues on appeal (+)

Claims for compensatory damages (+)

Alternative claims for nominal damages (+)

Conclusion (+)

Opinion Del Ch 4.29.05

• 2005 WL 1076069
• 2005 Del Ch LEXIS 51

The following indexes the Opinion:

Introduction I

Facts II

• Parties II.A
• Background II.B
• Dispute II.C
• Complaint II.D
• Procedure II.E
• Federal action II.F

Applicable law III

• Direct or derivative analysis III.A

• Who suffered alleged harm? III.A.1
• Who would receive benefit of remedy? III.A.2

• Section 220 demand III.B
• Demand futility III.C

• First prong of Aronson III.C.1
• Second prong of Aronson III.C.2

• Proxy disclosure III.C

Conclusion IV

Law firms

• Wachtell Lipton  3.20.06

Delaware General Corporation Law