Stephanie Galindo, et al., v. David Stover, et al., CA No. 2021-0031-SG (Del. Ch. Jan 26, 2022) (Glasscock, V.C.)

In this post-closing damages action, former stockholders of Noble Energy, Inc. (the “Company”) challenged the Company’s merger with Chevron Corporation (“Chevron”), alleging that certain directors and officers of the Company breached their fiduciary duties in connection with the negotiation and approval of the merger.  To avoid Corwin cleansing on a motion to dismiss, plaintiffs alleged that the stockholder vote approving the merger was not fully informed due to the omission of certain information from the Company’s definitive merger proxy. The Court of Chancery granted defendants’ motion to dismiss, concluding that the omitted information was not material and, therefore, Corwin applied.

The complaint alleged that, in 2018, the Company received an expression of interest from Cynergy Capital, Ltd (“Cynergy”) relating to the Company’s Eastern Mediterranean oil and gas assets.  Although the Company never responded to the expression of interest, the following year the Company explored a sale of those assets, receiving interest from three companies, including Chevron. After one of the companies withdrew its interest, the Company’s board of directors (the “Board”) concluded that, to remain competitive, it must become a consolidator or be sold to a larger company.

At the same time, the onset of the COVID-19 pandemic and a decline in the Company’s stock price caused the Company to reduce senior leadership salaries.  The Company, however, amended its severance plan to provide that any change-in-control benefits would be calculated based on the pre-reduction salaries.  The Board eventually decided not to sell the Eastern Mediterranean assets.  Instead, the Board established an advisory group to explore strategic alternatives, which resulted in a merger with Chevron (the “Merger”).

In their post-closing damages complaint, plaintiffs alleged the definitive proxy statement seeking stockholder approval of the Merger and the executive compensation plan to be paid in connection with the Merger (the “Merger Proxy”) was materially incomplete for two reasons: (1) the Merger Proxy did not disclose the Cynergy proposal from 2018, and (2) the Merger Proxy did not disclose the timing and rationale behind the amendments to the severance plan.

In determining whether the alleged breaches of fiduciary duty were cleansed by an informed and uncoerced vote of the stockholders, the Court considered whether the omitted disclosures were material.  The Court determined that the omission of the Cynergy proposal was immaterial because neither the Board nor management ever entertained the Cynergy proposal, and the circumstances surrounding the Cynergy proposal were significantly separated from the Merger with respect to time, deal structure, and the present circumstances of the Company in light of the pandemic.  The Court further determined that the omission of certain details related to the severance plan amendments, including the timing of and rationale for the amendments, was not material because the Merger Proxy disclosed the potential payments and referenced the Company’s Form 10-Q, which had previously attached the amended severance plan.  The Court explained further that, even if plaintiffs rejected the Merger with Chevron, the amended severance plan would have remained in effect and would have applied to any change-of-control transaction.

Having found that neither of the two alleged omissions was material, and because plaintiffs did not allege coercion of the Company’s stockholders, the Court held that Corwin applied to the Merger and granted defendants’ motion to dismiss.

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