Blue v. Fireman, C.A. No. 2021-0268-MTZ (Del. Ch. Feb. 28, 2022)

This case illustrates circumstances in which allegedly improper pre-merger transactions that divert merger consideration from stockholders may be considered direct challenges to a merger, rather than derivative claims, thus permitting a former stockholder to continue to pursue them after closing.  Here, in the run-up to a merger, a large creditor with a proxy representing 85% of the corporation’s voting power sought and obtained beneficial amendments to its notes and warrants.  The amendments had the alleged effect of diverting $40 million of $130 million total merger consideration from the stockholders and to the creditor.  Reviewing Parnes v. Bally and its progeny, the Court reasoned that the claims were direct because merger consideration allegedly was diverted, with a material effect on the merger’s price and fairness, in transactions allegedly involving breaches of fiduciary duty.  Accordingly, the Court denied the defendants’ motion to dismiss premised on a lack of derivative standing.