Delaware Courts Allow Litigation to Move at the Speed of Business

[The following post comes to us from Andrea
Tinianow
, who is a vice
president and assistant general counsel at Corporation
Service Company
. She is also a Delaware attorney.
This post relates to the Delaware Supreme Court’s
decision upholding the Chancery Court in Martin
Marietta Materials inc. v. Vulcan Materials, Inc.
We had earlier discussed
some of the substantive aspects of the Chancery Court’s opinion here]
In a case that began in December of 2011, was argued
before the Delaware Chancery Court in April of 2012, and argued on appeal to
the Delaware Supreme Court on May 31, 2012, the Delaware courts have addressed
a complex piece of litigation in under six months in order to ensure that the
parties could have finality before a critical June 1, 2012 shareholders’
meeting.
In confirming the Court of Chancery’s decision, the Delaware
Supreme Court also reconfirmed that Delaware courts are not only “open for
business” for companies who need the assistance of the courts in resolving
their disputes, but also that Delaware courts are capable of making decisions
at the speed of business.
In 2010, Martin Marietta Materials, Inc. and Vulcan
Materials, Inc. – two of the world’s largest producers of sand, gravel and
similar materials used in construction – began discussing a consensual
merger.  That transaction was scuttled in
June of 2011 as the stock prices of the two companies diverged and disputes
arose over the location of the merged companies’ headquarters and who would
occupy the executive suite in those offices. 
However, during those consensual negotiations, the parties signed a
confidentiality agreement – governed by Delaware law – limiting the use of
information about each of the companies conveyed to the other during their
negotiations.
On December 12, 2011, Martin Marietta commenced a $4.8
billion hostile takeover bid for Vulcan, premised on Martin Marietta obtaining
80% of the shares of Vulcan through a tender offer.  Martin Marietta also launched a proxy battle,
attempting to have four individuals supportive of the hostile takeover
appointed to Vulcan’s board at Vulcan’s June 1, 2012 shareholders’ meeting.
Vulcan’s board opposed the hostile takeover and asserted
that Martin Marietta improperly used information obtained during the consensual
negotiations to structure its hostile bid, in violation of the confidentiality
agreement.  On the same day it launched
its hostile bid for Vulcan, Martin Marietta commenced an action before the
Delaware Chancery Court asking the court to find that Martin Marietta had not
violated the confidentiality agreement. 
Vulcan counterclaimed, arguing that Martin Marietta had violated the
confidentiality agreement and should be enjoined from proceeding with the
hostile takeover.
Clearly time was of the essence for both Martin Marietta
and Vulcan.  Martin Marietta needed certainty
that its hostile bid and proxy effort would not be overturned by a finding of
breach of the confidentiality agreement after the fact.  Vulcan, on the other hand, required a finding
that Martin Marietta had breached the confidentiality agreement prior to the
June 1, 2012 meeting and an injunction lasting long enough to prevent Martin
Marietta from misusing the confidential information to take control of Vulcan.
In an extraordinarily detailed and well-reasoned opinion
issued on May 4, 2012, just three weeks after argument by the parties and a
month before the critical Vulcan shareholders’ meeting, Chancellor Strine of
the Delaware Chancery Court concluded that Martin Marietta had breached the
confidentiality agreement and that it should be enjoined from pursuing its
hostile tender or proxy efforts for four months – past the time for Vulcan’s
shareholders’ meeting, effectively delaying Martin Marietta’s efforts until
another shareholders’ meeting could be called. 
The Delaware Supreme Court heard oral argument on an
expedited basis on May 31, 2012 and issued a preliminary opinion
upholding Chancellor Strine that same day, providing Martin Marietta and Vulcan
the certainty both needed ahead of Vulcan’s June 1, 2012 shareholders’
meeting. 
The Martin Marietta/Vulcan case is yet another example of
why companies choose to litigate in Delaware, where the Court of Chancery
quickly and ably responds to the needs of companies at the speed of business
with careful and thorough opinions, and the Delaware Supreme Court is open to
those parties and flexible enough to ensure that the court’s calendar does not
harm their interests.  Once again, the
importance of choosing Delaware for incorporation and the governing law for
contracts has been illustrated by Delaware’s courts.  

Andrea
Tinianow

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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