David J. Berger is Partner at Wilson Sonsini Goodrich & Rosati. This post is based on a Wilson Sonsini publication.
The recent decision by the Massachusetts Supreme Judicial Court in Int’l Brotherhood of Electrical Workers Loc. No. 129 Benefit Fund v. Tucci has the potential to significantly reduce merger litigation for publicly traded companies incorporated in Massachusetts. The decision, arising out of the Dell/EMC transaction, held that because directors of a Massachusetts company generally owe fiduciary duties only to the corporation and not directly to shareholders, a claim that the price paid in a merger is too low may only be brought as a derivative claim, not as a direct claim.
As part of its ruling, the court specifically rejected the plaintiffs’ argument that “shareholders claiming the loss of their stock at an unfair price on account of allegedly improper actions by the board of directors is a direct rather than a derivative claim.” [1] The court’s holding means that Massachusetts law differs fundamentally from Delaware law on the scope of a director’s fiduciary duties (and corresponding risk of liability), especially in the merger context. As a result of this decision, a shareholder of a Massachusetts corporation generally does not have a direct claim that the price paid in a merger is too low, or that the process employed by the board—even if unfair—causes direct injury to the shareholder.
