Complete Trial Victory for Olshan Client in Delaware Chancery Court
Several media outlets, including Delaware Business Court Insider and Law360 (subscription required), have reported on Olshan's major trial victory for client Glenhill Capital Management (Glenhill) against claims that it had unfairly diluted minority stockholders of Design Within Reach, Inc. (DWR) prior to its acquisition by Herman Miller, Inc. Litigation Partner Adrienne Ward led Glenhill’s defense, assisted by Brian Katz. In 2009, Glenhill became DWR’s controlling stockholder after a rescue financing. In 2010 and 2012, Glenhill and members of the board provided additional financing to DWR. After, in the Court’s terms, a “dramatic turnaround” and successful sale to Herman Miller at an unchallenged fair price, plaintiffs sued seeking a greater portion of the merger consideration, claiming the interim financings were not entirely fair. Plaintiffs also claimed that because of defects in a 2010 reverse split, Glenhill had effectively forfeited the bulk of its preferred stock, dramatically increasing plaintiffs’ pro rata share of merger consideration.
After almost four years of litigation and a five-day trial, Chancellor Bouchard ruled in favor of defendants on all counts. To the extent the fiduciary claims were premised on defective corporate acts, DWR had subsequently addressed those issues through ratification under 8 Del. C. § 204 and validation under 8 Del. C. § 205. In so ruling, the Court found that the evidentiary record demonstrated “all of the Section 205(d) factors weigh overwhelmingly in favor of judicial validation,” and “Plaintiffs, on the other hand, seek an inequitable windfall for technical defects that [DWR and defendants] had no idea occurred.”
With respect to the interim financings, the Court held that plaintiffs lacked standing to bring those claims, which were derivative in nature and therefore extinguished by the merger. The court rejected plaintiffs’ “novel” argument that board members could be considered a “group” with Glenhill, which would have permitted plaintiffs to bring direct claims, when the transactions at issue actually diluted Glenhill. "It's obviously a very thoughtful decision," Ms. Ward noted in the article.