Delaware Supreme Court Affirms Chancery Finding that Board had no Duty to “Repackage and Restate” Information Found in a Simultaneously Provided Public Filing

On May 16, 2019, the Delaware Supreme Court affirmed the Court of Chancery’s prior decision finding that the Board of Directors (the “Board” or “Defendants”) of Equus Total Return, Inc. (“Equus” or the “Company”) did not breach its fiduciary duties when seeking shareholder approval of an equity incentive compensation plan (the “Plan”).  Plaintiff Samuel Zalmanoff (“Plaintiff”) filed a class action complaint against the Board alleging that it breached its fiduciary duty of disclosure by omitting material facts and making false and misleading disclosures in the Company’s 2016 proxy statement filed on Schedule 14A (the “2016 Proxy”) with the Securities Exchange Commission (the “SEC”) seeking approval of the Plan, which would allow the Company to grant options to the Company’s directors and officers to acquire up to 25% of Equus’s shares at market price, which was at a discount to the Company’s net asset value (“NAV”). 

Plaintiff alleged that the 2016 Proxy failed to disclose and/or misrepresented five facts that were material to the stockholders’ decision whether or not to approve the Plan.  Plaintiff claimed that the omissions were materially false and misleading since the purpose of the Plan was to incentivize the Company’s employees, directors and officers to “perform at their best, even as the company’s investment activity had slowed to a near halt and even as the company was on the brink of merging itself out of existence.”  Defendants argued that, even if the five omitted facts were material, these facts were adequately disclosed to shareholders either in the 2016 Proxy or in the 2015 Form 10-K that was mailed to shareholders along with the 2016 Proxy. 

In granting Defendant’s motion for summary judgment, Vice Chancellor Slights agreed with Defendants and found that because shareholders received the 2015 10-K along with the 2016 Proxy and because the 2015 10-K contained the allegedly omitted information regarding the Plan, the Board was entitled to rely upon the disclosures contained in the 2015 10-K to fulfill its fiduciary duty of disclosure with respect to the Plan.  The Court reasoned that while the Company could have presented the material information in a more organized fashion that would have made it easier for shareholders to grasp the information, Delaware disclosure law “does not require fiduciaries to repackage and restate information in a proxy that they are simultaneously and conspicuously providing to shareholders in another public filing.”   

The Chancery Court opinion can be found here.