New York’s first application of the Delaware MFW standard under Delaware law results in complete dismissal for Kaye Scholer’s clients
Kaye Scholer achieved a significant victory for shipping company Baltic Trading Limited and four former independent directors who served as a special committee to review and approve the merger. On August 31, 2016, New York Supreme Court Justice Jeffrey K. Oing granted defendants’ motion to dismiss the consolidated amended class action complaint in its entirety, resulting in a complete victory for our clients.
Kaye Scholer’s work on this case follows its earlier role advising the special committee on the negotiation of Baltic’s merger with Genco Shipping & Trading Limited, Baltic’s parent company. After the merger was approved, several minority stockholders brought lawsuits challenging the fairness of the merger, and those lawsuits were consolidated into In re Baltic Trading Stockholder Litigation. Kaye Scholer took the lead in defense efforts, and successfully defeated plaintiffs’ motion for preliminary injunction. The Appellate Division, First Department, affirmed the denial of the preliminary injunction motion on plaintiffs’ emergency application. The merger closed in July 2015.
After the preliminary injunction motion was denied, plaintiffs continued to seek damages. Plaintiffs alleged that current and former Baltic and Genco directors and officers, as well as Baltic and Genco, breached their fiduciary duties and/or aided and abetted such breaches by approving the merger at a price that was unfair to Baltic’s minority stockholders, and by making false and misleading disclosures in documents filed with the SEC.
Applying the seminal Delaware Supreme Court decision Kahn v. M&F Worldwide Corp. (“MFW”), Justice Oing agreed with defendants that the merger, which was between a controlling stockholder and its subsidiary, should be reviewed under the business judgment rule because defendants had taken steps to ensure that the transaction would be fair to minority stockholders.
In addition to the importance of this matter to our clients, this case is significant because it appears to be the first New York decision applying Delaware law under the MFW standard for reviewing controlling stockholder transactions. The New York Court of Appeals recently adopted the MFW standard in In re Kenneth Cole Productions Inc. Shareholder Litigation, which Kaye Scholer also successfully litigated.
The Kaye Scholer team representing Baltic and the Special Committee of Independent Directors include New York-based Litigation partner Aaron Rubinstein, counsel Michael Lynn and Aaron Miner, and associates Jane He and Jessica Heller. Corporate partner Mel Cherney led the transactional team with assistance from Corporate partner Nick O’Keefe, counsel Peter Danias, and associates Amita Gopinath and Michelle Han.
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