Pietro Campanella v. S. Kent Rockwell

Court of Chancery of Delaware
Unreported Memorandum Opinion, February 18, 2025 (2025)

ELI5:

Rule of Law:

The business judgment rule insulates a merger transaction from breach of fiduciary duty claims when it is approved by a fully informed, uncoerced vote of disinterested stockholders, provided no controlling stockholder is involved and the omitted or delayed disclosures are not material to a reasonable stockholder's decision.

Facts:

Starting in June 2020, The ExOne Company, a publicly traded Delaware corporation, and Desktop Metal, Inc. (DM), a private Delaware corporation that went public in December 2020, began discussing potential business opportunities.
On February 16, 2021, DM acquired EnvisionTEC US LLC, another 3D printing solutions provider, for over $300 million, with EnvisionTEC’s founder, Ali El-Siblani, remaining CEO of the subsidiary and joining DM’s board.
In May 2021, DM sent a non-binding proposal to acquire ExOne for consideration worth $27.50 per share; after negotiations and a decline in both companies' stock prices, ExOne and DM agreed to a $25.50 per share purchase price.
On August 11, 2021, DM and ExOne signed a final merger agreement, announcing that DM would acquire all outstanding ExOne shares for consideration reflecting a 47.6% premium for ExOne stockholders.
On October 8, ExOne filed its final proxy statement, setting a special meeting for ExOne stockholders to vote on the merger on November 9.
After market close on November 8, DM disclosed that its Audit Committee had launched an internal investigation into manufacturing and product compliance practices at EnvisionTEC related to a subset of photopolymer equipment and materials (Flexcera), and separately announced that El-Siblani intended to resign as CEO of EnvisionTEC and as a DM director; DM stated it did not expect these matters to materially impact its financials.
On November 9, ExOne’s Board of Directors met, discussed the Investigation and El-Siblani’s resignation with counsel, and determined to proceed with the special meeting as scheduled.
On November 9, ExOne stockholders voted to approve the merger, with approximately 66.5% of its outstanding shares voting in favor, and the merger closed on November 12, with ExOne becoming a wholly owned subsidiary of DM.

Procedural Posture:

On September 29, 2021, Pietro Campanella, an ExOne stockholder, filed a lawsuit in the United States District Court for the Western District of Pennsylvania based on ExOne’s preliminary proxy statement, one of twelve complaints challenging the merger and associated disclosures.
Desktop Metal (DM) issued supplemental disclosures which mooted certain of the federal disclosure claims.
On November 10, 2021, Campanella filed an amended complaint and a motion seeking to enjoin the closing of the merger in the federal court.
On November 12, 2021, Campanella withdrew his motion for preliminary injunction in the federal court.
Leo Lissog Goldstein, another former ExOne stockholder, filed a books and records action (Section 220 suit) in the Delaware Court of Chancery.
On November 22, 2021, Campanella filed the present action in the Delaware Court of Chancery on behalf of himself and a putative class of former ExOne stockholders.
On February 8, 2022, Goldstein moved to intervene and stay Campanella's action until his Section 220 suit was resolved, which the court granted.
On July 26, 2023, Goldstein decided not to pursue plenary claims, and the stay on Campanella's action was lifted.
DM provided Campanella with the books and records it had produced to Goldstein.
On October 20, 2023, Campanella filed the Verified First Amended Class Action Complaint in the Delaware Court of Chancery, alleging breach of fiduciary duty against former ExOne board members and general counsel (Count I) and aiding and abetting against DM (Count II).
On January 12, 2024, the defendants moved to dismiss the Complaint under Court of Chancery Rule 12(b)(6).
Oral argument on the motion to dismiss was held on October 16, 2024.

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Issue:

Does the business judgment rule apply to insulate a merger transaction from breach of fiduciary duty claims when it was approved by a fully informed, uncoerced vote of disinterested stockholders, even if the acquiring company disclosed an internal investigation into a subsidiary's product compliance and an executive's resignation shortly before the stockholder vote?

Opinions:

Majority - Will, Vice Chancellor

Yes, the business judgment rule applies to insulate the merger transaction from breach of fiduciary duty claims because the ExOne stockholder vote was fully informed, uncoerced, and involved disinterested stockholders, despite the disclosures made by Desktop Metal (DM) shortly before the vote. The court applied the Corwin doctrine, which confirms that the business judgment rule applies when a transaction is approved by a fully informed, uncoerced vote of disinterested stockholders, in the absence of a controlling stockholder. Here, the plaintiff, Pietro Campanella, failed to demonstrate that a reasonable ExOne stockholder would have considered DM's internal investigation into a single product line (Flexcera) at one subsidiary (EnvisionTEC) or the resignation of EnvisionTEC's CEO to be material information when deciding how to vote on the merger. The court reasoned that the investigation concerned a minor fraction of DM's business, and DM had consistently stated it did not expect a material financial impact, an assessment later confirmed by a federal court in a related securities action. Campanella's arguments relied on conjectural leaps and conclusory allegations rather than specific facts showing materiality, and a drop in the acquirer's stock price post-disclosure does not, by itself, establish materiality or a disclosure deficiency. Since the vote was deemed fully informed, the business judgment rule is irrebuttable, leading to the dismissal of the breach of fiduciary duty claims against ExOne's board and the derivative aiding and abetting claim against DM due to the lack of a predicate breach.

Analysis:

This case reaffirms the robustness of the Corwin doctrine in Delaware corporate law, emphasizing that even late disclosures will not undermine the cleansing effect of a stockholder vote unless the information is demonstrably material to a reasonable investor. It highlights the high bar for pleading materiality, particularly when the omitted information relates to a small component of a large acquiring company's business, and the acquirer itself explicitly states no material financial impact. The decision underscores that courts will not entertain speculative materiality arguments, reinforcing the protection afforded by the business judgment rule to transactions approved by informed, uncoerced, and disinterested stockholders.

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