DELAWARE CHANCERY COURT ALLOWS CANNABIS COMPANY SHAREHOLDER CLASS ACTION TO ADVANCE

DELAWARE CHANCERY COURT ALLOWS CANNABIS COMPANY SHAREHOLDER CLASS ACTION TO ADVANCE
CANNANNEW REPORT

On February 28, 2022, the Delaware Court of Chancery denied in part a motion to dismiss an investor class action arising out of a January 2021 merger between Left Coast Ventures, Inc. (Left Coast), a cultivator and distributor of cannabis products, and TPCO Holding Corp. (TPCO), a SPAC entity of Subversive Capital, which would combine Left Coast and another cannabis company under the TPCO umbrella. The plaintiffs, former Left Coast stockholders and optionholders, challenged the fairness of the merger in a March 2021 lawsuit, alleging that defendants Fireman Capital Partners LLC (Fireman Capital), Fireman Capital Partners III, L.P. (Fireman Capital III, and together with Fireman Capital, Fireman), Bassler Co Corp. (Bassler), Crocket Resources S.A. (Crocket), along with individual director defendants (the Directors), diverted material consideration from Left Coast stockholders through improper side transactions. In April 2021, Fireman and the Directors filed motions to dismiss, arguing that plaintiffs lacked standing because all claims were derivative, and in the alternative, that the plaintiffs failed to properly plead their claims. The court first analyzed whether plaintiffs’ claims were direct or derivative, explaining that a derivative claim is one in which a corporation’s stockholders would recover pro rata in proportion with their ownership of the corporation’s stock (i.e., that the injury was to the corporation), as opposed to a direct claim, in which the duty breached was owed to the individual stockholder. The court also noted that a stockholder does not lose standing to challenge a merger after the merger is complete, if the challenge is based on the fairness of the merger itself. As a rule, for a claim involving a side transaction to be a direct claim: (1) the side transaction must have diverted merger consideration from stockholders, rather than from the acquirer; (2) the diversion must have been improper (i.e., as a result of defendants’…

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Source : DELAWARE CHANCERY COURT ALLOWS CANNABIS COMPANY SHAREHOLDER CLASS ACTION TO ADVANCE

reposted by Cannabis News World

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