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FrontFour Capital Group LLC v. Taube

Court of Chancery of Delaware

March 11, 2019

FRONTFOUR CAPITAL GROUP LLC, and FRONTFOUR MASTER FUND, LTD., on behalf of themselves and similarly situated stockholders of MEDLEY CAPITAL CORPORATION, Plaintiffs,
v.
BROOK TAUBE, SETH TAUBE, JEFF TONKEL, MARK LERDAL, KARIN HIRTLER-GARVEY, JOHN E. MACK, ARTHUR S. AINSBERG, MEDLEY MANAGEMENT, INC., SIERRA INCOME CORPORATION, MEDLEY CAPITAL CORPORATION, MCC ADVISORS LLC, MEDLEY GROUP LLC, and MEDLEY, LLC Defendants.

          Date Submitted: March 9, 2019

          Date Revised: March 22, 2019

          A. Thompson Bayliss, J. Peter Shindel, Jr., Daniel J. McBride, ABRAMS & BAYLISS LLP, Wilmington, Delaware; OF COUNSEL: Lori Marks-Esterman, Adrienne M. Ward, Nicholas S. Hirst, OLSHAN FROME WOLOSKY LLP, New York, New York; Attorneys for Plaintiffs FrontFour Capital Group LLC and FrontFour Master Fund, Ltd.

          William M. Lafferty, John P. DiTomo, Daniel T. Menken, Aubrey J. Morin, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; OF COUNSEL: Jason M. Halper, Nathan M. Bull, Adam K. Magid, Matthew M. Karlan, CADWALADER, WICKERSHAM & TAFT, LLP, New York, New York; Attorneys for Defendants Brook Taube, Seth Taube, Jeff Tonkel, Medley Management Inc., MCC Advisors LLC, Medley Group LLC, and Medley LLC.

          Blake Rohrbacher, Kevin M. Gallagher, Kevin M. Regan, Nicole M. Henry, RICHARDS, LAYTON & FINGER, Wilmington, Delaware; OF COUNSEL: Matthew L. Larrabee, Paul C. Kingsbery, Shriram Harid, DECHERT LLP, New York, New York, Joshua D.N. Hess, DECHERT LLP, Washington, D.C.; Attorneys for Defendant Sierra Income.

          Garrett B. Moritz, Eric D. Selden, S. Michael Sirkin, ROSS ARONSTAM & MORITZ LLP, Wilmington, Delaware; OF COUNSEL: Alan R. Friedman, Samantha V. Ettari, Jared I. Heller, KRAMER LEVIN NAFTALIS & FRANKEL LLP, New York, New York; Attorneys for Defendants Mark Lerdal, Karin Hirtler-Garvey, John E. Mack, and Arthur S. Ainsberg.

          MEMORANDUM OPINION

          McCORMICK, V.C.

         Due to the press of time, [1] aspects of this decision lack polish or extended treatment.

         March came in like a lion. Snow flurries and gray overcast covered downtown Wilmington for most of March's early days. The courthouse witnessed another flurry of activity during those days as the plaintiffs, FrontFour Capital Group LLC and FrontFour Master Fund, Ltd. ("FrontFour"), tried their expedited claims to enjoin transactions orchestrated by twin brothers Brook and Seth Taube.

         The challenged transactions, which were announced on August 9, 2018, would combine an asset management firm founded and majority owned by the Taube brothers, Medley Management, Inc. ("Medley Management"), with two business development corporations that Medley Management advises, Medley Capital Corporation ("Medley Capital"), and Sierra Income Corporation ("Sierra"). If the transactions proceed, Sierra will acquire first Medley Capital and then Medley Management in two cross-conditioned mergers, with Sierra as the surviving combined entity (the "Proposed Transactions"). Medley Management will receive per share $3.44 cash, plus $.065 in cash dividends, and the right to receive .3836 shares of Sierra stock, which represents a premium of approximately 100% to Medley Management's trading price. The Taube brothers and their management team will receive lucrative employment contracts with the combined company. Medley Capital stockholders, including FrontFour, will receive per share the right to 0.8050 shares of Sierra stock, which provides no premium against Medley Capital's net asset value ("NAV").

         The Taube brothers proposed the transactions in late June 2018. They touted size/scale, asset quality, and internalized management resulting from the transactions as beneficial to all of the parties. They set an aggressive timeline to permit announcement of a deal in early August 2018 in connection with the release of second-quarter financials. In response to the proposal, each of the three affiliated entities empowered a special committee to negotiate and, if appropriate, recommend the transaction. It was July 11th before the Medley Capital special committee had retained a financial advisor and was prepared to negotiate, leaving only a few weeks to negotiate under the Taube brothers' timeline. During that time, the Medley Capital special committee negotiated a slightly better exchange ratio, secured the Taube brothers' agreement to waive payments in connection with a valuable tax receivable agreement ("TRA"), and obtained the opinion of an independent compensation expert that the Taube brothers' compensation packets were reasonable. The committee members also secured for themselves the agreement that two of the four of them-to be determined through an interview process following announcement of the Proposed Transactions-would serve on the board of the combined entity.

         From a distance, this process appeared arm's-length. The December 2018 proxy recommending that the stockholders approve the Proposed Transactions certainly made it seem that way.

         At trial, FrontFour proved otherwise. FrontFour commenced this litigation on February 11, 2019. They claimed that the Medley Capital directors, who include the Taube brothers, breached their fiduciary duties to the common stockholders by entering into the Proposed Transactions. They accused Sierra of aiding and abetting in those breaches. They also claimed that Medley Capital's public disclosures failed to provide several categories of information material to stockholders considering the Proposed Transactions.

         In reality, when the Taube brothers proposed the transactions in June 2018, Medley Management was facing enormous financial pressure. Medley Management had engaged in two sales processes in 2017, both of which failed, which left merging with affiliates as Medley Management's only solution. As part of the 2017 sales processes, Medley Management had secured standstill agreements from around thirty potential bidders, which prevented those third parties from proposing transactions with Medley Capital. During negotiations with one bidder during the 2017 sales process, the Taube brothers had already agreed to give up the TRA for substantially less consideration than they will receive under the Proposed Transactions. In 2018, Medley Management received two inbound expressions of interest for Medley Capital, which they ignored. The Medley Capital special committees did not know any of this information before this litigation. They were not told. They did not ask.

         In the midst of this informational vacuum, Medley Capital's special committee members determined not to run any pre-signing market check or consider alternative transactions. They made this determination, although around that time at least one stockholder was agitating for Medley Capital to engage in a sales process. They capitulated to the aggressive timeline, although Medley Capital had no business reasons for rushing toward a deal. Then, they insulated the deal from a post-signing market check by agreeing to deal protections, including a no-shop.

         This post-trial decision finds that the Proposed Transactions trigger the entire fairness test. FrontFour proved that half of the Medley Capital special committee was beholden to the Taube brothers, and thus the Taube brothers dominated and controlled the board with respect to the Proposed Transactions. Defendants failed to meet their burden of proving that the Proposed Transactions are entirely fair. The deal protections of the merger agreement also fail enhanced scrutiny.

         As relief, FrontFour seeks a curative shopping process, devoid of Medley Management's influence, free of any deal protections, plus full disclosures. One obstacle prevents the Court from issuing this relief: FrontFour failed to prove that the acquirer, Sierra, aided and abetted in the other defendants' breaches of fiduciary duties. Under the Delaware Supreme Court's decision in C & J Energy, [2] an injunction may not issue if it would "strip an innocent third party of its contractual rights" under a merger agreement, unless the party seeking the injunction proves that the third party aided and abetted a breach of fiduciary duty by the target directors. Ordering a go-shop despite the no-shop and preventing enforcement of the deal protections would effectively strip Sierra of its contractual rights.

         And so, what came in like a lion goes out like a lamb: Under C & J Energy, FrontFour's requested relief must be denied.

         Medley Capital's stockholders, however, are entitled to corrective disclosures. The proxy creates the misleading impression that the special committee replicated arm's-length negotiations amid the conflicts tainting the Proposed Transactions. To vote on an informed basis, the stockholders must know the reality-that the majority of the members of the special committee failed to act independently when negotiating the Proposed Transactions. Further, the stockholders are entitled to additional disclosures concerning third-party expressions of interests. On this topic, disclosures to date have been incomplete or, in one instance, outright false. Any stockholder vote on the Proposed Transactions is enjoined pending corrective disclosures consistent with the matters discussed in this decision.

         I. FACTUAL BACKGROUND

         Trial took place over one and three-quarter days. The record comprises over 800 trial exhibits, live testimony from six fact and two expert witnesses, deposition testimony from five fact witnesses, and ninety-seven stipulations of fact.[3] The parties submitted pre-trial and post-trial briefs. These are the facts as I find them after trial.

         A. The Taube Brothers, the Medley Entities, and Medley Capital

         Each of the entities named as a defendant in this action is an affiliate of Medley Management, a publicly traded asset management firm formed by Brook and Seth Taube. Brook, Seth, and their younger brother, Chris, control Medley Management through majority ownership.[4] Medley Management is the parent entity of several registered investment advisors, which manage several funds, including Medley Capital and Sierra (collectively, the "Medley Entities"). The Medley Entities' organizational structure is reflected in the attached chart.[5]

         Medley Capital is a business development corporation ("BDC") formed by the Taube brothers in 2011.[6] BDCs are special investment vehicles regulated under the Investment Company Act of 1940 (the "'40 Act") and designed to facilitate capital formation for small and middle-market companies.[7] Medley Capital describes its business as "generat[ing] income and capital appreciation by lending directly to privately held middle market companies . . . ."[8] Medley Capital "source[s] investment opportunities through direct relationships with companies, financial intermediaries . . ., as well as through financial sponsors."[9] Medley Capital launched its initial public offering in 2011.[10]

         Medley Capital licenses its name from the Medley Entities.[11] Medley Capital has no employees, offices, or physical assets of its own; all of this is supplied by its external advisor, MCC Advisors LLC ("Advisors"), a Medley Management subsidiary. The Medley Entities experience total insider overlap. Every member of Medley Capital's management team holds management positions, and each of Medley Capital's inside directors hold board seats in other Medley Entities, including Medley Management, Advisors, and Sierra.[12]

         Advisors manages Medley Capital pursuant to an Amended and Restated Investment Management Agreement (the "Management Agreement") dated January 19, 2014.[13] Under that agreement, Medley Capital pays Advisors a base management fee of 1.75% of Medley Capital's gross assets and a two-part incentive fee calculated from net investment income ("NII") and net capital gains.[14] Advisors has broad discretion in making investment decisions and directing Medley Capital's rights under its debt instruments.[15] Such external management arrangements are common among BDCs.[16]

         Under the '40 Act, a majority of Medley Capital's board of directors (the "Board") must be independent, and Medley Capital cannot enter into any transaction with its external advisor without the approval of a majority of its independent directors.[17] Medley Capital has a seven-member Board divided into three classes.[18]The directors are elected by a plurality vote and serve staggered three-year terms.[19]Medley Capital's current Board comprises three inside directors and four independent directors.[20] Medley Capital's inside directors are Brook Taube, Seth Taube, and their friend of thirty years, Jeff Tonkel.[21] Medley Capital's outside directors are John E. Mack, Karin Hirtler-Garvey, Arthur S. Ainsberg, and Mark Lerdal.[22] Mack, Hirtler-Garvey, and Ainsberg joined the Board in 2011.[23] Lerdal joined the Board in 2017.[24]

         Under the '40 Act, Medley Capital's independent directors must annually review and, if appropriate, approve its Management Agreement.[25] In the approval process, the outside directors confer with counsel and review management fee levels of other BDCs.[26] Under the '40 Act, the Management Agreement must be terminable at will on 60 days' notice without a termination fee.[27] The outside directors have never considered Advisors' performance[28] or threatened (or even considered threatening) to terminate the Management Agreement as part of their annual review or otherwise.[29]

         In sum, Medley Capital depends on the Taube brothers for its day-to-day operations, office space, office equipment, staff, and even its name. Medley Capital has the right to terminate Advisors' Management Agreement, but has never considered using that right. Termination of that agreement would not extricate Medley Capital from the Taube brothers' influence in any event, given the other points of overlap.

         Another salient fact: None of Medley Capital's fiduciaries (officers and directors) have interests aligned with the interests of Medley Capital's common stockholders.

         As to the inside directors and management, their financial interests lie in Medley Management, [30] although the Taube brothers beneficially own just under 15% of Medley Capital's common stock.[31] If the Proposed Transactions close, the Taube brothers and Tonkel will each receive compensation for their Medley Management interests, as well as lucrative compensation packages more secure than the at-will Management Agreement.[32]

         As to the outside directors, the value of their director fees dwarfs the value of their Medley Capital common stock.[33] Ainsberg, Hirtler-Garvey, and Mack have each been paid over $1 million for serving on the Board and its committees.[34] For the company's fiscal year ending September 30, 2018, Ainsberg earned $299, 000 as a Medley Capital director, representing roughly half of his 2018 income.[35] Lerdal has been paid $288, 702 for his two years as Medley Capital director.[36] By contrast, at the deal price, the value of all of the outside directors' combined common stock is under $40, 000.[37] In the Proposed Transactions, two of Medley Capital's four outside directors will serve on the Board of the combined company; all four outside directors interviewed for the position after the Merger Agreement was signed.[38]

         B. Pre-Signing Events

         1. Medley Management's Failed Sales Processes

         Since its January 20, 2011 IPO, by every industry measure, Medley Capital has been in a steady financial decline.[39] This decline occurred during a period of sustained stock market and sector share price increases.[40] Medley Capital's performance is poor compared to its peers.[41] Due to Medley Capital's poor financial performance, [42] Medley Management faced financial pressures.[43]

         In May 2017, Medley Management embarked on a process to consider a range of strategic transactions.[44] Medley Management retained UBS and Credit Suisse to conduct outreach.[45] Nineteen parties expressed interest and seven executed confidentiality agreements, but the process ultimately failed.[46]

         In October 2017, Medley Management determined to restart the process and reach out to potential bidders.[47] Medley Management retained Goldman Sachs & Co. LLC ("Goldman") and Broadhaven Capital Partners, LLC ("Broadhaven").[48]They invited thirty-eight potential strategic partners to participate in the preliminary round of a two-round sale process.[49] Twenty-four of them executed confidentiality agreements.[50] Medley Management received three "viable" first-round, non-binding indications of interest.[51] Only one bidder, "Party X," made a second-round proposal.[52] From January 12, 2018, through January 24, 2018, Medley Management and Party X engaged in negotiations and exchanged numerous proposals and counterproposals.[53]

         The confidentiality agreements executed by third parties in Medley Management's two sales processes prevented the third-parties from offering to enter into any transaction with funds managed by Medley Management, including Medley Capital.[54] These restrictions applied for a "standstill period" following execution of the agreements. The standstill periods ranged from twelve to twenty-four months.[55]

         On January 26, 2018, the Medley Capital Board convened a meeting to receive updates on Medley Management's sales process.[56] Brook Taube reported on the process as well as the status of negotiations with Party X.[57] His report to the Board was high-level. It omitted information that he had presented to Medley

         Management's board of directors that same day.[58] The Board was not informed, for example, that the arm's-length parties were only willing to pay premia of 8.4% (one third-party) - 30.0-55.4% (Party X). They were not told that Party X had dropped its price due to concerns about the performance of Medley Management. They were not made aware of the standstill provisions restricting transactions at Medley Capital. Before this litigation, none of the Board members ever asked for or were made aware of this information.

         If consummated, Party X's proposal would result in a change of control of Medley Management, triggering Medley Capital's approval rights under the Management Agreement.[59] To consider the impact of the Party X proposal on Medley Capital, [60] the Board determined to establish a special committee.[61] The Board appointed to the committee Ainsberg, Hirtler-Garvey, Mack, and Lerdal, with Ainsberg as chair (the "Special Committee").[62] The committee retained Kramer Levin as legal advisors.[63]

         On March 15, 2018, Party X submitted a revised bid that reduced the proposed purchase price significantly and changed other important terms.[64] Medley Management determined that the revised proposal was not in the best interests of Medley Management and terminated discussions.[65] On May 2, 2018, Party X informed Medley Management that it did not intend to continue to pursue a potential transaction.[66]

         In April 2018, a third-party, Origami Capital Partners, LLC ("Origami"), reached out to Medley Capital several times to propose a potential transaction.[67] On April 4, 2018, Origami submitted an indication of interest.[68] Medley Capital publicly denied ever receiving that letter.[69] But Origami addressed the April 2018 letter to both Brook Taube and Marilyn Adler, a Medley Capital Senior Managing Director.[70] And Adler responded to the letter: "I am excited to tell you that Medley has agreed to discuss a process for the sale. I've given your name as a possible buyer. I am having a discussion this week and will update you as I know more."[71]Brook Taube still maintains: "It's not clear to me where the mysterious correspondence came from."[72] Before this litigation, the Special Committee was not aware of Origami's 2018 overtures.

         As part of Medley Management's negotiations with Party X, the Medley Entities' founders (the Taube brothers and other executives) agreed to give-up their TRA, [73] which was worth approximately $5.9 million for fifteen years following Medley Management's IPO.[74] Before this litigation, the Special Committee was not informed of Medley Management's negotiations with Party X concerning the TRA.

         2. Medley Management's Proposed Transactions with Medley Capital and Sierra

         By May 2018, Brook Taube felt that Medley Management was "under enormous pressure" financially.[75] Wells Fargo noted that Medley Capital's "NAV has dropped for a remarkable fifteen quarters, "[76] and observed Medley Capital's "severe underperformance."[77] In Mack's words, by May 2018, Medley Capital's credit portfolio was "bottoming out."[78] The management team faced fee waivers at Medley Capital[79] and NAV issues "across the board," which would have a "meaningful impact on [Medley Management]."[80]

         Intensifying this pressure, in 2016, the Taube brothers caused Medley LCC, a subsidiary of Medley Management, to a Master Investment Agreement with affiliates of Fortress Credit Advisors, LLC ("Fortress"). Under the agreement, Fortress provided approximately $40 million in capital for Medley Capital projects. Fortress received a put right that, if exercised, forces Medley to "immediately redeem" Fortress's interest.[81] This put right can be triggered in if Medley LLC fails to pay Fortress a preferred distribution or if Medley ceases to control Advisors.[82]

         Brook Taube proposed implementing drastic steps, including closing Sierra Total Return Fund[83] to boost cash flow, ending the Sierra distribution to gain $4 million in EBITDA, and imposing other cost saving initiatives to squeeze another $2 million out of the business.[84] On May 9, 2018, Brook even requested that two of his senior management members agree to defer cash payments owed to them and take Medley Management stock instead.[85] His colleagues declined.[86] Before this litigation, the Special Committee was unaware of the pressures Medley Management faced during this time period.[87] In a candid moment during trial, Ainsberg admitted that he wished he had known.[88]

         As one solution, the Taube brothers and their team began to contemplate a three-way combination between Medley Management, Medley Capital, and Sierra. Sierra is a non-traded BDC specializing in first lien, second lien, and subordinated debt of middle market companies with annual revenue between $50 million and $1 billion.[89] Like Medley Capital, Sierra is externally managed by a Medley Management subsidiary.[90] Sierra is much larger than Medley Capital. As of September 30, 2018, Sierra had total net assets of $687, 862, 000 and a NAV per share of $7.05.[91]

         Internally, Medley Management referred to this new proposal as "Project Integrate."[92] Brook Taube had conceived of this transaction in March 2018 as a fallback to the Party X deal.[93] By May 21, 2018, Project Integrate was at the top of the list of alternatives, and the management team was "very supportive."[94] By May 30, 2018, Brook Taube had asked Goldman and Broadhaven to consider the proposed three-way combination.[95]

         At Sierra and Medley Capital board meetings on June 18 and 19, 2018, respectively, Medley Management formally introduced the idea of the three-way combination.[96] The initial proposal was that each share of Medley Capital stock would be converted into the right to receive 0.76 shares of Sierra common stock. Sierra would acquire Medley Management for $3.75 in cash and 0.41 shares of Sierra common stock.[97]

         The minutes of the January 19, 2019 Board meeting summarize Medley Management's rationale behind the proposed transaction.[98] In sum, the major benefits of the proposed transaction touted by the transaction's proponents are: increased scale, increased liquidity, diversified asset pool, and internalization.[99]

         Of course, the Proposed Transactions posed significant conflicts. In an effort to simulate arm's-length dealings, each of the three entities empowered a special committee to negotiate and, if appropriate, approve the transaction. Like Medley Capital, Sierra had formed a special committee in January 2018 to consider the impact of the Party X transaction;[100] the committee had been in a holding pattern since that time. Each of the committees hired financial advisors. Medley Management hired Barclays Capital Inc. ("Barclays");[101] Medley Capital hired Sandler O'Neill Partners, L.P. ("Sandler"), as discussed below; and Sierra hired Broadhaven.

         Brook Taube facilitated the Sierra special committee's retention of Broadhaven. He thought highly of Broadhaven's Todd Owens, [102] having known him for years.[103] However, Medley Management had determined to retain Goldman only for Project Integrate-"two fees on the Integrate didn't make sense."[104] So, Brook Taube agreed to introduce Broadhaven to the Sierra special committee, [105]even though Broadhaven was still engaged by Medley Management.[106] Brook Taube suggested the idea to Tonkel on June 6, 2018. Broadhaven terminated its engagement with Medley Management on June 16, 2018, and pitched the Sierra special committee on June 18, 2018.[107] The Sierra special committee formally retained Broadhaven on June 29, 2018.[108] Although Broadhaven terminated its Medley Management engagement without receiving any payment, the Sierra special committee agreed to make an up-front payment of $1 million, the same amount Broadhaven would have earned as a transaction fee if the Medley Management strategic process had concluded successfully.[109]

         3. Medley Capital's Special Committee Process

         On June 19, 2018, the Medley Capital Board expanded the scope of the Special Committee's charter to consider the Proposed Transactions.[110] The Special Committee was empowered to evaluate and negotiate any proposed business combination, hire independent legal and financial advisors, determine whether the transaction was in the best interests of Medley Capital's stockholders, and recommend the approval or rejection of the transaction.[111]

         a. What the Special Committee did.

         The Special Committee retained a financial advisor. They interviewed two candidates. Ainsberg and Hirtler-Garvey participated in person; Mack and Lerdal participated by phone.[112] On June 21, 2018, at Brook Taube's recommendation, the committee members interviewed Medley Management's recent financial advisor, Credit Suisse.[113] On June 22, 2018, the committee interviewed Sandler.[114] The committee members met again on June 22 and 25, 2018, to select financial advisors, and they determined to retain Sandler.[115] Ainsberg signed Sandler's engagement letter on June 29, 2018.[116] Sandler gained access to the data room that day.[117]

         The Special Committee next met on July 11, 2018, to consider the Proposed Transactions.[118] Chris Donohoe of Sandler gave a presentation to give the committee "a solid grounding in understanding what Medley Capital looked like, what the other companies coming in would look like, and what a combined company would look like . . . ."[119] They authorized Sandler to negotiate on their behalf.[120]The committee's goals in these negotiations was to obtain "greater value for [the Medley Capital] stockholders" and "make sure that the combined company was better positioned to succeed."[121] To reach those goals, the committee (through Sandler) asked for cash consideration.[122] In the alternative, they authorized Sandler to push for less cash to leave the combined company.[123] Sandler negotiated on the founders' TRA and the management team's post-closing compensation.[124] Finally, Sandler set out to "ensure that the disinterested shareholders of [Medley Capital] had representation and say in the management of the combined business" through board representation in the combined company.[125]

         Sandler began to negotiate on July 11, 2018.[126] Through negotiations, the founders agreed to waive the annual TRA payment, [127] Sierra agreed to permit two Medley Capital directors to join their Board, [128] and Sierra agreed to a higher exchange ratio than originally proposed.[129] At Sandler's request, Sierra obtained a compensation expert's opinion concerning the management compensation packages.[130] The opinion was provided on August 3, 2018, [131] with a supporting presentation.[132] Sierra did not agree to any cash consideration for Medley Capital stockholders.[133]

         On July 29, 2018, Medley Management, Medley Capital, and Sierra reached final agreement on the ratios.[134] In the preceding three weeks, the Special Committee had met eight times.[135]

         After settling on the economic terms, the parties focused on the legal terms of the merger agreement.[136] The Special Committee met four more times.[137] The record concerning negotiations of the deal protections is sparse. At least one document reflects that, as of August 8, 2018, the termination fee was still being negotiated.[138]

         On August 9, 2018, Sandler presented its opinion to the Special Committee that the Medley Capital Merger Consideration was fair to Medley Capital stockholders from a financial point of view.[139] On August 9, 2018, the Special Committee approved Medley Capital's merger agreement with Sierra.[140]

         b. What the Special Committee did not do.

         Out of the gate, the Special Committee failed to assert control over the timing of the process. At the June 2018 Medley Capital Board meeting, Medley Management presented an aggressive timeline, which contemplated that the parties would execute definitive transaction agreements and announce a transaction by July 31, 2018.[141] This made sense for Medley Management, which had shopped itself for more than a year prior to that point. By contrast, Medley Capital had not undertaken any strategic process before the June meeting.[142] Between its January 26, 2018 formation and the June 19, 2018 Board meeting, the Special Committee did not hold any meetings, retain a financial advisor, or engage in any substantive discussions with the Taube brothers or other members of Medley Management about a strategic transaction.[143] Unlike Medley Management, the Special Committee was starting from scratch. Unlike Medley Management, the Special Committee had no reason to rush deliberations. Yet, the committee capitulated to the timeline Medley Management proposed.

         Then, throughout the negotiations, Brook Taube pressured the Special Committee to stick to the aggressive timeline. He denies this, [144] but contemporaneous documents prove otherwise.[145] In a July 11, 2018, email to the Medley Management Board, Brook Taube emphasized that "[t]ime is not in our favor given performance, inquiries, letters, etc."[146] He specifically flagged the possibility of "unwanted interloping" and emphasized that it was "real and should be taken seriously by the board."[147] He went on to underscore the fact that the transaction represented a "100% premium and a great deal" for Medley Management.[148] On July 27, 2018, Brook instructed Medley Management and Goldman to advise Medley Capital that they "have a fiduciary obligation to close."[149]That same day, he emailed Broadhaven: "Make this happen!!!!!!"[150] On July 31, 2018, Brook Taube emailed Jeff Tonkel while Tonkel was on a "Sierra call with Tony."[151] He instructed Tonkel: "Thursday board meetings are the time to push these guys hard in person."[152] On August 1, 2018, Brook reported to the Medley Management Board that "[w]e and Goldman continue to believe the risk is substantial if we announce earnings without simultaneously announcing this deal."[153] On August 5, 2018, Lerdal texted Brook Taube: "Are we on track? Anything you need from me?" Taube responded: "Let's talk soon / Pushing Hard :-)"[154]

         The Special Committee did not analyze the value of Medley Management, or understand what Medley Management would obtain in the Proposed Transactions, although in effect Medley Capital and Medley Management were competing for consideration. The Medley Management transaction and Medley Capital/Sierra Merger were cross-conditioned, and the new, combined company would own Medley Management post-closing.

         The Special Committee did not consider alternative transactions, [155] although disgruntled stockholders were publicly advocating for a sale process as of April 2018. In a letter to the Board dated April 17, 2018, one Medley Capital stockholder wrote: "We believe the Board of Directors should immediately undertake a serious effort to sell the business (the underlying investment portfolio and the Management Agreement). We believe there is an attractive market for [Medley Capital's] investment portfolio well above where [Medley Capital's] current stock trades."[156]Although the Special Committee was broadly empowered, they laser-focused on only one option. Sandler corroborated-they viewed their role as evaluating the three-way combination only.[157]

         The Special Committee did not conduct a pre-signing market check. When asked why, Hirtler-Garvey said she was happy with the transaction at hand.[158] She wanted a deal with Medley Management. Ainsberg testified to his belief that the 2017 Medley Management sales processes "effectively" checked the market for Medley Capital.[159] He believed that Party X's offer had the potential to result in a deal with Medley Capital.[160] Mack went further, testifying that he understood the Party X transaction to be geared toward a deal with Medley Capital, not with Medley Management.[161] This, of course, was wrong. Brook Taube testified, and contemporaneous evidence reflects, that the 2017 sales processes and negotiations with Party X aimed to develop strategic transactions and generate potential bidders for Medley Management, not Medley Capital.[162] Medley Capital was not "effectively" shopped.

         Although Medley Management's prior two sales processes informed the Special Committee's decision not to conduct a pre-signing market check, the committee members did nothing to inform themselves of basic aspects of those two sales processes. As discussed above, one member did not know that the process aimed to generate a deal for Medley Management, not Medley Capital.[163] No one asked about the terms of the potential Party X transaction or any other proposal received by Medley Management as part of those processes.

         Critically, none of the committee members knew that approximately thirty confidentiality agreements contractually foreclosed potential third parties from proposing a transaction with Medley Capital. Of the thirty agreements, only two standstill periods expired before the Proposed Transactions were announced on August 9, 2018.[164] The other twenty-eight agreements restricted potential counterparties during the entire period that the Special Committee was negotiating the Proposed Transactions.[165]

         When asked about the standstill agreements during his deposition, Mack stated his belief that "[t]his is a management issue, not a director [issue]."[166] He thought that more signed standstill agreements would be beneficial for Medley Capital.[167] He admitted, "I was not familiar with the specifics," and disclaimed any interest in being informed: "I may not want to know how sausage is made."[168]

         The Special Committee did not probe meaningfully into the value of Medley Management. Medley Management's financial projections forecasted "hockey stick" growth in the outer years of the forecast based on revenue from new projects and clients.[169] Sandler ran a sensitivity analysis, but lacked much of the information that was concerned with whether the NII benefit from the deal was just projected growth, or whether there was underlying value and earnings to support the figures.[170]

         Also, the Special Committee did not know about two expressions of interest from third parties concerning a transaction with Medley Capital. The first was from Origami, discussed above. The Special Committee did not learn of Origami's 2018 outreach until Origami publicly disclosed it in February 2019.[171] The second was from Lantern, which executed a confidentiality agreement on May 23, 2018, as part of the Medley Management sales process.[172] On July 3, 2018, Tom Schmidt of Lantern reached out to Goldman about its interest in acquiring Medley Management and potentially recapitalizing Medley Capital.[173] Schmidt followed up on July 10.[174]He followed up again on July 20, this time expressing frustration.[175] On July 30, Lantern submitted an indication of interest.[176] Among other things, Lantern explained that it was "interested in exploring alternatives for providing a significant cash infusion of new capital into Medley Capital to the extent it is prudent."[177]Lantern's recapitalization idea did not reach the Special Committee before execution of the Merger Agreement.

         C. The Proposed Transactions

         On August 9, 2018 the Special Committee unanimously recommended that the Board approve the merger agreement with Sierra (the "Merger Agreement").[178]Medley Management, Medley Capital, and Sierra announced the Proposed Transactions on August 9, 2019.[179]

         The Merger Agreement contains a series of deal protection provisions. Section 7.10 of the Merger Agreement prevents Medley Capital from soliciting or engaging with parties submitting "Competing Proposals" unless it constitutes a "Superior Proposal" or is likely to lead to one.[180] "Competing Proposal" is defined as an offer to acquire 20% or more of Medley Capital's securities or assets or a liquidation.[181] "Superior Proposal" is defined as a Competing Proposal that is on terms more favorable, from a financial point of view, than the Merger Agreement and is as likely to close.[182] Section 7.10(e) of the Merger Agreement provides that the Medley Capital Board may not make an "Adverse Recommendation Change" or enter into any agreement (other than a confidentiality agreement), subject to a fiduciary out.[183] Section 9.4 of the Medley Capital Merger Agreement provides for a $6 million "Termination Fee," which Medley Capital must pay if either party terminates the Medley Capital Merger Agreement after the Medley Capital Board effects an "Adverse Recommendation Change," or if Medley Capital terminates the Medley Capital Merger Agreement to enter into a definitive agreement contemplated by a Superior Proposal.

         Employment contracts connected to the merger provide for lucrative positions for Medley Management's senior management.[184] The cost of these employment contracts exceeds the estimated synergies arising from the Proposed Transactions.[185]

         D. Post-Signing Events

         1. FrontFour's Reaction

         FrontFour beneficially owns 1, 674, 946 shares of Medley Capital common stock, which constitutes approximately 3.1% of Medley Capital's outstanding shares.[186] FrontFour first learned of the Proposed Transactions when they were publicly announced on August 9, 2018.[187]

         FrontFour's corporate representative, David Lorber, testified at trial that he was "perplexed" by the announcement.[188] He believed that Medley Management had performed poorly over the prior five years, "erod[ing] significant NAV value, as well as stock price," yet "Medley Management was receiving an excessive amount of value" in the Merger Transactions.[189]

         A FrontFour analyst reached out to Medley Capital to "better understand the transaction"[190] and eventually was placed in contact with Medley Capital's risk management officer, Sam Anderson.[191] They spoke on the phone in late September.[192] FrontFour was not aware during that call that Anderson was also a senior managing director of Medley Management.[193] During the call, FrontFour's representative asked why the proxy had not yet been issued.[194] Anderson responded suggesting that the parties to the Merger Transactions were having difficulty agreeing on the disclosures, which raised concerns for FrontFour.[195] After the call, FrontFour asked to be placed in contact with Medley Capital's independent directors.[196] Instead, Brook Taube responded. He promised to "revert back."[197] He did not timely do so.[198]

         On November 2, 2019, FrontFour nominated Lorber and Clifford Press as candidates for election as directors at Medley Capital's next annual meeting of stockholders.[199] On November 20, 2018, FrontFour obtained a telephonic meeting with Ainsberg and Hirtler-Garvey.[200] John Fredericks, Medley Capital's Chief Compliance Officer-who is also Medley Management's General Counsel and Sierra's Chief Compliance Officer-joined the call and did all of the talking.[201] On November 27, 2018, Medley Capital responded to questions raised by Lorber on the call.[202] On December 13, 2018, FrontFour issued an open letter to stockholders opposing the Proposed Transactions.[203]

         2. Medley Capital's Public Disclosures

         During an investors call on August 10, 2019, Medley Capital management represented that the proxy statement would be filed within weeks.[204] Medley Capital issued the proxy statement on December 21, 2019.[205] It was flawed.[206] On January 11, 2019, FrontFour commenced litigation in this Court pursuant to 8 Del. C. § 220 to compel Medley Capital to produce book and records for inspection.[207]After an initial scheduling conference with the Court, Medley Capital voluntarily produced to FrontFour stocklist materials and certain core documents concerning the Merger.[208] On January 30, 2019, FrontFour raised questions regarding the adequacy of the disclosures in the Proxy.[209] On February 5, 2019, Medley Capital issued the Proxy Supplement and postponed the stockholder vote until March 8, 2019.[210]

         3. Multiple Third Parties Express Interest in Medley Capital

         After Medley Capital issued the proxy, multiple third parties expressed interest in entering into an alternative transaction with Medley Capital.

ZAIS. On January 2, 2019, ZAIS submitted a letter proposing that the Special Committee appoint ZAIS as the new investment advisor for the sole purpose of managing an orderly sale or liquidation of Medley Capital.[211] ZAIS requested the opportunity to meet the Special Committee to share its views. The Special Committee met to consider the proposal on January 9, 2019.[212] Nobody acting on behalf of the Special Committee ever contacted ZAIS. On January 24, 2019, Brook Taube instructed ZAIS that the Medley Capital Merger Agreement prohibited contact.[213]
NexPoint. On January 24, 2019, NexPoint Advisors, L.P. ("NexPoint") submitted a letter of intent proposing that Medley Capital terminate the Management Agreement and replace Advisors with NexPoint, which would charge a lower fee and make a cash payment to Medley Capital.[214] On January 31, 2019, NexPoint made a second proposal contemplating the combination of Medley Capital and Sierra and the retention of $100 million in cash otherwise earmarked for Medley Management stockholders in the Proposed Transactions.[215] NexPoint also proposed to pay $25 million to the combined company for the benefit of stockholders, to provide a reduced fee structure and lowered costs (resulting in at least $9 million in annual savings), and to purchase at least $50 million of combined company shares over a five-quarter period.[216]
On February 1, 2019, NexPoint made both its proposals public.[217] On February 6, 2019, Medley Capital and Sierra issued a press release indicating that their respective special committees had unanimously determined not to pursue the second NexPoint Proposal.[218] The press release purported to identify the reasoning behind the determinations by the Special Committees. But Medley Management had drafted the press release before the Special Committee had even made its determination.[219]
Origami. On February 11, 2019, Origami issued an open letter to the Medley Capital Board, proposing to buy 100% of the interests of Medley Capital's wholly owned subsidiary, Medley SBIC, for $45 million cash.[220] Origami also disclosed that it had reached out several times during the spring of 2018 and sent a formal letter on April 4, 2018 expressing interest but had never received a response.[221] On February 14, 2019, Origami sent another letter clarifying and reiterating its interest in a potential transaction.[222] On February 19, 2019, Medley Capital rejected Origami's proposal.[223]
Marathon. On March 1, 2019, Marathon Asset Management L.P. ("Marathon") submitted a letter to the Special Committee proposing that Medley Capital remain as an independent company, terminate the Management Agreement, and enter into a new management contract with Marathon.[224]

         The Special Committee held meetings to consider the multiple expressions of interest. But nobody reached out to ZAIS, except to confirm that the Merger Agreement prohibited contact.[225] Nor has anyone acting on behalf of the Special Committee contacted NexPoint or Origami, despite their expressed willingness to improve their proposals.[226] The Special Committee has never asked for a waiver of the non-solicitation provisions of the Merger Agreement to enable discussions with any of these potential counterparties, nor has it attempted to secure better terms from the Taube brothers. [227]

         In sum, the Special Committee considered each offer, but did not engage with any competing bidder, and seems to question the need to do so.[228] Their attitude is best captured by Lerdal in a text to Brook Taube. Around the time of the Special Committee meeting at which the ZAIS offer was considered, Lerdal texted Brook Taube: "Are we going to respond to every f**ksake on the planet?"[229]

         E. The Litigation

         FrontFour commenced this litigation on February 11, 2019, and amended the complaint the next day to reflect the Origami offer.[230] Defendants stipulated to an expedited schedule, and the parties agreed to hold trial before the March 8, 2019 stockholder vote.[231] The parties substantially completed document production by February 24, 2019, took twelve depositions between February 26 and March 4, 2019, and submitted pretrial briefs and a form of pretrial order on March 4, 2019.[232] A pretrial conference was held on March 5, 2019.[233] Trial took place on March 6 and 7, 2019.[234]

         II. ANALYSIS

         The Amended Complaint asserts three counts: Count I contends that the Taube brothers, Tonkel, and the Special Committee members breached their fiduciary duties to FrontFour and the members of the Class in connection with the approval of the Proposed Transactions.[235] Count I challenges the Proposed Transactions under the entire fairness standard (the "Entire Fairness Claim"), and the deal protections of the Merger Agreement under enhanced scrutiny (the "Enhanced Scrutiny Claim"). Count II contends that the Medley Capital directors breached their fiduciary duty of disclosure (the "Disclosure Claims").[236] Lastly, Count III contends that Medley Management, Sierra, Advisors, and two other Medley Entities-Medley Group and Medley LLC-aided and abetted in the other Defendants' breaches of fiduciary duties.[237]

         A. Entire Fairness Claim

         "Delaware has three tiers of review for evaluating director decision-making: the business judgment rule, enhanced scrutiny, and entire fairness."[238] Entire fairness review arises "when the board labors under actual conflicts of interest, "[239]such as when a controlling stockholder stands on both sides of a challenged transaction[240] or when a controlling stockholder competes with the minority stockholders for consideration.[241]

         FrontFour argues that the Proposed Transactions should be reviewed under Delaware's most onerous standard, [242] entire fairness. The Taube brothers stand on both sides of the Proposed Transactions, so entire fairness applies if they are deemed controllers. FrontFour bears the burden of proving by a preponderance of the evidence facts necessary to trigger entire fairness. If entire fairness is triggered, Defendants bear the burden of proving by a preponderance of the evidence that the Proposed Transactions are entirely fair.

         1. Entire Fairness Applies Because the Taube Brothers Are Controllers.

         The Taube brothers beneficially own less than 15% of Medley Capital, and those shares are subject to "echo voting" requirements. Although a majority stockholder is a controlling stockholder as a matter of law, [243] a minority stockholder can also be deemed a controller.[244] In determining whether a minority stockholder is a controller, the level of stock ownership is not the predominant factor, and an inability to exert influence through voting power does not foreclose a finding of control.[245]

         Under Delaware law, a plaintiff can demonstrate that a minority stockholder exercised de facto control by showing that: (a) the stockholder "actually dominated and controlled the majority of the board generally";[246] or (b) the stockholder "actually dominated and controlled the corporation, its board or the deciding committee with respect to the challenged transaction."[247]

         FrontFour has proven facts necessary to trigger entire fairness under the second theory. Specifically, FrontFour has proven that at least half of the Special Committee members were not independent from the Taube brothers when negotiating the Proposed Transactions. Under Delaware law, calling a director "independent" does not make it so. To be independent, a director "must act independently."[248] An independent director should demonstrate "the care, attention and sense of individual responsibility to the performance of one's duties . . . that generally touches on independence."[249]

         Mack, who did not testify at trial, demonstrated a lack of independence through his deposition testimony, where:

• Mack spoke to Brook Taube on the phone frequently, at least weekly, about business matters.[250]
• Mack knew that the Taube brothers managed Medley Capital's investments, but couldn't identify any other person involved in managing Medley Capital's portfolio.[251]
• Mack had no idea what Medley LLC was, who owned it, or the role it played in the Taube brothers' control of the Medley family of entities.[252]
• Mack had no understanding of what Medley Management's business was in 2017.[253]
• Mack could not identify the Taube brothers' or Tonkel's roles at Medley Management, the very source of their conflicts.[254]
• Mack did not know that the Taube brothers controlled Medley Management, and did not think it was important to consider their ownership of Medley Management in evaluating the Proposed Transactions.[255]
• Mack "was not familiar with the specifics" of the transaction process and "may not want to know how sausage is made."[256]
• Based on a call with Brook Taube, Mack believed Goldman Sachs was engaged to assist Medley Capital.[257]
• Mack did not believe the standstill provisions should have been reviewed by the Board, calling it a "management issue, not a director [issue]" and suggesting "the more the merrier."[258]
• Mack did not think it was important for the Medley Capital Board to be informed when Medley Management entered contracts that were binding on Medley Capital.[259]
• Mack had no idea whether Medley Capital paid performance fees to Advisors in 2017, or how the fees Advisors collected from Medley Capital affected Advisors' ability to pay its employees.[260]
• Mack believed that the Party X proposal was geared toward a deal with Medley Capital, not Medley Management.[261]
• Mack could not recall whether he considered having Sandler perform any form of a market check.[262] Instead, he relied on Brook Taube for his purported knowledge that "we were looking at strategic alternatives."[263]
• Mack did not believe that Medley Capital had ever solicited the market on its own behalf and was indifferent about the failure to do so.[264]
• Mack did not think the personal interests of the Taube brothers in closing the Proposed Transactions were relevant considerations in evaluating the transactions.[265]
• Mack did not have any understanding as to the significance of the Taube brothers' Medley Capital stockholdings or how they came to hold that position.[266]
• Mack was completely unaware as to the financing arrangement that the Taube brothers had with Fortress, which intensified the "enormous pressure" that drove the Taube brothers' decision to pursue the Proposed Transactions.[267]
• Mack did not think the fund's recent performance was an important consideration in the annual review of Advisors' contract with Medley Capital. Mack stressed the Board would consider comparisons to the fees and legal restrictions of comparable advisory arrangements, but did not think that recent performance was particularly important.[268]
• The lack of cash consideration for Medley Capital stockholders in the Proposed Transactions raised no concerns for Mack, even in the face of the large cash component that Medley Management was going to receive in the transactions.[269]
• Mack was indifferent to the compensation levels that would be paid to senior management in the combined company, even in the face of conversations concerning the fact that the compensation packages could potentially eliminate the benefits touted for Medley Capital stockholders in the Proposed Transactions. [270] Mack was satisfied that it was a concern for Sierra's board because they were negotiating and deciding the compensation, rather than the Medley Capital Board.[271]

         The record also reflects that half of Mack's annual income in the past three years had come from his service on the Board, making him susceptible to wanting to stay in the good graces of the Taube brothers.[272]

         Lerdal was similarly susceptible to Brook Taube's outsized influence as Medley Capital's founder.[273] Lerdal desired to continue as director after formation of the combined company. He curried favor from Brook Taube during the selection process. When he was not selected, he contacted Brook Taube for other personal favors. The record reflects that Lerdal, who did not testify at trial, was loyal to Brook Taube, not the Medley Capital common stockholders:

• Lerdal shared information about the Special Committee's process with Brook.[274]
• Lerdal personally kept Brook up to date on market interest in Medley Capital, warning him by text on August 15, 2018 that the company "has some bargain hunters."[275]
• Four days before approving the merger, Lerdal asked Brook: "Are we on track? Anything you need from me?"[276] The two talked on the phone soon thereafter.
• The day the Special Committee approved the Proposed Transactions, Lerdal praised Brook as the "architect" of the deal and stated that he was "excited for the future whether the Sierra guys give me the nod or not."[277]
• When the Special Committee decided to turn down a bidder in February 2019, Lerdal texted Brook: "Hang in there brother. The deal is still the best option."[278] The two then exchanged an additional fourteen messages.
• When Brook Taube suggested that the "predictable naysayers" would be the first people removed from their positions during the Proposed Transactions, Lerdal was quick to support the idea, texting "Freak the naysayers."[279]
• Lerdal requested personal updates by text on the merger behind-the-scenes from Brook, asking "How do we look?" on October 9, 2018. Brook responded that there was "[G]ood news yesterday from [the SEC]" and that the deal was "Read[y] to go when 'advisors' stop fussing."[280]
• Lerdal's texts effortlessly wove ingratiating personal adoration with business details. On October 26, 2018, he texted Brook that he had played a game of golf in Brook's honor, and offered "an open invitation to visit and I'll host any time."[281]
• In an August 1, 2017 email, Lerdal complained that the Taube brothers gave the Board "too much information," asserted that the company could not pay him enough to make him continue being diligent and thorough, and bragged about how he would conduct himself in future litigation against the company.[282]

         In short, the majority of the members of the Special Committee lacked independence from the Taube brothers.

         The Special Committee also sat supine in negotiations concerning the Proposed Transactions, allowing the Taube brothers to dominate the process by: setting the deal structure; controlling the flow of information; withholding information; withholding details about Medley Management's own value and the existence of offers from third parties; locking out "interlopers" through standstill agreements, deal protections, and an aggressive timeline; and rushing the committee's deliberations. In the end, the Special Committee allowed Medley Management to extract a huge premium while Medley Capital stockholders received none.

         The Special Committee deferred to the Taube brothers although the committee had ample negotiating leverage-the ability to terminate the Management Agreement or simply reject the deal, either of which would have had devastating consequences for Medley Management. Terminating the Management Agreement would trigger Fortress's rights under the joint venture. Rejecting the deal would foreclose Medley Management's only viable solution to the enormous financial pressure they labored under.

         It bears noting that there is nothing inherently wrong under Delaware law with the structure of the Medley Entities. Most BDCs have corporate structures similar to Medley Capital and Sierra-they rely on external advisors for management, administration, office space, staff, and other aspects of their existence. As a critical counterbalance to management's extensive control over the day-to-day operations, the '40 Act requires that the majority of the directors on BDC boards are independent from management. At no point in time is this protection more critical than in the context of a conflicted transaction. In this case, FrontFour has demonstrated that the Taube brothers are controllers not because of flaws inherent in the structure of BDCs, but rather, because those tasked with standing independent from the Taube brothers willfully deferred to their authority.

         2. The Proposed Transactions Are Not Entirely Fair.

         "The concept of fairness has two basic aspects: fair dealing and fair price."[283] Although the two aspects may be examined separately, "the test for fairness is not a bifurcated one as between fair dealing and price. All aspects of the issue must be examined as a whole since the question is one of entire fairness."[284] Defendants bear the burden of demonstrating that fair dealing and fair price.[285]

         Fair dealing "embraces questions of when the transaction was timed, how it was initiated, structured, negotiated, disclosed to the directors, and how the approvals of the directors and the stockholders were obtained."[286] "The scope of this factor is not limited to the controller's formal act of making the proposal; it encompasses actions taken by the controller in the period leading up to the formal proposal."[287] "Particular consideration must be given to evidence of whether the special committee was truly independent, fully informed and had the freedom to negotiate at arm's length."[288]

         In this case, the timing, structure, initiation, and negotiation of the Proposed Transactions were conceived for the purpose of-and did-advance the Taubes' interest at the expense of Medley Capital's other stockholders. In the events leading up to the Proposed Transactions, the Taube brothers created an informational vacuum, which they then exploited. The Special Committee was not truly independent and did not negotiate at arm's length. In sum, Defendants have not proven that the Proposed Transactions were the product of fair dealing.

         The second aspect of the entire fairness inquiry is fair price. Fair price "relates to the economic and financial considerations of the proposed merger, including all relevant factors: assets, market value, earnings, future prospects, and any other elements that affect the intrinsic or inherent value of a company's stock."[289]

         The primary evidence presented at trial on the issue of fair price consists of the opinions of the parties' respective experts.[290] Defendants offered the testimony of Dr. Marc Zenner, who performed regression analyses intended to show the benefits of size/scale, asset quality, and internalized management.[291] That analysis did not support the propositions for which it was offered. One analysis explained only 11% of the variation in p/NAV multiples.[292] The other was not statistically significant and lacked explanatory power.[293] Zenner also conducted a comparable transactions analysis, but 50% of his "transactions" were offers that never resulted in an actual merger.[294] Zenner did not opine on the value of Medley Capital, a fair price to acquire Medley Capital, or the value of the combined company if the Proposed Transactions were to occur. He opined that the process used by various investment banks was reasonable, but an expert cannot simply vouch for the work of someone else.[295] Zenner opined that Medley Capital's trading price following the announcement of the proposed transaction supported a finding of fair price. Zenner, however, was unable to exclude other possible causes of Medley Capital's stock price bump in response the Proposed Transactions.[296]

         By contrast, FrontFour's expert Dr. William Kennedy credibly testified that the fair value of Medley Capital is $5.07 per share and the price being offered is well below that.[297]

         Ultimately, this is a case in which a deeply flawed process obscures the fair value of Medley Capital. The record reveals that the Taube brothers obstructed any pre-signing price competition from "interlopers."[298] The two aspects of the entire fairness standard interact.[299] Just as "[a] strong record of fair dealing can influence the fair price inquiry, . . . process can infect price."[300] Any inability to determine the degree to which the flawed process infected the price works to Defendants' detriment, as they bear the burden of proof on this issue.[301]

         B. Enhanced Scrutiny Claim

         The parties engaged in a robust dispute concerning whether deal protections or the Proposed Transactions in their entirety are subject to and pass enhanced scrutiny.[302] Any Delaware law enthusiast would relish the opportunity to dilate on the issues raised, but the press of time requires a more direct approach.

         FrontFour challenges three deal protections in the Merger Agreement: a no-shop, an adverse-recommendation-change requirement, and a termination fee.[303]Enhanced scrutiny applies to deal protections, and the burden lies on Defendants to justify those protections.[304] Defendants cannot meet that burden here.

         The suite of deal protections at issue would pass muster under most circumstances, but not in this case. The Court's analysis is fact intensive and context specific.[305] Due to extreme process flaws that led to the Proposed Transactions, the deal protections are not within the range of reasonableness.[306]

         Of the three challenged deal protections, the no-shop is the primary offender. No-shop provisions paired with a fiduciary out are not unique.[307] No-shop provisions are used to entice acquirers to make a strong offer by contractually eliminating the risk that the acquirer is a stalking horse used to generate a bidding war.[308] That justification has no application here. The Proposed Transactions are among affiliated entities. All of the parties were aware, when negotiating the deal protections, that there was no pre-signing auction or market check and no risk that Sierra was being used as a stalking horse. There was also no risk that Medley Capital would lose the "bird in hand" if the transaction was shopped.[309]

         Incrementally, the other two deal protections are also problematic. The adverse-recommendation-change provision[310] unduly cabins the Board.[311] Although the termination fee is not unreasonable on its own, in combination with the other deal protections, it too falls outside the range of reasonableness.[312]

         C. Disclosure Claims

         "[T]o establish a violation of the duty of disclosure, [a plaintiff] must prove that the omitted fact would have been material to the stockholder action sought."[313]The materiality standard requires that fiduciaries disclose all facts which "under all the circumstances . . . would have assumed actual significance in the deliberations of the reasonable shareholder."[314] "A material fact is one that a reasonable stockholder would find relevant in deciding how to vote. It is not necessary that a fact would change how a stockholder would vote."[315] "A material fact is one that a reasonable investor would view as significantly altering the 'total mix' of information made available."[316] However, once fiduciaries have "traveled down the road of partial disclosure," they must "provide the stockholders with an accurate, full, and fair characterization of [the] events."[317]

         Controlling stockholders "have large informational advantages that can only be imperfectly overcome by the special committee process, which almost invariably involves directors who are not involved in the day-to-day management of the subsidiary."[318] Accordingly, controllers owe "a duty of complete candor when standing on both sides of a transaction and must disclose fully all the material facts and circumstances surrounding the transaction."[319]

         Applying these principles, FrontFour has proven that Defendants violated their duties of disclosure to inform stockholders of the process that led to the Proposed Transactions and the expressions of interest from third parties.

         1. Process Disclosures

         The Proxy describes the deployment of three different special committees to mitigate conflicts and replicate arm's-length bargaining.[320] The description creates the misleading impression that the Special Committee process at Medley Capital was effective. In reality, during the negotiation process, the Special Committee was disabled by its ignorance of: the details of the bids made for Medley Management during Project Elevate; the "enormous pressure" facing Medley Management and the Taubes;[321] and the standstill agreements that forbade potential transaction partners from presenting proposals directly to Medley Capital without Medley Management's consent. These process failures and others identified in this decision are material to stockholders considering the Proposed Transactions.

         The Proxy and Medley Capital's other public filings disclose certain of these process flaws now, but they fail to mention that the Special Committee only learned of these items after the execution of the Merger Agreement (and in some cases only after this litigation began).[322] The timing of the Board's knowledge is a critical fact that would impact any stockholder's assessment of the quality of the transaction process.[323]

         2. Other Indications of Interest-Lantern, NexPoint, Origami, and ZAIS

         Following FrontFour's January 30, 2019 letter to the Medley Capital Board, [324]Medley Management disclosed on February 5, 2019 certain terms of eleven indications of interest. It characterized each as a "non-binding indication of interest received by Medley Management."[325] Medley Capital separately issued supplemental disclosures regarding offers made by NexPoint on January 31, 2019, ...


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