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Arkansas Teacher Retirement System v. Alon USA Energy, Inc.

Court of Chancery of Delaware

June 28, 2019

ARKANSAS TEACHER RETIREMENT SYSTEM, on Behalf of Itself and All Others Similarly Situated, Plaintiff,

          Date Submitted: March 27, 2019

          Michael Hanrahan, Stephen D. Dargitz, Paul A. Fioravanti, Jr., Corinne Elise Amato, Kevin H. Davenport, Eric J. Juray, PRICKETT, JONES & ELLIOTT, P.A., Wilmington, Delaware; Lee D. Rudy, Michael C. Wagner, J. Daniel Albert, Grant D. Goodhart III, KESSLER TOPAZ MELTZER & CHECK, LLP, Radnor, Pennsylvania; Counsel for Plaintiff Arkansas Teacher Retirement System.

          David J. Teklits, Thomas P. Will, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Mark Oakes, William Patrick Courtney, Ryan Metzer, NORTON ROSE FULBRIGHT U.S. LLP, Austin, Texas; Counsel for Defendants Alon USA Energy, Inc., Delek U.S. Holdings, Inc., Delek HoldCo, Inc., Ezra Uzi Yemin, Assaf Ginzburg, Frederec Green, Mark D. Smith, and Avigal Soreq.

          Raymond J. DiCamillo, Brian F. Morris, Sara C. Hunter, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Colin B. Davis, GIBSON, DUNN & CRUTCHER LLP, Irvine, California; Mark H. Mixon, Jr., GIBSON, DUNN & CRUTCHER LLP, New York, New York; Counsel for Defendants David Wiessman, Ilan Cohen, Ron W. Haddock, William J. Kacal, Zalman Segal, and Franklin Wheeler.


          McCORMICK, V.C.

         Section 203 of the Delaware General Corporation Law prohibits a stockholder from engaging in a business combination with a company within three years from the date it acquires 15% or more of the company's outstanding voting equity. The statute's prohibitions do not apply under certain circumstances, including when the company's board pre-approves the transaction by which the stockholder acquires 15% or more of the outstanding voting equity.

         In 2015, Delek U.S. Holdings, Inc. ("Delek") acquired 48% of the common stock of Alon USA Energy, Inc. ("Alon") from Alon's largest stockholder. Delek paid approximately $16.99 per share. At the time of this stock purchase, Delek was interested in acquiring the entirety of Alon's outstanding stock. To avoid the three-year standstill period imposed by Section 203, Delek requested that the Alon board pre-approve the stock purchase. Alon's board granted Section 203 approval, but conditioned that approval on Delek entering into a stockholder agreement. The stockholder agreement established anti-takeover protections like those imposed by Section 203, but for a period of only a year. The agreement's prohibitions were broadly worded; they prevented Delek and its affiliates not only from acquiring over a majority of Alon's equity, but also from "seek[ing] to" acquire stock over a majority or otherwise circumventing the contractual restrictions.

         According to the plaintiff, shortly after Delek executed the stockholder agreement, Delek began violating its terms.

         During the stockholder agreement's one-year standstill period: Delek's CEO, who also served on Alon's board, publicly announced Delek's intent to acquire the remaining 52% of Alon's outstanding equity. In light of Delek's public statements, Alon's eleven-person board formed a special committee comprised of the six directors without direct ties to Delek. Representatives of Delek and the committee met six times, engaged in substantive negotiations, settled on all-stock consideration, and apparently agreed that the exchange ratio need not be at a premium to Alon's trading price. Near the end of the standstill period, the committee made a formal proposal to Delek.

         After the standstill period expired in May 2016, the special committee issued two additional formal proposals to Delek, each on terms more favorable to Delek than the last. Delek had made no formal counteroffers, so the committee was effectively bidding against itself. In response to the third proposal, Delek delivered its first formal counteroffer, proposing an exchange ratio that equated to approximately $7.62 per Alon share. The special committee negotiated with Delek in the months that followed, focusing its efforts on improving the exchange ratio. By late December 2016, Delek made its best and final offer including an exchange ratio that equated to approximately $12.13 per Alon share, significantly less than the price paid by Delek only two years before. The committee received a fairness opinion from its financial advisor. Although certain of the advisor's analyses yielded price ranges above the merger price, the committee and ultimately the board approved the merger. The merger was agreed to in January 2017, approved by Alon's stockholders in June 2017, and consummated in July 2017.

         On behalf of itself and a class of Alon's common stockholders, the plaintiff asserts claims against Alon's board and Delek challenging the merger. The defendants have moved to dismiss the complaint, and this decision denies most of that motion.

         Alongside the familiar fiduciary duty claims, the plaintiff pursues a less customary claim for breach of the stockholder agreement. The plaintiff alleges that Delek breached the stockholder agreement by seeking to enter into the merger during the standstill period. As its primary defense, Delek argues that the plaintiff is not a third-party beneficiary of the stockholder agreement and thus lacks standing to enforce it.

         Under Delaware law, a third party to a contract may sue to enforce its terms if: the contracting parties intended to confer a benefit directly to that third party; they conveyed the benefit as a gift or in satisfaction of a pre-existing obligation; and conveying the benefit was a material part of the purpose for entering into the agreement. The stockholder agreement's relationship to Section 203 renders each of these elements easily satisfied. The stockholder agreement replicates aspects of the anti-takeover protections of Section 203, which provide a direct benefit to stockholders of a Delaware corporation. The stockholder agreement therefore provides a direct benefit to the plaintiff. Those benefits were established in place of Section 203's pre-existing protections, or at minimum, intended as a gift to the stockholders. Because the purpose of the stockholder agreement is to restrict Delek's ability to acquire Alon, without the anti-takeover provisions, the agreement would not achieve that purpose. The anti-takeover provisions are therefore material, and the plaintiff has standing to enforce the stockholder agreement.

         The plaintiff adequately alleges that Delek breached the stockholder agreement. Delek publicly announced its intent to acquire Alon stock, met with the special committee's chairperson six times, negotiated substantive terms, and proposed a deal structure, all before the standstill period expired. These acts are sufficient to state a claim that Delek breached the broadly worded anti-takeover protections of the stockholder agreement.

         In another creative twist, the plaintiff asserts claims under Section 203, contending that Delek's breaches of the stockholder agreement vitiated the Alon board's Section 203 approval and restored the protections of Section 203. Under Section 203(a)(3), a business combination otherwise prohibited by the statute may be effected if it is approved by the board and authorized by at least two-thirds of the outstanding voting stock. The defendants contend that the approval of the merger by Alon's board and stockholders satisfied Section 203(a)(3). Yet for stockholder approval of any corporate action to be valid, the vote must be fully informed. The defendants' argument thus fails because the plaintiff has adequately alleged multiple deficiencies in the disclosures relating to the merger. Those deficiencies include failing to fully and fairly describe the stockholder agreement, only partially disclosing facts and flaws relating to the special committee's formation, and neglecting to mention that the special committee's financial advisor increased its stock holdings in the acquirer by 60% while advising the special committee. These deficiencies not only foreclose the defendants' Section 203 defense but also support a standalone claim for breach of the duty of disclosure.

         The plaintiff's claims for breach of fiduciary duty are equally viable. It is reasonably conceivable that Delek's 48% equity interest, employment of five of Alon's eleven board members, and influence over a sixth, renders Delek a controller with concomitant fiduciary duties. The merger, therefore, is presumptively subject to the entire fairness standard. The defendants argue that the business judgment standard applies under Kahn v. M & F Worldwide Corp. ("MFW")[1] because both the special committee's initial proposal and Delek's initial counterproposal conditioned the merger on the approval of a special committee and a majority of the minority stockholders. Leaving aside the uninformed nature of the stockholder vote, the defendants' argument fails in light of two recent Delaware Supreme Court decisions clarifying that a controller must impose MFW conditions before the start of substantive economic negotiations.[2] Because the complaint adequately alleges that Delek engaged in substantive economic negotiations months before any MFW conditions were established, the defendants are not entitled to application of the business judgment standard of review at the pleadings stage.

         The complaint adequately alleges unfair process and unfair price sufficient to state a claim under the entire fairness standard. In support of its unfair process assertion, the complaint alleges that Delek disregarded contractual obligations prohibiting negotiation of the merger during the standstill period. The scope of the special committee's authority to explore alternative transactions was unclear at critical stages of the negotiations. At Delek's insistence, the Alon board replaced two of the six special committee members over the course of negotiations. And the special committee's chairperson's alleged ties to Delek cast doubt on his independence. In support of its unfair price assertion, the complaint alleges that the merger consideration was keyed to the values of Alon and Delek stock, which Delek manipulated through public statements made before the merger. Also, the implied per-share merger price was at the low end of value ranges presented by the special committee's financial advisor. These allegations are sufficient to establish unfair process and price at the pleadings stage.


         The facts are drawn from the Second Amended Verified Class Action Complaint (the "Complaint")[3] and documents it incorporates.

         A. Delek's Initial Acquisition of Alon Stock

         Alon is an independent retailer and marketer of petroleum products. In early 2015, Alon Israel Oil Company, Ltd. ("Alon Israel") owned approximately 48% of Alon's outstanding common stock.[4] Because of Alon Israel's financial difficulties, Alon Israel determined to sell its interest in Alon, and reached out to Delek, a diversified downstream energy company, to explore interest in a stock purchase. After about a month of negotiations, Delek requested that the Alon board of directors (the "Board") approve Delek's stock purchase for purposes of 8 Del. C. § 203.

         The Alon Board formed a special committee to evaluate and negotiate the Section 203 issue. On March 19, 2015, the Board approved Delek's acquisition, but conditioned that approval on Delek executing a stockholder agreement. Delek executed a stockholder agreement that same day.

         On April 14, 2015, Delek agreed to purchase Alon Israel's 48% stake in Alon for a total of $572.4 million or approximately $16.99 per share. That transaction (the "initial stock purchase") closed on May 14, 2015.

         After the transaction closed, five of Alon's eleven directors resigned from the Board and Delek appointed five Delek executives to fill the positions: Delek CEO and President Ezra Uzi Yemin; Delek CFO Assaf Ginzburg; and three Delek Executive Vice Presidents, Frederec Green, Mark D. Smith, and Avigal Soreq (collectively, the "Delek Directors"). The remaining six directors were David Wiessman, Ilhan Cohen, Ron W. Haddock, Zalman Segal, Jeff Morris, and Yeshayahu Pery.[5] Yemin became the Executive Chairman of the Board, replacing the prior chairman, Wiessman.

         B. The Amended Stockholder Agreement

         Shortly after the initial stock purchase, Delek and Alon amended the stockholder agreement (the "Amended Stockholder Agreement" or the "Agreement").[6] The Agreement prevented Delek, for the year following the initial stock purchase (the "Standstill Period"), from acquiring more than 49.99% of Alon's outstanding equity or entering into any material contract with Alon unless Delek first obtained approval from an "Independent Director Committee."[7]

         This restriction took the form of a web of overlapping contractual provisions. The "Standstill Provision" (§ 1.01(a)) prohibited Delek from acquiring-or proposing or seeking to acquire-any Alon equity that would cause Delek's stake in Alon's total equity to exceed 49.99%.[8] The "No Merger Provision" (§1.05(h)) prohibited Delek from "enter[ing] into or agree[ing], offer[ing], publicly propos[ing] or seek[ing] to enter into, or otherwise be[ing] involved in or part of, any acquisition transaction, merger or other business combination relating to all or part of [Alon] . . . ."[9] The "No Circumvention Provision" (§ 1.05(k)) prohibited Delek from "tak[ing] any action intended to circumvent any of the restrictions" in Section 1.05.[10]And the "No Material Transactions Provision" (§ 2.02(a)) prohibited Delek from entering into any "material transaction" with Alon.[11] All of these restrictions also expressly applied to Delek's affiliates.

         The Independent Director Committee exception appears in Section 2.02(a)'s "No Material Transactions Provision," which provides that "any material transaction between [Alon] . . . on the one hand, and [Delek] . . . on the other hand, and any action or transaction relating to this Agreement shall not be taken without prior Independent Director Approval or Unaffiliated Stockholder Approval."[12] A version of this exception also appears in Section 1.05(i)'s "Proposal Exception," which states that Delek can confidentially propose to the Independent Director Committee transactions otherwise prohibited by Section 1.05.[13]

         "Independent Director Approval" is defined as "the approval of the majority of the members of the Independent Director Committee."[14] "Independent Director Committee" is defined as a Board committee "comprised solely of two or more Independent Directors that is duly authorized to consider and act upon the matters that require the Independent Director Approval" under the Amended Stockholder Agreement.[15] "Independent Director" is defined to exclude any directors affiliated with Alon Israel and Delek. It is undisputed that Wiessman is not an Independent Director as defined in the Agreement, Alon never formed an Independent Director Committee, and thus Delek never obtained Independent Director Approval.

         C. Events Leading to the Challenged Merger

         1. Actions taken during the Standstill Period

         According to the Complaint, Delek desired to own 100% of Alon's equity since the initial stock purchase. In early 2015, however, Alon Israel's financial difficulties propelled Delek away from a "full merger" and caused the parties to work to close the initial stock purchase "as quickly as possible," as Delek's Yemin publicly stated during a May 2015 earnings call.[16]

         In July 2015, Wiessman proposed that the Board form a special committee of directors to respond quickly to any transaction offers received from Delek (the "Special Committee"). Wiessman proposed appointing to the Special Committee all directors except for the five Delek Directors. The Board did not take formal action to constitute the Special Committee at the July meeting.

         In August 2015, Yemin commented during a public earnings call on Delek's intention to acquire the remaining Alon stock, stating that "obviously . . . we are not in the business of holding 48% in a company."[17]

         Although the Board had not formally constituted or empowered the Special Committee, the committee members met on September 29, 2015. At that meeting, the committee appointed Wiessman as chairman. On October 8, Wiessman contacted Yemin and inquired "whether there was a transaction that Delek would contemplate in the near term of which the Special Committee should be aware."[18]Yemin and Wiessman met on October 30, and Yemin told Wiessman that "any deal between Delek and Alon would need to be a stock-for-stock deal due to leverage limitations[.]"[19]

         Alon's public disclosures elliptically state that by October 30, 2015, "questions had arisen 'among Alon Board members regarding the establishment of the Special Committee.'"[20] Alon did not disclose the questions or who specifically raised them. On October 30, the Board formally approved the formation of the Special Committee and authorized the Special Committee to engage advisors. The committee retained J.P. Morgan Securities LLC ("J.P. Morgan") as its financial advisor and Gibson, Dunn & Crutcher LLP as its legal counsel.

         Although the Board formally constituted the Special Committee in October 2015, the Board did not fully delineate the committee's powers until October 2016- a year later. It was unclear during that period whether the Committee had the authority to explore alternative transactions or reject a deal with Delek.

         In December 2015, Yemin told Wiessman that "any deal with Alon would need to be at an exchange ratio reflecting a discount to current Alon market price."[21]Wiessman responded by raising the prospect of Alon issuing its stockholders a onetime cash dividend to offset such a discount. Yemin stated that Delek was unlikely to support a special dividend. Later that month, Delek and Alon entered into a confidentiality agreement allowing the exchange of non-public information. And Wiessman and Yemin discussed a set of Special Committee talking points on potential transaction terms, including terms related to price and a special dividend.

         By January 2016, Delek released an investor presentation that included information on Delek's plans to either acquire the remaining 52% or acquire an additional 3% of Alon stock. The latter transaction would give Alon Israel majority stock ownership. Internally, Delek commenced a process for the eventual disposition of its retail business to alleviate potential antitrust hurdles to a business combination with Alon and provide liquidity for any cash component of the deal.

         That month, negotiations between Yemin and Wiessman continued. On January 27, 2016, Yemin told Wiessman that Delek disfavored a stock-for-stock deal at then-current market prices and that the exchange ratio would need to be at a discount to Alon's stock price.

         That same day, Yemin proposed replacing two Alon directors-Morris and Pery-with two directors selected by Delek, Kacal and Wheeler. Soon after, Delek and Alon amended the Amended Stockholder Agreement on January 29, 2016, to nominate Kacal and Wheeler to the Board.[22] That same day, Delek informed Alon that it would provide "at least 14-days' notice" before increasing its ownership stake above 50%.[23]

         In February 2016, Yemin shifted gears, telling Wiessman that Delek was exploring paying 80% of the merger consideration in cash.[24] Wiessman responded that the Special Committee would expect a premium on the cash consideration. Then, the Special Committee met on February 23, 2016, and decided to prepare a proposal letter for Delek suggesting a stock-for-stock merger. They decided to propose an exchange ratio based on then-current market prices instead of any premium deal. The Special Committee left it to Wiessman to determine whether to deliver the letter based on the outcome of a meeting with Yemin.

         In March 2016, Yemin revised its message again, informing Wiessman that Delek was exploring paying 50% of the merger consideration in cash, and that Delek understood (based on their previous discussions) that such a structure would require a premium. Wiessman rejected the proposal, although it would involve a premium, responding that such a structure was not acceptable because it would trigger "make whole" payments under Alon's debt covenants and be a taxable event for Alon's stockholders.[25] Wiessman again proposed a special dividend, which Yemin again rejected.

         In April 2016, the Special Committee, through Wiessman, delivered a letter to Delek proposing an acquisition of Alon in a stock-for-stock deal with an at-the-market exchange ratio of 0.687 shares of Delek stock for each share of Alon common stock. This proposal raised for the first time that any deal should be conditioned on Special Committee approval and a majority-of-the-minority vote. The proposal also asserted that synergies would generate at least $100 million in annual cost savings between the companies. Yemin rejected the proposed market-price-based exchange ratio and disputed the Special Committee's assertion as to expected cost synergies.

         On May 6, 2016, Yemin confirmed on Delek's quarterly earnings call that these negotiations had taken place. Yemin further stated that "the independent directors of Alon understood that 'it doesn't make sense' for there to be a transaction at an exchange ratio based on current market prices."[26] The next day, Alon's stock price fell by 7%, thereby pushing any exchange ratio in Delek's favor. The Special Committee expressed its desire to respond publicly to Yemin's comments, but Delek demanded that the Special Committee refrain. A reasonable inference is that Yemin's public comments and muzzling of the Special Committee were intended to manufacture market conditions favorable to Delek in a stock-for-stock transaction.

         2. Actions taken after the Standstill Period

         The Standstill Period expired on May 15, 2016. Three days later, Delek sent the Special Committee a letter informing it that Delek would be in contact when market conditions improved. Ignoring Delek's "we'll be in touch" communication, on May 25, 2016, the Special Committee sent a new written proposal to Delek lowering the proposed stock-for-stock exchange ratio to 0.615 in Delek's favor.

         By June 13, 2016, Delek had yet to provide a substantive response to either one of the Special Committee's two written proposals. The Special Committee considered issuing a press release announcing that it was authorized to explore strategic alternatives. Again, Delek sought to restrict Alon's public statements. Yemin objected to the press release, contending that the Special Committee lacked the authority to explore strategic alternatives that did not involve Delek. The Special Committee capitulated to Yemin's demands, issuing a revised press release.

         On October 13, 2016, the Special Committee submitted a third written proposal, bidding against itself again by lowering the proposed exchange ratio to a range of 0.527 to 0.563.

         The next day, Delek delivered its buyout proposal to the Special Committee, which called for an all-stock transaction with a fixed exchange ratio of 0.44 Delek shares for each Alon share, then-equating to $7.62 per Alon share based on Delek's closing price of $17.32. Delek's proposal provided that the transaction would require approval "by a special committee . . . comprised entirely of directors that are independent of Delek" and the holders of a majority of the non-Delek-affiliated Alon stock.[27]

         About two weeks later, on October 27, 2016, the Board adopted resolutions that permitted the Special Committee "to decline any proposal from Delek and to review and evaluate strategic alternatives[.]"[28] This adoption came after Yemin communicated at least twenty-six times with Wiessman or the Special Committee, and the parties had largely agreed upon deal structure.

         In December 2016, Delek sought prompt consummation of the deal, but J.P. Morgan provided a financial analysis showing that Delek's October 14 offer understated Alon's intrinsic value.

         By December 24, 2016, Wiessman had suggested to Yemin that the Special Committee would be willing to agree upon an exchange ratio of 0.539. After consulting with J.P. Morgan, on December 27, 2016, Wiessman proposed a 0.504 exchange ratio. The next day, Yemin provided Wiessman with Delek's "best and final" offer reflecting the 0.504 exchange ratio.[29] The Special Committee then instructed its legal counsel and Wiessman to move forward with finalizing the other deal points and a merger agreement.

         On January 2, 2017, the Special Committee met to discuss the merger agreement and deal terms. J.P. Morgan presented its financial analysis and delivered an opinion that the exchange ratio was fair to Alon stockholders. Although J.P. Morgan provided a fairness opinion, certain of J.P. Morgan's analysis also did not support the merger consideration. The exchange ratio implied a per share merger price of $12.13, representing only a 6.6% premium to Alon's closing price on the same day. By contrast, J.P. Morgan's sum-of-the-parts analysis yielded a per share price range of $15.60 to $18.90, and J.P. Morgan's two discounted cash flow analyses yielded price ranges above the merger price. In assessing price, the Special Committee relied in part on a "relative valuation" methodology, which focused on the trading prices of Alon's stock and Delek's stock as opposed to the intrinsic value of Alon. This valuation approach did not account for potential manipulation of the companies' stock trading prices. The Complaint alleges other problems affected J.P. Morgan's analysis and the projections on which it was based.[30]

         Also, according to the Complaint, and unbeknownst to the Special Committee, between August 8, 2016 and November 4, 2016, J.P. Morgan and its affiliates had increased their holdings in Delek by almost 60%.[31]

         On January 2, the Special Committee unanimously adopted resolutions determining that the deal was advisable, fair, and in the best interests of Alon and its public stockholders, approving the deal, and recommending it to the Board.[32]Shortly after that, the Board met and adopted resolutions approving the deal and recommending that Alon's stockholders vote in favor of the deal.[33]

         In connection with the transaction, Wiessman and Haddock secured post-merger directorships with Delek entities, and Wiessman retained his executive chairman role at Alon Partners G.P.

         Before the parties announced the merger, Delek developed a plan to capitalize on Alon's interests in Alon USA Partners, LP (the "Partnership"), the entity through which Alon operates its wholesale marketing and certain refining operations. Alon wholly owned the Partnership's general partner and owned 81.6% of the Partnership's limited partner interests. The remaining 18.4% of the Partnership's limited partner interests were publicly held. According to the Complaint, Delek and Alon also negotiated Delek's post-merger acquisition of the remaining 18.4% of the limited partner interests contemporaneously while negotiating the merger. Also according to the Complaint, Wiessman's son served on the board of the Partnership's general partner.

         D. The Merger

         On January 3, 2017, Alon and Delek announced their entry into the Agreement and Plan of Merger. The merger price represented a 6.6% premium to Alon's closing price on the day of the announcement. On May 30, 2017, Alon issued a Proxy Statement ("Proxy")[34] informing its stockholders of the proposed merger. At a special meeting of Alon stockholders, held on June 28, 2017, holders of approximately 89% of Alon's total outstanding shares voted in favor of the merger. According to Alon, stockholders unaffiliated with Delek owned 79% of the outstanding shares voted in favor of the merger.[35]

         E. Ensuing Stockholder Litigation

         Six months after Alon and Delek announced the proposed merger, and weeks before the stockholder vote, stockholders filed three lawsuits in two federal district courts alleging disclosure deficiencies in violation of Section 14(a) of the Securities Exchange Act of 1934.[36] The plaintiff in the first-filed federal case moved for injunctive relief. Shortly after, the Arkansas Teacher Retirement System ("Plaintiff") commenced this lawsuit.

         Alon opted to supplement the Proxy voluntarily. On June 16, 2017, Alon issued a supplemental disclosure describing all four lawsuits and attaching complete copies of the complaints as exhibits. Alon issued another supplemental disclosure five days later (the "June 21 8-K").[37] The plaintiffs in the federal actions voluntarily dismissed their claims.

         The merger closed on July 1, 2017.

         Plaintiff amended its complaint on May 8, 2018, and the defendants ("Defendants") moved to dismiss the complaint on July 9, 2018. Plaintiff again amended its complaint on September 18, 2018, and Defendants again moved to dismiss. The parties completed briefing on December 3, 2018, [38] and the Court heard oral argument on March 27, 2019.


         Plaintiff's Second Amended Verified Class Action Complaint ("Complaint") asserts five counts: Count I claims that all Defendants breached the Amended Stockholder Agreement.[39] Count II claims that Defendants' breaches of the Amended Stockholder Agreement vitiated the Board's waiver of Section 203; consequently, Delek, Alon, and Holdco, Inc. ("Holdco"), an entity formed for the purpose of the merger, were subject to the prohibitions set forth in 8 Del. C. § 203, which they violated.[40] Count III claims that Delek, Alon, and Holdco committed conversion by taking possession over the stockholder class's Alon shares through the merger.[41] Count IV claims that Delek, Holdco, and the Director Defendants breached their fiduciary duties to Plaintiff and the class by consummating the merger.[42] Count V claims that the Director Defendants breached their fiduciary duties to Plaintiff and the class by violating and failing to enforce the Amended Stockholder Agreement and Section 203 and by making materially false and incomplete disclosures in the Proxy and June 21 8-K.[43]

         Defendants moved to dismiss the Complaint pursuant to Court of Chancery Rule 12(b)(6). On a motion pursuant to Rule 12(b)(6), the Court accepts "all well-pleaded factual allegations in the Complaint as true, [and] accept[s] even vague allegations in the Complaint as 'well-pleaded' if they provide the defendant[s] notice of the claim[.]"[44] "A trial court is not, however, required to accept as true conclusory allegations 'without specific supporting factual allegations.'"[45] The Court "draw[s] all reasonable inferences in favor of the plaintiff, and den[ies] the motion unless the plaintiff could not recover under any reasonably conceivable set of circumstances susceptible of proof."[46]

         A. Breach of the Amended Stockholder Agreement

         Through Count I, Plaintiff claims that Defendants breached several provisions of the Amended Stockholder Agreement: the Standstill Provision (§ 1.01(a)), No Merger Provision (§ 1.05(h)), and No Material Transactions Provision (§ 2.02(a)).[47]"To state a claim for breach of contract, [Plaintiff] 'must demonstrate: first, the existence of the contract, whether express or implied; second, the breach of an obligation imposed by that contract; and third, the resultant damage to the plaintiff.'"[48]

         Defendants do not challenge the existence of the Amended Stockholder Agreement but contend that Plaintiff lacks standing to claim breach. They further argue that Plaintiff has failed to plead that Delek breached any provision of the Agreement. Finally, Defendants assert that Plaintiff has failed to plead damages adequately.

         1. Plaintiff has standing to sue for breach of the Amended Stockholder Agreement.

         Under Delaware law, only parties to a contract and intended third-party beneficiaries have standing to sue for breach of the contract.[49] Plaintiff is not a party to the Amended Stockholder Agreement but argues that it has standing as a third-party beneficiary.

         Plaintiff must demonstrate three elements to qualify as a third-party beneficiary of the Agreement:

(i) the contracting parties must have intended that the third party beneficiary benefit from the contract, (ii) the benefit must have been intended as a gift or in satisfaction of a pre-existing obligation to that person, and (iii) the intent to benefit the third party must be a material part of the parties' purpose in entering into the contract.[50]

         As their first line of defense, Defendants argue generally that stockholders are not intended beneficiaries of corporate contracts simply by virtue of their stake in the entity.[51] They observe that this Court has "previously bristled at the notion that a stockholder could have 'directly enforceable rights as third-party beneficiaries to corporate contracts.'"[52] They urge caution in conferring third-party beneficiary status to a stockholder. Like other corporate decisions, the decision of whether to enforce a corporate contract falls within the business judgment of the board of directors. If the board fails to exercise that judgment consistent with its fiduciary obligations, a stockholder's sole recourse should be to sue the directors for breach of fiduciary duties, Defendants say.[53]

         Delaware courts, however, have recognized stockholders receiving direct benefits from corporate contracts as third-party beneficiaries with standing to enforce those contracts.[54] For example, in Amirsaleh, this Court held that members of a target company were third-party beneficiaries of a merger agreement.[55] The merger agreement granted merger consideration directly to the members, with the substance of the consideration to be determined "at the election" of each member.[56]Based on this provision, the Court found that the merger agreement "manifest[ed] an unambiguous intent to benefit the [target's] Members" and that there was therefore "little legitimate question that the members . . . were intended beneficiaries . . . ."[57] The Court further held that the plaintiff member had standing to "enforce his right to elect the form of his consideration under the Merger Agreement"-a "right 'clearly provided by the Agreement.'"[58] The Court reached this conclusion although the merger agreement expressly disclaimed third-party beneficiaries.[59]

         Thus, a stockholder's equity stake neither automatically confers nor automatically disqualifies a stockholder from demonstrating third-party beneficiary status to a corporate contract. Plaintiff is eligible for third-party beneficiary status if Plaintiff demonstrates the three required elements, as the plaintiff did in Armisaleh.

         Turning to the first element, Plaintiff must to demonstrate that the Agreement confers an intended benefit to Plaintiff. As part of this analysis, Plaintiff must show that it received a direct as opposed to an incidental benefit from the Agreement. Third parties who "happen[] to benefit from the performance of the promise either coincidentally or indirectly"-i.e., incidental beneficiaries-"will be held to have no enforceable rights under the contract."[60] "[A] benefit need not be pecuniary to constitute a direct benefit."[61] To determine whether the Amended Stockholder Agreement confers a direct benefit to Plaintiff, the Court looks to the terms of the contract.[62]

         The terms of the Agreement adopt in modified form the protections of Section 203. As reflected in its recitals, the Agreement adopts the intent of the original stockholder agreement, which was entered into "in connection with and as a condition to Delek receiving approval for purposes of Section 203[.]"[63] And the terms of the Agreement mimic Section 203's anti-takeover protections by preventing Delek from entering into transactions with Alon.[64]

         Section 203 protections directly benefit stockholders of a Delaware corporation. Like all provisions of the Delaware General Corporation Law, Section 203 is part of a contract between Delaware corporations and their stockholders and thus provides enforceable benefits to those stockholders.[65] The current version of Section 203, in substantial part, was approved and became effective in 1988, in the wake of the United States Supreme Court upholding as constitutional, in CTS Corp. v. Dynamics Corp. of America, an Indiana act created for the "primary purpose" of "protect[ing] the shareholders of Indiana corporations" against hostile corporate takeovers.[66] Similar to the Indiana act, the stated purpose of Section 203 is to confer a benefit to stockholders by striking "a balance between the benefits of an unfettered market for corporate shares and the well documented and judicially recognized need to limit abusive takeover tactics" and to "encourage a full and fair offer."[67]

         In sum, the Agreement adopts the protections of Section 203, and the protections of Section 203 directly benefit stockholders. It follows that the Agreement provides direct benefits to stockholders. Further, Plaintiff was an Alon stockholder; thus, Plaintiff received direct benefits from the Agreement.

         It is reasonable to infer that direct benefits conferred to Plaintiff by the Agreement were intended. "To determine whether the parties intended to make an individual a third-party beneficiary, the Court must look to the terms of the contract and the surrounding circumstances."[68] Here, the terms and the surrounding circumstances of the Agreement reflect that the Agreement was entered into to replicate aspects of Section 203's protections. The benefits of those protections to Plaintiff, therefore, were not mere coincidence; they were clearly intended.

         Turning to the second element, it is reasonable to infer that the benefits conferred by the Agreement were intended to satisfy pre-existing legal obligations- those provided by Section 203-and are otherwise a gift.

         Turning to the third element, the anti-takeover protections in the Agreement are a material part of its purpose. The provisions at issue in this lawsuit appear in prominently in the first two sections of the Agreement. The recitals of the Agreement reflect as its purpose Alon's desire to impose conditions to Delek's future stock purchases. The contract generally reflects an intent to steer any Delek offer to the Alon Board to avoid a creeping takeover deleterious to stockholder value. Without the anti-takeover provisions, the Agreement would not achieve that purpose.

         Because Plaintiff has pled facts sufficient to support all three elements required to achieve third-party beneficiary status, Plaintiff has standing to sue for breach of the Agreement.

         2. The Complaint adequately alleges that Delek breached the Amended Stockholder Agreement.

         The Complaint claims that Delek breached the Standstill Provision, which states that Delek shall not "own, acquire, offer or propose to acquire, or agree or seek to acquire, or solicit the acquisition of" Alon stock during the Standstill Period.[69]

         Defendants contend that the acts proscribed by the Standstill Provision require "affirmative conduct by Delek."[70] They focus their argument on "offering or proposing to acquire," contending that "offer" means "to present for acceptance or rejection" and "propose" means "to put forward for consideration, discussion, or adoption; suggest."[71] Defendants further define "seek" as "to endeavor to obtain or reach" and "solicit" as "to seek or obtain by persuasion, entreaty, or formal application[;]"[72] Defendants contend that these verbs all require some affirmative action by Delek.[73]

         Even accepting Defendants' position and proffered definitions as accurate for the sake of argument, [74] the Complaint alleges facts sufficient to support a claim for breach of the Standstill Provision. The Complaint alleges that during the Standstill Period, Delek:

• Publicly announced its intent to acquire Alon;[75]
• Entered into a confidentiality agreement to permit the exchange of non-public information;[76]
• Met with Wiessman six times and over the course of several months to negotiate substantive terms of the merger prior to the expiration of the Standstill Period;[77] and
• Suggested several terms, including a stock-for-stock merger structure and "an exchange ratio reflecting a discount to current Alon market price."[78]

         These are all affirmative actions. And considering these allegations as a whole, it is reasonably conceivable that Delek was seeking to acquire Alon during the Standstill Period.

         The finding that Plaintiff has adequately alleged a breach of the Standstill Provision has a domino effect in this analysis, because the other provisions at issue parrot the verbiage and encompass the actions prohibited by the Standstill Provision.

         The No Merger Provision states that Delek shall not during the Standstill Period "offer . . . or seek to enter into, or otherwise be involved in or part of, any acquisition transaction, merger or other business combination relating to all or part of the Company . . . ."[79] The actions prohibited by the No Merger Provision encompass the actions prohibited by the Standstill Provision, as seeking to acquiring stock is an acquisition transaction "relating to" Alon.[80] Because Plaintiff has pled facts sufficient to support a claim for breach of the Standstill Provision, Plaintiff has adequately alleged a breach of the No Merger Provision.[81]

         The No Material Transactions Provision states that Delek shall not take or enter into "any action or transaction relating to this [Amended Stockholder] Agreement" during the Standstill Period "without prior Independent Director Approval or Unaffiliated Stockholder Approval."[82] It is undisputed that Alon never formed an Independent Director Committee, which is required under the Agreement to obtain Independent Director Approval.[83] It is also undisputed that Alon never obtained Unaffiliated Stockholder Approval. Thus, the Complaint states a claim that Delek breached the No Material Transactions Provision if it adequately alleges that Delek took actions for which approval is required.

         Like the No Merger Provision, the No Material Transactions Provision's prohibition on Delek taking "any action . . . relating to this Agreement" without approval must be read to prohibit Delek from taking actions prohibited by the Standstill Provision-an action plainly "relating to" the Agreement.[84] Thus, a violation of the Standstill Provision also violates the No Material Transactions Provision. Because the former is well pled, so too is the latter.[85]

         3. The Complaint adequately alleges damages.

         Delek argues that Count I must be dismissed, even if it is reasonably conceivable that Delek violated its contractual obligations, because the Complaint fails to adequately allege damages. The Court disagrees. At the pleadings stage, it is sufficient for the Complaint to aver damages resulting from the alleged contractual breaches generally.[86] And the Complaint has met this standard.

         As Defendants acknowledge, the Complaint alleges that Delek's breaches of the Amended Stockholder Agreement "resulted in Delek acquiring the shares of the Alon stockholders [in July 2017] on terms far less favorable to Alon stockholders than if the terms of the [Agreement] had been honored."[87] Even beyond this general allegation, the Complaint alleges facts supporting an inference that Delek's alleged breaches, including its public statements, depressed Alon's stock price, thereby manufacturing more favorable market conditions for Delek in the July 2017 merger.[88] These allegations are sufficient to plead damages resulting from Delek's alleged contractual breaches.

         4. The Complaint fails to state a claim for breach of the Amended Stockholder Agreement against the Director Defendants.

         Count I fails to state a claim as to the Director Defendants because they are not parties to the Agreement. "It is a general principle of contract law that only a party to a contract may be sued for breach of that contract."[89] Here, only Alon and Delek are parties to the Agreement.[90] The Director Defendants are not personally obligated to perform under the Agreement and, absent rare circumstances not pled here, cannot be held liable for breach of the Agreement.[91] Count I is dismissed as to the Director Defendants.[92]

         B. Violation of Section 203 and Conversion

         Count II asserts that Delek, Holdco, and Alon violated Section 203 by entering into the merger. Count III asserts that because Section 203 prohibited the merger, the merger was void ab initio and thus constituted an act of conversion.

         Plaintiff predicates Counts II and III on the notion that Section 203 applied to the merger despite the Board's Section 203 approval. As its primary argument for why Section 203 applies, Plaintiff contends that by violating the Amended Stockholder Agreement, Delek vitiated Alon's Section 203 approval, and thereby restored Section 203's protections. This creative argument takes many logical leaps, which might not ultimately land. At the pleadings stage, however, the ...

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