In re MultiPlan Corp. Stockholders Litigation

Churchill Capital Corporation III was a special-purpose acquisition company (SPAC) formed to find and merge with another company. During Churchill’s initial public offering (IPO), Churchill’s initial public stockholders purchased shares for $10 per share. After the IPO, the leader of Churchill’s sponsor, Michael Klein (defendant) received founder shares for a nominal price, and Churchill’s directors (defendants), who were selected by Klein, received interests in the sponsor. If Churchill entered a merger, the founder shares would convert into common shares. But if Churchill failed to execute a merger, it would liquidate, the founder shares would be worthless, and the public stockholders would receive their original investment plus interest. Klein and the directors chose to merge with MultiPlan, Incorporated and issued a proxy statement to the public stockholders for approval. The statement informed the stockholders that they could redeem their shares for their original price, but it failed to state that MultiPlan would soon face stronger competition from its main competitor. The stockholders approved the merger, but after the deal closed, the value of their shares fell well below $10. However, the founder shares converted to common shares, generating large gains for Klein. A group of shareholders (plaintiffs) sued Klein and Churchill’s directors, claiming that they breached their fiduciary duties by failing to disclose material information when seeking approval for the merger. The shareholders asserted that because Klein was interested in the transaction, the entire-fairness standard was applicable for the court’s review. However, Klein and the directors moved to dismiss, arguing that their economic interests were not in conflict with the shareholders and thus that the business-judgment rule was the appropriate standard.