U.S. M&A Newsletter — June 23, 2025

It has become typical in recent years for stockholders challenging an M&A transaction as a breach of the selling directors’ fiduciary duties to also sue the acquiror under an aiding and abetting theory. The Delaware Supreme Court has made this more difficult recently and on June 17, 2025, the Delaware Supreme Court (the “Court”) reversed the Delaware Court of Chancery’s June 2023 aiding and abetting verdict against TC Energy Inc. (“TC Energy”), formerly known as TransCanada Corp., with respect to its acquisition of Columbia Pipeline Group Inc. (“Columbia”). See In re Columbia Pipeline Grp., Inc. Merger Litig., No. 281, 2024, 2025 WL 1693491 (Del. June 17, 2025). Relying on its December 2024 decision in In re Mindbody, Inc. Stockholder Lit., 332 A.2d 349 (Del. 2024), which was decided after the Court of Chancery’s 2023 decision, the Court found that “for an acquiror to be held liable for aiding and abetting a sell-side breach of fiduciary duty, the acquiror must have actual knowledge of both the target’s breach and the wrongfulness of its own conduct” (emphasis added). The Court noted that the Court of Chancery had applied a since-overturned standard of constructive knowledge to the facts of the case and therefore the Court did not find that TC Energy had the requisite level of actual knowledge to attach aiding and abetting culpability. For this reason, the Court overturned the Chancery Court’s decision and in doing so erased the $199.2 million judgment against TC Energy. 

Background

TC Energy initially offered to acquire Columbia for $26 per share following negotiations between TC Energy and several of Columbia’s officers who stood to receive significant change-in-control payments as a result of the contemplated transaction. After news of the companies’ negotiations leaked, Columbia’s CFO informed TC Energy that the board of Columbia favored a quick sale to avoid a negative market reaction. TC Energy lowered its offer to $25.50 and reportedly warned that it would announce that the deal was off if Columbia did not accept promptly, which would be in violation of the parties’ standstill agreement. Columbia accepted the revised price and the parties signed the merger agreement in March 2016.

In September 2017, certain Columbia stockholders challenged the fairness of the price in an appraisal action, but the Chancery Court in 2019 upheld the $25.50 valuation while concluding that Columbia’s proxy statement (the “Proxy”) contained material misstatements and omissions regarding the deal process. Separately, a group of stockholders sued Columbia’s CEO, CFO and former board directors, alleging that they had breached their fiduciary duties of loyalty, care and disclosure in connection with the deal process and the Proxy and that TC Energy aided and abetted such breaches. The Columbia executives settled for $79 million before the Chancery Court’s 2023 judgment, which found that TC Energy, in part through leveraging the media leak of the potential transaction, threatening disclosure in violation of its standstill agreement and failing to correct or disclose material information in the Proxy, had constructive knowledge of the board’s and executives’ misconduct and had aided and abetted their breaches. The Court of Chancery awarded $199.2 million in damages against TC Energy as a result.

June 2025 Delaware Supreme Court Decision

The Court determined that TC Energy was not liable for aiding and abetting the Columbia fiduciaries’ breaches because it lacked actual knowledge of their misconduct and therefore could not have knowingly participated in the breaches. In issuing the ruling in favor of TC Energy, the Court reaffirmed how Delaware courts assess whether a third party knowingly participated in a breach of a fiduciary’s duty to stockholders. 

When evaluating a claim of a third party’s aiding and abetting a fiduciary’s breach, Delaware courts assess among other factors whether the third party “knowingly participated” in the alleged fiduciary breach. The Court stated that it had clarified in Mindbody last December that this determination is a mixed question of law and fact and has two elements: (i) whether the acquiror had actual knowledge of the sell-side fiduciary breach; and (i) whether the acquiror had actual knowledge that its own conduct was improper. The Court noted that this tort is among the most difficult to prove, particularly where it is asserted against an arm’s length buyer in an M&A transaction.

As the Court noted, the Court of Chancery correctly bifurcated its analysis of the “knowing participation” factor by first addressing the third party’s knowledge—namely “whether [TC Energy] knew that the sell-side fiduciaries were breaching their duties and was correspondingly aware that its own conduct was wrongful.” Then the court focused on the third party’s participation, asking “whether [TC Energy] culpably participated in the breach.” 

The Court pointed out that the Chancery Court found that TC Energy only constructively knew that the sell-side fiduciaries were breaching their duties. In the intervening period between the Chancery Court’s decision and the Supreme Court’s decision, the Court had decided Mindbody, which made clear that the requisite culpability is limited to cases of actual knowledge. The Court concluded that the facts here did not support a finding of actual knowledge.

The Court also disagreed with the Chancery Court’s finding that TC Energy had culpably participated in the breach with a bargaining tactic, i.e., the Chancery Court found that the company had crossed the line “by reneging on the $26 deal, making the $25.50 offer, and backing it up with a coercive threat that violated the NDA.” However, the Supreme Court noted that TC Energy’s alleged “threat” to disclose the offer if it fell through was “merely another example of hard bargaining protected by our long-standing rule that arm’s length bargaining is privileged,” which did not rise to actual knowledge that its own conduct was wrongful. 

In following the same reasoning above in reviewing whether TC Energy “knowingly participated” in the sell-side fiduciaries’ breaches of its disclosure duty in the Proxy, the Court declined to find TC Energy liable when TC Energy did not take affirmative action to assist the sell-side disclosure breaches and Columbia knew everything TC Energy knew, despite TC Energy having an affirmative contractual obligation to provide all material information necessary to be included in the Proxy and to notify Columbia of any factual deficiencies in the Proxy.

Conclusion

The Court’s decision in Columbia Pipeline emphasizes the need to prove actual knowledge for third-party liability in aiding and abetting breaches of fiduciary duty. Further, this case stands as a reminder of the distinction between permissible hard-bargaining tactics by a third-party arm’s length acquiror and culpable participation as an actor in fiduciary misconduct. This decision, together with the Court’s previous decision in Mindbody, should provide acquirors with comfort that they have less to fear in stockholder transaction challenges on an aiding and abetting theory as long as they are not actively participating in a primary actor’s fiduciary duty breach.

In Other News

Read past issues of our U.S. M&A Newsletter here. We thought you might also find the following articles featuring our Linklaters colleagues useful.

• Linklaters: FCPA Pause Ends with U.S. DOJ’s New “America First” Enforcement Strategy
• Linklaters: SEC Exploring Changes to Foreign Private Issuer Definition
   

We would like to thank Ty Cadogan for his valuable assistance in preparing this client alert.