Reed Smith Client Alerts

Key takeaways

  • On May 1, 2024, the Supreme Court of Delaware issued an opinion in City of Sarasota Firefighters’ Pension Fund v. Inovalon Holdings, Inc., 2024 Del. LEXIS 151 which reversed and remanded the Delaware Court of Chancery’s dismissal of a complaint challenging the acquisition of Inovalon Holding, Inc. (the “Company”) by a private equity consortium (the “Transaction”). Among other claims, the original complaint alleged that the proxy statement filed by the Company (the “Proxy”) omitted material information regarding the financial advisors’ conflicts of interest.
  • The Supreme Court of Delaware (the “Court”) held that the Delaware Court of Chancery (the “Court of Chancery”) erred in holding that the vote of the minority stockholders (the “Minority Stockholders” or the “Plaintiffs”) was adequately informed, due to the inadequate disclosure of conflicts of interest of financial advisors to the special committee of the Company’s board. This opinion is significant because it demonstrates the importance of accurate and precise disclosure of a financial advisor’s conflicts in the context of obtaining the protection of the business judgment rule.


The Plaintiffs alleged that the Transaction was unfair to them, in part because the controlling shareholder would be “rolling” a portion of his equity holdings and would not be entirely cashed out of his interest in the Company. The complaint asserted that the Company’s board of directors, breached their fiduciary duties and violated the Company’s charter.

The Court of Chancery granted the Company’s motions to dismiss, finding that the Transaction complied with the framework established by Kahn v. M & F Worldwide Corp.,88 A.3d 635 (Del. 2014) (“MFW”). MFW provides in part that the business judgment standard of review governs squeeze-out mergers between a controlling stockholder and its subsidiary only where the merger is conditioned ab initio upon both the approval of an independent, adequately-empowered special committee that fulfills its duty of care; and the uncoerced, informed vote of a majority of minority stockholders.