Ex-Citi exec, SPAC directors must face trial over MultiPlan deal

REUTERS/Andrew Kelly
  • Lawsuit followed MultiPlan's $11 bln SPAC merger in October 2020
  • Chancery Court judge largely denies motions to dismiss class action
  • Judge says ruling is early application of Delaware law to SPACs

(Reuters) - Former Citigroup executive Michael Klein and his blank check firm's former directors must face a shareholder lawsuit challenging its $11 billion merger with health care-focused data analytics company MultiPlan, a Delaware judge said.

On Monday, Vice Chancellor Lori Will of the Delaware Chancery Court declined to drop claims accusing Klein and the special purpose acquisition company's other board members of illegally preventing shareholders from selling their shares back to the SPAC before the October 2020 merger.

Will said in her opinion Delaware courts have not had the opportunity before to "consider the application of our law in the SPAC context."

Mark Lebovitch of Bernstein Litowitz Berger & Grossmann, the shareholders' lead counsel, said Will's analysis "provides invaluable guidance for future SPAC boards to review and approve deals that serve the interests of the outside shareholders, and not just the sponsors."

A representative for Klein's SPAC said in a statement that the complaint's allegations were untrue and that its public disclosures about the deal were "accurate in all respects."

Attorneys representing the directors and MultiPlan did not immediately respond to requests for comment.

SPACs raise money through initial public offerings to merge with privately held companies and take them public.

A shareholder in the SPAC who sued over its merger with MultiPlan alleged that the deal's structure was “conflict-laden and practically invites fiduciary misconduct” because after the deal’s completion, the SPAC’s directors earn a stake in the combined company.

In motions to dismiss the suit, the Churchill board and MultiPlan denied that the deal was conflicted. They also argued that the original complaint brings derivative claims, those that should be brought by the company's board, not shareholders. They said shareholders should have asked the board to probe the merger.

The case is In Re Multiplan Corp Stockholders Litigation, Delaware Court of Chancery, No. 2021-0300.

For the shareholders: Mark Lebovitch and Gregory Varallo of Bernstein Litowitz Berger & Grossmann;

For MultiPlan: Jonathan Youngwood and Stephen Blake of Simpson Thacher & Bartlett;

For Churchill executives and directors: John Neuwirth, Joshua Amsel and Evert Christensen of Weil, Gotshal & Manges

(NOTE: This story has been updated with a comment from a representative for Klein's SPAC.)

Read more:

Four Delaware M&A litigation issues lawyers are watching in 2022

MultiPlan merges with Churchill Capital to go public in $11 billion deal

MultiPlan shareholder alleges SPAC deal tainted by fraud

MultiPlan shareholders counter 'desperate' attempts to dismiss suit

Our Standards: The Thomson Reuters Trust Principles.

Thomson Reuters

Sierra Jackson reports on legal matters in major mergers and acquisitions, including deal work, litigation and regulatory changes.