Latham Scores Complete Victory for Inovalon in Investor Suit Over US$7.3 Billion Sale to Nordic Capital
On July 31, 2023, a Latham team representing the former special committee of Inovalon Holdings, Inc. (Inovalon) secured a complete dismissal of a stockholder class action challenging the fairness of Inovalon’s US$7.3 billion sale to an equity consortium led by Nordic Capital in 2021.
In August of 2022, a group of purported Inovalon stockholders filed a class action complaint alleging that Inovalon’s directors – including its CEO and majority stockholder – breached their fiduciary duties in approving the transaction. Led by Latham, the special committee defendants moved to dismiss the complaint on the ground that the transaction complied with the guardrails set out by the Delaware Supreme Court in Kahn v. M&F Worldwide Corp. (MFW) and should be reviewed under the business judgment standard. The other defendants also moved to dismiss the complaint, and joined the special committee’s arguments.
Partner Kristin Murphy argued on behalf of the special committee on April 5, 2023 in a hearing before Chancellor Kathaleen St. Jude McCormick. In her July 31, 2023 oral opinion, Chancellor McCormick agreed with the special committee’s arguments, held that the transaction dutifully complied with MFW, and dismissed the entirety of the complaint.
In an important decision, particularly in the context of the complicated jurisprudence under MFW, the court rejected the plaintiffs’ argument that MFW’s protections were not put in place early enough in the process — holding specifically that the special committee was formed and empowered before any conflict arose.
The court also held the special committee acted with due care by, among other things, hiring strong advisors in full knowledge of those advisors’ prior relationships with potentially interested parties and by hiring multiple advisors to mitigate the risk of any conflicts. Finally, the court held that the stockholder vote was fully informed, finding that the additional information plaintiffs claimed should have been disclosed was either already adequately disclosed or immaterial. Plaintiffs did not claim that the special committee lacked independence or the power to reject the transaction, nor did they allege that the minority stockholders were coerced into approving the deal.
The team was led by partners Blair Connelly and Kristin Murphy and associate Ryan Walsh, and also included associates Wesley Horton, Adriana Erquiaga, and Helen Kirkby.