Delaware Supreme Court Affirms Dismissal of Books and Records Lawsuit Against Tech Company, Requiring Strict Compliance With Procedural Requirements

Delaware Supreme Court Affirms Dismissal of Books and Records Lawsuit Against Tech Company, Requiring Strict Compliance With Procedural Requirements

On November 24, 2025, the Delaware Supreme Court affirmed dismissal of a books and records action, holding that stockholders failed to comply with the procedural “form and manner” requirements of Section 220 of the Delaware General Corporation Law.

The case arose from books and records demands made by stockholders of FloSports Inc., a privately held Delaware corporation that streams live sporting events. Stockholders made three Section 220 demands after the company stopped holding annual meetings and sharing financial information. FloSports produced some documents in response to the first demand but rejected the second and third demands in their entirety on procedural grounds. The court held that FloSports properly rejected the second and third demands because they were not made in the form and manner that Section 220 requires.

The second demand ran afoul of Section 220’s requirement that books and records demands be made “under oath.” FloSports’ stockholders tried to satisfy this requirement by submitting affidavits attesting to the truthfulness of the second demand. The problem was that the affidavits were signed and dated two weeks before the demand letter was signed. This created a factual question about whether the affidavits “verified the final version of the demand” or an earlier draft that was substantially different. The stockholders failed to introduce evidence showing that the draft they reviewed when they signed their affidavit was substantially the same as the final version.

The third demand also failed because the stockholders rushed to court to enforce it too quickly. Section 220 affords the corporation five business days to respond to a stockholder demand, and this deadline is strictly enforced if the stockholder files suit prematurely. Here, while a Section 220 action concerning the prior demands was already pending, FloSports’ stockholders served the third demand. On the same day, they sought leave to file an amended complaint enforcing the third demand. The court held that this was improper and put FloSports in the position of having to adopt “a litigation position before it had an opportunity to consider the new demand.”

This decision reinforces the importance of strict compliance with the form and manner requirements of Section 220. When these requirements are not followed, they can offer a powerful defense to Delaware corporations faced with Section 220 demands.

Southern District of New York Dismisses Section 13(e) Disclosure Claims Challenging Going-Private Transaction Between Two Life Sciences Companies

On October 27, 2025, the U.S. District Court for the Southern District of New York dismissed securities claims challenging a going-private merger between Taro Pharmaceutical Industries Ltd. and its majority shareholder, Sun Pharmaceutical Industries Ltd. The claims were brought under Section 13(e) of the Securities Exchange Act of 1934 (the Exchange Act) and Rule 13e-3 promulgated thereunder, which require enhanced disclosure for going-private transactions.

Before the merger, Sun controlled 85.7% of the voting power of Taro’s stock. In January 2024, Sun announced it was acquiring the remaining Taro stock for $43 per share, which represented a 48% premium over the prior day’s closing price. The merger had been approved by a special committee of Taro’s board of directors and was conditioned on approval by a majority of the minority stockholders. Taro mailed a proxy statement to stockholders, who voted to approve it. After the transaction closed, a former Taro stockholder filed a class action alleging that the proxy statement contained material misstatements and omissions. Noting that it remains unclear whether Section 13(e) affords stockholders a private right of action at all, the court held that even if such a right existed, the claim failed because the proxy was not materially misleading as a whole.

First, the plaintiff claimed the proxy failed to specify whether the financial adviser to Taro’s special committee “recommended” the merger consideration. The court rejected this argument because the proxy explicitly said that the deal price “was determined through negotiations between the Special Committee and Sun” and was not set by the financial adviser. While the plaintiff theorized that the adviser provided a “target” price that the special committee adopted, the court rejected this as speculative and lacking in the factual support required to plead misleading statements under the Private Securities Litigation Reform Act of 1995.

Second, the plaintiff alleged that the proxy statement provided a misleading explanation of the adviser’s financial analyses. The court agreed that, when viewed in isolation, the proxy’s description of one financial analysis could be misleading. But other passages in the proxy provided additional information that corrected any misleading impression. Moreover, as is typical in going-private deals governed by Section 13(e), the proxy attached the financial adviser’s final presentation to the board, which described the adviser’s financial analyses in further detail, as an exhibit. Given all these surrounding disclosures, it was “inconceivable” that any stockholder was misled.

Third, the plaintiff argued that the proxy failed to disclose that, in another pending securities lawsuit, Taro had received a settlement offer of $36 million. This allegedly rendered the proxy misleadingly incomplete because Taro had disclosed a loss contingency amount of $141 million in related antitrust litigation. But as the court observed, the securities litigation was distinct from the antitrust litigation. And the securities class action settlement became public more than a month before the stockholders voted, so stockholders could hardly claim to have been misled about the settlement.

Finally, the plaintiff claimed that the proxy misled investors by disclosing Glass Lewis’ and Institutional Shareholder Services’ recommendations in favor of the merger but not their full reports. The plaintiff relied on SEC rules requiring, in going-private transactions, detailed disclosure concerning reports and opinions that are received from outside advisers. The court reasoned that these rules apply to advisers engaged by the issuer (such as financial advisers) and not independent proxy advisers with no relationship to the company.

This decision reinforces that, in M&A lawsuits, courts will review proxy disclosures in their entireties and consider the total mix of information made available to investors. Companies should work with counsel to ensure that proxy disclosures comply with all applicable rules and provide investors with the information they need to fairly evaluate the transactions.

Northern District of California Dismisses Claims Under the Securities Act of 1933 Against a Biopharmaceutical Company Over Clinical Trial Risk Disclosures

The U.S. District Court for the Northern District of California recently dismissed a putative class action complaint alleging violations of Sections 11 and 15 of the Securities Act of 1933 (the Securities Act) brought by a stockholder against BioAge Labs, Inc., a clinical-stage biopharmaceutical company, and certain of its officers. The complaint alleged that, in connection with the company’s IPO, BioAge misled investors by omitting information about the safety of its lead drug candidate and the risks to its ongoing Phase 2 clinical trial. These risks came to pass when the company unexpectedly terminated the Phase 2 trial.

Azelaprag was BioAge’s lead drug candidate at the time of its IPO. The offering documents reported positive results from preclinical testing in mice and Phase 1 clinical trials, in which the azelaprag was “well-tolerated” with no “serious adverse events.” BioAge announced the start of the Phase 2 trial two months before the IPO. The offering documents discussed the risks to the development of azelaprag, including that BioAge’s business could be harmed if unexpected or serious adverse events occurred in the company’s clinical trials. Nine weeks after the IPO, BioAge announced that it was discontinuing the Phase 2 trial because 11 dosed patients showed signs of “transaminitis,” meaning elevated levels of liver enzymes that are often indicative of liver injury. The plaintiff sued, alleging that BioAge’s offering documents were misleading because they failed to disclose that transaminitis was “typical, expected, [and had] already materialized” in a 2018 Phase 1 trial conducted by the drug’s initial developer, making it “virtually certain” to disrupt the Phase 2 trial.

The court dismissed the complaint with leave to amend, reasoning that the offering documents did not create a misleading impression about the risk of transaminitis. The offering documents disclosed the risks of potential safety issues without discussing transaminitis specifically. BioAge did not have a legal duty to discuss every potential safety issue that might emerge, and its risk disclosure did not create a misleading impression that there was no risk related to transaminitis. On top of that, the plaintiff’s factual theory — that transaminitis was “inevitable” in the Phase 2 trials — lacked support. In the 2018 Phase 1 trial, only one participant out of 265 experienced an increase in liver enzyme levels, and in that one case, the issue resolved without treatment. Nor was there supporting evidence from the preclinical mice studies.

The court also rejected the plaintiff’s assertion that transaminitis had already materialized in the Phase 2 trial by the time of the IPO, such that it was misleading to disclose safety issues as a “risk” (as opposed to something that had already occurred). This theory was “entirely conclusory”: the plaintiff speculated that, because only nine weeks elapsed between the IPO and the termination, transaminitis must have been observed before the IPO occurred.

This case is a reminder that biopharmaceutical companies need not explicitly disclose every potential safety risk that could emerge in clinical trials, so long as they disclose key risks and do not downplay the existence of other risks. Biopharmaceutical companies should work with their counsel to craft appropriate risk disclosures.

Southern District of New York Dismisses Securities Fraud Claims Against Adobe, Finding Statements Concerning TAM Not Misleading

On November 7, 2025, the U.S. District Court for the Southern District of New York denied a request by Adobe Inc. stockholders to amend a previously dismissed proposed investor class action complaint alleging that corporate officers committed securities fraud in violation of Section 10(b) of the Exchange Act. In a final attempt to save their claims, the plaintiffs tried to add new allegations regarding purportedly false and misleading statements concerning Adobe’s total addressable market (TAM). The court found that the challenged statements would not have misled a reasonable investor and that the plaintiffs failed to allege scienter.

The plaintiffs’ case focused on Adobe XD, a user-interface, user-experience (UI/UX) design tool that allows users to collaboratively engage in digital product design. During the 2021–2022 period, Adobe XD had only approximately 5% of the UI/UX market, whereas a key competitor (i.e., Figma, Inc.) had approximately 50% market share. The plaintiffs alleged that, during this time, Adobe misleadingly promoted Adobe XD as a viable product with a large TAM, improperly downplaying the threat posed by Figma. According to the plaintiffs, Adobe had secretly deprioritized Adobe XD and planned to buy the competitor instead. The “truth” allegedly came to light in September 2022, when Adobe announced its plan to acquire Figma. Adobe’s stock price dropped nearly 17%, and the acquisition was later abandoned amid regulatory scrutiny.

The court dismissed the case with prejudice, finding that the plaintiffs had not alleged misleading statements or scienter. Adobe had not hidden the alleged competitive threat, but identified Figma as a competitor. Moreover, Adobe XD represented less than 1% of Adobe’s total revenue, so it was hard to see how Adobe had suffered any material competitive harm. Adobe also had not misled investors about its M&A strategy, telling investors it might pursue acquisitions from time to time. The plaintiffs’ latest allegations focused on TAM, alleging that Adobe executives improperly inflated TAM based on assumptions that Adobe would calculate the entire UI/UX market. As an initial matter, it was not clear that the challenged statements even included the UI/UX market. Moreover, and fundamentally, TAM is, by definition, the total potential revenue that could be generated in a year if a company were able to capture 100% of the relevant market. Investors would understand that TAM referred to the overall market size and was not a representation that Adobe would successfully compete in each market in which it operates.

The decision is a reminder that reasonable investors should understand that statements about TAM represent potential opportunities for expansion, not guarantees of competitive success. Public companies should ensure, however, that they adequately disclose competitive threats and warn investors of the related risks to their businesses.

Southern District of New York Denies in Part Motion to Dismiss Claims Against Biopharmaceutical Company Based on Contingent Value Rights 

The U.S. District Court for the Southern District of New York largely denied Bristol-Myers Squibb’s (BMS) motion to dismiss claims by a trustee for holders of contingent value rights (CVRs) issued in connection with its 2019 acquisition of biopharmaceutical company Celgene. In the complaint, the trustee asserts various claims under the agreement that governed the CVRs. BMS moved to dismiss based on a challenge to the trustee’s standing to sue on behalf of the holders as well as for failure to state a claim.

A CVR is a type of security that requires the issuer to make payments contingent on future events. This case concerns CVRs that BMS issued to Celgene stockholders in the 2019 acquisition as part of the purchase price. The agreement governing the CVRs was a trust indenture, with a trustee appointed to act on behalf of the CVR holders. Under the agreement, BMS had to pay former Celgene shareholders approximately $6.7 billion if FDA approved three specific drugs by specified milestone dates. Missing a milestone for just one of the drugs by even one day automatically terminated the CVRs; however, BMS was obligated to use “Diligent Efforts” to achieve the milestones. When one of the milestones was not met on December 31, 2020, BMS acted promptly to terminate the CVRs and have them delisted from the New York Stock Exchange, rendering them worthless. The trustee’s theory was that BMS delayed FDA approval and then delisted the CVRs with the purpose of impairing CVR holders’ ability to enforce their rights.

The court’s decision focused largely on BMS’s threshold challenge to the trustee’s standing to assert claims on behalf of the holders. The court previously dismissed claims brought by the trustee without prejudice after concluding that it was “not validly appointed”; while the change in trustee had been approved by a majority of the beneficial holders of the CVRs, they had not taken the additional step of obtaining proxies from the registered holder (Cede & Co.) as the CVR agreement required. To resolve this defect, the trustee obtained proxies retroactively authorizing its appointment.

The court rejected BMS’s renewed challenge to the trustee’s standing. Some of BMS’s issues were factual, challenging whether the trustee had actually received a sufficient number of votes. The court found that these factual issues could not be resolved on a motion to dismiss. BMS also argued that the CVR agreement’s trustee-replacement provisions did not survive its termination, meaning the trustee could not have been validly replaced after the first milestone failed. The court agreed with BMS that the trustee-replacement provision was not expressly listed in the CVR agreement’s survival clause. However, the court found, this provision survived by implication because the agreement’s enforcement provisions — which expressly survive termination — presuppose the existence of a functioning trustee. Interpreting the agreement otherwise could leave CVR holders without any mechanism to enforce their rights. That would conflict not just with the enforcement provisions of the agreement but also with the Trust Indenture Act, which requires a qualified trustee to exist at all times.

Turning to the merits, while the court dismissed two of the five claims, it allowed the rest to proceed. These include claims that BMS failed to exercise “Diligent Efforts” to achieve the milestones and improperly delisted the CVRs to thwart CVR holders’ ability to enforce their rights. Thus, the case will proceed for now.

The decision demonstrates that, while courts will hold trustees to technical requirements in agreements governing CVRs, they may often be reluctant to deny CVR holders their day in court when they seek to enforce their rights.

Middle District of Florida Grants Partial Summary Judgment for Cryptocurrency Owners in Case Under The Securities Act

The U.S. District Court for the Middle District of Florida denied defendants’ motion for summary judgment and granted partial summary judgment for class plaintiffs in a lawsuit bringing claims under Section 12(a)(1) of the Securities Act for allegedly unlawful offers and sales of unregistered securities. The case arises from the creation, marketing, and sale of “LGBCoin,” a cryptocurrency promoted in connection with the “Let’s Go Brandon” political movement.

Capitalizing on a political slogan and internet meme stemming from a 2021 interview of NASCAR driver Brandon Brown, an individual created and promoted a cryptocurrency based on the meme, and also created a related business entity. LGBCoin lost significant value after a sponsorship agreement with NASCAR and Brown fell through. Three LGBCoin owners brought a class action under the Securities Act, alleging that LGBCoin was a security that should have been registered with the SEC. After discovery, both sides moved for summary judgment.

On a key issue — whether LGBCoin is a “security” for purposes of the Securities Act — the court ruled for the plaintiffs on some issues but found that a trial was needed. Notably, the court gave “no legal force or effect” to a recent statement by the SEC suggesting that “meme coins” are not securities. Instead, the court analyzed this issue under the “Howey test,” so named for the U.S. Supreme Court’s decision in SEC v. W.J. Howey Co., 328 U.S. 293 (1946). The court ruled for plaintiffs on two of Howey’s three prongs, concluding those two prongs were met because (1) “LGBCoin constitutes an investment of money” and (2) there was a “common enterprise” because the defendants retained substantial control over the LGBCoin ecosystem, including ownership of a significant portion of the tokens, authority over promotional agreements, and control of the foundation’s treasury, thus weaving the plaintiffs’ fortunes with the defendants’ and making them dependent on the overall success of the LGBCoin venture.

However, the court did not definitively rule whether LGBCoin was a security because of factual issues related to the third prong: whether LGBCoin owners had a reasonable “expectation of profits derived solely from the efforts of others.” While plaintiffs viewed LGBCoin as an investment, the court noted evidence that defendants repeatedly characterized LGBCoin as a “digital collectible” with “no intrinsic value,” disclaimed any expectation of resale profits, and marketed the coin for political advocacy and expressive purposes. The plaintiffs also acknowledged their own non-investment motivations for purchasing LGBCoin, such as political expression and charitable support.

The court also rejected the defendants’ arguments that the plaintiffs lacked standing to bring their claims. Their arguments focused on the fact that plaintiffs had not bought their LGBCoin directly from defendants but on the open market. The court emphasized that Section 12(a)(1) permits claims based on unlawful initial offerings as well as subsequent sales and the plaintiffs presented sufficient evidence that the defendants’ promotional and managerial activities, including the NASCAR sponsorship agreement and organization of a nonprofit (LGBCoin Foundation), created and influenced the market for LGBCoin, leading to the plaintiffs’ alleged losses.

The decision underscores that cryptocurrency promoters may continue to face lawsuits even as the regulatory landscape for cryptocurrency changes. While the SEC’s Chair noted in a recent speech that “I believe that most crypto tokens trading today are not themselves securities,” this decision shows that courts may not defer to such statements.

Eleventh Circuit Reverses Dismissal of Securities Fraud Claims Against an Energy Company Based on Underlying Alleged Bribery Scheme

The U.S. Court of Appeals for the Eleventh Circuit recently reversed the dismissal of a putative securities fraud class action against NextEra Energy, Inc., Florida Power & Light Company (FPL), and related individuals, alleging violations of Section 10(b) of the Exchange Act. The U.S. District Court for the Southern District of Florida initially granted the defendants’ motion to dismiss for failure to plead loss causation, but on appeal, the Eleventh Circuit reversed.

The complaint alleges that NextEra and its wholly owned subsidiary, FPL, orchestrated an election-interference scheme that involved covert funding to influence local officials and campaigns, the bribery of a Florida political candidate, an attempt to bribe a city councilmember, and surveillance of critical journalists. After a December 2021 news article reported on these allegations, NextEra’s chief communications officer publicly denied any wrongdoing, a position echoed by NextEra’s CEO and FPL’s CEO in early 2022. The plaintiffs allege these statements were false and misleading because, contrary to those denials, NextEra executives had received an internal memorandum detailing FPL’s involvement in the alleged misconduct.

In January 2023, NextEra disclosed that FPL’s CEO was retiring with a severance package that included a fraud-related clawback provision and made new comprehensive risk disclosures warning of potential “material fines” and a potential “material adverse impact on the reputation” of NextEra and FPL related to the election misconduct allegations. Following these disclosures, NextEra’s stock dropped 8.7%, which represented “more than $14 billion in market capitalization.” The district court initially dismissed the complaint, finding that the plaintiff had failed to allege loss causation because the disclosures in January 2023 did not actually disclose the “truth” that was supposedly misrepresented in 2021 and 2022.

On appeal, the Eleventh Circuit reversed and held that the allegations “plausibly imply enough truth was illuminated to cause investors to seriously question [the defendants’] earlier misstatements.” The Eleventh Circuit focused on the combination of disclosures made in January 2023: the issuance of warnings that NextEra might face liability in the bribery scheme, which was a change from the prior statement that there was “no basis” for the allegations; the FPL CEO’s retirement; and the unusual clawback provision in the CEO’s severance agreement. It was plausible that investors inferred from this combination of disclosures that the company’s prior denials of the bribery allegations were false. This conclusion found further support, the Eleventh Circuit reasoned, in equity analyst reports that drew connections between the CEO’s departure and the bribery allegations.

This decision underscores the ongoing risk of securities fraud lawsuits when public companies are charged with underlying claims of conduct. Public companies should work with their disclosure counsel to develop strategies to address this risk.

Second Circuit Affirms Dismissal of Securities Fraud Claims Against Barclays Based on Collateral Consequences of an SEC Settlement

The U.S. Court of Appeals for the Second Circuit affirmed the U.S. District Court for the Southern District of New York’s dismissal with prejudice of a putative securities class action against Barclays and several of its executives under Section 10(b) of the Exchange Act. Barclays issues exchange-traded notes (ETNs), including one trading under the symbol VXX. VXX ETNs are Barclays-issued debt securities that aim to track the VIX, an index that measures the volatility of the S&P 500. The Second Circuit concluded that the plaintiff, a short seller of VXX ETNs, failed to adequately plead scienter for his fraud claims.

The plaintiff’s claims flowed from the collateral consequences of a 2017 SEC settlement by Barclays. As a result of the settlement, Barclays lost its eligibility as a well-known seasoned issuer (WKSI) under Securities Act Rule 405. Losing WKSI status reduced Barclays’ flexibility to issue securities; it could no longer file a shelf registration statement permitting multiple securities offerings over an extended period and instead had to register specific amounts of securities and pay the filing fees in advance. This change required more careful tracking of how many securities Barclays had issued to avoid exceeding the number that had been registered.

In March 2022, Barclays disclosed that internal control weaknesses had led it to issue more VXX ETN securities than it had registered, prompting it to suspend further issuances of VXX ETN. This drove prices up to over 140% of VXX ETNs’ indicative value, causing short sellers like the plaintiff to lose significant value. The plaintiff alleged that Barclays and its executives made false or misleading statements touting the company’s robust internal controls while failing to disclose the inadequate controls around securities registrations following its loss of WKSI status.

The Second Circuit affirmed the district court’s dismissal based on a lack of scienter, concluding the plaintiff failed to adequately allege that Barclays’ executives knew about control deficiencies related to its loss of WKSI status. Executives had delegated issues surrounding the loss of WKSI status, including the need to track securities issuances, to a designated working group. “In hindsight,” the Second Circuit observed, “the working group did not track the securities issued by Barclays.” But there was no well-pleaded allegation that the executives were aware at the time that the working group had not adequately addressed these issues.

This case reinforces the strict pleading standard for scienter in securities fraud lawsuits. Plaintiffs must allege knowing or reckless fraud, not honest mistakes. Where the more logical conclusion is that executives simply failed to spot a problem and fix it, that is not securities fraud.