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JPMorgan, Not Apollo, to Face Lawsuit Over Fresh Market’s Buyout

June 2, 2020, 7:25 PM

JPMorgan Chase & Co. must face aiding and abetting claims over its role advising Fresh Market Inc.'s board on its $1.36 billion private equity buyout by Apollo Global Management, a Delaware Chancery Court judge ruled.

“I can infer that JPMorgan intentionally disguised its communications with Apollo and thus knowingly deceived the board about its ongoing conflicts,” Vice Chancellor Sam Glasscock III wrote Monday. “If Apollo actually gained insight and favorable treatment, it may have used this to its advantage.”

But Apollo itself and Fresh Market’s attorneys at Cravath, Swaine & Moore LLP are off the hook, Glasscock said.

The ruling comes five months after he dismissed class action claims against the grocery chain’s directors, while giving the nod to allegations that its top officers agreed to a below-market $28.50-a-share offer in exchange for equity rollovers and seven-figure severance.

Disloyalty or Mismanagement?

The shareholder lawsuit also accused Fresh Market’s board and senior management of concealing those conflicts in regulatory filings seeking shareholder approval.

Apollo facilitated the board’s breaches with a lowball offer, and JPMorgan and Cravath helped revise financial projections downward to make the proposal more palatable, the suit said.

Glasscock dismissed the suit in 2017, finding that shareholder approval had “cleansed” any board breaches, but the Delaware Supreme Court revived it, saying the investor vote wasn’t fully informed.

The judge let disloyalty claims advance in December against former board chairman Ray Berry, ex-CEO Richard Anicetti, and then-chief legal officer Scott Duggan. He cited a “pattern of misdirection” by Berry, who allegedly concealed ties to Apollo from the board.

But Glasscock dismissed Fresh Market’s directors from the case. The conflict of interest claims against them were “not credible,” and the company’s operating agreement shielded them from mismanagement liability, he said.

‘Fanciful’ Allegations

JPMorgan, however, can still be liable for aiding and abetting that mismanagement, the judge held Monday, giving a green light to claims it covered up its longstanding relationship with Apollo to lure the directors into trusting its deal advice.

Apollo, on the other hand, does not appear to have known “anything about JPMorgan’s misleading conflicts disclosure,” Glasscock found.

He also threw out allegations about Cravath’s role preparing the securities filings. After the board’s victory over disloyalty claims, “the plaintiff is reduced to the difficult argument that Cravath intentionally and knowingly caused the board to carelessly draft” the filings, the judge noted.

“These allegations I find fanciful,” he wrote.

The plaintiff is represented by Robbins Geller Rudman & Dowd LLP.

JPMorgan is represented by Abrams & Bayliss LLP and Sullivan & Cromwell LLP. Cravath was represented by Morris, Nichols, Arsht & Tunnell LLP and its own attorneys. Apollo was represented by Potter Anderson & Corroon LLP and O’Melveny & Myers LLP. Berry is represented by DLA Piper LLP.

Duggan is represented by Wilson Sonsini Goodrich & Rosati PC. Anicetti is represented by Heyman Enerio Gattuso & Hirzel LLP. The independent directors were represented by Richards, Layton & Finger PA and Mintz, Levin, Cohn, Ferris, Glovsky & Popeo PC.

The case is Morrison v. Berry, Del. Ch., No. 12808, 6/1/20.

To contact the reporter on this story: Mike Leonard in Washington at mleonard@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Steven Patrick at spatrick@bloomberglaw.com