Key Takeaways
- In Berger v. Fox, the Delaware Court of Chancery dismissed claims against Envestnet’s board and financial adviser, finding that full disclosure of potential conflicts satisfied the Corwin standard for a fully informed stockholder vote.
- Boards should document the rationale behind significant sale-process decisions, including the choice to retain an adviser with known conflicts.
- Financial advisers should provide specific disclosures about concurrent financial interests and the relative scale of fees from other engagements.
- The pleading standard for aiding and abetting claims against sell-side financial advisers remains unsettled after this decision.
Three years before he joined the U.S. Supreme Court, Louis Brandeis argued for more transparency in banking and the stock market by writing, “Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.” More than a century later, a decision by the Delaware Court of Chancery shows how far the law follows Brandeis’ advice — and why public companies would be wise to follow it.
At issue in Berger v. Fox (July 24, 2026) were rules around disclosures in proxy statements, which are fundamental to ensure that stockholders are adequately informed before they vote on mergers and other strategic transactions. While the Securities and Exchange Commission, individual states, stock exchange rules and other regulatory bodies prescribe certain content in the name of transparency, the Delaware court addressed a gray area regarding what information is “material” to full disclosure. Its decision offers some insight into the scope of financial adviser-related disclosures necessary for a fully informed stockholder vote, and, specifically, the level of disclosure necessary to protect buyers, sellers and their respective financial advisers against potential legal action.
The case centered on the acquisition of Envestnet, a fintech company in which the plaintiffs were stockholders, by Bain Capital in November 2024. Plaintiffs alleged the proxy statement failed to disclose the extent of Bain’s relationship with Envestnet’s financial adviser, with whom Bain was collaborating on several other deals. The all-cash take-private merger was priced at $63.15 per share, representing an 11.7% premium to Envestnet’s unaffected share price, but it was also a 4.8% discount to its 52-week high.
Envestnet stockholders sued the board of directors and Envestnet’s financial advisor once the deal was executed, and they learned that a month before being engaged by Envestnet, Envestnet’s financial adviser met with Bain and shared an illustrative leveraged buyout analysis of Envestnet. Stockholders alleged that the board retained a financial adviser despite known conflicts and then failed to prevent it from steering the sale toward Bain rather than two competing proposals at higher prices. Under the Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. decision, a company’s board of directors is subject to enhanced scrutiny under Delaware law and must seek the highest value reasonably available when a company is being sold.
The court in Berger granted the defendants’ motions to dismiss, applying the deferential business judgment rule and holding that the full disclosure required by the Corwin doctrine was satisfied because a fully informed, uncoerced vote of 75.3% of all of Envestnet’s shares outstanding and entitled to vote held by its disinterested stockholders approved the acquisition.
Why the court ruled for the board
Directors of Envestnet were shielded from monetary liability for duty of care breaches due to the exculpation clause in Envestnet’s charter under 8 Del. C. § 102(b)(7). The plaintiffs therefore had to plead a non-exculpated claim, such as bad faith or disloyalty, and failed to plead facts supporting an inference that the directors intentionally omitted material information from the proxy statement or otherwise acted in bad faith. The court stated that the factual allegations of the complaint “paint a picture of a fully independent Board retaining experienced advisors, informing itself of potential conflicts, engaging with multiple bidders, and meeting over a dozen times before reaching a deal.” The court noted that the board concluded that the amount and certainty of Bain’s offer was likely to provide greater value to Envestnet’s stockholders than the alternatives it weighed.
The root of the plaintiffs’ argument was that the vote was not fully informed because the proxy statement did not disclose sufficient detail about Bain’s relationship with Envestnet’s financial adviser, including concurrent representations, nor about the hypothetical value of one of the competing bids for Envestnet. With the additional allegation that the financial adviser had provided Bain with material information just one month prior to being retained by Envestnet on the deal, the plaintiffs sought to bring an aiding and abetting claim against the financial adviser.
The court found that not only had the financial adviser fully disclosed its relationship with Bain to the Envestnet Board, but it also had “similar relationships” with the other bidders, quashing the allegations that it had an incentive to favor Bain in the bidding war. Because the adviser’s compensation was tied to deal value, it was incentivized to secure the highest price it could from Bain. The complaint identified no instance of Envestnet’s financial adviser acting contrary to the board’s instructions, withholding information from the directors, or otherwise misleading them. Accordingly, the court found that the plaintiffs failed to plead the knowing participation required under the heightened standard articulated in In re Mindbody, Inc., Stockholder Litigation.
Although the amounts of the fees Bain was paying to Envestnet’s financial adviser for unrelated, concurrent transactions were not specified, the court ruled that the scale of these fees, namely that they were “significantly more” than the financial adviser expected to earn from the Envestnet merger, was adequately disclosed in the proxy statement.
The court’s reasoning repeatedly turned on the fact that the board, not Envestnet’s financial adviser, made the contested sale-process decisions: Setting the bid deadline, forgoing a market check before signing while negotiating a relatively low below-3% termination fee, and directing the valuation adjustment once updated proposals for the data and analytics business came in materially below the preliminary range.
Lessons from the case
Despite the win for the defense, the takeaway for boards is to record the rationale behind significant process choices, including the decision to retain an adviser with known conflicts.
Most notably, the court applied the heightened Mindbody standard for “knowing participation” without addressing whether that standard should apply to financial advisers. That standard requires actual knowledge that the primary party’s conduct constituted a breach and that the aider’s own conduct was legally improper, together with “substantial assistance.” In several recent Court of Chancery decisions, Vice Chancellor J. Travis Laster suggested that the heightened standard may be more appropriate for third-party buyers than for sell-side financial advisers, given the distinct functions they perform in a transaction. Because the court did not reach that question, the pleading standard for aiding and abetting claims against sell-side advisers remains unsettled. The decision therefore leaves that question for a future case.
When it comes to potential conflicts, more disclosure typically is better, subject to confidentiality limitations, to avoid allegations of withholding material information. Financial advisers should strive for specificity in their disclosures, particularly regarding concurrent financial interests, and expectations for payment should be expressed in a range to disclose the relative scale of concurrent transactions with a company.
Berger v. Fox was dismissed because the court found that the business judgment rule applied, Corwin’s standard of a fully informed stockholder vote was satisfied, and the acquisition was approved by the majority of Envestnet’s stockholders. The board was exculpated under DGCL § 102(b)(7) from a breach of its duty of care and Envestnet’s financial adviser properly disclosed potential conflicts prior to the acquisition.
It is important for financial advisers to track the evolution of these standards, especially in the wake of this case, and implement more specific conflict disclosures out of vigilance for potential aiding and abetting claims. When it comes to potential liability from possible financial conflicts of interest, sunlight remains the best disinfectant.
McGuireWoods continues to monitor developments in Delaware corporate law. For questions, contact the authors or a member of the Securities & Shareholder Litigation Practice Area.
The authors thank case assistant Elspeth Campbell for her assistance in preparing this legal alert. She is not licensed to practice law.