C & J Energy Services, Inc. v. City of Miami General Employees' Pension Fund

Supreme Court of Delaware · 2014 · Corporations

107 A.3d 1049 (2014)

Updated August 1, 2026

CorporationsRevlonmarket checkenhanced scrutinychange of controlpassive market checkactive solicitationpreliminary injunction

Facts

C & J negotiated a transaction in which it would merge with a Nabors subsidiary, with Nabors receiving 53% of the surviving Bermuda entity and C & J stockholders receiving 47%, plus the transaction's business synergies and significant tax benefits from re-domiciling in Bermuda. Although Nabors would hold majority voting control, the C & J board negotiated protections including a bye-law requiring pro rata treatment in any future sale, standstill and governance restraints on Nabors, a fiduciary out, and only a modest termination fee. The Court of Chancery found the board was disinterested, informed about C & J's value, and stockholders were adequately informed, but enjoined the vote because the board had not affirmatively shopped the company. No competing bidder emerged during the lengthy post-signing period despite the relatively modest deal protections.

Issue

Whether, assuming Revlon applied, the Court of Chancery could preliminarily enjoin the merger vote and compel C & J to shop itself based on a merely plausible showing that the board breached its fiduciary duties by failing to conduct an active pre-signing market check. Also, whether a mandatory preliminary injunction may rewrite the merger agreement and strip the buyer of contractual rights absent the required findings.

Rule

To obtain a preliminary injunction, a plaintiff must show a reasonable probability of success on the merits, not merely a plausible claim. Under Revlon, there is no single blueprint for directors; a board need only act reasonably to secure the best value reasonably attainable, and that duty does not invariably require an active pre-signing solicitation or auction. A viable passive market check, board flexibility to accept a superior proposal, and a fully informed, uncoerced stockholder vote can satisfy Revlon. A mandatory preliminary injunction requiring affirmative action should issue only after trial findings or on undisputed facts, and equity may not preliminarily blue-pencil a merger agreement to strip an innocent third party of contractual rights while still binding it to perform.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Summit Rail Tools, a Delaware corporation based in Denver, agrees to combine with a larger Canadian supplier in a stock transaction that will leave the other side with 54% of the surviving company. Summit’s board is majority independent, knows Summit’s standalone value well, negotiates a fiduciary out, a 2.5% termination fee, and a five-month period before closing during which any rival may bid, but it does not run a pre-signing auction.

Shareholders sue to enjoin the vote, arguing that the board necessarily breached its duties by failing to affirmatively shop the company before signing. Which is the best answer?

Explanation. Under the majority opinion, Revlon does not impose a single blueprint. A board in a change-of-control setting must make a reasonable, not perfect, effort to secure the best value reasonably attainable. A viable passive market check, board flexibility to accept a superior proposal, and a fully informed, uncoerced stockholder vote may satisfy that duty even without a pre-signing auction.