Cleary Gottlieb Discusses Delaware Chancery’s Refusal to Dismiss Aiding, Abetting in De-SPAC Transaction

Key Takeaways

• Court denied Jefferies motion to dismiss aiding claim
• Prior work imputed as knowledge in de‑SPAC case
• Dole test used to infer knowing participation
• Conflict disclosure may trigger advisor liability
• Strengthen firewalls and conflict‑check procedures

Summary

The Delaware Court of Chancery refused to dismiss a claim that Jefferies, the financial advisor to Forum III, aided and abetted fiduciary breaches in a de‑SPAC merger. The court applied the Dole factors, inferring that Jefferies knowingly participated by preparing board materials while possessing conflicting information from a prior SF Motors engagement. By treating Jefferies as a unitary actor, the decision expands potential liability for advisors who contribute to misleading proxy statements. The ruling underscores heightened litigation risk for financial advisors in M&A transactions, especially where conflicts or information firewalls are unclear.

Pulse Analysis

The Delaware Chancery’s recent refusal to dismiss the aiding‑and‑abetting claim against Jefferies marks a pivotal moment for financial advisors involved in de‑SPAC and broader M&A transactions. While de‑SPACs have attracted attention for their rapid capital raises, the underlying legal framework remains rooted in traditional fiduciary duties. By applying the four‑factor Dole test at the pleading stage, the court signaled that advisors who prepare board presentations or proxy materials can be deemed active participants, even without a formal fairness opinion. This approach diverges from recent Supreme Court rulings that emphasized the need for actual knowledge and affirmative conduct, suggesting a more expansive view of advisor liability in the Delaware context.

Practically, the ruling forces advisory firms to reassess how they manage information from concurrent or prior engagements. Jefferies was treated as a single entity, with knowledge from its SF Motors work imputed to its role advising Forum III. Firms must therefore enforce robust Chinese walls and document any potential conflicts, ensuring that material from one deal does not inadvertently influence another. Moreover, engagement letters that contain reliance disclaimers may no longer provide a safe harbor if the court deems the advisor’s participation substantive enough to constitute "substantial assistance" in a breach.

The broader market implication is a likely uptick in diligence around conflict checks and disclosure practices. Investment banks and boutique advisors alike will need to enhance internal protocols, possibly incorporating third‑party audits of information flow and more explicit client communications about potential conflicts. As shareholders become increasingly vigilant about proxy accuracy, advisors who can demonstrate rigorous firewalls and transparent disclosures will gain a competitive edge, while those that fall short may face costly litigation and reputational damage.