Whither 122(18)?

Key Takeaways

• 122(18) governs board authority, not fiduciary duty limits
• 141(a) claims can still challenge restrictive no‑shop clauses
• Courts treat authority and enforceability as separate analyses
• Deal documents must balance statutory authority with duty compliance
• VC Zurn’s ruling underscores need for clear merger provisions

Summary

In late January, VC Zurn denied a temporary restraining order seeking to block the Fifth Third‑Comerica merger, rejecting the plaintiff’s claims under both Unocal fiduciary standards and Delaware General Corporation Law §141(a). The plaintiff contended that the merger’s “no‑shop” provisions violated fiduciary duties and unlawfully limited the board’s discretion under §141(a). The court’s opinion did not address DGCL §122(18), which governs a board’s authority to bind the corporation in a merger, prompting the question whether that provision bars a §141(a) challenge. Legal analysts note that §122(18) and §141(a) address distinct issues, so the authority question does not automatically foreclose the enforceability claim.

Pulse Analysis

Delaware courts separate the question of a board’s statutory authority from the fiduciary duty analysis. Section 122(18) of the DGCL clarifies that a merger agreement is not binding unless approved by the board and shareholders, but it does not immunize the agreement from challenges under §141(a) when the contract unduly restricts directors’ discretion. This bifurcation means that even a properly authorized merger can be vulnerable if its terms impede the board’s duty to seek superior proposals, a nuance that often surfaces in contested deals.

Recent precedent, including Omnicare, Quickturn, and ACE Ltd., illustrates how courts have consistently treated §141(a) claims as independent of the authority inquiry. In those cases, judges declined to apply a per‑se invalidity rule based solely on contractual limitations, instead scrutinizing whether the restrictions were reasonable under fiduciary standards. VC Zurn’s refusal to entertain a §141(a) claim in the Fifth Third‑Comerica dispute aligns with this line of reasoning, emphasizing that the board’s ability to bind the corporation does not shield overly restrictive covenants from judicial review.

For practitioners, the practical takeaway is clear: merger agreements must be drafted with both statutory authority and fiduciary compliance in mind. Including well‑crafted out‑clauses that preserve the board’s discretion to consider superior offers can mitigate the risk of injunctions or damages. As M&A activity intensifies, understanding the interplay between §122(18) and §141(a) becomes essential for protecting transaction integrity and limiting exposure to shareholder litigation.