Highland Transcend shareholder litigation victory

On March 15, 2022, Davis Polk secured a victory for Highland Transcend Partners I Corp. (HTP), a special purpose acquisition company, or SPAC, in shareholder litigation seeking to enjoin HTP’s announced acquisition of Packable Holdings, LLC. The plaintiff alleged that the members of HTP’s board of directors breached their fiduciary duties by failing to disclose in HTP’s registration statement and proxy certain information related to the proposed transaction.

The lawsuit is the latest in a large number of “merger tax” lawsuits seeking to enjoin proposed merger transactions on the basis of purportedly inadequate disclosures. Davis Polk argued that the preliminary injunction should be denied because the plaintiff failed to meet his burden to demonstrate by clear and convincing evidence that any of the requirements for injunctive relief had been met. As to the plaintiff’s likelihood of success on the merits, Davis Polk argued that because HTP is currently a Cayman Islands corporation, under the internal affairs doctrine, fiduciary duty claims concerning the adequacy of shareholder disclosures are governed by Cayman law, and yet the plaintiff failed to cite any Cayman Islands authority supporting the need for additional disclosure. Davis Polk further argued that the disclosures sought by the plaintiff were immaterial, seeking only minute detail about potential conflicts the existence of which had already been disclosed. With respect to irreparable harm, Davis Polk argued that the plaintiff’s arguments were fundamentally about the consideration he would receive from the proposed transaction and, therefore, were compensable by money damages. Davis Polk further argued that the plaintiff, like other SPAC shareholders, had a right to redeem his shares for a higher price than they were currently trading at, and therefore the plaintiff had no injury at all. Finally, as the balance of the equities, Davis Polk argued that both the plaintiff and his counsel were repeat players in “merger tax” litigation and were seeking merely to extract a settlement rather than procure any meaningful disclosures, particularly given that the plaintiff’s complaint made clear that he had already decided to vote against the proposed transaction.

Justice Zugibe in the Supreme Court in Rockland County held that there was no basis to grant the requested preliminary injunction, agreeing in full with each of Davis Polk’s core arguments. The Court found that Cayman Islands law governed the adequacy of HTP’s disclosures and that the disclosures sought by the plaintiff added nothing material to the extensive disclosures already made by HTP. It further found that the plaintiff’s claims were fundamentally compensable by monetary damages and that he had therefore not demonstrated irreparable harm. The Court concluded by noting that the plaintiff had not established a clear right to the relief sought under the circumstances.

The Davis Polk team included partner Brian M. Burnovski, who is based in the New York office.