Conflicted Controller Transactions and Aiding-And-Abetting Liability in Private Equity Deals: New Insights from Delaware

In a complex opinion (In re EngageSmart) stemming from an acquisition and going-private transaction, the Delaware Court of Chancery declined to dismiss breach of fiduciary duty claims against the controlling shareholder (General Atlantic) and directors of a target company (EngageSmart), and aiding-and-abetting claims against the financial advisor (Goldman Sachs) of the company. The Court agreed to dismiss aiding-and-abetting claims against the buyer (Vista).

The deal. EngageSmart was a publicly traded Delaware corporation controlled by sponsor investors, with private equity firm General Atlantic entitled to 60% of the voting power. EngageSmart entered into an agreement to be acquired by Vista Equity Partners, another private equity firm, in a take-private transaction. Public stockholders were cashed out. General Atlantic, however, negotiated a different deal for itself: part of its stake converted into cash, but the rest rolled into a 35% stake in the surviving private company controlled by Vista. General Atlantic also received a $500 million special dividend that the public stockholders did not share. Former public stockholders filed a complaint, alleging breaches of fiduciary duties on the side of the controller and the directors of EngageSmart for having negotiated a transaction unfair to the public minority and having failed to disclose material facts in the transaction. The asymmetries in merger consideration—benefits to the controller that were not proportional to its ownership—combined with insufficient cleansing, triggered entire fairness review by the court, which allowed the lawsuit to move past the pleading stage. Entire fairness is an especially demanding standard, requiring the defendants to prove fair price and fair dealing in the challenged transaction. Lawsuits that survive motions to dismiss and are not settled therefore result in expensive and time-consuming litigation. Court cases like EngageSmart deserve attention by practitioners so that transactions can be properly structured and cleansed to prevent litigation. 

Where disclosure failed. The EngageSmart board tried to cleanse the deal in the usual way: a special committee negotiated and approved the transaction, and the merger was then submitted to a majority-of-the-minority stockholder vote. On a motion to dismiss, the defendants argued that this satisfied MFW, the traditional Delaware cleansing mechanism for conflicted transactions involving controlling shareholders, and that the business judgment rule should apply. The Court of Chancery disagreed, holding that the complaint plausibly alleged the stockholder vote was not fully informed—and therefore that one of MFW’s conditions failed, sending the case toward entire fairness review. The court pointed to several categories of alleged omissions related both to the substantive and procedural aspects of the transaction. For example, it was not disclosed that the controller was set to receive a post-closing dividend of $500 million and was in a financial position that warranted a special desire for liquidity, which made such a benefit even more attractive. Also, the proxy statement contained no adequate mention of the long-standing relationships between the financial advisor hired by the target and the conflicted controller of the same target.

Why this still matters after SB-21. The 2025 amendments to DGCL Section 144 now permit controlling-stockholder transactions outside the going-private context to be cleansed by a disinterested special committee alone, without a stockholder vote. However, going-private deals such as EngageSmart’s transaction, in which stockholders other than the controller were cashed out of the company, still require the dual-protection regime. Approval is required both by a majority of disinterested directors in a special committee and by a majority of the disinterested stockholders in an uncoerced, informed vote. The decision is a reminder that the Delaware judiciary plays an extremely fact-intensive role in policing controller conflicts. When a relevant conflict is found, the courts will engage in a line-by-line scrutiny of the proxy statement to ascertain whether it contained all the information that a reasonable shareholder would consider important in deciding how to vote. Such a review happens before trial, because it is necessary to ascertain whether disclosures were sufficient to apply the more deferential business judgment standard.

Aiding the breach: the buyer vs the seller’s advisor. Another significant part of the opinion concerns aiding-and-abetting liability, and here the court drew a sharp distinction between the two secondary actors named in the complaint. 

The claim against Vista, the buyer, was dismissed. The court held that a buyer’s failure to correct a seller’s inadequate disclosures, without more, is not enough. Vista negotiated for itself, and it owed no duty to police EngageSmart’s own disclosure process to the benefit of the target’s public shareholders.

The claim against Goldman Sachs, which acted as the target’s advisor, survived. The court found that the complaint plausibly alleged that Goldman, who had previously advised the controller on the same matter, aided it in breaching its fiduciary duty to the minority during the transaction. More specifically, it obstructed the special committee’s chosen advisor and communicated directly with the buyer about price. Such allegations, if proven true after the pleading stage, could justify liability on the banker’s side.

While recent Supreme Court decisions have narrowed liability for buyers, EngageSmart suggests that a more demanding standard persists for sell-side financial advisors, whose role and contractual position justify heightened scrutiny.

The result has a solid policy basis. A financial advisor retained by the target company’s own board owes contractual duties, including an implied duty of good faith and fair dealing, to the board, who in turn acts for the company and owes fiduciary duties to such company and its shareholders. A third-party buyer, instead, sits squarely on the other side of the transaction. Enforcing strict standards for aiding-and-abetting liability could discourage negotiation tactics that are deemed necessary in the not-so-sweet world of mergers and acquisitions.

The author’s full comment on In re EngageSmart is forthcoming in Volume 52 of the Delaware Journal of Corporate Law and is currently available here. 

Salvatore Saltarelli is an attorney admitted in New York who previously practiced as an attorney and notary in Italy. He holds an LLM from New York University School of Law and a PhD and a law degree from Sapienza University of Rome.