## Facts

- PLX Technology Inc., a Delaware public company, pursued strategic alternatives after a prior sale agreement with another buyer failed following antitrust opposition, and PLX’s stock price fell.
- Potomac Capital Partners II, L.P., an activist hedge fund, accumulated PLX shares at depressed prices and publicly pressured PLX to sell the company for a near-term gain.
- Potomac’s co-managing member, Eric Singer, ran the activism campaign, won board seats through a proxy contest, and became chair of a board special committee tasked with exploring strategic alternatives.
- PLX’s financial advisor, Deutsche Bank, simultaneously had a separate advisory relationship with Avago, the eventual buyer, creating conflict concerns.
- Avago had shown prior interest in acquiring PLX and ultimately agreed to an all-cash merger at $6.50 per share.
- The court found that information relevant to the board and stockholders (including Avago’s earlier interest and the circumstances surrounding projections and banker incentives) was not fully or accurately disclosed.
- PLX conducted both a presigning process and a postsigning market check; neither produced a higher bid than Avago’s $6.50 per share.
- Stockholders sued for fiduciary-duty violations connected to the merger; all defendants except Potomac settled before trial, leaving an aiding-and-abetting claim against Potomac based on Singer’s conduct as Potomac’s agent.

## Issues

1. Whether PLX’s directors breached fiduciary duties in approving the Avago merger, including by relying on conflicted advice and approving materially misleading or incomplete disclosures.
2. Whether Potomac, through Singer, knowingly participated in the directors’ breaches such that Potomac was liable for aiding and abetting.
3. Whether plaintiffs proved transaction damages caused by the breaches and, if so, the appropriate measure of damages.

## Decision

- The court found that the PLX board breached fiduciary duties in the merger process and related disclosures.
- The court held Potomac liable for aiding and abetting because Singer knowingly participated in the fiduciary breaches while acting as Potomac’s agent and as a PLX director.
- The court declined to award monetary damages, concluding plaintiffs failed to prove that the misconduct caused a price shortfall or other measurable economic loss beyond the $6.50 per-share consideration.
- Judgment was entered for Potomac on damages despite the finding of aiding-and-abetting liability.

## Legal Principles

- Aiding and abetting a fiduciary breach requires: (1) a fiduciary relationship, (2) a breach of fiduciary duty, (3) knowing participation by the non-fiduciary, and (4) damages.
- An activist investor that obtains board representation may face aiding-and-abetting liability when its agent-director uses board power and informational advantages to participate in a conflicted or misleading sale process.
- Banker conflicts and controlled information flows can support findings of fiduciary breach, particularly when directors approve disclosures that omit or mischaracterize material facts affecting stockholder decision-making.
- A flawed process and even knowing participation do not, by themselves, justify damages; plaintiffs must prove causation and economic harm, including that a better outcome was reasonably likely absent the misconduct.
- Robust market evidence—such as the absence of a topping bid after a postsigning market check—can weigh heavily against a claim that stockholders received an inadequate price.

## Conclusion

The court held an activist hedge fund liable for aiding and abetting fiduciary breaches arising from its agent’s conduct as a director in a conflicted sale process, but denied damages because plaintiffs did not show that the breaches caused a higher price to be lost in light of market-check evidence.


In re PLX Tech. Inc. S’holders Litig., 2018 WL 5018535 (Del. Ch. Oct. 16, 2018)