Delaware Supreme Court Erects a “Formidable Obstacle” to Proving Counterparty Aiding and Abetting Liability in Merger Transactions

Background
Columbia was a wholly owned subsidiary of NiSource, Inc (NiSource). NiSource decided to spin off Columbia under the recommendation of its CEO and chair of the board, who then became a Columbia board member. TC Energy’s subsequent efforts to acquire Columbia occurred at a time when NiSource’s CEO and CFO “had their eyes on retirement” and stood to benefit personally from a change-in-control transaction which would significantly boost their severance and retirement packages. Evidence suggested that the Columbia directors bargained ineffectually with prospective buyers, did not sufficiently seek to maximize shareholder value and did not always enforce Columbia’s rights under standstill agreements. As a result, Columbia was sold for $25.50 per share—a price below its internal target and, as ultimately revealed, below the price that TC Energy was willing to pay. Following the consummation of the merger, former Columbia stockholders challenged the transaction through both an appraisal and derivative action.

In the appraisal action, which proceeded to trial first, the Court of Chancery appraised Columbia common stock at $25.50 per share as of the date of the merger but found that the proxy statement contained “material misstatements and omissions” which rendered the stockholder vote ineffective and the deal price thus unreliable.

In the derivative action, plaintiffs alleged that the CEO and CFO breached their fiduciary duties because they “initiated and timed the merger in a way that favored their own self-interest at an inopportune time for stockholders, thereby “depriv[ing] the corporation’s stockholders of a value-maximizing transaction.” Plaintiffs further alleged that the directors breached their duty of disclosure by issuing a misleading proxy statement. Critically, plaintiffs alleged that TC Energy “aided and abetted the officers’ breaches, as well as exculpated breaches of the duty of care by [Columbia’s] board.”

The primary claims against the CEO and CFO settled for $79 million, and the action proceeded to trial against TC Energy alone, with plaintiffs arguing that TC Energy “aided and abetted fiduciary breaches during the sale process,” and “aided and abetted breaches of the duty of disclosure in relation to the Proxy.” Following trial, the Delaware Court of Chancery ruled in favor of the plaintiffs, finding that where TC Energy “constructively knew of, and culpably participated in, the breaches,” this sufficed to establish TC Energy’s liability for aiding and abetting the seller-side breaches. The court observed that the CEO and CFO acted unusually eager to close a deal for personal gain, disregarded negotiation leverage and process protections, and were insufficiently overseen by the board.

The court directly addressed and rejected several of TC Energy’s core defenses, particularly the notion that its behavior during the transaction process reflected nothing more than customary hard-nosed negotiation tactics. The court acknowledged that arm’s-length bargaining is typically protected under Delaware law. However, it emphasized that the privilege does not extend to situations where a buyer knowingly exploits a conflicted and dysfunctional process. The court found that TC Energy had persistently violated a standstill agreement, used backchannel communications with the CEO and CFO to gather nonpublic intelligence, and capitalized on internal weaknesses that undermined Columbia’s ability to pursue shareholder value. The culmination of these tactics—reneging on a prior $26 offer, lowering the bid to $25.50, and pairing it with a coercive threat to publicize the breakdown of talks—was deemed conduct that crossed the line from negotiation into actionable exploitation. The court concluded that “[t]his is not that case” where ordinary bargaining should be shielded; rather, it was a situation “in which M&A newbies were going to be happy as long as they got a deal done at a decent price that triggered their change-in-control benefits and allowed them to retire.”

TC Energy also argued that it bore no responsibility for Columbia's internal fiduciary breaches, which it framed as the real source of any governance failures. The court agreed that TC Energy did not create the fiduciary conflict, but held that it nonetheless “culpably participated by exploiting their conflicts of interest. The court highlighted TC Energy’s repeated backchanneling with the CFO, its strategic silence regarding red flags, and its calculated timing of price re-trading following an apparent leak and managerial desperation.

Another key counterargument raised by TC Energy was that it lacked the actual knowledge necessary to support an aiding and abetting claim. It contended that, at most, it had constructive knowledge of any breach. The court rejected this position, explaining that under then-prevailing Delaware law, constructive knowledge, paired with culpable participation, could suffice to establish aiding and abetting liability. The court held that TC Energy had ample circumstantial evidence to recognize that the CEO and CFO were not conducting an arms-length, shareholder-focused sale process. They were, in the court’s words, behaving “eccentrically, even bizarrely,” disregarding standard deal protections, sharing confidential information too freely, and repeatedly extending exclusivity without pressure or competitive offers. Moreover, the court emphasized that TC Energy not only recognized these signs, but also took advantage of them—knowledge that was more than merely passive or incidental.

In sum, while TC Energy positioned its conduct as consistent with market norms, the court concluded that it had crossed critical boundaries by knowingly exploiting the seller’s fiduciary weaknesses, violating the standstill agreement, and remaining silent in the face of material misstatements. These actions, taken together, supported a finding of liability under the aiding and abetting doctrine as it then stood.

Supreme Court of Delaware Decision
The Delaware Supreme Court reversed the Chancery Court’s decision and clarified the legal standard for “knowing participation” in aiding and abetting claims. Citing its 2024 decision in In re Mindbody, Inc., Stockholder Litigation, 332 A.3d 349 (Del. 2024), the Court reiterated that plaintiffs must prove the existence of a fiduciary relationship, a breach of fiduciary duty, knowing participation by the defendant, and damages proximately caused by the breach.

The Court emphasized that “knowing participation” requires actual knowledge of two things: the seller-side fiduciary breach, and that the buyer’s own conduct in relation to that breach was improper. “[P]laintiff must prove that the buyer knew of the sell-side breach,” and “must also prove that the buyer knew that ‘its own conduct regarding the breach was improper.’” It follows, then, that “a buyer cannot participate in a breach of which it is unaware.”

The Delaware Supreme Court found that this dual requirement—knowledge of the fact of the target company’s breach, and of the wrongfulness of the buyer’s conduct—was not met. The Court of Chancery had found that “[a]lthough [TC Energy] did not have direct interaction with any Board members and was not inside the boardroom for any meetings, [TC Energy] saw the results.” While agreeing that this “imputation of knowledge” could conceivably establish constructive knowledge, the Supreme Court held this evidence too attenuated to establish actual knowledge.

The Court also found insufficient support in the record for the Court of Chancery’s finding that TC Energy “culpably participated in the breaches.” The Court explained that “an aider and abettor’s participation in a primary actor’s breach of fiduciary duty must be of an active nature,” and “must include something more than taking advantage of the other side’s weakness and negotiating aggressively for the lowest possible price.” “[A] bidder’s aggressive bargaining tactics, however disquieting, do not constitute aiding and abetting unless the bidder substantially assisted, that is, ‘knowingly participated’ in the breach.”

Regarding specific disclosures in the proxy statement, the Court found that TC Energy had some actual knowledge that Columbia’s fiduciaries breached their duty of disclosure, and “declin[ed] to abide by its contractual duty to correct the Proxy.” However, the Court carefully distinguished breaches of contract from aiding and abetting liability, clarifying that TC Energy did not know that “failure to correct the Proxy was wrongful … as conduct that affirmatively aided” the Columbia fiduciaries’ breaches. The Court thus held that even where TC Energy had a contractual duty to correct misstatements, it had no aiding-and-abetting liability.

For these reasons, the Delaware Supreme Court found insufficient support in the record for the Court of Chancery’s finding which had “equated constructive knowledge with actions performed ‘knowingly, intentionally, or with reckless indifference,’” and delineated a key distinction between “constructive” and “actual” knowledge.

Legal and Practical Implications
In holding for TC Energy, Delaware’s highest court limited the reach of tort liability on secondary actors or “accessories” for “another actor’s breach of duty to a third person.” The stringent “actual knowledge” requirement established by Mindbody and reaffirmed in Columbia Pipeline makes aiding and abetting claims “among the most difficult to prove.” This requirement recognizes that buyers should have considerable latitude to negotiate a deal that is favorable to their stockholders without undue fear that aggressive but ethical conduct will give rise to aiding and abetting liability. The Court clarified that it is the target company’s management and directors who have the burden of fiduciary oversight, not the third-party buyer who “has limited visibility into the seller’s internal governance dynamics.” Specifically, the buyer does not have a duty to investigate possible conflicts and tensions among those speaking for the target company, but rather has a fiduciary obligation to its own stockholders to negotiate the best price. This standard reinforces Delaware’s commitment to the integrity of arm’s-length bargaining, while also carrying important practical implications across the M&A landscape.

First, the decision reinforces Delaware’s longstanding commitment to clearly delineating fiduciary duties and to avoiding undue expansion of liability beyond those who owe such duties directly. By requiring actual knowledge and substantial assistance, the Court ensures that only intentional misconduct by secondary actors is actionable. Mere negligence, recklessness, or even constructive knowledge will not suffice.

Second, plaintiffs alleging aiding and abetting must now marshal persuasive, non-speculative evidence of a buyer’s actual intent to further a fiduciary breach.

Third, the decision preserves transactional efficiency by recognizing that buyers cannot—and should not be expected to—police the internal affairs of a counterparty. No buyer acting in good faith could reasonably be expected to balance, much less prioritize, the interests of a seller’s stakeholders over its own.

Finally, these rulings provide practical guidance for deal professionals and legal counsel: while buyers should certainly avoid conduct that intentionally facilitates known breaches of duty, they can comfortably engage in aggressive (but good-faith) negotiation. Deal documentation, diligence practices and board-level deliberations should continue to reflect awareness of fiduciary standards, but absent actual knowledge and active complicity, third-party liability remains narrowly confined.

^{[1] In re Columbia Pipeline Grp., Inc. Merger Litig., 2025 WL 1693491.}