Chancery Judge Rules Boston Scientific Must Complete Channel Medsystems Deal

Paul, Weiss won a major trial victory for client Channel Medsystems in the first case since the Delaware Supreme Court’s landmark 2018 decision in Fresenius v. Akorn to evaluate whether a merger party was justified in terminating a merger agreement on Material Adverse Event (MAE) grounds. In its decision, the Delaware Court of Chancery ordered Boston Scientific to complete the $275 million deal it had sought to cancel in May 2018 after learning that a Channel Medsystems executive had submitted false data to regulators about its flagship product, Cerene.

In its case, Boston Scientific claimed that the facts were extremely similar to Fresenius’ winning case for terminating its Akorn deal. In Channel, shortly after a deal was announced, the target company disclosed that a quality control executive had made fraudulent submissions to the FDA in connection with its sole product. The executive was subsequently indicted for embezzlement. Ultimately, however, Chancellor Andre Bouchard found that no material breaches had occurred due to the misconduct, and that furthermore, Boston Scientific had breached its obligation to proceed with the merger in good faith. His decision makes clear that the Akorn case does not herald a sea change in the Chancery Court’s thinking, and that termination of a merger under an MAE will still remain a steep hill to climb.

Chancellor Bouchard noted our team’s particularly devastating cross-examination of Boston Scientific’s witnesses. “Boston Scientific attempted to elicit testimony from each of its own fact witnesses concerning oral statements Channel made that allegedly were false, but their testimony strained credibility and collapsed into admissions that they were relying only on written documents,” he wrote. The team also showed that Channel Medsystems’ witnesses were transparent about the fraud they had discovered in their communications with Boston Scientific, and that, in any event, any inaccurate representations were immaterial. “Boston Scientific has not proven that, as of the termination date, the inaccurate representations would reasonably be expected to have a Material Adverse Effect at any future point in time.” The team further showed that, rather than meeting its obligation to proceed in good faith, Boston Scientific breached and “simply pulled the ripcord.”

The Paul, Weiss team included litigation partners Jaren Janghorbani, Andrew Gordon, Stephen Lamb and counsel Daniel Mason; and corporate partner Ross Fieldston.