DealLawyers.com Blog

Here’s news from Steven Haas of Hunton & Williams:

In In re Cornerstone Therapeutics Inc. S’holders Litig., Consol. C.A. No. 8922-VCG (Del. Ch. Sept. 10, 2014), Vice Chancellor Glasscock denied a motion to dismiss filed by outside directors who served on a special committee that approved a freeze-out merger of a public company. The merger did not comply with the Delaware Supreme Court’s recent ruling in Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014), because, among other things, it was not conditioned from the outset on approval from a majority of the outstanding minority shares. As a result, the transaction was subject to entire fairness review.

The outside and allegedly “disinterested” directors served on a special committee that met over 37 times over a seven-month period to negotiate the freeze-out merger. During the negotiations, the controller increased the merger price to $9.50 per share from its initial proposal of $6.40 per share. In their motion to dismiss, the outside directors conceded that the freeze-out was subject to entire fairness and that the controlling stockholder may have strict liability if the merger is not found to be entirely fair. They argued, however, that they were “disinterested” with respect to the transaction and the plaintiff had failed to plead a non-exculpable breach of fiduciary duty against them.

Vice Chancellor Glasscock observed that the directors’ argument had some appeal. Nevertheless, he concluded that, under Emerald Partners v. Berlin, 787 A.2d 85 (Del. 2001), he was required to determine whether the transaction was entirely fair before assessing the directors’ culpability. He also distinguished In re Southern Peru Copper Corp. S’holder Deriv. Litig., 52 A.3d 761, 787 (Del. Ch. 2011), noting that the disinterested directors in that case were dismissed at summary judgment rather than on a motion to dismiss.