DealLawyers.com Blog

This Skadden memo discusses several recent Delaware Chancery Court cases interpreting Corwin’s path to business judgment rule review for post-closing damage claims.  Here are some of the key takeaways:

In Larkin, Vice Chancellor Slights interpreted Corwin to hold that “[i]n the absence of a controlling stockholder that extracted personal benefits, the effect of disinterested stockholder approval of the merger is review under the irrebuttable business judgment rule, even if the transaction might otherwise have been subject to the entire fairness standard due to conflicts faced by individual directors”.

In reaching that conclusion, the court read Corwin to hold that “the only transactions that are subject to entire fairness that cannot be cleansed by proper stockholder approval are those involving a controlling stockholder.” The Larkin court’s formulation of Corwin seems to place a higher barrier to plaintiffs in post-closing merger litigation than in other recent cases such as Comstock. Because the case law is still evolving, it remains worthwhile to monitor closely how the Court of Chancery applies Corwin to noncontroller transactions going forward.

While Comstock suggests that disclosure claims may be considered post-closing as part of the Corwin analysis, other recent decisions from the Court of Chancery strongly indicate that disclosure claims should be brought before the stockholder vote when the purported harm of an uninformed vote may still be remedied. Accordingly, stockholder plaintiffs may not be able to seek tactical gain by deferring disclosure claims until after stockholders vote and the disclosures can no longer be supplemented.

– John Jenkins