February 21, 2020

Minority Controllers: Blame Corwin

In a couple of recent blogs, I’ve referenced Prof. Ann Lipton’s commentary about how Delaware’s Corwin doctrine has warped its approach to controlling shareholder cases. Over on the Business Law Prof Blog, she’s weighed in with her take on Vice Chancellor Laster’s recent decision in Voigt v. Metcalf. Here’s an excerpt:

The whole transaction reads like a law school issue-spotter of governance failures. Of course Laster was going to conclude that CD&R was a controller if he couldn’t get at the transaction in any other way. CD&R’s refusal to agree to an MOM condition alone sent an ominous message; unaffiliated shareholders could be forgiven for interpreting it as “Be afraid. Be very afraid.”

But imagine if, for example, there was a truly independent special committee and hard bargaining and realistic valuations and whatnot. In In re Tesla Motors Stockholder Litigation, VC Slights held that that kind of blockholder self-disablement – even in the absence of the full suite of MFW protections – might be enough to deem someone not a controller in the first place. And it’s possible Laster would have been less motivated to find control if that had been the scenario that confronted him.

My point being, once again, Corwin drives Chancery judges to seek solace in determinations of control.

She acknowledges that the Essendant decision indicates that there are limits to the application of the controlling shareholder doctrine.  But she says that courts are using the sizeable leeway available to them in deciding whether there is a controlling shareholder as a way to ratchet up the scrutiny applied to deals that raise red flags.

John Jenkins