DealLawyers.com Blog

The prospect of having a deal evaluated under the entire fairness standard can be pretty daunting and lawyers try very hard to avoid its application when possible. In recent years, however, the entire fairness standard has become a less formidable obstacle for those trying to defend a transaction. That point is brought home in a recent Richards Layton article published in the Delaware Business Court Insider. 

The article reports on a review of post-trial entire fairness rulings issued by the Delaware Supreme Court and the Delaware Chancery Court over the past 10 years, and this excerpt addresses some of the key findings:

First, defendants won 66% (six of nine) of “big ticket” post-trial entire fairness cases. And because one case (Tornetta v. Musk) is on appeal, this percentage could jump to 77% (seven of nine). Defendants won three cases by proving that the transaction was entirely fair, two by proving that the business judgment rule applied, and one through a court determination of zero damages. In every “big ticket” case that went to trial, plaintiff proceeded on the theory that entire fairness applied due to the presence of a conflicted controlling stockholder.

Interestingly, no plaintiff has brought a “big ticket” entire fairness case not involving a conflicted controller to trial in over 10 years—perhaps a reflection of Corwin’s potency. While the sample size is small and thus statistical power is limited, these numbers suggest that when “big ticket” controlling stockholder cases are brought to trial, defendants are more likely to win.

Plaintiffs have fared better in “smaller-scale” entire fairness cases, where they have prevailed 65% of the time over the past decade. In terms of the kind of entire fairness cases that make it to trial, a whopping 87% involved conflicted controllers, while only 13% involved board conflicts.

– John Jenkins