DealLawyers.com Blog

Well, that didn’t take long!  When I blogged about the Delaware Chancery Court’s Cloudflare decision yesterday, I said that I expected law firms to weigh in on the case. Wachtell appears to be the first out of the gate, and yesterday it published its take on the decision. This excerpt discusses the Court’s willingness to bifurcate the proceedings to address issues concerning the applicability of the safe harbor prior to a full-blown entire fairness proceeding:

Consistent with its rejection of the plaintiffs’ gross negligence claim, the Court emphasized that its assessment of the special committee’s good faith remained preliminary, without the benefit of live testimony from the directors. Recognizing that the Section 144 safe harbors were designed to avoid the costs and burdens of entire fairness review, the Court concluded there was “good reason to think that the defendants should not be put through the burden of trying an entire fairness case” until it could be determined on a full record whether the safe harbor applied.

The Court thus offered the defendants the choice of bifurcating the proceedings and conducting an initial trial focused on whether the special committee approved the transaction in good faith and thereby qualified for safe harbor protection. That innovative ruling is a welcome signal that the Court may seek to resolve safe harbor questions before imposing the burdens of a plenary fairness trial with all the expense, complexities, and uncertainty of an after-the-fact inquiry into whether a transaction was entirely fair as to both fair dealing and fair price—even where the preliminary record suggests the possibility of the plaintiffs establishing a lack of good faith at trial.

The memo characterizes Vice Chancellor Laster’s decision as “a faithful interpretation of the amended Section 144 and its promise of greater predictability for transaction planners,” and stresses that “even where a preliminary record suggests that a special committee’s process was imperfect, the safe harbors of Section 144 may be invoked at later stages of litigation before incurring the uncertainty and expense of a plenary trial on the entire fairness of the transaction.”

– John Jenkins