Two recent decisions from the Delaware Court of Chancery reached opposite results in the application of the Delaware Supreme Court's holding in Corwin v. KKR Financial Holdings LLC. Corwin held that when "a transaction not subject to the entire fairness standard is approved by a fully informed, uncoerced vote of the disinterested stockholders, the business judgment rule applies."
The two lower court decisions – In re Columbia Pipeline Group, Inc. Stockholder Litigation and In re Saba Software, Inc. Stockholder Litigation – arrived at opposite results in the application of Corwin (dismissal of the complaint in Columbia and denial of a motion to dismiss in Saba). The decisions provide important guidance regarding, among other things: the types of disclosures that are material; the appropriate oversight and handling of a sales process by a board and its financial advisor; circumstances that suggest a coerced stockholder vote; and the scope of aiding and abetting liability for the buyer.
In a memorandum, Cadwalader attorneys Alejandra Contreras, Jason Halper and Hyungjoo Han discuss a number of the key takeaways beyond Corwin related to material disclosures, coerced stockholder votes, non-exculpated fiduciary duty claims, and the high bar remaining to plead aiding and abetting liability.
Commentary / Jason M. Halper
In In re Columbia Pipeline, plaintiffs asserted that Corwin did not require application of the business judgment rule because there were material omissions in the proxy statement soliciting shareholder approval for the transaction. The Court disagreed, finding that the alleged omission was not material. Applying Corwin, the Court found that Columbia Pipeline Group stockholders had approved the transaction in an informed, uncoerced vote, and that the business judgment rule then applied.
In In re Saba, a former Saba stockholder brought suit against Saba's board of directors for breach of fiduciary duty. The defendant directors moved to dismiss, arguing that – under Corwin – the business judgment rule applied since a majority of stockholders approved the transaction. The Court disagreed, holding that the stockholder vote was neither informed nor uncoerced, and that the complaint pled a non-exculpated claim for breach of fiduciary duty.
The significance of the two recent lower court decisions lies not in the fact that they applied Corwin (which came as no surprise), but how each did so on the facts alleged in the complaints.
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