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Court Of Chancery Explains Corwin Limits

Posted In Fiduciary Duty

Sciabacucchi v. Liberty Broadband Corp., C.A. 11418-VCG (May 31, 2017)

This is an important decision if only because it explains a further limitation on the Corwin rule that an informed uncoerced stockholder vote insulates a corporate transaction from attack. First, the decision explains when a minority stockholder is a “controller” for purposes of even being able to avoid Corwin. That decision does not apply to transactions with a controller. Merely being able to appoint some of the directors does not make one a controller, at least when the certificate of incorporation limits the power of that stockholder to dictate corporate action.

Second, the opinion explains that there may be “structural coercion” in the stockholder vote when the stockholders are forced to choose between ratifying a possibly unnecessary deal with a large stockholder or not getting the benefits of the transaction. While the decision turns on the unusual facts presented, it illustrates the dangers of coupling two or more transactions for the same stockholder vote.