Delaware Business Litigation Report

Court of Chancery Validates Cure of Defective Corporate Acts Affecting Herman Miller’s Acquisition of DWR

Charles Almond Trustee v. Glenhill Advisors LLC, C.A. No. 10477-CB (Del. Ch. Aug. 17, 2018)

Sections 204 and 205 of the DGCL permit corporations to cure and validate defective corporate acts under the right circumstances. This is another decision explaining when the Court will validate an attempted cure under Section 204. The opinion explains, among other things, that there is no set time limit to seek validation of a cure under Section 205. It further explains what sort of defective acts may be addressed in Section 205 proceedings.

The opinion also is a good guide to the narrow circumstances where a corporate overpayment claim has a hybrid nature under Gentile v. Rosette—partially derivative and partially direct, and thus capable of surviving a merger that would otherwise eliminate pure derivative standing. That is important as Gentile has been narrowly interpreted in later decisions, including recently by the Delaware Supreme Court in El Paso Pipeline GP Co., L.L.C. v Brinckeroff.  To the extent Gentile is still good law, it only applies where (i) there is a controlling stockholder or control group and (ii) the challenged transaction results in an improper transfer of both economic value and voting power from the minority stockholders to the controller.

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