Chancery Finds No Transaction-Specific Control Where Plaintiffs Failed to Allege that a Majority of the Members of a Special Committee Were Under the Sway of a Would-Be Controller
In re GGP Inc. Stockholder Litig., C.A. No. 2018-0267-JRS (Del. Ch. May 25, 2021).
Under MFW and its progeny, if there is a conflicted controlling stockholder, then in order to receive the benefits of the business judgment rule, the transaction must be negotiated and approved by independent and disinterested directors and conditioned on an informed and uncoerced vote of a majority of the minority stockholders. A stockholder that owns less than 50% of the voting power of the corporation may be a controller if it exercises control over the business affairs of the corporation either generally or with respect to the transaction at-issue.
Here, stockholder-plaintiffs alleged that Brookfield Property Partners, L.P., the holder of 35.3 % of the stock of GGP, was a controlling stockholder. Yet plaintiffs only alleged that two of the five members of a special committee that evaluated a proposed transaction were improperly influenced by Brookfield. In rejecting the plaintiffs’ argument that this demonstrated transaction-specific control, the Court of Chancery reasoned that “[w]here, as here, a plaintiff alleges only a minority of special committee members are incapable of disinterestedly and independently considering a transaction, a plaintiff must proffer at the pleading stage some factual predicate from which the court can infer the compromised director(s) somehow infected the special committee’s process.” Here, the plaintiffs could not do so. Absent such allegations, the Court reasoned, the plaintiffs failed to plead adequately that Brookfield was able to “dominate the corporate decision-making process[.]” Further, the plaintiffs failed to provide allegations from which one could reasonably infer that Brookfield exercised control over the company overall. Because the transaction was reviewed by an independent special committee and approved by a majority of the company’s disinterested stockholders, the plaintiffs’ claims of fiduciary breach were dismissed.Share