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Court Of Chancery Explains When Side Deals Are Actionable Under A Bad Faith Theory

Posted In Fiduciary Duty

Kahn v. Stern, C.A. No. 12498-VCG (Aug. 28, 2017)

It is not easy to sufficiently plead a bad faith breach of fiduciary duty by a board in approving a merger when a majority of the directors were disinterested and independent. One basis for such a bad faith breach might be that the board approved a merger where management extracted side deals, such as employment arrangements with the post-merger entity or performance-based sale bonuses. As this decision explains after reviewing the precedent, an extreme set of facts is required to survive dismissal on this theory.

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