Delaware Business Litigation Report

Court Of Chancery Explains Standard Of Review

eBay Domestic Holdings Inc. v.  Newmark, C.A. 3705-CC (September 9, 2010)

This decision is well worth reading for its careful explanation of what standard of review the Court will apply when director action adversely affects minority stockholders.  In short, it depends on the facts of each case.  For example, when the majority already controls who is elected to the board, the adoption of a staggered board does not really affect the rights of minority stockholders and the business judgment rule applies.

The decision is also noteworthy for its rejection of the idea that preservation of a unique corporate "culture" justifies defensive action under the Unocal  test.  The lesson here is that if you want to run your company as a hobby, then do not take money from investors who do not support that hobby.

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