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Delaware Supreme Court Reverses Corwin Dismissal and Stresses Importance of Disclosures

Posted In Fiduciary Duty

Morrison v. Berry, No. 445, 2017 (Del. July 9, 2018, revised July 27, 2018)

Corwin holds that approval of a transaction by a fully-informed, uncoerced majority of the disinterested stockholders invokes the deferential business judgment standard of review for a post-closing damages action, making the transaction almost certainly immune from further judicial scrutiny.  This is an important decision for its discussion of the “informed” approval prerequisite to a Corwin defense.  This aspect of Corwin turns on thoroughly-developed standards under Delaware law regarding what is or is not material to the stockholders' decision-making. In that way, the decision is not novel.  Yet, because a disclosure violation may prevent what would otherwise be an early dismissal of a breach of fiduciary duty action against directors for damages, the issue is of heightened importance post-Corwin.  In the Court’s own words, this case “offers a cautionary reminder to directors and the attorneys who help them craft their disclosures: ‘partial and elliptical disclosures’ cannot facilitate the protection of the business judgment rule under the Corwin doctrine.”  Here, the material undisclosed facts concerned a founder’s early dealings with the private equity buyer, pressure on the board, and the degree that this influence may have impacted the sale process structure.  The stockholder plaintiffs’ arguments were aided substantially by documents obtained in connection with a pre-suit books and records demand. That is another area of increased importance post-Corwin, given the unavailability of a Corwin defense in that setting and the ability to obtain documents that might help one plead around a later Corwin defense.