Court Of Chancery Explains Disclosure Pleading Standards And Burdens For A Corwin Defense
The well-known Corwin decision requires that the Court of Chancery apply the deferential business judgment rule to attacks on a merger approved by a majority of the disinterested stockholders who had all the material information. The current plaintiff strategy is to plead that the stockholders were not fully informed such that the vote should not have a cleansing effect. Most notably, this decision addresses who has the burdens of pleading and proof regarding the sufficiency of the disclosures for a Corwin defense. As the Court explains, the plaintiff must first sufficiently plead one or more disclosure violations, and only then will the burden shift to the defendants to show that the stockholders were fully informed. The decision also explains that Corwin did not change the disclosure standard—directors are only obligated to disclose material information to satisfy Corwin.