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On Motion To Dismiss, Court of Chancery Holds That Alleged Disclosure Violations Were Insufficient To Rebut Corwin Protections Of A Fully Informed Stockholder Vote

Teamster Members Ret. Plan v. Randall S. Dearth et al., C.A. No. 2020-0807-MTZ (Del. Ch. May 31, 2022)
Under the Supreme Court’s decision in Corwin and its progeny, a transaction approved by a fully informed, uncoerced stockholder vote, not involving a controlling stockholder, receives business judgment rule protection. However, one sufficiently alleged disclosure deficiency is enough to put into question whether a stockholder vote is fully informed and, thus, to defeat a motion to dismiss.

In this decision, the Court of Chancery granted the defendant-directors’ motion to dismiss, ruling that the plaintiff’s allegations of disclosure violations were insufficient to rebut the Corwin presumption that the vote on the transaction at issue was fully informed. Specifically, the Court reasoned: (1) that disagreements with the period the directors used for financial projections did not constitute a disclosure violation; (2) adjustments made to financial projections that were not disclosed did not constitute a disclosure violation, without allegations of suspicious circumstances or last minute, substantial changes to previous projections; and (3) allegations that the directors considered strategic alternatives – alternative buyers and alternative business plans – but did not disclose them was not a disclosure violation because Delaware law does not require disclosure of a “play-by-play” of negotiations or alternatives that directors determine are not worth pursuing. Accordingly, the Court granted the defendant-directors’ motion to dismiss.



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