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Court Of Chancery Again Explains Scope Of The Corwin Doctrine

Posted In Fiduciary Duty

Larkin v Shah, C.A. 10918-VCS (August 25, 2016)

This is one of two recent Court of Chancery decisions explaining that the Corwin case really does mean that there is an “irrebuttable business judgment rule” that bars challenges to a merger approved by a majority of the fully-informed, disinterested and uncoerced stockholders, in the absence of the deal involving a controlling stockholder who suffers from a conflict in the merger.  

Thus, along with In re Volcano Corporation Stockholder Litigation, 2016 WL 3626521 (Del. Ch. June 30, 2016), at least two members of the Court of Chancery will allow only a well-pleaded claim for waste to survive dismissal in such circumstances.  It is less clear that the Chancellor agrees with the word “irrebuttable” in those circumstances, however.  See City of Miami v. Comstock, C.A. 9980-CB (Del. Ch. Aug. 24, 2016) (applying Corwin but still examining whether the plaintiffs had alleged a basis for entire fairness review).

Finally, the decision contains a helpful discussion of when an alleged controller may or may not suffer from a conflict in a third-party transaction.  Hint: vague allegations about a need for liquidity will not support a reasonable inference of a conflict.



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