Kihm v. Mott, C.A. No. 2020-0938-MTZ (Del. Ch. Aug. 31, 2021)

Under the Corwin doctrine, a fully informed and uncoerced approval of a board decision by the corporation’s disinterested stockholders can downgrade an otherwise heightened standard of review to deferential business judgment review and result in prompt dismissal of post-closing M&A litigation not involving a conflicted controlling stockholder. Kihm involved a merger breach of fiduciary duty challenge and an attempt to avoid Corwin cleansing based on alleged deficient disclosures in the target board’s recommendation statement to the stockholders.

Specifically, the plaintiff alleged that the recommendation statement was deficient because it failed to sufficiently disclose: (1) certain material projections, (2) a conflict of interest between the acquirer and a financial advisor retained by the target’s board in connection with the transaction, (3) the “liquidity conflict” of the target’s private equity sponsor and its board designee creating a unique motivation to rush the sale process; and (4) the financial advisors’ valuation analyses relating to certain strategic alternatives to the sale. 

The Court of Chancery rejected the plaintiff’s contentions and granted dismissal under Corwin. According to the court, the omitted projections did not significantly alter the total mix of information available to the target’s stockholders because other substantially similar projections were disclosed. The disclosures relating to the financial advisor’s potential conflicts of interest due to work done for the acquirer were sufficient. Plaintiff’s “liquidity conflict” theory failed because the dual fiduciary status of the private equity sponsor’s designee was disclosed and there was no allegation that the sponsor or its designee contributed to any deficiency in the sale process. Additionally, the plaintiff’s arguments relating to certain undisclosed valuation analyses were of the immaterial “tell me more” variety.