Business Judgment Rule

News & Analysis as of

Informed Approval of M&A Transactions by Disinterested Stockholders Invokes the Business Judgment Rule

In Corwin v. KKR Financial Holdings LLC, No. 629, 2014 (Del. Oct. 2, 2015), the Delaware Supreme Court sitting en banc unanimously affirmed the Delaware Court of Chancery decision that the voluntary judgment of the fully...more

Business Judgment Rule Applies to Merger Approved by Informed, Disinterested Stockholders

Delaware Supreme Court’s ruling provides additional grounds for dismissal in post-closing stockholder litigation regarding mergers that are not subject to entire fairness review. Introduction - Clarifying a...more

Corwin v. KKR Financial Holdings LLC, No. 629, 2014 (Del. Oct. 2, 2015) (Strine, C.J.)

In this opinion affirming the Court of Chancery’s dismissal of a stockholder challenge to a merger, the Delaware Supreme Court held that the approval of the merger by a fully informed, disinterested stockholder majority...more

CLIENT ALERT: Delaware Supreme Court Finds That Fully Informed Stockholder Vote Approving Merger Invoked Business Judgment Rule

Corwin v. KKR Financial Holdings LLC, No. 629, 2014 (Del. Oct. 2, 2015). In this opinion affirming the Court of Chancery’s dismissal of a purported class action challenging an acquisition transaction, the Delaware...more

Delaware Supreme Court Resolves KKR-Gantler Confusion

There has been some debate about the effect of an approval by a majority of a company’s stockholders of a transaction with an unrelated third party - does that invoke the Business Judgment Rule? The question arose over...more

Fourth Circuit: Business Judgment Rule May Not Protect Bank Officers in FDIC Action

Why it matters - Bank officers may be liable in a lawsuit brought by the Federal Deposit Insurance Corp. (FDIC) while the directors escaped liability, in a new ruling from the Fourth Circuit Court of Appeals interpreting...more

Fraud Means a “Fairer” Price: In re Dole Finds CEO and COO Personally Liable for Over $148 Million in Damages

On August 27, 2015 the Delaware Court of Chancery issued a post-trial decision, In re Dole Food Company, Inc. Stockholder Litigation, that held two of Dole’s directors, David Murdock and Michael Carter, personally liable for...more

Good News for Compensation Committees

With executive compensation under fire from seemingly all directions these days, it’s nice to get some good news occasionally. In this case, that news comes via the Delaware Chancery Court’s recent decision in Friedman v....more

Bank Boards and Corporate Officers Review your Policies and Procedures: Business Judgment Rule Protections May Be Loosening

A recent decision from the Fourth Circuit, Federal Deposit Insurance Corporation v. Rippy, No. 14-2078 (4th Cir. Aug. 18, 2015), may signal a weakening of the business judgment rule’s long-standing protections for corporate...more

California, Nevada and 38 Other States Have These, But Delaware Doesn’t

According to the National Center for State Courts, forty states, including California and Nevada, have established intermediate courts of appeal.  California’s Court of Appeal was established by a constitutional amendment...more

Mergers & Acquisitions Glossary

This Glossary contains many of the important terms and definitions used in the M&A world. The Glossary is not exhaustive, however. Like most areas of the law, M&A is a highly complex subject that involves several legal and...more

Friedman v. Dolan, C.A. No. 9425-VCN (Del. Ch. June 30, 2015) (Noble, V.C.)

In this letter opinion, the Court of Chancery dismissed claims for breach of fiduciary duty and waste under Chancery Rule 12(b)(6), holding that the business judgment rule, rather than entire fairness review, applied to...more

No Calm In Delaware After Calma v. Templeton

In derivative suits, cases are essentially lost and won at the motion to dismiss stage.  Unless the defendants succeed in winning dismissal, they must confront an unhappy choice between continued litigation with all of its...more

In re Cornerstone Therapeutics Inc. S’holder Litig., C.A. No. 564, 2014 (Del. May 14, 2015) & Leal v. Meeks, C.A. No. 706, 2014...

In these interlocutory appeals, the Delaware Supreme Court resolved a long-standing split in Delaware authorities by ruling that independent directors (including members of a special committee negotiating a transaction with a...more

Executive Compensation Paid to Controlling Shareholders Subject to Business Judgment Review When Approved by an Independent...

Members of the Dolan family hold 73% of the voting power of Cablevision Systems Corporation’s stock. A shareholder commenced a derivative action regarding the executive compensation paid to Dolan family members serving as...more

Closely-Held Shareholder Derivative Actions are Alive and Well in Texas

After 30 years of running his family-owned business, Hillbilly Oil Co., Jed Clampett decided to retire in 2013. The board of directors elects Jethro Bodine as Hillbilly’s President and Elly May as Vice President. Both Jethro...more

Yet Another Reason to Consider Separate Annual Limits on Director Equity Awards

As reported in a prior blog post, public company employers that are adopting or amending equity-based compensation plans should consider adding a separate annual limit on director equity awards. In a recent Delaware Chancery...more

Locke Lord QuickStudy: Litigation Threat Means Public Companies Should Review Director Compensation Process

Corporate directors are permitted to, and regularly do, set their own compensation. This has not been controversial because boards have typically taken seriously their responsibility to set compensation that is reasonable and...more

Protecting Director Equity Grants from Entire Fairness Review

The Delaware Court of Chancery recently held in Calma v. Templeton that the decision by the Citrix Systems, Inc. board of directors to grant equity compensation to its non-employee directors was subject to the entire fairness...more

Ironworkers Dist. Council of Phila. & Vicinity Ret. & Pension Plan v. Andreotti, C.A. No. 9714-VCG (Del. Ch. May 8, 2015)...

In this memorandum opinion, the Court of Chancery granted a motion to dismiss Plaintiff’s derivative complaint under Court of Chancery Rule 23.1, and in doing so, confirmed that there is a heavy burden confronting derivative...more

Exculpatory Provisions Provide Powerful Protection for Independent Directors

The Delaware Supreme Court recently issued an important decision clarifying the standards that govern claims for money damages against independent directors of corporations whose charters contain exculpatory provisions....more

A Key Reminder to Directors of Delaware Corporations When Granting Equity Awards under an Equity Incentive Plan

Corporate directors routinely make decisions regarding their own compensation. If challenged by stockholders, such decisions are generally reviewed by Delaware courts under the onerous "entire fairness" standard, which...more

Less Is More? Not when it comes to director compensation plans and effective shareholder ratification

Companies cannot merely rely upon shareholder approval to obtain protection under the business judgment rule. While the courts in Delaware do frequently apply the standard of waste to claims of breach of fiduciary duty and...more

Back To The Future – Should Stock Incentive Plans Impose Grant Limits on Non-Employee Director Awards?

On April 30, 2015, the Court of Chancery of the State of Delaware rendered an important case decision in a procedural matter dealing with the equity compensation of non-employee members of a company’s board of directors (see...more

Delaware court of chancery issues significant ruling on the ability of creditors to assert fiduciary duty claims against...

In Quadrant Structured Products Co. v. Vertin, 2015 WL 2062115 (Del. Ch. May 4, 2015), the Delaware Court of Chancery (Vice Chancellor J. Travis Laster) announced a bright-line standard governing the threshold inquiry of when...more

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