Delaware Court Applies Business Judgment Rule to Stockholder Approved Transaction Involving Controlling Stockholder

Delaware Court Applies Business Judgment Rule to Stockholder Approved Transaction Involving Controlling Stockholder

February 1, 2017, Covington Alert

The Delaware Court of Chancery earlier this week ruled that the protection of the business judgment rule afforded to directors involved in a change of control transaction that is approved by a majority of fully informed, disinterested stockholders—as reinforced by the Delaware Supreme Court in 2015 in Corwin v. KKR Financial Holdings LLC (discussed in our prior alert)—applied to a merger notwithstanding the presence of a target corporation controlling stockholder that was unaffiliated with the buyer. The In re Merge Healthcare Inc. Stockholders Litigation decision by Vice Chancellor Glasscock punctuates a series of recent Chancery decisions dismissing post-closing fiduciary claims under Corwin with useful judicial gloss on the scope of Corwin’s exception to business judgment review for transactions involving controlling stockholders.