Leal v. Meeks (In Re Cornerstone Therapeutics, Inc.)

115 A.3d 1173 (2015)

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Nature of the Case

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Facts

These appeals both involve damages actions by stockholder plaintiffs arising out of mergers in which the controlling stockholder, who had representatives on the board of directors, acquired the remainder of the shares that it did not own in a Delaware public corporation. Both mergers were negotiated by special committees of independent directors, were ultimately approved by a majority of the minority stockholders, and were at substantial premiums to the pre-announcement market price. Plaintiffs filed suit in the Court of Chancery in each case, contending that the directors had breached their fiduciary duty by approving transactions that were unfair to the minority stockholders. In both appeals, it is undisputed that the companies did not follow the process established in Kahn v. M&F Worldwide Corporation as a safe harbor to invoke the business judgment rule in the context of a self-interested transaction. The entire fairness standard presumptively applied, although the burden of persuasion on that issue might ultimately rest with the plaintiffs. The defendant directors were insulated from liability for monetary damages for breaches of the fiduciary duty of care by an exculpatory charter provision adopted in accordance with 8 Del. C. § 102(b)(7). Plaintiffs sued everyone. They included the controlling stockholders and their affiliated directors, and the independent directors who had negotiated and approved the mergers. The independent director defendants moved to dismiss on the grounds that the plaintiffs had failed to plead any non-exculpated claim against them. They argued that although the entire fairness standard applied only the controlling stockholder and its affiliated directors were at risk of being found liable for breaches of the duty of loyalty. They reasoned that the plaintiffs still bore the burden to plead non-exculpated claims against the independent directors. They cited the decision in Malpiede v. Townson that, in the analogous context of review under the Revlon standard, plaintiffs seeking damages must plead non-exculpated claims against each director or risk dismissal. Plaintiffs contended that they could defeat the independent directors' motions to dismiss solely by establishing that the underlying transaction was subject to the entire fairness standard. In each case, the Court of Chancery did not analyze the plaintiffs' duty of loyalty claims against the independent directors because it determined that it was required to deny their motions to dismiss regardless of whether such claims had been sufficiently pled. The Court of Chancery in each case recommended certification of an interlocutory appeal to this Court to determine whether its reading of precedent was correct.