Ligos v. Tsuff, C.A. No. 2020-0435-SG (Del. Ch. Dec. 1, 2022)
The Delaware Supreme Court’s Cornerstone Therapeutics decision established that, although a transaction involving a controller must satisfy entire fairness review, plaintiffs seeking money damages against independent directors protected by an exculpation clause must still state a non-exculpated claim against each such director, or that director will be entitled to dismissal. In other words, to proceed against independent directors, the complaint must adequately plead that they breached the fiduciary duty of loyalty.
In this decision from the Court of Chancery, the Court found that the complaint failed to adequately plead non-exculpated claims against independent directors comprising a special committee. The special committee had been formed to, among other things, review a merger with a controlling stockholder. Although the transaction was structured under MFW, the Court previously found that the plaintiff adequately plead that the minority stockholders’ vote approving the transaction was not fully informed. Addressing, the special committee defendants’ independence, the Court held that, while the complaint alleged the special committee defendants had all been selected by the controller under the belief they would perform inadequately at their jobs, the alleged conduct did not go to the directors’ duty of loyalty. The Court next considered whether the complaint sufficiently alleged bad faith on the part of the special committee directors because they did not negotiate forcefully enough with the merger counterparty. On the contrary, and based on the complaint’s allegations, the Court found that the directors had negotiated “vigorously” and obtained a higher price than initially offered. Finally, with respect to alleged omissions in a proxy statement regarding the controller, the Court found that because it did not find a lack of independence on the part of the special committee defendants, there was also no sufficiently pleaded “bad faith” motive for the purported omissions. Accordingly, the Court dismissed the claims against the special committee defendants.
