May 24, 2017

Ten Recent Delaware Merger and Acquisition Cases Applying Corwin

Learn how stockholder approval insulates directors and officers from post-closing fiduciary duty claims under the landmark 2015 decision

Albert H. Manwaring IV, Albert J. Carroll, William M. Lafferty, and Peter Adams

The Delaware Supreme Court’s decision in Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015), reaffirmed the power of disinterested, uncoerced, and fully informed stockholder approval to invoke the business judgment rule and immunize merger and acquisition (M&A) transactions from breach of fiduciary duty claims. Under Corwin, where a transaction “not subject to the entire fairness standard of review has been approved by a fully informed, uncoerced majority of the disinterested stockholders,” Delaware courts will avoid second-guessing the stockholders by applying the business judgment rule, leaving waste as the only feasible claim to challenge the transaction. Id. at 305–6.

Because a court would have to make the dubious finding that stockholders approved an irrational deal to uphold a waste claim, a Corwin-qualifying vote should result in dismissal. Corwin therefore sets a very high bar for post-closing fiduciary duty claims against the merger target’s directors and officers (and any alleged aiders and abettors) in M&A transactions.

Delaware courts have applied Corwin to dismiss a number of post-closing challenges, and these decisions, discussed below, illustrate the significance and scope of the protection that stockholder approval affords M&A transactions under Delaware law.

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