Under the Delaware Supreme Court's decision in Corwin v. KKR Financial Holdings, 125 A.3d 304 (Del. 2015), business judgment review applies to cleanse a fiduciary challenge to a noncontrol transaction that was approved by an uncoerced, fully-informed, disinterested stockholder vote. Absent a claim of waste, the result of a Corwin-qualifying stockholder vote is dismissal. The Corwin doctrine is premised on the rationale that when a disinterested majority of stockholders approve a transaction, the vote represents their determination that the transaction is in the corporate interest, and Delaware courts will avoid second-guessing the stockholders' decision by applying the deferential business judgment rule.

While the Delaware courts have applied Corwin to dismiss a number of post-closing fiduciary challenges, firmly establishing the protection that stockholder approval can afford a transaction under Delaware law, the Court of Chancery has recently cautioned that Corwin “was never intended to serve as a massive eraser, exonerating corporate fiduciaries for any and all of their actions or inactions preceding their decision to undertake a transaction for which stockholder approval is obtained,” as in In re Massey Energy Co. Derivative & Class Action Litigation, C.A. No. 5430-CB (Del. Ch. May 4, 2017) (Bouchard, C.).

In its recent decision, Sciabacucchi v. Liberty Broadband, No. 11418-VCG (Del. Ch. May 31) (Glasscock, V.C.), the Court of Chancery reiterated this admonition in connection with its holding that Corwin did not apply to cleanse a fiduciary challenge to a transaction, which increased the equity and voting power of the largest stockholder, where the stockholder vote was structurally coerced. The court reasoned that because the stockholder vote to receive the benefits of two lucrative corporate acquisitions was tied to the stockholders' approval of an “extraneous” alleged self-dealing issuance of equity and increased voting power to the largest stockholder, the directors had coerced the stockholder vote in favor of this extrinsic transaction. Thus, stockholder ratification under Corwin was unavailable to cleanse the alleged self-dealing transaction, and the court directed further briefing to consider whether the fiduciary-duty claims themselves were legally sufficient in the motion to dismiss.

Background

The nominal defendant Charter Communications purchased Bright House Networks and acquired by merger Time Warner Cable in strategic transactions that were value enhancing to stockholders. The plaintiff's complaint focused, however, on a transaction related to the acquisitions. Charter's directors issued additional equity to its largest stockholder, Liberty Broadband, which held a 26 percent equity interest in Charter, to finance a relatively insignificant part of the total financing necessary to effectuate the two acquisitions. In addition, Liberty received a 6 percent voting proxy that increased its stockholder voting power. While this transaction was submitted for a separate stockholder vote apart from the vote on the acquisitions, the stockholders were nevertheless informed that the lucrative acquisitions of Bright House Networks and Time Warner Cable were expressly conditioned on their approval of the issuance of additional equity to Liberty and the voting proxy that increased its voting power.