Delaware jurisprudence encourages decision-making by boards of independent and disinterested directors. If a transaction does not involve a controlling stockholder and is approved by a majority of disinterested and independent directors, then a plaintiff cannot attack the transaction and seek damages except upon pleading that a majority of the board acted in bad faith.
As illustrated by the recent decision in Kahn v. Stern, C.A. No. 12498-VCG (Del. Ch. Aug. 28), this standard is difficult to meet. Invoking a metaphor from a Tennyson poem, Vice Chancellor Sam Glasscock held that the plaintiff had failed to plead facts demonstrating an entitlement to relief and hence to discovery and dismissed plaintiff’s challenge to a cash-out merger. The case provides guidance on the need for well-pleaded facts at the pleading stage to establish a reasonably conceivable basis to conclude that a majority of directors is not disinterested and independent or that a board acted in bad faith.
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