An “allegation that a transaction involves a controlling stockholder who stands on both sides is a serious one because it imposes fiduciary duties on the controlling stockholder and potentially strips directors of the deferential business judgment rule,” see Reith v. Lichtenstein, C.A. No. 2018-0277-MTZ (Del. Ch. 6/28/19). In her recent opinion in Reith, Vice Chancellor Morgan Zurn allowed a derivative complaint to proceed against a minority 35.6% stockholder because the complaint alleged with sufficient particularity that the stockholder exercised actual control in the challenged transactions, subjecting it to entire fairness review. Here the court found that the 35.6% stockholder wielded such formidable voting and managerial power in connection with a preferred stock offering and related equity grants that it was no differently situated than if it had majority control. In so ruling, the court adds Reith to a number of Delaware Court of Chancery decisions that have ruled that a minority stockholder’s exercise of actual control subjects the challenged transaction to entire fairness review.

In addition, the court allowed the equity grant claims to survive against independent directors who served on a special committee for the transaction and approved the grants. Sufficient allegations that the board knowingly or deliberately failed to adhere to the terms of a stock incentive plan when approving the stock grants implicate the duty of loyalty and stated a nonexculpated claim for breach of fiduciary duty.

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