The standard of review for a transaction involving a controlling stockholder may determine whether the proponents can expect a Delaware court to approve a contested transaction without a trial. If the controlling stockholder is on both sides of a self-dealing transaction, entire fairness is the standard of review and defendants likely cannot avoid a trial because the question of the fairness of the process and price normally raises a triable issue of fact under Kahn v. Lynch Communication Systems, 638 A.2d 1110 (Del., 1994), and its progeny. The Court of Chancery's recent decision in In re MFW Shareholders Litigation, C.A. No. 6566-CS, which is on appeal to the Delaware Supreme Court, provides an exception if the controlling stockholder at the outset of a going-private transaction conditions consummation on negotiation and approval by a fully-informed special committee of disinterested and independent directors and a nonwaivable vote by a majority of the minority stockholders, and forgoes coercive measures that would prevent arm's-length bargaining.
The mere fact that a seller in a merger has a controlling stockholder who favors the transaction, however, does not by itself mean that entire fairness applies, as the Court of Chancery held in In re John Q. Hammons Hotels Shareholder Litigation, C.A. No. 758-CC (October 2, 2009), and In re Synthes Shareholder Litigation, C.A. No. 6452 (Aug. 17, 2012). The recent case of Southeastern Pennsylvania Transportation Authority v. Volgenau, C.A. No. 6354-VCN (Del. Ch. Aug. 5, 2013), applies that principle and provides important lessons for practitioners concerning the effect of different, but nonpreferential, treatment of a controlling stockholder and how a court assesses whether allegations that a special committee member is not independent raise a triable issue of fact.
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