The Delaware Supreme Court in Corwin v. KKR Financial Holdings LLC, No. 629, 2014 (Del., October 2, 2015), issued an important opinion authored by Chief Justice Leo E. Strine Jr. resolving uncertainty about the effect fully informed, disinterested shareholder approval has on the judicial review of a transaction. Specifically, the court ruled that in a merger transaction with a party other than a controlling shareholder, the voluntary, informed judgment of the disinterested shareholders to approve the transaction will invoke the business judgment rule standard of review. Thus, even if the board of directors is not independent and disinterested, and in the absence of a valid disclosure or waste claim, the approving shareholder vote will permit pleading-stage dismissal of the claims against the directors.
The uncertainty and need for clarification arose from an earlier 2009 Delaware Supreme Court decision, Gantler v. Stephens, 965 A.2d 695 (Del. 2009). The court then stated the doctrine of shareholder ratification would not apply to a disinterested majority shareholder vote to amend the certificate of incorporation because the approving vote was statutorily required. The court stated the cleansing effect of shareholder ratification on allegedly wrongful director action applied only when shareholder approval was not legally required for the director action to become effective. Although clarification of the shareholder ratification doctrine was not necessary in Gantler because the court determined the vote was based on material misrepresentations and not fully informed, Gantler generated uncertainty about the effect, if any, that voluntary, fully informed shareholder approval of a transaction should have on the court’s standard of review. (See In re Zale Stockholders Litigation, C.A. No. 9388-VCP (Del. Ch. October 1, 2015).)
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