In lawsuits challenging corporate transactions, the standard of review is often determinative. Under the business judgment rule, the decisions of corporate managers are generally presumed to have been made in good faith, and challenges to those decisions should be dismissed unless the plaintiff can plead facts showing that no rational person in good faith could have believed that the transaction was fair.1 But, when a corporation transacts with an interested party, the court will make a more searching assessment of the “entire fairness” of the transaction.
In those cases, the burden shifts to the defendants to demonstrate that the transaction was both procedurally and substantively fair.2 Practically speaking, while courts commonly dismiss cases on the pleadings under the business judgment standard, application of the entire fairness review typically precludes dismissal on the pleadings because the defendants bear the burden.3
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