Chancery Court Again Rejects Motion by Large Minority Blockholder to Dismiss Fiduciary Breach Claims Under Corwin
Vice Chancellor Slights’s extension of the inherent coercion doctrine to the summary judgment phase in Tesla II demonstrates the risks faced by dealmakers who hope to rely on a Corwin defense when a potential controlling stockholder is in the mix. In Tesla I, the Vice Chancellor refused to dismiss the claims for fiduciary breach brought against Musk and his codefendants because plaintiffs “pled sufficient facts to allow a reasonable inference that Musk was Tesla’s controlling stockholder.” In Tesla II, the result was much the same, as the inherent coercion doctrine continued to operate even though discovery had yielded no allegations of actual coercion by Musk. These rulings afford plaintiffs significant leverage in settlement discussions by placing a heavy burden on defendants at trial to either rebut the presumption of coercion by a controlling stockholder or satisfy the entire fairness standard of review.
Robert S. Reder and G. Parker Kolodka