The Delaware Court of Chancery (“Chancery Court”) generally is suspicious of a transaction involving a corporation and its controlling stockholder “where the controller indisputably stands on both sides” (quoting Viacom Litigation here and throughout the piece unless otherwise noted). The controlling stockholder can prove to be a coercive force, manipulating the individuals charged with negotiating the transaction and, as a result, the ultimate transaction terms. Then-Vice Chancellor Leo E. Strine, Jr., colorfully described the controller “as the 800-pound gorilla whose urgent hunger for the rest of the bananas is likely to frighten less powerful primates like putatively independent directors who might well have been hand-picked by the gorilla (and who at the very least owed their seats on the board to his support).” In re Pure Res., S’holders Litig., 808 A.2d 421 (Del. Ch. 2002) (citing Kahn v. Lynch Commc’n Sys., 638 A.2d 1110 (Del. 1994)). Typically, the Chancery Court reviews breach of fiduciary duty claims arising from conflicted transactions under the entire fairness standard—”the highest standard of review in corporate law.”

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AUTHORS:

Robert S. Reder

Lisa Orucevic