This issue covers important, developing areas of Delaware corporation law and deal litigation, including an increased focus on officer-related actions in merger litigation, the treatment of Caremark claims after Marchand and Clovis, fiduciary duty actions against executive directors following transactions approved by a disinterested and independent board, and recent guidance regarding when the deferential business judgment standard of review may apply to controlling stockholder “squeeze-out” mergers.
Recent Trends in Officer Liability
The Delaware Supreme Court has made clear that officers of Delaware corporations owe the same fiduciary duties of care and loyalty that directors owe to the corporation and its stockholders. To adequately plead a breach of the duty of loyalty, a plaintiff must show that fiduciaries acted in a self-interested manner or in bad faith. By contrast, for duty of care, a plaintiff must allege only that the fiduciaries acted in a grossly negligent manner. Over the past year, stockholder plaintiffs have increasingly pursued claims against officers for breaches of the duty of care. Moreover, such claims have been raised not only in the derivative context but in class action merger litigation as well, with mixed results.
Delaware Courts Examine Caremark After Marchand and Clovis
In 2019, the Delaware Supreme Court issued Marchand v. Barnhill, which was soon followed by the Court of Chancery’s opinion in In re Clovis Oncology Derivative Litigation. Both rulings sustained derivative claims for breach of directors’ oversight duties (so-called “Caremark” claims) at the motion to dismiss stage, marking the first times Delaware courts allowed such claims to survive the pleadings stage in more than two decades. The Court of Chancery has since issued several additional opinions addressing Caremark claims.
Delaware Decisions Highlight Pleading Requirements for Fiduciary Duty Claims in the Face of Disinterested Director Approval
Beginning in June 2020 with the Delaware Supreme Court's decision in City of Fort Myers General Employees’ Pension Fund v. Haley, Delaware courts recently have issued a series of decisions providing additional color on the pleading requirements to sustain a breach of fiduciary duty claim against executive directors even though the transaction was approved by a majority-disinterested-and-independent board of directors.
Recent MFW-Related Developments in Delaware Courts
The Delaware Supreme Court’s landmark 2014 decision in Kahn v. M&F Worldwide Corp. (MFW) established that the deferential business judgment standard of review could apply to controlling stockholder “squeeze-out” mergers under certain circumstances. Over the past year, the Delaware Court of Chancery has issued a number of significant decisions that provide further guidance about satisfying MFW's ab initio requirement, which circumstances are sufficiently coercive as to disable the protective effect of the MFW structure, and which rights and responsibilities must be reserved to a special committee of disinterested directors in order to retain the possibility of business judgment review for a controlling-stockholder transaction.