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2004 Recent Developments in Delaware Corporate Law 177 

RECENT DEVELOPMENTS 

IN DELAWARE CORPORATE LAW 

Cathy L. Reese and Kelly A. Herring * 

Over the last several months, the Delaware Supreme Court and Court of Chancery 

have issued significant corporate decisions on topics as diverse as (i) post-agreement market 

checks, (ii) director independence, (iii) entire fairness review, (iv) the acquiescence defense 

in cash-out mergers, (v) annual shareholder meeting requirements, and (vi) limitations 

on a controlling shareholder’s power. Recurrent themes raised by these decisions include 

(i) the standard of proof for director independence, (ii) the effect of a properly functioning 

special committee or a majority-of-the-minority vote on stockholder litigation, and 

(iii) what constitutes a breach of the Caremark 1 duty of oversight. 

Part I of this article summarizes these recent decisions. Part II examines their 

practical implications. 

* Cathy L. Reese is a shareholder with the Wilmington office of Greenberg Traurig, 

LLP. Kelly A. Herring is an associate at the Wilmington office of Greenberg Traurig, LLP. The authors 

wish to thank Paul D. Brown, an associate at the Wilmington office of Greenberg Traurig, LLP, for 

his assistance in the preparation of this article. 

1. In In re Caremark International Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 

1996) (“Caremark”), Chancellor Allen updated the duty of “oversight” defined by the Delaware 

Supreme Court in Graham v. Allis-Chalmers Manufacturing Co., 188 A.2d 125 (Del. 1963). In 

Caremark, Chancellor Allen stated: 

I am of the view that a director’s obligation includes a duty to attempt in good 

faith to assure that a corporate information and reporting system, which the 

board concludes is adequate, exists, and that failure to do so under some circumstances 

may … render a director liable for losses caused by non-compliance 

with applicable legal standards. 

Caremark, 698 A.2d at 970.

178 Delaware Law Review Volume 7:2 

I. CASE SUMMARIES 

A. The Market Check Revisited 

In In re The MONY Group Inc. Shareholder Litigation, 2 the Court of Chancery 

confirmed its earlier decisions in In re Pennaco Energy, Inc. Shareholders Litigation 3 and 

Kohls v. Duthie 4 and held that a properly structured post-merger agreement market check 

may be upheld even under strict Revlon scrutiny. 5 

In MONY, the stockholder-plaintiffs sought an injunction against the stockholder 

vote on the merger agreement pursuant to which The MONY Group Inc. (“MONY”) and 

an acquisition subsidiary wholly owned by AXA Financial, Inc. (“AXA”) would merge. 

The complaint alleged a violation of the duties outlined in Revlon, as well as disclosure 

violations. 6 

In November 2002, the MONY board of directors (the “MONY board”) began 

discussions with its financial advisor, Credit Suisse First Boston LLC (“CSFB”), on how 

to resolve some of MONY’s financial woes. CSFB created a list of potential partners for 

MONY, including AXA, a large and stable insurance company that operated under the same 

business model as MONY. At that time, the MONY board rejected the idea of a public 

auction for MONY, believing that an auction process, especially a failed one, could greater 

weaken MONY’s financial condition by providing confidential information to competitors 

2. 852 A.2d 9 (Del. Ch. 2004). 

3. 787 A.2d 691 (Del. Ch. 2001). 

4. 765 A.2d 1274 (Del. Ch. 2000). 

5. In Revlon Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986) 

(“Revlon”), the Delaware Supreme Court held that the decision of a board of directors permitting 

management to negotiate a merger or buyout with a third party was a recognition that the company 

was for sale and changed the board’s duty from preservation of Revlon as a corporate entity to the 

immediate maximization of the company’s value at a sale for the stockholders’ benefit. 

6. Given the fact-specific nature of the alleged disclosure claims, they are not discussed 

herein. Suffice it to say, the court reviewed the challenged proxy disclosures and determined that 

material information necessary for shareholders to make an informed decision on the merger was 

somewhat incomplete or misleading. The court, therefore, granted a limited injunction relating 

solely to defective proxy statement disclosures concerning payments under certain change-in-control 

agreements, but denied the remainder of the plaintiffs’ preliminary injunction application.


and undermining MONY’s career agency work force. 7 The MONY board did, however, 

direct its chairman and CEO, Michael I. Roth, to “quietly explore merger opportunities.” 8 

After Roth met with AXA’s CEO and reported his discussions of this meeting, as well as 

discussions with other potential partners, the MONY board authorized Roth to solicit 

interest from AXA, but not from any other potential acquiror. 

Roth and AXA negotiated over an approximately five-month period, during 

which AXA lowered its initial offer based on the estimated value of the change-in-control 

agreements between MONY and MONY’s senior management (“CICs”), and the MONY 

board rejected AXA’s offer of a stock-for-stock merger using American Depository Receipts 

(“ADRs”) as consideration. 

By June 2003, the MONY board had engaged a compensation consulting firm 

to analyze the CICs and the effect the CICs might have on any merger with AXA. Implicitly 

based on this information, the MONY board informed senior management that 

the CICs — set to expire in December — would not be renewed and, instead, that new 

CICs with lower pay-out provisions would be offered. Senior management accepted this 

“take-it-or-leave-it” offer from the MONY board. 9 

Thereafter, in August 2003, AXA reemerged and communicated a higher offer 

to Roth. After informing AXA about the new CICs, Roth negotiated an even higher price 

from AXA, as well as a provision allowing MONY to pay a dividend of about $0.25 per 

share before the consummation of any transaction with AXA. Thereafter, in September, 

MONY and AXA announced that they had signed a merger agreement, which provided 

for a broad “window-shop” provision and a “fiduciary out” termination clause that allowed 

the MONY board to respond to a superior offer upon the payment of a termination fee 

representing approximately 3.3% of the deal’s equity and 2.4% of the transaction value. 

The stockholder-plaintiffs then brought their action in the Court of Chancery 

seeking a preliminary injunction against a stockholder vote on the merger. The plaintiffs 

alleged that the MONY board breached its Revlon duties in conducting a post-agreement 

market check that purportedly failed to maximize stockholder value as required by Revlon, 

and by relying on Roth — who stood to gain under his CIC — to negotiate the transaction. 

7. MONY, whose business is selling life insurance policies to high-income individuals, 

uses a “career agent” system to market its projects, rather than a more centralized and advertising-based 

system. MONY, 852 A.2d at 15. 

8. Id. at 16. 

9. Id. at 17.


With respect to the allegedly misplaced reliance on Roth to negotiate the transaction, 

the court concluded that the MONY board’s reliance on Roth was both “reasonable and 

well-founded” under the circumstances, given that: (i) it was the MONY board, not Roth, 

that determined to sell the company and trigger the CICs under which Roth stood to gain; 

(ii) the MONY “[b]oard actively supervised Roth’s negotiations” with AXA; and (iii) the 

MONY “[b]oard repeatedly demonstrated its independence and control.” 10 Accordingly, 

the court, citing its holding in Pennaco, concluded that “[a] board appropriately can rely 

on its own CEO to conduct negotiations, and the involvement of an investment banker 

is not required.” 11 

Citing to both Chancery and Supreme Court precedents, the court also rejected 

plaintiffs’ Revlon claim. First, the stockholder-plaintiffs alleged that the MONY board 

erred in deciding to forego an auction of MONY in favor of a post-agreement market 

check. Quoting Pennaco, the court reiterated that “the mere fact that [a] board decided 

to focus on negotiating a favorable price with [one potential acquiror] and not to seek 

out other bidders is not one that alone supports a breach of fiduciary duty claim.” 12 The 

court concluded that the MONY board acted reasonably in determining to proceed with 

a post-agreement market check rather than conduct an auction in light of the following 

factors: (i) an earlier attempt by another insurance company to conduct a public auction 

that ultimately failed harshly affected that company’s business and its stock price; (ii) an 

auction would jeopardize MONY’s career agency force; (iii) in an auction competitors 

would have access to MONY information and its career agents; and (iv) the permissibility 

of a post-agreement market check. 13 

Second, the plaintiffs argued that the MONY board did not reasonably conclude 

that the merger agreement provided the “best transaction reasonably available” as required 

by Revlon. Again, the court rejected the plaintiffs’ arguments, recognizing that the “financially 

sophisticated and knowledgeable” board members were regularly briefed by Roth on 

strategic alternatives, industry developments, and alternatives to the merger agreement, 

10. Id. at 20. 

11. Id. (citing Pennaco, 787 A.2d at 706-07). 

12. Id. at 21 (quoting Pennaco, 787 A.2d at 706). 

13. Id. at 21.


and had retained CSFB to provide “advice in maximizing stockholder value” and a fairness 

opinion. 14 As stated by the court: 

Using these resources and the considerable body of information available 

to it, the Board determined that because MONY and AXA share 

a similar business model, the career agency distribution system, and 

have complimentary products, AXA was a “perfect fit,” for MONY, 

and thus presented an offer that was the best price reasonably available 

to [MONY] stockholders. 15 

Finally, the stockholder-plaintiffs directly challenged the post-agreement market 

check conducted by the MONY board. Again, the court rejected the plaintiffs’ argument 

upholding the five-month market check conducted by MONY in light of other cases upholding 

market checks from between one and two months. 16 The court further concluded 

that the 3.3% of total equity value (2.4% of total transaction value) termination fee and 

the CICs did not prevent an adequate market check, given that the termination fee was 

“well within the range of reasonableness” and the CICs “are bidder neutral; they would 

affect any potential bidder in the same fashion as they affected AXA.” 17 

B. Director Disinterest and Independence 

Delaware courts have issued a number of recent decisions involving evaluations of 

director independence and disinterest in stockholder suits. These inquiries are highly fact 

specific and often turn on which party carries the burden of proof and whether the issue is 

raised at the initial pleading stage or after discovery and a trial. The stakes on this issue are 

14. Id. at 22. In this regard the court noted that CSFB was “incentivized to obtain the 

best available price due to a fee that was set at 1% of transaction value; and CSFB was not aware of 

any other entity that had an interest in acquiring MONY at a higher price.” Id. 

15. Id. 

16. Id. at 23 (citing Kohls v. Duthie, 765 A.2d 1274, 1282 n.9 (Del. Ch. 2000) (20 

days); In re Formica Corp. S’holders Litig., C.A. No. 10598, 1989 WL 25812, at *12 (Del. Ch. 

Mar. 22, 1989) (30 days); and In re Ft. Howard Corp. S’holders Litig., C.A. No. 9991, 1988 Del. 

Ch. LEXIS 110, at *37-46 (Del. Ch. Aug. 8, 1988) (6 weeks)). 

17. MONY, 852 A.2d at 24.


generally high. Failure to adequately plead or prove facts establishing director interest or lack 

of independence can result in dismissal of a derivative or class action. On the other hand, 

sufficient proof of director independence and disinterest at trial can shift to the plaintiff 

the heavy burden of proving the unfairness of the challenged transaction. 

In Krasner v. Moffett, 18 the Supreme Court reversed the Court of Chancery’s 

dismissal of a complaint challenging the approval of a merger (the “FSC-MOXY Merger”) 

of two “sister” corporations, Freeport-McMoRan Sulphur, Inc. (“FSC”) and McMoRan 

Oil & Gas Co. (“MOXY”), into a holding company created to effect the merger. The 

Court of Chancery originally dismissed the plaintiffs’ complaint under Court of Chancery 

Rule 12(b)(6), concluding that although the complaint alleged facts sufficient to infer that a 

majority of the FSC board of directors had a disabling self-interest, the complaint did “not 

allege facts sufficient to [impugn] the disinterest, independence or processes of the special 

committee … [to which] the negotiation of the transaction was specifically entrusted.” 19 

The Supreme Court reversed the Court of Chancery, effectively concluding 

that because, as the Court of Chancery determined, the plaintiffs pleaded sufficient facts 

to infer that a majority of FSC’s directors were interested in the FSC-MOXY Merger, a 

dismissal of the complaint under Court of Chancery Rule 12(b)(6) was precluded. 20 First, 

the Supreme Court concluded that the allegations contained in the complaint that three 

of the seven FSC directors were interested in the FSC-MOXY Merger “because they served 

on the boards of the directors of both MOXY and FSC” were sufficient to infer a disabling 

self-interest. 21 Second, the Supreme Court found that the complaint’s allegations that two 

additional FSC directors “allegedly received substantial income from other entities within 

the interlocking directorates of Freeport-McMoRan companies and arguably had an interest 

in appeasing the MOXY and FSC insiders who also served with [these two directors] 

18. 826 A.2d 277 (Del. 2003). 

19. Id. at 282 (quoting In re Freeport-McMoRan Sulphur Inc. S’holders Litig., C.A. 

No. 16729, slip op. at 40-41 (Del. Ch. Sept. 10, 2002) (bench ruling)). 

20. The Supreme Court also confirmed the Court of Chancery’s determination that 

“plaintiffs are entitled to the inference that they may have a cognizable disclosure claim relating to 

the stock purchase program,” given that only months after the stock purchase program, the directors 

approved the FSC-MOXY Merger and the consideration provided to the FSC stockholders therein, 

which was based partly on FSC’s market capitalization. Krasner, 826 A.2d 283-84. 

21. Id. at 283.


on the boards of other Freeport companies” were similarly sufficient to infer a disabling 

conflict of interest. 22 

To counter these allegations, the defendant-directors asserted that their use of a 

two-member special committee to negotiate the FSC-MOXY Merger 23 entitled them to 

the presumption of the business judgment rule. 24 The Supreme Court rejected the defendants’ 

arguments, finding that because plaintiffs pleaded adequately that the merger was 

not approved by a majority of disinterested directors, plaintiffs were entitled to inferences 

that might result in the application of the entire fairness standard of review rather than 

the business judgment standard. Concluding that because the defendants bore the burden 

of proving that the FSC-MOXY Merger “was approved by a committee of interested 

directors, acting independently, with real bargaining power to negotiate the terms of the 

merger,” 25 and the determination of the “independence of the special committee involved 

a fact-intensive inquiry that varies from case to case,” the complaint could not be dismissed 

under Court of Chancery Rule 12(b)(6). 26 

In Guttman v. Huang, 27 the plaintiff brought a derivative action against all of 

NVIDIA Corporation’s directors and officers on both insider trading and Caremark 

grounds. 28 The defendants thereafter moved to dismiss for failure to make a demand under 

Court of Chancery Rule 23.1. Because the plaintiff alleged that the defendants breached 

their fiduciary duties in trading on material, non-public information, the parties agreed 

22. Id. 

23. As noted by the court, a special committee does not have the power to approve a 

merger agreement and recommend it to the corporation’s stockholders under section 141(c)(2) of 

the Delaware General Corporation Law. Krasner, 826 A.2d at 288, n.42. 

24. Id. at 284. 

25. Id. at 284-85. 

26. Id. at 286. 

27. 823 A.2d 492 (Del. Ch. 2003). 

28. The plaintiff’s Caremark claims are addressed in section I.


that the Rales test, 29 as opposed to the Aronson test, 30 should govern the motion to dismiss 

under Court of Chancery Rule 23.1. 31 

The plaintiff alleged that each of the seven members of the NVIDIA board was 

“‘interested’ for purposes of considering a demand because each traded stock during the 

Contested Period.” 32 The court rejected “this attempt to extend concepts designed to fit 

classic self-dealing transactions into another context that is quite different.” 33 Instead, the 

court determined that the alleged “interested” transaction involved in the insider trading 

claim was a transaction not between the defendant-directors and NVIDIA, but rather between 

the defendant-directors and marketplace buyers that did not warrant an automatic 

conclusion that the directors were “interested.” 34 The court then proceeded to discuss 

29. See Rales v. Blasband, 634 A.2d 927, 934 (Del. 1993). The Rales test is outlined in 

brief in footnote 49 infra. 

30. See Aronson v. Lewis, 473 A.2d 805 (Del. 1984). 

31. Guttman, 823 A.2d at 499-500 (“As this court held in In re Baxter Int’l, Inc. S’holders 

Litig. — and both parties concur — these kinds of allegations do not attack a specific business judgment 

of the board, and, therefore, the Rales test, and not the two-pronged demand excusal test of 

Aronson v. Lewis, is applied to determine whether demand is excused.”). 

32. Id. at 502. See also Rattner v. Bidzos, C.A. No. 19700, 2003 WL 22284323 (Del. 

Ch. Sept. 30, 2003) (making similar claims of insider trading). 

33. Guttman, 823 A.2d at 502. 

Id. 

34. Id. at 502. The court explained as follows: 

As a matter of course, corporate insiders sell company stock and such sales, in 

themselves are not quite as suspect as a self-dealing transaction in which the 

buyer and seller can be viewed as sitting at both sides of the negotiating table. 

Although insider sales are (rightly) policed by powerful forces — including 

criminal laws — to prevent insiders from unfairly defrauding outsiders by 

trading on non-public information, it is unwise to formulate a common law 

rule that makes a director “interested” whenever a derivative plaintiff cursorily 

alleges that he made sales of company stock in the market at a time when he 

possessed material, non-public information.


whether the board’s impartiality was compromised by the threat of personal liability for 

insider trading. 35 

In order for the members of the board (other than defendant-directors Huang 

and Gaither, whose lack of impartiality was assumed by the court) to have their impartiality 

compromised: 

[T]hey must face a substantial likelihood of liability for breach of 

fiduciary duty for one of two alternative reasons: (1) that they personally 

profited from stock sales while in knowing possession of material, 

non-public information or (2) that they committed a non-exculpated 

breach of fiduciary duty by failing to oversee the company’s compliance 

with legally mandated accounting disclosure standards. 36 

The court ultimately concluded that the “cursory allegations of the complaint … do not 

come close to meeting the plaintiffs’ burden to show that these five defendants face a substantial 

threat of liability for insider-trading based on fiduciary duty violations,” primarily 

because the complaint failed to “provide[] any particularized basis to infer that these outside 

directors had any idea about the questionable accounting practices underlying the insider 

trading clauses.” 37 

In In re eBay, Inc. Shareholders Litigation, 38 the Court of Chancery concluded that 

compensation paid to the directors of eBay, Inc. (“eBay”) was so significant as to compromise 

the directors’ independence in the demand futility context. 

35. The court assumed without deciding that defendant Huang, the only member of 

management, and defendant Gaither, former partner and current senior counsel at Cooley Godward, 

a law firm that had previously represented NVIDIA, could not exercise impartiality with respect to 

a demand by the plaintiff. Id. at 502-03. 

36. Id. at 503. 

37. Id. at 504. See also Rattner v. Bidzos, C.A. No. 19700, 2003 WL 22284323 (Del. 

Ch. Sept. 30, 2003) (similarly concluding that mere allegations of trading during the relevant period, 

with no accompanying allegations as to the knowledge of the directors of inside information, did 

not compromise the independence of the directors). 

38. C.A. No. 19988, 2004 WL 253521 (Del. Ch. Jan. 23, 2004). The court in eBay also 

found that the complaint’s “spinning” allegations stated a corporate opportunity claim. In addition, 

the court concluded that the plaintiff had adequately stated an aiding and abetting claim against 

Goldman Sachs with respect to the defendant-directors’ breach of fiduciary duty. These claims are 

not discussed herein.


In eBay, three of the seven eBay director-defendants participated in The Goldman 

Sachs Group, Inc.’s “spinning” practice, which was the subject of the plaintiff-shareholders’ 

corporate opportunity claim. The complaint alleged that certain of eBay’s directors invested 

in initial public offerings at the initial public offering price through favored treatment by 

eBay’s investment banker, The Goldman Sachs Group, Inc. — a practice commonly known 

as “spinning.” As such, these three director-defendants were determined by the court to 

be “clearly interested in the transactions at the core of this controversy.” Given the interest 

of three of the seven members of the eBay board, the court concluded that the plaintiffs 

needed only to “demonstrate a reason to doubt the independence of one of the remaining 

four directors.” 39 

Most important to the court’s ultimate determination, the plaintiffs alleged that 

three of the four remaining directors “received huge financial benefits as a result of their 

positions as eBay directors and, furthermore, that they owe their positions on the board to 

[the conflicted directors].” 40 The complaint alleged that eBay paid no cash compensation 

to the members of its board of directors and instead awarded substantial stock options 

having a relatively low exercise price that vested over time as the directors continued to 

remain as members of the eBay board. Given that the complaint adequately alleged that 

these directors stood to gain potentially millions of dollars upon the exercise of such options 

and that the conflicted directors “controlled” eBay, the court concluded that the complaint 

adequately alleged demand futility. 41 

In In re Oracle Corp. Derivative Litigation, 42 the Court of Chancery considered 

and denied a motion to terminate made by the special litigation committee of Oracle Corporation 

(“Oracle”) with respect to the plaintiffs’ insider trading and Caremark claims. The 

special litigation committee was formed as a Zapata committee 43 specifically to consider 

the claims made by the plaintiffs. After completing its investigation, the special committee 

moved to terminate the litigation. 

39. Id. at *2. 

40. Id. 

41. Id. at *2-3. 

42. 824 A.2d 917 (Del. Ch. 2003). 

43. See Zapata Corp. v. Maldonado, 430 A.2d 779 (Del. 1981).


In considering the special committee’s motion to terminate, the court first noted 

that under the teachings of Zapata, the special litigation committee “bears the burden of 

persuasion on this motion and must convince me that there is no material issue of fact calling 

into doubt its independence.” 44 The court thereafter refused the special committee’s motion 

to terminate, concluding that there was too much doubt about the special committee’s 

independence for it to bear its burden. This doubt was created by social, as opposed to 

traditional economic, interests. 45 In fact, it was the contacts of the members of the special 

committee with Stanford University that called their independence into question in the 

mind of the court. 

First, the court found that the members of the special committee, both professors 

at Stanford University, were required to make a determination of whether to bring an 

insider trading claim against another member of the Oracle board who was also a professor 

at Stanford University, who had taught one of the special committee members when he 

was a Ph.D candidate, and who served as a senior fellow and steering committee member 

alongside that same special committee member at the Stanford Institute for Economic 

Policy Research (“SIEPR”). 46 Second, the members of the special committee had to make 

the same determination with respect to another member of the Oracle board of directors 

who was the chair of the SIEPR’s advisory board and a major benefactor of Stanford. Finally, 

the members of the special committee were required to make the same determination with 

respect to Oracle’s CEO, who had donated millions of dollars to Stanford directly through 

Oracle. Based on the foregoing ties, the court concluded that “these connections generate 

a reasonable doubt about the [special committee’s] impartiality because they suggest that 

material considerations other than the best interests of Oracle could have influenced the 

44. Oracle, 824 A.2d at 920. 

45. Id. at 938. In fact, the court specifically chose not to ignore the social relationships 

of the members of the special committee, stating pointedly that Delaware law should not ignore 

social ties in its independence analysis. The court stated in relevant part: 

Id. 

Nor should our law ignore the social nature of humans. To be direct, corporate 

directors are generally the sort of people deeply enmeshed in social institutions. 

Such institutions have norms, expectations that, explicitly or implicitly, influence 

and channel the behavior of those who participate in their operation. Some 

things are “just not done,” or only at a cost, which might not be so severe as a 

loss of position, but may involve a loss of standing in the institution. 

46. Id. at 942-43.


[special committee’s] inquiry and judgments.” 47 Because of the social ties — as opposed to 

purely economic interest — of the members of the special committee, the court refused to 

grant the special committee’s motion to terminate. 

In contrast to the holding in Oracle, however, the Court of Chancery in Beam 

ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart 48 refused to find that social ties 

between the directors of Martha Stewart Living Omnimedia, Inc. (“MSO”) rose to such 

a level as to compromise their independence under the somewhat different Rales test. 49 

Although the court assumed that director-defendant Martha Stewart, the subject of significant 

criminal and civil claims of insider trading, and director-defendant Sharon Patrick, 

chief operating officer of MSO and recipient of compensation of $980,000 in salary and 

bonuses, could not act independently under the Rales test, it refused to so find with respect 

to the four remaining directors of MSO. With respect to the four “outside” directors, the 

court concluded that Stewart’s control of over 94% of the shareholder vote did not “by 

itself demonstrate that Stewart ha[d] the capacity to control the outside directors, but 

is not without relevance to whether there is a reasonable doubt of the outside directors’ 

independence of Stewart.” 50 The plaintiff, however, failed to demonstrate that Stewart’s 

ownership was material to the outside directors. 

Although the plaintiff alleged that two of the outside directors had “long-standing 

friendships” with Stewart, the court did not find them material enough to raise a reasonable 

doubt as to these two directors’ independence. With respect to director-defendant Arthur 

Martinez, the court acknowledged that the complaint alleged that Martinez had business 

ties to MSO because he was previously employed by Sears, which marketed a “substantial 

quantity of MSO products,” and that defendant-director Patrick had been quoted by a 

magazine attesting to Martinez being an “old friend” of Stewart and Patrick. Nevertheless, 

the court found Martinez’ participation as an “executive and director for major corporations 

since at least 1990” and current position as director of four prominent corporations, 

47. Id. at 947. 

48. 833 A.2d 961 (Del. Ch. 2003), aff’d, 845 A.2d 1040 (Del. 2004). 

49. The Rales test was articulated by the court in Martha Stewart as follows: “The Court’s 

task is to evaluate whether the particularized allegations [of the complaint] ‘create a reasonable doubt 

that, as of the time the complaint [was] filed, the board of directors could have properly exercised 

its independent and disinterested business judgment in responding to a demand.’” Martha Stewart, 

833 A.2d at 977 (quoting Rales v. Blasband, 634 A.2d 927, 934 (Del. 1993)). 

50. Id. at 977-78.


including MSO and the Federal Reserve Bank of Chicago, weighed against his alleged social 

ties to Stewart. Ultimately, the court concluded that it could not “reasonably infer, on the 

basis of several years of business interactions and a single affirmation of friendship by a 

third party, that the friendship between Stewart and Martinez raises a reasonable doubt of 

Martinez’ ability to evaluate demand independently of Stewart’s personal interests.” 51 

With respect to director-defendant Darla Moore, the court acknowledged that 

a Fortune magazine article published in 1996 “focused on the close personal relationship 

among Moore, Stewart, and Beers” (a former MSO director). 52 The court nevertheless 

concluded that although it was “quite a close call,” the social relationship between Stewart 

and Moore alleged in the complaint did not compromise Moore’s independence. 53 

Similarly, the court concluded that the allegations of the complaint that 

defendant-director Naomi Seligman “expressed concern” over an unflattering biography 

of Stewart slated to be published was also insufficient to demonstrate that Seligman’s independence 

was compromised. In so deciding, the court considered that as a director of 

MSO, Seligman may have perceived a fiduciary interest in protecting the public image of 

Martha Stewart. 54 

In sum, the Court of Chancery in Martha Stewart refused to find that the 

defendant-directors’ social ties rose to such a level as to compromise their independence 

in the demand excused context. It did so because of the different context from Oracle. The 

standard in Oracle or any case involving a Zapata committee is significantly higher for 

defendants than in the Court of Chancery Rule 23.1 context at issue in Martha Stewart, 

as the differing outcomes make clear. 

The Delaware Supreme Court unanimously affirmed the Court of Chancery’s 

decision in Martha Stewart, 55 holding that, in the demand futility context, allegations of 

personal friendship and outside business relationships between otherwise independent 

directors and a defendant who is also the company’s chairman, chief executive, and 

51. Id. at 978-80. 

52. Id. at 980. 

53. Id. 

54. Id. at 980-81. 

55. Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, et al., 845 A.2d 

1040 (Del. 2004).


controlling shareholder are, without more, insufficient to rebut the presumption of the 

directors’ independence. 

On appeal, the Supreme Court focused only on the demand futility issue. Applying 

the two-prong demand futility test of Aronson v. Lewis, 56 the Supreme Court reviewed de 

novo the Court of Chancery’s dismissal of the derivative suit for failure to adequately plead 

demand futility. 57 The Supreme Court observed that directors are presumed to have been 

faithful to their fiduciary duties and that the burden is on shareholder derivative plaintiffs 

to overcome that presumption by alleging particularized facts in their complaints creating 

a reasonable doubt of a director’s independence. 58 The Supreme Court defined the specific 

issue on appeal as “the quantum of doubt about a director’s independence that is ‘reasonable’ 

in order to excuse a presuit demand.” 59 

The Supreme Court emphasized that independence is a fact-specific, contextual 

inquiry. To show a lack of independence, the stockholder-plaintiff must create a reasonable 

doubt that a director is “so ‘beholden’ to an interested director (in this case Stewart) that 

his or her ‘discretion would be sterilized.’” 60 Applying these standards, the Supreme Court 

determined that “[a]llegations that Stewart and the other directors moved in the same 

social circles, attended the same weddings, developed business relationships before joining 

the board, and described each other as ‘friends,’ even when coupled with Stewart’s 94% 

56. 473 A.2d 805 (Del. 1984). 

57. Id. at 1048. See Aronson, 473 A.2d at 814 (establishing that in determining demand 

futility a court must analyze whether “(1) the directors are disinterested and independent and (2) the 

challenged transaction was otherwise the product of a valid exercise of business judgment”). 

58. The Supreme Court stressed that shareholders could meet that burden by exhausting 

all reasonably available means, including their inspection rights under Section 220 of the Delaware 

General Corporation Law. Martha Stewart, 845 A.2d at 1056-57. Had Beam inspected MSO’s books 

and records, the court noted, she might have uncovered, for example, (i) “irregularities or ‘cronyism’ 

in MSO’s process of nominating board members”; (ii) “whether the board used a nominating 

committee to select directors and maintained a separation between the director-selection process 

and management”; (iii) “whether Stewart unduly controlled the nominating process or whether the 

process incorporated procedural safeguards to ensure a director’s independence”; or (iv) whether 

board meeting minutes revealed “how the directors handled Stewart’s proposals or conduct in various 

contexts.” Id. at 1056. If such facts existed, they could have helped Beam overcome the independence 

presumption. 

59. Id. at 1048. 

60. Id. at 1050.


voting power, are insufficient, without more, to rebut the presumption of independence.” 61 

Rather, the Supreme Court concluded that to rebut the presumption of independence, a 

relationship must be “so close that the director’s independence may reasonably be doubted.” 62 

Such doubt could arise from “financial ties, familial affinity, a particularly close or intimate 

personal or business affinity or because of evidence that in the past the relationship caused 

the director to act non-independently vis-à-vis an interested director.” 63 

The Supreme Court in Martha Stewart distinguished and reconciled the Oracle 

decision (discussed above) on procedural grounds. As the court put it, “unlike the demand 

excusal context [at issue in Martha Stewart], where the board is presumed to be independent, 

the SLC [in Oracle] has the burden of establishing its own independence by a yardstick that 

must be ‘like Caesar’s wife’ — ‘above reproach.’” 64 Additionally, unlike the presuit demand 

context at issue in Martha Stewart, the SLC analysis in Oracle contemplates not only a shift 

in the burden of persuasion, but also the availability of discovery into independence. 65 The 

Supreme Court declined to decide whether the substantive standard of independence in 

an SLC case differs from that in a presuit demand context. 

C. Entire Fairness Review 

In In re Cysive, Inc. Shareholders Litigation, 66 after an expedited trial on plaintiffs’ 

claims, the Court of Chancery found that a management-buyout met the exacting entire 

fairness standard. At the outset, the court concluded that Nelson Carbonell, the chairman, 

chief executive officer, director, and largest stockholder of Cysive, Inc. (“Cysive”), was a 

“controlling stockholder” warranting the application of the Lynch doctrine set forth in Kahn 

v. Lynch. 67 The court concluded that Carbonell was a “controlling stockholder” based on the 

61. Id. at 1051. 

62. Id. (emphasis in original). 

63. Id. 

64. Id. at 1055. 

65. Id. 

66. 836 A.2d 531 (Del. Ch. 2003). 

67. Kahn v. Lynch Comm. Sys., Inc., 638 A.2d 1110 (Del. 1994).


following facts: (i) Carbonell, the chief financial officer of Cysive, together with Carbonell’s 

close friend and confidant and Carbonell’s family members, controlled 36% of the Cysive 

shares before options and 40% after options 68 and was therefore a “dominant force in any 

contested Cysive election 69 ; (ii) Carbonell was “by admission, involved in all aspects of 

the company’s business, was the company’s creator, and has been an inspirational force” 70 ; 

and (iii) Carbonell exerted “practical control” as “evidenced by the presence of two of his 

close family members in executive positions” at Cysive and the fact that his sister worked 

at the company in the past. 71 

Given that Carbonell was a “controlling stockholder,” the court concluded that 

the Lynch doctrine applied, requiring the application of the entire fairness standard. 72 To 

counter the application of the entire fairness standard of review, the defendants argued 

that the existence of a valid special committee shifted the burden of persuasion on the issue 

of fairness back to the plaintiffs. Relying on Krasner v. Moffett, 73 the court explained 

that only in unusual circumstances would defendants be able to obtain a dismissal at the 

pleading stage based on the existence of a validly functioning special committee. The court 

stated in relevant part: 

Recently, the Supreme Court expressly held that defendants could not 

meet their burden to prove a valid special committee process at the 

pleading stage and that a full factual record had to be developed. And, 

even if the defendants could obtain the burden shift more easily, that 

would still not obviate the need for a trial as long as the plaintiffs produce 

evidence creating a genuine dispute of fact regarding the economic 

fairness of the transaction. 74 

68. Cysive, 836 A.2d at 535. 

69. Id. at 551-52. 

70. Id. at 552. 

71. Id. 

72. Id. at 547. 

73. 826 A.2d 277 (Del. 2003). 

74. Cysive, 836 A.2d at 549 (citing, in part, Krasner, 826 A.2d at 279).


Notwithstanding the application of the exacting entire fairness standard of review, 

however, the court concluded that that burden was carried by the defendant-directors. 75 In so 

concluding, the court found both the “process” and the “price” of the management-buyout 

to be entirely fair as required by the entire fairness standard. 

First, the court concluded that the “process” was fair in light of the following facts: 

(i) “the decision to enter into the [merger] Agreement [with Carbonell] was preceded by 

an active and aggressive search for a third-party buyer” “undertaken by a skilled investment 

bank with the aid of top managers who were motivated to find a buyer who would pay a 

good price” 76 ; (ii) “once the [Carbonell] offer was made, a special committee was set up 

that had full authority to negotiate with Carbonell on Cysive’s behalf regarding the transaction,” 

77 and whose members took their “responsibilities seriously” 78 ; (iii) the committee 

was not “subjected to threats from or strong-arming by Carbonell” 79 ; (iv) the presence of 

an independent board majority 80 ; and (v) the Carbonell merger agreement provided for 

a post-signing market check pursuant to which “the committee retained the flexibility to 

abandon the [Carbonell] Agreement in favor of a better deal and did not subject the company 

to any unreasonable penalty for doing so.” 81 The court further noted that while Carbonell’s 

stockholdings would require any third-party offeror to garner his support, “nothing in the 

record suggests that Carbonell would not sell for the right price or that he has in any way 

improperly impeded the committee’s exploration of other options.” 82 

75. Recognizing that the defendants had “the initial burden to show that the special 

committee process was effective enough to warrant burden-shifting under the Lynch doctrine,” the 

court nevertheless, “for reasons of efficiency and clarity of logic,” chose to “instead jump right into 

the thick of the fairness inquiry.” Cysive, 836 A.2d at 553. 

76. Id. at 553. 

77. Id. at 554. 

78. Id. 

79. Id. 

80. Id. at 555. 

81. Id. The termination fee was $1.65 million, including expenses, and the final 

Carbonell Agreement did not contain a no-shop provision. Carbonell was, however, provided with 

forty-eight hours to match any superior offer. 

82. Id. at 556.


Second, the court concluded that the “price” was fair largely because Cysive’s 

pre- and post-agreement market checks brought forth no third-party bidders. Specifically, 

the court concluded that “[g]iven the substantial efforts that have been undertaken to find 

other buyers and the market’s knowledge that Cysive is for sale, the absence of any other 

party willing to make a higher bid than the [Carbonell] offer is strong evidence of financial 

fairness.” 83 The court also based its determination on the fact that the Carbonell offer 

exceeded the “pre-affected trading price of Cysive shares by 37 cents per share.” 84 

In a footnote, the court dismissed the plaintiffs’ Revlon claims, stating that 

“[b]ecause entire fairness is the most exacting form of review, and because the [Carbonell] 

Agreement passes muster under that test, it is difficult to see how the intermediate Revlon 

standard could be violated.” 85 Notwithstanding this observation, the court separately concluded 

that “the sales effort undertaken on behalf of Cysive represented a reasonable means 

by which to obtain the highest value reasonably available,” thus meeting the intermediate 

Revlon standard. 86 

D. Majority-of-the-Minority Stockholder Approval 

and the Acquiescence Defense in Cash-Out Mergers 

In In re JCC Holding Co., Inc., 87 the Court of Chancery concluded that approval 

of a merger by a majority-of-the-minority stockholders, while potentially sufficient to 

shift the fairness burden to the plaintiffs, was insufficient to grant the defendants’ motion 

for judgment on the pleadings. In JCC Holding, the class action plaintiffs challenged a 

cash-out merger between JCC Holding Co., Inc. (“JCC”) and its controlling stockholder, 

Harrah’s Entertainment, Inc., a wholly owned subsidiary of Harrah’s Operating Company, 

Inc. (together, “Harrah’s”), on entire fairness grounds. The plaintiffs also alleged disclosure 

violations in connection with the vote on the merger. 

83. Id. at 556-57. 

84. Id. at 557. 

85. Id. at 557 n.40. 

86. Id. 

87. C.A. No. 19796, 2003 WL 22246591 (Del. Ch. Sept. 30, 2003).


The court concluded that because Harrah’s was a controlling stockholder of JCC, 

the merger was subject to the standard of review set forth in Kahn v. Lynch Communication 

Systems, Inc. 88 Specifically, the court determined that the exacting entire fairness standard 

applied. 89 Notwithstanding the application of the Kahn v. Lynch standard, the defendants 

argued that the inadequacy of the plaintiffs’ alleged disclosure violations constituted an 

adequate basis for the court to grant judgment on the pleadings to the defendants. In particular, 

the defendants argued that those stockholders who voted “yes” to the merger, or who 

accepted the merger consideration, were, under the holding in Bershad v. Curtiss-Wright 

Corp., 90 prohibited from pressing their entire fairness claims because the merger was 

conditioned upon majority-of-the-minority stockholder approval — which approval was 

obtained. In furtherance of this argument, the defendants contended that the elimination 

of these stockholders, who constituted a majority of the stockholders of JCC not affiliated 

with Harrah’s, caused the class of plaintiffs to be so small as to preclude certification. 

The court found that the plaintiffs’ disclosure claims were inadequate because 

they merely (i) sought to require JCC’s investment banker to conduct additional analyses, 

and (ii) claimed that certain of the investment banker’s analyses were wrong. With respect 

to the failure of JCC’s investment banker to conduct certain analyses, the court stated 

that “[u]nder Delaware law, there is no obligation on the part of a board to disclose information 

that simply does not exist.” 91 Accordingly, since JCC’s investment banker had 

not conducted the analyses sought by the plaintiffs, the defendants were not required to 

disclose them. With respect to the claim that the defendants’ disclosures were inadequate 

because the plaintiffs disagreed with the analysis conducted by JCC’s investment banker, 

the court concluded: 

This kind of quibble with the substance of a banker’s opinion does not 

constitute a disclosure claim. The proxy statement obviously provided 

the plaintiffs with the material they needed to determine various ways 

in which they disagreed with [JCC’s investment banker]. This does not 

88. 638 A.2d 1110 (Del. 1994). 

89. 2003 WL 22246591, at *1,7. 

90. 535 A.2d 840 (Del. 1987). 

91. JCC Holding, 2003 WL 22246591, at *5.


suggest the absence of fair disclosure; indeed, it inclines the mind in the 

opposite direction, because the proxy statement was written in a manner 

that allowed a reasonably sophisticated investor to see the key judgments 

that [JCC’s investment banker] made and to make her own independent 

determination of whether those judgments struck her as proper. 92 

In analyzing defendants’ argument that the plaintiffs’ entire fairness claim was negated 

by the majority-of-the-minority condition and the adequate disclosures, the court concluded 

that the best the defendants could hope to achieve from the majority-of-the-minority 

condition was a shifting of the burden to plaintiffs. The court stated in relevant part: 

Under the Lynch doctrine, a merger between a corporation and its controlling 

stockholder is subject to the entire fairness standard of review, 

regardless of the procedural protections used to effectuate the transaction. 

At best, the use of procedural protections such as an effective special 

committee of independent directors or a majority-of-the-minority vote 

condition can operate to shift the burden of persuasion on the issue 

of fairness from the defendants to show fairness, to the plaintiffs to 

demonstrate unfairness. 93 

In so concluding, the court recognized that “Lynch and its progeny implicitly but 

unmistakably operate to undermine the application of the holding in Bershad dealing with 

acquiescence to mergers with controlling stockholders.” 94 

The court also rejected the defendants’ acquiescence defense based on Bershad. 

Instead, relying on more recent precedents established by Clements v. Rogers 95 and In re Best 

Lock Corporation Shareholder Litigation, 96 the court concluded that “the vote of the minority 

stockholders in favor of the merger can, at best, operate to shift the burden of persuasion to 

the plaintiffs on the issue of fairness. Those stockholders who voted yes are not, by virtue of 

92. Id. at *6. 

93. Id. at *7. 

94. Id. at *8 n.27. 

95. 790 A.2d 1222 (Del. Ch. 2001). 

96. 845 A.2d 1057 (Del. Ch. 2001).


their votes, barred from recovery.” 97 Further, with respect to those stockholders who voted 

against the merger but thereafter accepted the merger consideration, the court concluded 

that such stockholders are not barred from recovering under the entire fairness standard, 

“but only from seeking appraisal.” 98 

In a footnote, the court suggested a possible avenue for the plaintiffs to argue that 

the majority-of-the-minority condition was ineffective to shift the burden to the plaintiffs. 

Specifically, the court stated in relevant part: 

Because the defendants have met their burden to obtain dismissal of 

the plaintiffs’ disclosure claims, the burden shift will take place unless 

the plaintiffs can show that the vote should be disregarded for some 

other reason. Here, the possible reason is that JCC reserved the right 

to waive the majority-of-the-minority condition. If that reservation 

existed, the protection the condition gave to the minority could be 

viewed as illusory. 99 

E. “Delaware Law Takes the Annual Election Process Seriously” 100 

In MFC Bancorp Ltd. v. Equidyne Corporation, 101 the Court of Chancery had the 

opportunity to consider whether it could order the defendant corporation to hold an annual 

meeting for the election of directors on a certain date notwithstanding that the corporation 

had already set a date for the annual meeting, albeit outside the thirteen-month period 

established by Section 211 of the General Corporation Law of the State of Delaware. 

In MFC Bancorp v. Equidyne, stockholder-plaintiff MFC Bancorp Ltd. (“MFC”), 

sent a letter to Equidyne Corporation (“Equidyne”) “just a few days shy of the twelve-month 

anniversary of Equidyne’s last annual meeting,” requesting Equidyne to inform MFC as to 

when the next annual meeting would be held. Equidyne provided no response. Thereafter, 

and four days prior to the thirteen-month anniversary of Equidyne’s last annual meeting, 

97. JCC Holding, 2003 WL 22246591, at *8. 

98. Id. 

99. Id. at *8 n.33. 

100. MFC Bancorp Ltd. v. Equidyne Corp., 844 A.2d 1015, 1016 (Del. Ch. 2003). 

101. 844 A.2d 1015 (Del. Ch. 2003).


MFC filed its original complaint with the court. 102 Two days later, Equidyne scheduled an 

annual meeting for September 9, 2003 — fifteen months and twelve days after the date of 

Equidyne’s last annual meeting. 103 

Notwithstanding the setting of an annual meeting date by Equidyne, MFC asked 

the court to direct Equidyne to hold its meeting on that date and thereby forgo the quorum 

requirements that would otherwise be required under Equidyne’s certificate of incorporation 

and bylaws. 104 Equidyne countered that section 211 merely required it to set the date 

for the annual meeting before the expiration of the thirteen-month period, not hold the 

meeting before the expiration of such period. This argument was rejected by the court based 

on its review of case law and treatises on Delaware law and the plain language of section 

211 of the General Corporation Law. The court further concluded that its reading of section 

211 that a meeting must be held — and not merely set — prior to the expiration of 

the thirteen-month period “also accord[ed] with the policy thrust of § 211, which is that 

corporations should hold annual meetings of stockholders.” 105 

102. Because MFC’s complaint was filed prior to the conclusion of the thirteen-month 

period established by section 211 of the General Corporation Law, Equidyne moved to dismiss the 

complaint on ripeness grounds. Rather than determine 

whether a stockholder may file a § 211 claim before the thirteen-month anniversary 

if, at the time he files his complaint, it is legally impossible (1) for the 

corporation to convene an annual meeting by the date of the thirteen-month 

anniversary and (2) for the stockholders to act by written consent in lieu of an 

annual meeting by the same thirteen-month anniversary date, 

the court dismissed MFC’s section 211 claim without prejudice. Id. at 1018. After the thirteen-month 

anniversary date, MFC filed an amended complaint. It is this complaint that the court considered. 

103. Id. at 1017. 

104. As aptly explained by the court: 

[I]f a court order is issued pursuant to § 211, under § 211(c) the quorum for the 

annual meeting held pursuant to that order shall consist of “[t]he shares of stock 

represented at such meeting, either in person or by proxy, and entitled to vote 

thereat … notwithstanding any provision of the certificate of incorporation or 

bylaws to the contrary.” In other words, if I issue an order requiring Equidyne 

to hold its annual stockholders meeting on September 9, such a meeting will 

go forward even if the greater quorum requirements in Equidyne’s governing 

instruments are not met. 

Id. at 1019 (quoting DEL. CODE ANN. tit. 8, § 211(c)). 

105. Id. at 1021.


Although it recognized that it was not required to issue the order proposed by 

MFC just because MFC had stated a claim under section 211 of the General Corporation 

Law, 106 the court nevertheless exercised its equitable discretion to order that the meeting be 

held on September 9, 2003. In determining whether to exercise this discretion, the court 

considered whether there was “some reason to suspect that the corporate defendant may 

act inequitably” to prevent the meeting from occurring on the date established by Equidyne. 

Because MFC had “leveled serious allegations of mismanagement and waste against 

Equidyne’s officers and directors, is in the process of waging a proxy fight against Equidyne’s 

incumbent board,” and Equidyne missed the thirteen-month deadline by “a barn or two,” 

the court ordered the meeting to be held with the reduced quorum requirement. 107 

F. Caremark Also Revisited 

In the wake of Enron and WorldCom, and more recently, HealthSouth, the Court 

of Chancery has repeatedly analyzed the “duty of oversight,” a duty originally articulated 

by then-Chancellor Allen in In re Caremark International Inc. Derivative Litigation. 108 

In Beam ex rel. v. Martha Stewart Living Omnimedia, Inc. v. Stewart, 109 the Court 

of Chancery determined that directors generally have no duty under Caremark or otherwise 

to monitor the personal affairs of the company’s executives. In Martha Stewart, plaintiffs 

alleged, in part, 110 that the board of directors of the corporation in which Stewart controlled 

over 94% of the voting stock and was its chairman and chief executive officer — Martha 

Stewart Living Omnimedia, Inc. (“MSO”) — failed to properly monitor Stewart’s personal 

Id. 

106. Id. Specifically, the court stated as follows: 

Because MFC has stated a claim under 8 Del. C. § 211, I must decide whether 

to issue an order requiring Equidyne to hold its annual meeting on a particular 

date. The reason for this is that § 211 does not require me to issue such an order 

every time a claim is stated under § 211. Instead, whether an injunction should 

issue is left to my equitable discretion. 

107. Id. at 1022. 

108. 698 A.2d 959 (Del. Ch. 1996). 

109. 833 A.2d 961 (Del. Ch. 2003), aff’d, 845 A.2d 1040 (Del. 2004). 

110. Plaintiffs’ corporate opportunity claims are not discussed in this article.


life. The court rejected this claim, notwithstanding the fact that MSO “closely identified” 

with Stewart. First, the court concluded that the MSO board did not have any reason to 

monitor Stewart’s activities prior to the time the allegations regarding her divestment of 

ImClone stock (of which the plaintiffs complain) became public. Second, the wrongdoing 

allegedly conducted by Stewart was conducted by her personally, not by MSO. Finally, 

the court noted that plaintiffs were unable to cite to “any case to support this new ‘duty’ 

to monitor personal affairs.” 111 

The plaintiffs in Martha Stewart also alleged a Caremark claim in connection with 

MSO’s payment of split-dollar insurance premiums for Stewart. The Court of Chancery 

restated the elements necessary to prove a Caremark claim, including that “(1) the directors 

knew or should have known that a violation of law was occurring and, (2) ‘the directors took 

no steps in a good faith effort to prevent or remedy that situation.’” 112 Because the plaintiffs 

did not allege that the payment of split-dollar insurance premiums by MSO were in fact 

illegal or that the board of directors failed to take action once Sarbanes-Oxley arguably 

made such premiums illegal, the Court of Chancery rejected this Caremark claim. 113 

In Rattner v. Bidzos, 114 the plaintiff alleged that demand was excused with respect 

to her Caremark claims against the members of the board of directors of VeriSign, Inc. 

(“VeriSign”) on the grounds that all of the members of the board were “potentially liable 

for failure to exercise proper supervision over VeriSign’s financial recording and reporting 

systems.” 115 In analyzing the plaintiff’s Caremark claims in this context, the court noted 

that “a claim for failure to exercise proper oversight is one of, if not the, most difficult 

theories upon which to prevail.” 116 The plaintiff in Martha Stewart did not challenge the 

Court of Chancery’s dismissal of her Caremark claims on appeal. 117 

111. Martha Stewart, 833 A.2d at 971-72. 

112. Id. at 976 (citing Caremark, 698 A.2d at 971). 

113. Id. at 975. 

114. C.A. No. 19700, 2003 WL 22284323 (Del. Ch. Sept. 30, 2003). The plaintiff’s 

insider trading claims are not discussed herein. 

115. Id. at *12. 

116. Id. 

117 . The Court of Chancery’s dismissal of the Caremark claims (Counts III and IV) under 

Continued on page 201


The court dismissed the complaint, concluding that the plaintiff failed to meet 

her burden under the Rales test. 118 Specifically, the court found there was no evidence 

that a majority of the board faced a substantial likelihood of liability for failing to oversee 

VeriSign’s compliance with accounting and disclosure standards. In so holding, the court 

noted the conspicuous absence of certain allegations in the plaintiff’s complaint. First, the 

complaint failed to allege particularized facts “regarding the Company’s internal financial 

controls during the Relevant Period” or of “the Board’s involvement in the preparation of 

financial statements and the release of information to the market.” Further, only one director 

on the board was alleged to be a senior manager of VeriSign at the time of the filing of 

the complaint, and no other allegations were made to support a reasonable inference that 

the other members of the board were aware of the alleged wrongdoing. 

Finally, in Guttman v. Huang, 119 the Court of Chancery addressed a Caremark 

claim brought in connection with a restatement of the financials of nominal defendant 

NVIDIA Corporation (“NVIDIA”). As in Bidzos, the court recognized the difficulty in 

proving a Caremark claim and again concluded that the plaintiff did not “come close” to 

pleading a claim under Caremark. 

In considering the plaintiff’s Caremark claim, the court noted that Caremark 

was “seen as a prod towards the greater exercise of care by directors in monitoring their 

Continued from page 200 

Court of Chancery Rule 12(b)(6) was not appealed to the Delaware Supreme Court. Rather, the 

single issue Beam appealed to the Delaware Supreme Court was the Court of Chancery’s dismissal 

of Count I under Court of Chancery Rule 23.1 for failure to plead demand futility. Count I alleged 

that Stewart breached her fiduciary duties of loyalty and care by illegally selling ImClone stock and 

mishandling the media attention that followed. The Delaware Supreme Court affirmed the dismissal 

of Count I on demand futility grounds. Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. 

Stewart, 845 A.2d 1040 (Del. 2004). 

118. The Rales test was articulated in Rales v. Blasband, 634 A.2d 927 (Del. 1993). As 

quoted by the Court of Chancery in Bidzos, under the Rales test: 

a court must determine whether or not the particularized factual allegations of 

a derivative stockholder complaint create a reasonable doubt that, as of the time 

the complaint was filed, the board of directors could have properly exercised its 

independent and disinterested business judgment in responding to a demand. If a 

derivative plaintiff satisfies this burden, then demand will be excused as futile. 

Bidzos, 2003 WL 2284323, at *8 (quoting Rales, 634 A.2d at 934). 

119. 823 A.2d 492 (Del. Ch. 2003). The plaintiff’s insider trading claims are discussed 

in the section of this article entitled “Director Disinterest and Independence.”


corporate compliance with legal standards.” The court also noted, however, that Caremark 

liability was premised “on a showing that the directors were conscious of the fact that they 

were not doing their jobs.” 120 

As in Bidzos, the court rejected the plaintiff’s alleged Caremark violations on 

the grounds that the complaint failed to make the “kind of pleading that is critical to a 

Caremark claim,” such as 

contentions that the company lacked an audit committee, that the company 

had an audit committee that met only sporadically and devoted 

patently inadequate time to its work or that the audit committee had 

clear notice of serious accounting irregularities and simply chose to ignore 

them or, even worse, to encourage their continuation. 121 

In this regard, the court’s statements in both Bidzos and Huang about what the 

plaintiff’s complaint did not state could form the basis for a well-pled future claim under 

Caremark. 122 

G. Rescission Based on Innocent 

Misrepresentation and Unjust Enrichment 

Although not directly discussing Caremark or an “oversight” claim, in In re Health- 

South Corporation Shareholders Litigation, 123 the court granted the unusual remedy of rescission 

with respect to a stock repurchase by HealthSouth from Richard Scrushy, its founder 

and former chief executive officer and chairman, on unjust enrichment and innocent 

misrepresentation grounds. Specifically, in HealthSouth, the plaintiffs sought rescission of a 

transaction in which Scrushy paid off a loan to HealthSouth of over $25 million by giving 

up HealthSouth shares later found to be materially overvalued by the market as a result of 

120. Id. at 506. 

121. Id. at 507. 

122. As it has done recently in several other cases, see Bidzos, 2003 WL 2284323, at *12-14 

and Martha Stewart, 833 A.2d at 980-82 n.63, the court admonished the plaintiff for not seeking 

additional discovery to support its Caremark claim under section 220 of the General Corporation 

Law. Huang, 823 A.2d at 507. 

123. 845 A.2d 1096 (Del. Ch. 2003).


materially misleading public financials prepared by Scrushy’s HealthSouth subordinates. 124 

Because Scrushy “stood mute” in the face of the press releases and public statements made 

by HealthSouth indicating that the financial statements of HealthSouth had been materially 

misleading at the time of the buy-back of Scrushy’s shares, the court concluded that 

“there [wa]s no material dispute of the fact that HealthSouth’s financial statements were 

materially misleading as of the date of the Buyback.” 125 

With respect to the plaintiffs’ unjust enrichment claim, the court concluded that 

the plaintiffs had adequately demonstrated that the stock buy-back “unjustly enriched” 

Scrushy. In so concluding, the court relied heavily on the fact that, as CEO, “Scrushy 

was charged with managerial responsibility for overseeing the preparation of accurate and 

reliable financial statements,” upon which the board of directors was entitled to rely in approving 

the buy-back. 126 According to the Court of Chancery, it was Scrushy’s “managerial 

responsibility to ensure the filing of accurate statements and he should not, as a fiduciary, 

benefit at the expense of the object of his trust when his efforts were insufficient.” 127 

The court also granted plaintiffs’ motion for summary judgment on their innocent 

misrepresentation claim. First, the court found that a false statement was made by 

Scrushy in that he “represented to HealthSouth that the market price was a reliable way 

to value his shares, thereby vouching again for the integrity of the financial statements he 

had signed (and earnings projections he had caused the company to make).” 128 Second, the 

court concluded that such statement was made with the intent to induce HealthSouth to 

act in that “Scrushy intended for HealthSouth to rely on the accuracy of the stock market 

price as a fair way to value his shares in the Buyback.” 129 Third, the court determined 

that HealthSouth justifiably relied on the statements made by Scrushy. Finally, the court 

124. Notwithstanding Scrushy’s repeated attestations of innocence made in the pleadings 

(and perhaps because of them), plaintiffs did not premise their claims of unjust enrichment and 

innocent misrepresentation on Scrushy’s knowledge of the falsity of HealthSouth’s financials or his 

subordinates’ misdeeds. Id. at 1104. 

125. Id. at 1105. 

126. Id. 

127. Id. at 1106. 

128. Id. 

129. Id.


recognized that HealthSouth suffered injury in the buy-back of Scrushy’s shares by valuing 

the shares surrendered based on a market price that was materially inflated as a result of 

the material inaccuracies of HealthSouth’s financial statements. 

H. Limitations on a Controlling Shareholder’s Power 

In Hollinger International, Inc. v. Black, 130 the Court of Chancery found “persistent 

and serious” breaches of a controlling shareholder’s fiduciary and contractual duties in 

connection with the shareholder’s attempted sale of its supervoting control to a third party. 

In so doing, the court validated a rights plan (“Poison Pill”) adopted in response to bylaw 

amendments unilaterally implemented by the controlling shareholder by written consent 

to thwart the special committee’s share value-maximizing process. The court struck down 

the controlling shareholder’s bylaw amendments as inequitable and enjoined the controlling 

shareholder’s attempted sale. 

Conrad Black, the chief executive officer and chairman of Hollinger International, 

Inc. (“Hollinger” or the “Company”), through intermediate holding companies that owned 

a 30.3% supervoting equity stake in Hollinger, controlled 72.8% of Hollinger’s voting 

power. When another Hollinger shareholder complained to the Company about then-CEO 

and chairman Black’s self-dealing transactions with the Company, a special committee 

of Hollinger’s board of directors investigated the charges and found serious evidence of 

self-dealing and related material misrepresentations in the Company’s public filings. Faced 

with these findings, Black entered into a “Restructuring Proposal” with the Company, in 

which he, among other things, agreed to resign as CEO, repay certain funds, and devote 

his principal time and energy to leading a “Strategic Process” involving the development 

of a value-maximizing transaction for the Company, such as a sale of the Company or 

some of its assets. 

Black immediately violated this agreement by diverting to himself a valuable 

opportunity presented to the Company — the possible sale of one of its flagship businesses 

(the Telegraph) or the company as a whole to the Barclays, English brothers who 

had approached Black about the sale in his role as the Company’s CEO and chairman. 

Black instead negotiated with the Barclays the sale of Black’s own interest in the holding 

company through which he controlled Hollinger. In connection with this diversion of the 

Company’s opportunity, Black misrepresented facts to Hollinger’s board, used confidential 

Company information for his own purposes without permission, and made threats toward 

130. 844 A.2d 1022 (Del. Ch. 2004).


the Company’s independent directors. The Hollinger board considered measures, including 

adoption of a shareholder rights plan, to stop Black’s transaction with the Barclays (the 

“Barclays Transaction”). In response, Black’s holding company, by written consent, enacted 

bylaw amendments requiring unanimous action by the Hollinger board for any significant 

decision and abolishing the board committee created to consider how Hollinger should 

respond to the Barclays Transaction. In response, the Hollinger board adopted a rights 

plan to prevent Black from consummating the Barclay Transaction and brought this suit 

seeking: (i) a preliminary injunction against the Barclays Transaction and further breaches 

of the Restructuring Proposal; (ii) a declaration that the bylaw amendments were ineffective 

because they were, among other things, adopted for an inequitable purpose; and (iii) a 

determination that the rights plan was properly adopted. 

After an expedited trial, the court issued its opinion enjoining the Barclays Transaction, 

declaring the bylaw amendments inequitable and ineffective, and concluding that the 

Hollinger board had satisfied its burden under Unocal 131 to justify the time-limited use of 

the rights plan to restore the board’s leverage and authority so as to permit the completion 

of the Strategic Process in the contractually contemplated manner. 

In so doing, the court determined that the opportunity to sell the Telegraph 

belonged to Hollinger. As the Telegraph constituted far less than half of Hollinger’s assets, 

Hollinger’s board could dispose of the asset under Section 271 of Title 8 of the Delaware 

Code without seeking shareholder assent. Yet, Black concealed from Hollinger’s board 

the Barclays’ intense interest in acquiring that asset. Rather, Black took it upon himself to 

reject the opportunity and later divert it to his holding company. The court concluded that 

Black violated his fiduciary duty of loyalty by, among other acts: (i) purposely denying the 

Hollinger board the right to consider fairly and responsibly a strategic opportunity within 

the scope of its Strategic Process and diverting that opportunity to himself; (ii) misleading 

his fellow directors about his conduct and failing to disclose his dealings with the Barclays, 

under circumstances in which full disclosure was obviously expected; (iii) improperly using 

confidential information belonging to Hollinger to advance his own personal interests and 

not those of Hollinger, without authorization from his fellow directors; and (iv) urging 

the Barclays to pressure Hollinger’s financial advisor with improper inducements to get it 

to betray its client Hollinger in order to secure the Hollinger board’s assent to the Barclays 

Transaction. 

Next, the court concluded that Black breached several terms of the Restructuring 

Proposal and that his breaches were not excused by any conduct of Hollinger or its directors; 

nor was Black himself fraudulently induced into entering into the agreement. 

131. Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985).


As to the bylaw amendments, Black argued that they were a legitimate response 

to the independent directors’ overreaching and fully consistent with Delaware law and 

Hollinger’s charter. The court agreed that the bylaw amendments did not violate Delaware 

law or Hollinger’s governance documents. Nevertheless, citing Schnell v. Chris-Craft 

Industries, Inc. 132 for the classic principle that “inequitable action does not become permissible 

simply because it is legally possible,” the court invalidated the bylaw amendments as 

inequitable. In so doing, the court explained: 

The DGCL is intentionally designed to provide directors and stockholders 

with flexible authority, permitting great discretion for private ordering 

and adaptation. That capacious grant of power is policed in large part 

by the common law of equity in the form of fiduciary duty principles. 

The judiciary deploys its equitable powers cautiously to avoid intruding 

on the legitimate scope of action the DGCL leaves to directors and 

officers acting in good faith. The business judgment rule embodies that 

commitment to proper judicial restraint. At the same time, Delaware’s 

public policy interest in vindicating the legitimate expectations stockholders 

have of their corporate fiduciaries requires its courts to act when 

statutory flexibility is exploited for inequitable ends. 133 

The court noted that “[a]lthough it is no small thing to strike down bylaw amendments 

adopted by a controlling stockholder, that action is required here because those amendments 

complete a course of contractual and fiduciary improprieties.” 134 

As to the rights plan, the defendants argued that it was perverse that a subsidiary’s 

independent board would use a poison pill to keep its parent corporation from selling itself. 

The court rejected that argument under the particularized facts of this case, responding: 

[I]n the ordinary case, I believe that argument would generally be a 

decisive one. As a typical matter, the replacement of a subsidiary’s controlling 

corporate stockholder with another through a transaction at 

the parent level should pose no cognizable threat to the subsidiary. The 

132. 285 A.2d 437 (Del. 1971). 

133. Hollinger, 844 A.2d at 1078. 

134. Id. at 1081.


parent has a legitimate right to sell itself absent breaching some recognized 

duty to the subsidiary. There is utility to respecting this general 

freedom, which is a natural expectation of the owner of a controlling 

position and this freedom should be expected by the subsidiary’s minority 

stockholders who have no common or statutory right to tag-along 

in a transfer of control at the parent level. At the same time, however, 

American corporation law has recognized that there are circumstances 

when a subsidiary has a legitimate right to contest a parent’s sale of its 

control position. 

… 

That extraordinary action, Chancellor Allen noted, might be justified 

when a “controlling shareholder … was in the process or threatening 

to violate his fiduciary duties to the corporation.” 135 

Applying the Unocal test, the court found that after reasonable investigation, 

the board had reasonably identified the Barclays Transaction as a threat to Hollinger’s best 

interest in completion of the Strategic Process. The court acknowledged that in the typical 

case, the parent owes no contractual or fiduciary commitment to allow the subsidiary 

to proceed with such a process. Here, however, Hollinger secured a binding commitment 

from its ultimate controlling shareholder, Black, to lead its Strategic Process and secure 

a deal for the “equal and ratable” benefit of all of Hollinger’s shareholders. The Barclays 

Transaction threatened that process and denied Hollinger the benefit of its bargain with 

Black. Under the second prong of Unocal, the court concluded that the adoption of the 

rights plan, given the limited duration of the plan’s use, was proportionate to the threats 

identified by Hollinger since it was the most direct way that Hollinger could protect itself 

and pursue the Strategic Process that Black had promised. 

In concluding that the adoption of the rights plan satisfied both prongs of Unocal, 

the court rejected the defendants’ argument that the rights plan was subject to the Blasius 

compelling justification standard because the plan did not affect defendants’ voting rights 

in any novel or material way. 

135. Id. at 1087 (citations omitted).


II. PRACTICAL IMPLICATIONS 

Pundits and practitioners have scrutinized recent decisions of the Delaware courts, 

sifting for evidence that Delaware’s judiciary has raised the bar on corporate governance 

standards post-Enron or in response to Sarbanes-Oxley. Some speculate that evidence of 

heightened scrutiny of directors can be dredged from the Court of Chancery’s decision in 

Oracle denying a special litigation committee’s motion to terminate insider trading claims 

against their fellow directors because of the special committee members’ social ties to the 

defendant-directors precluded a finding of independence. Others glean a trend toward less 

judicial deference to board special committees from the Supreme Court’s decision in Krasner 

v. Moffett reversing the Court of Chancery’s 12(b)(6) dismissal on business judgment 

grounds of a shareholder class action challenging a merger of “sister” companies in which 

five of the seven directors who approved the merger were conflicted. 136 Are decisions such 

as Oracle and Krasner a harbinger of a shift in the Delaware judiciary toward yet higher 

expectations of corporate directors 

A review of the recent decisions summarized above suggests that they are not. 

Rather, if anything, these decisions are significant for their reaffirmation of and fidelity 

to long-standing Delaware precedents on a variety of corporate topics and the courts’ 

reluctance to entertain new or expanded causes of action against directors. For example, 

in MONY, Vice Chancellor Lamb reaffirmed the Delaware Supreme Court’s 1989 decision 

in Barkan v. Amsted Industries, Inc. 137 that a board can fulfill its duty to obtain the 

best transaction reasonably available by entering into a merger agreement with a single 

bidder, establishing a “floor” for the transaction, and then testing the transaction with a 

post-agreement market check. 

In Hollinger, Vice Chancellor Strine reaffirmed the Delaware Supreme Court’s 

1985 decision in Moran v. Household International, Inc., 138 holding that “various sections 

of the DGCL … gave directors wide statutory authority to issue a rights plan, even if the 

136. Krasner, 826 A.2d at 279. The Supreme Court determined that to shift their burden 

of entire fairness, the defendants must prove that the merger was approved by a truly independent 

committee with real bargaining power — a fact-intensive burden that could not be satisfied at the 

pleading stage. 

137. 567 A.2d 1279 (Del. 1989). 

138. 500 A.2d 1346 (Del. 1985).


rights plan had the effect of discriminating against or diluting particular shareholders.” 139 

Also in Hollinger, Vice Chancellor Strine reaffirmed the long-standing principle set forth 

in the Delaware Supreme Court’s 1971 opinion in Schnell v. Chris-Craft Indus., Inc. 140 that 

“inequitable action does not become permissible simply because it is legally possible.” 141 

In Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, the Delaware 

Supreme Court reaffirmed the two-step demand futility analysis of Aronson v. Lewis 142 and 

the demand requirements for initiation of derivative suits by stockholders found in Rales v. 

Blasband. 143 The Supreme Court in Martha Stewart also went out of its way to assure that 

the Oracle case was procedurally distinct and could easily be reconciled with independence 

analysis in Martha Stewart. 

Rather than expanding the scope of claims against corporate directors, Delaware 

courts have shown a decided reluctance to enlarge director liability or limit director protections. 

For example, after a long dry period, the last year has witnessed a rash of Caremark 

claims filed in Delaware, charging directors with breaches of fiduciary duty for failing to 

exercise proper corporate oversight. 144 Yet, to our knowledge, not one of those Caremark 

claims has survived a motion to dismiss. This is not to say that Delaware courts would not 

recognize a properly pleaded claim. The courts in Martha Stewart, Guttman, and Bidzos, 

as discussed above, all went to some length to lay out for the plaintiffs the elements of 

a Caremark claim and the types of allegations that might satisfy the Caremark pleading 


140. 285 A.2d 437, 439 (Del. 1971). 


142. 473 A.2d 805, 814 (Del. 1984). 

143. 634 A.2d 927, 932 (Del. 1993). 

144. In 1996, Chancellor Allen issued his decision in In re Caremark International Inc. 

Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996). Despite the wide attention the dicta in that 

decision regarding the “duty of oversight” attracted among practitioners, seemingly few Caremark 

claims were brought in Delaware until this last year when the following actions were filed: Guttman 

v. Huang, 823 A.2d 492 (Del. Ch. 2003); Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. 

Stewart, 833 A.2d 961 (Del. Ch. 2003), aff’d, 845 A.2d 1040 (Del. 2004); Rattner v. Bidzos, C.A. 

No. 19700, 2003 WL 22284323 (Del. Ch. Sept. 30, 2003); In re Citigroup Inc. S’holders Litig., C.A. 

No. 19827, 2003 WL 21384599 (Del. Ch. June 5, 2003); and In re Oracle Corp. Derivative Litig., 

824 A.2d 917 (Del. Ch. 2003).


requirements. Nevertheless, the Court of Chancery repeatedly emphasized that such claims 

are difficult to plead and prove. 

Rather than limit director protections, a number of recent decisions (some reviewed 

in past “Recent Developments” articles in this publication) have expanded director 

protections, for example, in the areas of indemnification and advancement, permitting 

directors to recover “fees for fees” on indemnification claims, 145 to forego making a demand 

on the board of directors before suing for indemnification, 146 to expedite actions for 

advancement or indemnification, 147 and to obtain mandatory indemnification when the 

director is “successful on the merits or otherwise,” notwithstanding that his conduct may 

have been “motivated exclusively by personal greed.” 148 

Nor do the decisions in Krasner or Oracle represent a sea change in the law 

regarding special committees, as some suggest. Rather, the court in both cases relied on 

well-established authority in reaching their conclusions. The outcomes in Krasner and 

Oracle were largely driven by (i) their procedural postures (at the pleadings stage), (ii) the 

fact that the defendant directors — not the shareholder plaintiffs — bore the burden of 

proof on the issue of the special committee’s independence and effectiveness, and (iii) their 

particular facts. (In Krasner, five of the seven directors who approved the merger were alleged 

to have disabling conflicts, and in Oracle, the committee members were asked to 

decide whether to level serious charges of insider trading against their fellow directors with 

whom they had material social ties.) In contrast, the dismissals in Martha Stewart and 

Guttman of shareholder claims were driven largely by the fact that the plaintiffs failed to 

meet their burden to overcome a presumption of director independence and to sufficiently 

plead particularized facts establishing a lack of director independence necessary to establish 

demand futility. 

In the wake of Krasner and Oracle, some have suggested that special committees 

are just not worth it. They question whether a possible shift in the burden of persuasion 

145. Stifel Fin. Corp. v. Cochran, 809 A.2d 555 (Del. 2002). 

146. Id. 

147. Bergonzi v. Rite Aid Corp., C.A. No. 20453, 2003 WL 22407303 (Del. Ch. Oct. 

20, 2003). 

148. Perconti v. Thornton Oil Corp., C.A. No. 18630, 2002 WL 982419, at *3 (Del. Ch. 

May 3, 2002) (“Dismissal of the charges against Perconti by the government, for whatever reason, 

constituted ‘success.’”).


on the fairness issue is worth the expense associated with forming a special committee and 

the risk of a judicial determination that the committee was not sufficiently independent or 

proactive. Pundits postulate that perhaps it is better to devote those resources to negotiating 

a settlement with the plaintiffs’ lawyers or simply to bear the burden of entire fairness 

at trial rather than go to extremes to shift it. After all, in several recent Delaware cases, 149 

the trial court found that directors met their entire fairness burden without the benefit of 

a burden shift. 

This type of reasoning, however, overlooks that the benefit a special committee 

provides is not simply a shift of the burden of persuasion on the fairness issue. The use 

of a special committee to negotiate an interested transaction can evidence a fair process. 

Courts have found the use of a special committee to negotiate interested transactions to 

be an important, if not decisive, factor in the courts’ analysis of the fair process prong of 

the entire fairness test. 150 

CONCLUSION 

Although there appears to be an increase in director interestedness and oversight 

claims in the wake of Enron and Sarbanes-Oxley, the Delaware courts have repeatedly 

declined the invitation of shareholder plaintiffs to broadly expand Delaware law. Instead, 

the Delaware judiciary has held fast to well-established principles of Delaware law. These 

principles have long 

demand[ed] of a corporate officer or director, peremptorily and inexorably, 

the most scrupulous observance of his duty, not only affirmatively 

to protect the interests of the corporation committed to his charge, 

but also to refrain from doing anything that would work injury to the 

149. See, e.g., In re Cysive, Inc. Shareholders Litig, 836 A.2d 531 (Del. Ch. 2003) (concluding 

that management buy-out was entirely fair to minority stockholders); Emerald Partners v. 

Berlin, No. 295, 2003, 2003 Del. LEXIS 39 (Del. Dec. 23, 2003) (ORDER) (affirming Chancery 

Court’s holding that interested merger was entirely fair to company’s minority stockholders); Cinerama, 

Inc. v. Technicolor, Inc., 663 A.2d 1134 (Del. Ch. 1994), aff’d sub nom. Cinerama, Inc. v. 

Technicolor, Inc., 663 A.2d 1156 (Del. 1995). 

150. See, e.g., Cysive, 836 A.2d at 554-55; see also Solar Cells, Inc. v. True North Partners, 

LLC, C.A. No. 19477, slip op. at 11-12 (Del. Ch. Apr. 25, 2002) (holding merger process likely to 

be held unfair where no independent bargaining mechanisms were set up to protect non-managing 

LLC member and terms of the merger were set unilaterally by the managing member).


corporation, or to deprive it of profit or advantage which his skill and 

ability might properly bring to it, or to enable it to make in the reasonable 

and lawful exercise of its powers. 151 

The shift — if there is one — appears to be toward increased shareholder expectations 

of their fiduciaries as to independence and oversight and the pursuit of novel 

claims against fiduciaries who fall short of those expanding expectations. One could argue, 

therefore, that it is the public (i.e., shareholders) that have expanded their expectations of 

corporate fiduciaries post-Enron, not the Delaware courts. 

151. Guth v. Loft, 5 A.2d 503, 510 (Del. 1939).

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