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210 Delaware Law Review Volume 7:2 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.’”).
2004 Recent Developments in Delaware Corporate Law 211 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).
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