Thursday, April 4, 2024

Match is out!

It's the moment we've all been waiting for and - the Delaware Supreme Court holds that all conflicted controller transactions require MFW protections to win business judgment review.

It also appears that the special committee must be composed completely of independent directors - none of this, oh, well, one turned out to be conflicted but it didn't matter much business, which to me actually tightens the standard that I kind of assumed was being employed, and was employed in the Chancery decision in Match itself.

Also, I have previously remarked on the disjunction between requiring MFW for conflicted transactions, but only board independence for considering litigation demands against controlling shareholders.  In my paper, After Corwin: Down the Controlling Shareholder Rabbit Hole, I said:

litigation demands are, in a real sense, different from ordinary conflict transactions. If directors are too conflicted to consider the merits of a transaction, the court evaluates its fairness. By contrast, if directors are too conflicted to consider the merits of bringing litigation, shareholders themselves are permitted to assume control of corporate machinery to bring the action in their stead. For that reason, demand excusal may legitimately be viewed as its own category of problem.

Reading quickly, it appears the Delaware Supreme Court adopted similar reasoning:

Admittedly, there is a tension in our law in these contexts. But Aronson and our demand review precedent stand apart from the substantive standard of review in controlling stockholder transactions. The distinction is grounded in the board’s statutory authority to control the business and affairs of the corporation, which encompasses the decision whether to pursue litigation. 

(They didn't cite me but that's okay, they cited me for something else, I can live with it.)

I may or may not have more to say as I read again; it's a very short opinion and doesn't seem to address what I believe have become the real issues: who is a controlling shareholder, and what counts as a conflicted transaction?  That's really what's created much of the difficulty, but resolution must await another day.

I guess I'll conclude with: the Council of the Corporation Law Section of the Delaware State Bar Association may be cowed by threats of migration out of Delaware, but the Delaware Supreme Court is holding firm.

Ann Lipton | Permalink


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