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Recent Delaware Corporate Law Updates

January 12, 2017

Post-Corwin: Delaware Courts, Consistently Applying Corwin, Reinforce Long-Standing Policy of Delaware Law to Avoid Uncertainties and Costs of Judicial Second-Guessing in Merger Transactions
Following the Delaware Supreme Court decision in Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015), the Delaware courts have clarified and extended the application of the decision.  In Corwin, the Delaware Supreme Court affirmed the Court of Chancery’s ruling that the business judgment rule is the appropriate standard of review for a merger transaction that is not subject to the entire fairness standard of review and is approved by a fully informed, uncoerced vote of the disinterested stockholders.  In so holding, the Delaware Supreme Court cited the “long-standing policy of [Delaware] law . . . to avoid the uncertainties and costs of judicial second-guessing” in such situations. In 2016 and early 2017, the Delaware courts have consistently applied Corwin, reinforcing that long-standing policy.  
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Solak v. Sarowitz: Court of Chancery Grants Declaratory Judgment as to Facial Invalidity of Fee-Shifting Bylaw
In Solak v. Sarowitz, 2016 WL 7468070 (Del. Ch. Dec. 27, 2016), the Court of Chancery denied in part a motion to dismiss a declaratory judgment and breach of fiduciary duty action challenging a fee-shifting bylaw adopted by the board of directors of Paylocity Holding Corporation (“Paylocity” or the “Company”).  The Court rejected a ripeness challenge and held on the merits that the fee-shifting bylaw was facially invalid under Section 109(b) of the General Corporation Law of the State of Delaware (the “DGCL”), which the Court read as creating a blanket prohibition on “‘any provision’ that would shift fees ‘in connection with an internal corporate claim’ without regard to where such a claim is filed.”
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Sandys v. Pincus: Delaware Supreme Court Reverses the Court of Chancery’s Dismissal for Failure to Plead Demand Excusal     
In Sandys v. Pincus, --- A.3d ----, 2016 WL 7094027 (Del. Dec. 5, 2016), the Delaware Supreme Court reversed the Court of Chancery’s dismissal of a derivative suit for failure to plead demand excusal, holding that plaintiff had pled facts, including co-ownership of an airplane and interlocking business relationships, that created a pleading-stage reasonable doubt as to the ability of a majority of the board to adequately consider a demand.
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The Huff Energy Fund, L.P. v. Gershen: Court of Chancery Holds Adoption of Plan of Dissolution Does Not Trigger Enhanced Scrutiny under Revlon or Unocal
In The Huff Energy Fund, L.P. v. Gershen, 2016 WL 5462958 (Del. Ch. Sept. 29, 2016), the Court of Chancery rejected a significant stockholder’s claim that the implementation and adoption of a plan of dissolution was subject to enhanced scrutiny under Revlon and Unocal. Furthermore, finding that the adoption of the plan of dissolution had been approved by a fully informed, non-coerced vote of the stockholders, the Court held that under Corwin the business judgment rule irrebuttably applied to the board’s decision to approve the plan of dissolution and granted the defendants’ motion to dismiss.
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CDX Holdings, Inc. v. Fox: Delaware Supreme Court Defers to the Court of Chancery’s Factual Findings and Affirms Holding that Corporation Breached its Stock Option Plan
In CDX Holdings, Inc. v. Fox, 141 A.3d 1037 (2016), the Delaware Supreme Court, applying a “clearly erroneous” standard of review, deferred to the Court of Chancery’s findings of fact and upheld the Court of Chancery’s determination that a corporation breached its stock option plan in connection with a spinoff and merger transaction.  
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Pell v. Kill: Court of Chancery Enjoins Board Reduction Plan Adopted to Neutralize Proxy Contest Threat
In Pell v. Kill, 135 A.3d 764 (Del. Ch. 2016), the Court of Chancery granted a preliminary injunction enjoining the implementation of a plan to reduce the size of a classified board and to reduce the number of directors in the class of directors standing for election at the next annual meeting that was adopted to neutralize the threat of a proxy contest by one of the corporation’s directors.  
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In re Wal-Mart Stores, Inc. Delaware Derivative Litigation: Court of Chancery Finds Delaware Plaintiffs Collaterally Estopped from Arguing Demand Futility
In In re Wal-Mart Stores, Inc. Delaware Derivative Litigation, 2016 WL 2908344 (Del. Ch. May 13, 2016), the Court of Chancery, applying Arkansas law, held that plaintiff stockholders were precluded from arguing demand futility in a derivative action filed in Delaware because the same issue had already been fully litigated and decided in an Arkansas court by adequate representatives in privity with the stockholder plaintiffs in the Delaware action. On this basis, the Court of Chancery granted the defendants’ motion to dismiss.  
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