Delaware Court Refuses Corwin “Cleanse” Due to Inadequate Disclosures of Conflicts of Interest and Financial Projections
Robert S. Reder & Kelsey McKeag | 73 Vand. L. Rev. En Banc 1 |
“In Chester County Employees’ Retirement Fund v. KCG Holdings, Inc., C.A. No 2017-0421-KSJM (Del. Ch. June 21, 2019) (“Chester County”), Vice Chancellor Kathaleen St. J. McCormick refused to grant dismissal of a former stockholder’s challenge of a completed sale of the target company. First, she found that defendant directors’ Corwin defense failed due to the inadequacy of disclosures made to stockholders. Second, the “inference of bad faith” on the part of defendant directors was adequately supported by allegations relating to both the negotiation and approval process for the transaction.
Moreover, the Chester County plaintiff was found to have successfully pled that the target company’s financial advisor and the purchaser of the target company aided and abetted the directors’ alleged fiduciary breach, despite the high bar faced by a plaintiff asserting such claims. Finding that the plaintiff adequately pled “knowing participation” on the part of the financial advisor and purchaser in the target board’s alleged breach, the Vice Chancellor likewise refused to dismiss the aiding and abetting claims.”