The "business judgment rule," which stands for the idea that corporate boards are presumed to act with investors’ interests in mind, is the first line of defense for companies facing shareholders suits in Delaware Chancery Court. But for years it’s been unclear what companies needed to do to invoke the defense after a going-private merger. Chancellor Leo Strine Jr. helped put that confusion to rest on Wednesday in a case involving MacAndrews & Forbes Holdings Inc., handing a win to defense lawyers at firms including Paul Weiss Rifkind Wharton & Garrison; Skadden, Arps, Slate, Meagher & Flom; and Willkie Farr & Gallagher.

In a 68-page summary judgment ruling, Strine concluded that MacAndrews & Forbes’s leaders didn’t breach their fiduciary duties to shareholders when they took the company private in 2011. Addressing what he called a "novel question of law," Strine ruled that, except in extreme cases, the business judgment rule applies to all going-private mergers in which a board (1) retains an independent special committee and (2) allows non-controlling shareholders to vote on the deal.

MacAndrews & Forbes is a holding company with interests in a diversified portfolio of companies. Its chairman and CEO is billionaire business magnate Ronald Perelman. An entity associated with Perelman had a 43 percent stake in MacAndrews & Forbes. In 2011, he opted to buy out the other shareholders for $24 per share.

Before initiating the deal, Perelman sought the approval of an independent special committee. He also put the going private merger to a vote of shareholders not affiliated with him. The special committee signed off on the deal, but not without first negotiating the price up to $25 per share. The merger was approved by 65 percent of the unaffiliated shareholders.

As plaintiffs lawyers tend to do after almost every big corporate deal, Faruqi & Faruqi slapped MacAndrews & Forbes with a breach of fiduciary duty suit. The defendants included the company’s board, the members of the special committee, and Perelman himself. Faruqi & Faruqi contended that, in lieu of the business judgment rule, the much more plaintiffs-friendly entire fairness rule should apply to the Chancery’s Court’s scrutiny of the transaction.

Strine rejected Faruqi & Faruqi’s argument, writing that "this court concludes that when a controlling stockholder merger has, from the time of the controller’s first overture, been subject to (i) negotiation and approval by a special committee of independent directors fully empowered to say no, and (ii) approval by an uncoerced, fully informed vote of a majority of the minority investors, the business judgment rule standard of review applies." He called that decision consistent with Delaware’s tradition of deference to impartial directors.

Willkie Farr’s Tariq Mundiya and Todd Cosenza represented the special committee. Mundiya said in a statement that "the Special Committee is pleased that Chancellor Strine recognized the tireless and thorough efforts by the independent Special Committee in discharging their fiduciary duties."

A Skadden team led by Tom Allingham represented MacAndrews & Forbes and Ronald Perelman. Paul Weiss represented M&F Worldwide Corp, a Perelman-owned entity that owns MacAndrews & Forbes.

Correction: An earlier version of this story misspelled the last name of Willkie partner Todd Cosenza. We regret the error.