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Lewis H. Lazarus, Morris James

The Corwin doctrine provides substantial protection to directors of companies engaged in a sale process. Once a transaction closes, if a stockholder cannot allege that a majority stockholder vote approving a transaction was uninformed or coerced, then the court will dismiss a complaint attacking the fairness of the transaction under the business judgment standard of review. The rationale is that majority disinterested stockholder approval via a vote or a majority tender cleanses the transaction unless plaintiff can meet the high burden of pleading waste. Directors are also protected if a company’s charter contains protections under Section 102(b)(7) of the Delaware General Corporation Law (DGCL) and a plaintiff cannot allege that a majority of the directors acted disloyally or in bad faith. The Court of Chancery’s well-reasoned decision in In re Tangoe Stockholders Litigation, Cons. C. A. No. 2017-0650-JRS  (Del. Ch. November 20, 2018), provides important guidance for directors seeking protection under either Corwin or Section 102(b)(7) when a board of a publicly traded company runs a sale process while it is attempting to restate its financials, its stock has been de-listed, and the Securities and Exchange Commission is threatening de-registration.

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