The Delaware Supreme Court decision in Corwin and its progeny established a powerful defense to stockholder challenges of a corporate transaction: in the absence of a controlling stockholder that extracted personal benefits, disinterested stockholder approval of a transaction has the effect of providing review under the irrebuttable business judgement rule. In Garfield v. BlackRock Mortgage Ventures, (Del. Ch. Dec. 20, 2019), the plaintiff asserted an entire fairness claim in connection with the reorganization of a mortgage services company that allegedly involved two stockholders forming a control group that exercised effective control over a Reorganization from which they benefited. At the pleading stage the Delaware Court of Chancery found the allegations of a control group sufficient to preclude a Corwin defense, even though there was no formal agreement between the stockholders or a full alignment of interests.
During the 2008 financial crisis, BlackRock Inc. and Highfields Capital Management (HC Partners) identified a market opportunity to acquire loans from institutions seeking to reduce their mortgage exposures. They formed Private National Mortgage Acceptance Co. LLC (PennyMac LLC). Identifying themselves as “strategic partners” BlackRock and HC Partners caused PennyMac LLC to form a public REIT in 2019, managed by a PennyMac subsidiary. Later in 2013, the PennyMac CEO, BlackRock and HC Partners took the PennyMac structure public in an Up-C transaction resulting in a new publicly traded corporation PennyMac Inc. owning PennyMac LLC. The IPO documents issued in connection with the Up-C transaction again referred to BlackRock and HC Partners as “strategic partners” and involved them co-signing a tax receivable agreement.