When a controlling stockholder is on both sides of a transaction, the Delaware courts’ most searching standard of review, entire fairness, is likely to apply. That generally means that a plaintiff who can credibly allege unfairness is likely to survive a motion to dismiss. It does not follow, however, that plaintiff will prevail at trial. If defendants’ trial evidence viewed holistically shows a fair process and a fair price, the Delaware Court of Chancery will enter judgment in defendants’ favor. The court’s decision in In Re BGC Partners Inc. Derivative Litigation, Cons. C. A. No. 2018-0722-LWW (Del. Ch. Aug. 19, 2022), illustrates this dynamic.

Background Facts

The plaintiffs in BGC Partners attacked a transaction whereby the buyer, controlled by the same person who controlled the seller, purchased the seller for $875 million and also invested $100 million in the seller’s affiliate. The plaintiffs claimed that the buyer overpaid to benefit the controlling stockholder at the expense and to the detriment of the stockholders of the seller. At trial the defendants were the controlling stockholder, the seller and one member of the special committee the seller had formed to negotiate the transaction.

Court Finds Process Flaws Not Fatal