In two cases that will be watched closely by corporate law practitioners, the Delaware Supreme Court will consider whether, in the context of a controlling shareholder buyout subject to entire fairness review, independent directors subject to exculpation for duty of care violations must await a fully developed factual record at trial before their liability is determined. Although Chancery Court decisions conflict on the issue,1 Vice Chancellors Sam Glasscock and John Noble felt bound by precedent to deny dismissal motions by independent directors but certified the cases for appeal. In re Cornerstone Therapeutics Stockholder Litigation, No. CIV.A. 8922-VCG, 2014 WL 4418169 (Del. Ch. Sept. 10, 2014) (Glasscock, V.C.); In re Zhongpin Stockholders Litigation, No. CV 7393-VCN, 2014 WL 6735457 (Del. Ch. Nov. 26, 2014) (Noble, V.C.). Recognizing that significant legal and policy issues had been raised which need to be decided by the Supreme Court, both vice chancellors have certified interlocutory appeals by the independent director defendants.
The Cornerstone Decision
Chiesi Farmaceutici S.p.A., the controlling shareholder of Cornerstone Therapeutics, offered to acquire Cornerstone’s outstanding public shares. Chiesi did not condition its offer on approval of a majority of the minority shareholders. In response, Cornerstone’s board formed a special committee of independent directors which negotiated for over six months. During the negotiations, Chiesi’s financial advisor allegedly threatened the independent directors by reminding them they could be removed by Chiesi. Nonetheless, the independent directors persisted, ultimately obtaining a substantially higher price than initially offered. The final agreement was supported by a fairness opinion and conditioned on approval by a majority of the minority shareholders.
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