In denying a defendant’s motion for reargument of the denial of a motion to dismiss, Chancellor Chandler applied the entire fairness standard, and not the business judgment rule, to a reverse stock split, for 3 separate reasons. Assuming, as required on a motion to dismiss, that all well-pleaded allegations were true and resolving all inferences in plaintiff’s favor, the 3 reasons were as follows:
First, a majority of the board was not independent; second, the board allegedly approved the reverse stock split and the valuation of plaintiff’s stock, without adequate consideration–suggesting an issue regarding possible breach of the duty of care to consider all material information before making a business decision. Lastly, there were allegations about lack of good faith. The court also distinguished other cases involving a higher pleading standard based on derivative claims, not applicable here. In addition, the court held that the business judgment rule did not apply to a determination of fair value, in light of claims that fair value was not paid for a fractional share pursuant to Section 155 of the DGCL. The full opinion in iXcore, S.A.S. v. Triton Imaging, Inc., et al., is available at this link: download pdf file