The recent decision of the Delaware Supreme Court in Morrison v. Berry, et al., Del. Supr., C.A. No. 445, 2017, July 9, 2018 (revised July 27, 2018), limited the application of the Corwin doctrine and prohibited the cleansing effect of stockholder approval, in part due to inadequate disclosures. See Corwin v. KKR Fin. Holdings LLC, 125 A.3d 305, 312 (Del. 2015). See also Appel v. Berkman, 180 A.3d 1055, 1064 (Del. 2018).

The court began the opinion with “. . . a cautionary reminder to directors and the attorneys who help them draft their disclosures: partial and elliptical disclosures cannot facilitate the protection of the business judgment rule under the Corwin doctrine.” See footnote 1.

Key Principles Articulated by Delaware’s High Court:

• The court explained that under the Corwin doctrine: “The business judgment rule is invoked as the appropriate standard of review for a post-closing damages action when a merger that is not subject to the entire fairness standard of review has been approved by a fully informed, uncoerced majority of the disinterested stockholders.”
• The Corwin doctrine is premised on the view that “when the real parties in interest–the disinterested equity owners–can easily protect themselves at the ballot box by simply voting no, the utility of a litigation-intrusive standard of review promises more costs to the stockholders in the form of litigation rents and inhibitions on risk-taking than it promises in terms of benefits to them.” See footnotes 13 and 14.
• The Corwin doctrine has been extended to stockholders deciding whether to tender their shares. See footnote 15.
• A condition to the applicability of the Corwin doctrine is disclosure of material information. That is, the vote of the stockholders must be fully informed. To the contrary, in this case the Supreme Court found that there was materially incomplete and misleading information and a failure to disclose troubling facts regarding director behavior that would have been material to a voting stockholder. Therefore, the court refused to apply the business judgment rule standard of review. See footnotes 18 and 19.

Delaware’s high court provided many other important principles of corporate law with wide application, including the following bullet points:

• The court explained the various nuances of the board’s duty of disclosure to stockholders. See page 28 and footnote 101.
• The duty of candor owed by directors to each other was also described. See page 22 and footnote 77.
• The opinion provides a definition of materiality and explains when an omitted fact is material. See page 19.