A recent Chancery decision in the matter of In Re Tangoe Inc. Stockholders Litigation, Consol. No. C.A. 2017-0650-VCS (Del. Ch. Nov. 20, 2018), explained when the Corwin standard does not apply to cleanse a stockholder-approved transaction.
Under Corwin, the Delaware Supreme Court held that 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 key issue in this case arises in connection with a claim for breach of fiduciary duty because a company was sold for allegedly too little an amount, and there was an alleged failure to disclose key data before the vote of the stockholders.
This case involved the attempts of the board to sell the company following a financial restatement and a subsequent delisting by NASDAQ. The stockholders sought post-closing damages. The court referred to the company’s pre-sale problems as akin to a “storm”.
The court held that there was no Corwin cleansing due to inadequate disclosures to the stockholders before their vote, and the dismissal of the complaint was denied also because it was conceivable that a breach of loyalty claim would not be exculpated by a Section 102(b)(7) provision in the charter.
The court determined that the complaint could not be dismissed at the pleadings stage and it could not earn business judgment rule deference by invoking stockholder approval of a challenged transaction, because the directors did not demonstrate that they: “carefully and thoroughly explained all material aspects of the storm to stockholders—how the company sailed into the storm, how the company has been affected by the storm, what alternative courses the company can take to sail out of the storm, and the bases for the board’s recommendation that a sale of the company is the best course.”