Submitted May 6, 2015.
Case Closed July 8, 2015.
Court Below: Court of Chancery of the State of Delaware. C.A. No. 8922-VCG. Court Below: Court of Chancery of the State of Delaware. C.A. No. 7393-VCN.
Donald K. Wolfe, Jr., Esquire, Kevin R. Shannon, Esquire, Christopher N. Kelly, Esquire, Potter Anderson & Corroon LLP, Wilmington, Delaware, for Defendants Below-Appellants Michael Enright, Christopher Codeanne, James A. Harper, Michael Heffernan and Laura Shawver; Kurt Heyman, Esquire, Dawn Kurtz Crompton, Esquire, Proctor Heyman LLP, Wilmington, Delaware, for Defendants Below-Appellants Craig A. Collard and Robert M. Stephan; Anthony M. Candido, Esquire (Argued), Robert C. Myers, Esquire, John P. Alexander, Esquire, Clifford Chance U.S. LLP, New York, New York, for Defendants Below-Appellants in In re Cornerstone Therapeutics Inc. Stockholder Litigation.
Seth D. Rigrodsky, Esquire, Brian D. Long, Esquire, Gina M. Serra, Esquire, Jeremy J. Riley, Esquire, Rigrodsky & Long, P.A., Wilmington, Delaware; J. Brandon Walker, Esquire, Melissa A. Fortunato, Esquire, Kirby McInerney LLP, New York, New York; Shane Rowley, Esquire, Levi & Korsinsky LLP, New York, New York; Chet B. Waldmann, Esquire (Argued), Joshua H. Saltzman, Esquire, Wolf Popper LLP, New York, New York, for Plaintiffs Below-Appellants Edwin Myruski, James Parker, Daniel Blaschak, and David Julier, in In re Cornerstone Therapeutics Inc. Stockholder Litigation.
S. Mark Hurd, Esquire (Argued), Matthew R. Clark, Esquire, Thomas P. Will, Esquire, Morris, Nichols, Arsht & Tunnell LLP, Wilmington, Delaware; Robert H. Pees, Esquire, Akin Gump Strauss Hauer & Field LLP, New York, New York, for Defendants Below-Appellants Raymond Leal, Yaoguo Pan, and Xiaosong Hu.
Seth D. Rigrodsky, Esquire (Argued), Brian D. Long, Esquire, Gina M. Serra, Esquire, Jeremy J. Riley, Esquire, Rigrodsky & Long, P.A., Wilmington, Delaware; Donald J. Enright, Esquire, Levi & Korinsky LLP, Washington, DC; Gustavo F. Bruckner, Esquire, Ofer Ganot, Esquire, Pomerantz LLP, New York, New York, for Plaintiffs Below-Appellees Phillip Meeks, Ernesto Rodriguez, and Alan Hall.
Before STRINE, Chief Justice; HOLLAND and VAUGHN, Justices; and BUTLER and CLARK, Judges.[*]
STRINE, Chief Justice:
These appeals were scheduled for argument on the same day because they turn on a single legal question: in an action for damages against corporate fiduciaries, where the plaintiff challenges an interested transaction that is presumptively subject to entire fairness review, must the plaintiff plead a non-exculpated claim against the disinterested, independent directors to survive a motion to dismiss by those directors? We answer that question in the affirmative. A plaintiff seeking only monetary damages must plead non-exculpated claims against a director who is protected by an exculpatory charter provision to survive a motion to dismiss, regardless of the underlying standard of review for the board's conduct--be it Revlon,
Unocal, the entire fairness standard, or the business judgment rule.
The Court of Chancery in both of these cases denied the defendants' motions to dismiss because it read the precedent of this Court to require doing so, regardless of the exculpatory provision in each company's certificate of incorporation. Under the Court of Chancery's analysis, even if the plaintiffs could not plead a non-exculpated claim against any particular director, as long as the underlying transaction was subject to the entire fairness standard of review, and the plaintiffs were therefore able to state non-exculpated claims against the interested parties and their affiliates, all of the directors were required to remain defendants until the end of litigation. The Court of Chancery was reluctant to embrace that result but felt that it was the reading most faithful to our precedent.
In this decision, we hold that even if a plaintiff has pled facts that, if true, would require the transaction to be subject to the entire fairness standard of review, and the interested parties to face a claim for breach of their duty of loyalty, the independent directors do not automatically have to remain defendants. When the independent directors are protected by an exculpatory charter provision and the plaintiffs are unable to plead a non-exculpated claim against them, those directors are entitled to have the claims against them dismissed, in keeping with this Court's opinion in Malpiede v. Townson  and cases following that decision. Accordingly, we ...