Stockholder Claims Dismissed Even After Corwin Defense Fails

September 9, 2020

In a recent decision, the Delaware Court of Chancery found that the board omitted material information from its proxy statement recommending stockholders vote in favor of an all-cash acquisition of the company, and thus “Corwin cleansing” did not apply.

Nonetheless, the court dismissed all claims against the directors because the complaint failed to adequately allege that they acted in bad faith, as required by the company’s Section 102(b)(7) exculpation provision.  See In re USG Corp. S’holder Litig., Consol. C.A. No. 2018-0602-SG (Del. Ch. Aug. 31, 2020). 

This decision provides helpful guidance regarding the kind of information that should be included in a merger proxy statement.  It also provides a reminder that Corwin is not the only defense available to directors at the motion to dismiss stage.  In particular, Section 102(b)(7) remains a powerful tool to support dismissal of stockholder claims against directors, even in cases where the proxy omits material information and/or the transaction is subject to “Revlon duties.”

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