One focus of this blog has been identifying trends in other state’s corporate law that compares or contrasts with Delaware’s. Nevada in particular has long been in competition with Delaware as a potential place of incorporation. A new decision by the Nevada Supreme Court may further cement Nevada’s status as a potential competitor to Delaware for certain corporations by demonstrating the difficulty of rebutting the business judgment rule.
Last week, newly sworn-in Chancellor McCormick issued her first decision in her new role, Franchi v. Firestone, granting a motion to dismiss a shareholder complaint regarding a going-private transaction with a controlled shareholder. In doing so, the new Chancellor affirmed that the MFW roadmap continues to provide robust protection to such transactions, so long as they meet the formal requirements set out in MFW. (more…)
The Delaware Chancery Court recently held that a going-private transaction was not entitled to the deferential business judgment standard of review because the controlling stockholder failed to condition the transaction on special committee and minority stockholder approval before engaging in substantive economic discussions with a minority stockholder. In re HomeFed Corp. S’holder Litig., C.A. No. 2019-0592-AGB (Del. Ch. July 13, 2020).
The Delaware Chancery Court recently held that, for a transaction involving a majority-conflicted board to be entitled to business judgment review (rather than the entire fairness standard), the special committee that approved the transaction must have been sufficiently constituted and authorized ab initio (i.e., “from the beginning”). Salladay v. Lev (Del. Ch. Feb. 27, 2020). In doing so, Vice Chancellor Sam Glasscock III borrowed from the framework used to cleanse a controlling stockholder transaction under Kahn v. M&F Worldwide Corp. (MFW), 88 A.3d 624 (Del. 2014). Under MFW, a controlling stockholder transaction is entitled to business judgment review if the controller conditions the transaction ab initio on both the approval of an independent special committee and the uncoerced, informed vote of a majority of the minority stockholders.