2006 Developments in Delaware Corporate Law
Over the course of the latter half of 2006, the Delaware courts rendered a number of notable decisions on topics of interest to corporate practitioners. In Stone v. Ritter, the Delaware Supreme Court confirmed the standard for duty of oversight claims, and definitively resolved the question whether directors of Delaware corporations owe an independent duty of good faith. In addition, the Court of Chancery explored a number of areas. It clarified certain issues relating to the use of “majority-of-the-minority” provisions and discussed the possibility of invoking the protections of the business judgment rule (absent a controlling stockholder) through the use of such a provision or a special committee in a case entitled In re PNB Holding Co. Shareholders Litigation. Fiduciary duties of directors of wholly-owned subsidiaries were examined and, as a matter of first impression, a claim for deepening insolvency was discussed in Trenwick America Litigation Trust v. Ernst & Young, L.L.P. Whether a merger agreement provision prevented an acquiring corporation from discussing a competing proposal with a third party was addressed in Energy Partners, Ltd. v. Stone Energy Corp. More recently, the Court of Chancery found, in Esopus Creek Value L.P. v. Hauf, that a Delaware corporation could not avoid a statutorily required stockholder vote on a sale of assets, even though the corporation was unable to solicit proxies under the federal securities laws. The Delaware courts also witnessed over the prior year a continued increase in litigations filed by hedge funds. Two decisions, Highland Select Equity Fund, L.P. v. Motient Corporation and Accipiter Life Sciences Fund, L.P. v. Helfer, provide a snapshot of such litigations. Most recently, the Delaware Court of Chancery rendered a significant decision in Louisiana Municipal Police Employees’ Retirement System v. Crawford. In that decision, the Court treated a special dividend and a merger as an integrated transaction, notwithstanding the doctrine of independent legal significance, and as a result determined that stockholders of a target were entitled to appraisal rights under Delaware law.