Rethinking The Blasius Standard of Review: The Implications of Mercier v. Inter-Tel (Delaware), Inc.
In one of its most notable decisions of 2007, the Court of Chancery found, in Mercier v. Inter-Tel (Delaware), Inc., et al., that a special committee had a “compelling justification” to postpone a stockholders’ meeting to avoid the defeat of a merger proposal. The decision is notable not only because it is one of the only examples where a Delaware court determined that the “compelling justification” standard was satisfied, but also because the Court articulated a new standard of review – a modified form of the Unocal reasonableness standard of review – to evaluate actions influencing the outcome of corporate director elections or other stockholder votes having consequences for corporate control. Following soon on the heels of the Inter-Tel decision, the Court of Chancery promulgated rulings in two other matters validating, at least implicitly, certain good faith actions taken to correct errors occurring at stockholders’ meetings. Taken together, Inter-Tel and those subsequent rulings evince a willingness by the Court to be flexible when scrutinizing actions taken in connection with stockholders’ meetings, such as adjournments and postponements, at least when the actions are taken in good faith, without improper motives, and in the best interests of the stockholders. The Court cautioned, however, in its more recent decision in Portnoy v. Cryo-Cell Int’l, Inc., that it will not tolerate circumstances in which the stockholders’ franchise rights are interfered with for improper purposes.