Delaware Supreme Court Confirms Viable Path to Dismissal of Lawsuits Against Independent Directors
In a highly anticipated decision issued last month, the Delaware Supreme Court resolved a perceived split in Delaware authorities and held that independent directors are entitled to dismissal of stockholder claims for monetary damages unless the stockholder plaintiff pleads a nonexculpated claim against those directors. The decision, In re Cornerstone Therapeutics Inc. Stockholders Litigation, No. 564,2014 (Del. May 14, 2015), clarified that plaintiffs must plead such claims regardless of whether the underlying standard of review of the board’s conduct is entire fairness, enhanced scrutiny under Revlon or Unocal, or the business judgment rule. While it represents a significant clarification of Delaware law and though the Cornerstone decision will provide some comfort to independent directors who fulfill their duty of loyalty, it is unlikely to have a substantial impact on stockholder litigation.Cornerstone has no application to claims against nonindependent fiduciaries and plaintiffs can still seek discovery from independent directors and add them based on such discovery. Further, the Court in Cornerstone limited its holding to claims seeking monetary damages, leaving open the issue of whether the protections of an exculpatory provision extend to claims for equitable relief, such as rescission. While this issue remains open, plaintiffs may seek to avoid the impact of Cornerstone by drafting complaints seeking both monetary and equitable relief.