The Aronson v Lewis Delaware Supreme Court Decision was a significant case that clarified the standard for determining whether a shareholder vote on a merger is entitled to the presumption of fairness.
The court held that the business judgment rule would apply if a majority of the disinterested directors approved the merger.
The decision established a test to determine if the majority of the disinterested directors were independent of the interested directors.
To pass the test, the majority of the disinterested directors must be free from the influence of the interested directors.
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Key Points
This new test is a significant development in corporate law, making it easier for Delaware boards of directors to obtain an early dismissal of derivative suits brought against them.
The three-part test is still evolving, but it's clear that directors will have more control over a company's litigation decisions.
Here are the key points to take away from the Delaware Supreme Court's decision:
- The decision reaffirms that directors, not stockholders, should normally control a company's litigation decisions.
- Directors who have adopted a Section 102(b)(7) provision are not facing a substantial likelihood of liability for duty of care claims.
- Exculpated care claims do not excuse demand under Aronson's second prong.
The Delaware Supreme Court's decision also clarified the language in Aronson's second prong, which focuses on whether the challenged transaction was the product of a valid business judgment.
This clarification is crucial because it determines whether demand is futile, and it's clear that the court is leaning towards giving directors more control over litigation decisions.
In summary, the Delaware Supreme Court's decision has significant implications for corporate law and the role of directors in making litigation decisions.
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