February 20, 2018Alerts

Why the Corwin Doctrine Matters to Financial Advisors

In 2015, the Delaware Supreme Court affirmed the Court of Chancery’s decision in Corwin v. KKR Financial Holdings, holding that the business judgment rule “is invoked as the appropriate standard of review for a post-closing damages action when a merger that is not subject to the entire fairness standard of review has been approved by a fully informed, uncoerced majority of the disinterested stockholders.”   The effect of Corwin has been to increase, in a fairly dramatic fashion, Delaware courts’ application of the business judgment rule at the pleadings stage to transactions formerly subject to enhanced judicial scrutiny.  Of course, under Delaware law, “[w]hen the business judgment rule standard of review is invoked because of a vote, dismissal is typically the result.”   Thus, the end result of Corwin is a significant up-tick in successful dismissal motions of stockholder lawsuits challenging M&A transactions.

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