Publications

(Article from Securities Law Alert, January 2017) 

For more information, please visit the Securities Law Alert Resource Center

In Corwin v. KKR Financial Holdings, 125 A.3d 304 (Del. 2015), the Delaware Supreme Court held that “when a transaction not subject to the entire fairness standard is approved by a fully informed, uncoerced vote of the disinterested stockholders, the business judgment rule applies.”[1]

On January 5, 2017, the Delaware Chancery Court considered the question of how “the burden of proof operate[s] when applying the standard-shifting principles . . . reaffirmed in Corwin.” In re Solera Holdings, Inc. Stockholder Litig., 2017 WL 57839 (Del. Ch. 2017). The court held that “a plaintiff challenging the decision to approve a transaction must first identify a deficiency in the operative disclosure document, at which point the burden . . . fall[s] to defendants to establish that the alleged deficiency fails as a matter of law in order to secure the cleansing effect  of the vote.”

The court recognized that “defendants asserting a ‘ratification’ defense” bear “the burden to show the vote was fully-informed.” However, the court stated that it would make “little sense” for defendants to have “the burden to plead disclosure deficiencies in the first place to test whether the vote really was fully-informed.” The court reasoned that such a rule “would create an unworkable standard, putting a litigant in the proverbially impossible position of proving a negative.” The court found it “far more sensible” for plaintiffs to bear the initial burden of identifying allegedly inadequate disclosures.