Delaware Supreme Court Confirms Exculpatory Clauses Have Teeth, and Can Be Used By Director Defendants At The Pleading Stage

May 15, 2015

In a decision with important implications for directors of public companies, the Delaware Supreme Court overturned two Chancery Court opinions and ruled that independent directors facing breach of duty of care claims arising from interested-party transactions are entitled to dismissal based on the company’s exculpatory clause. In re Cornerstone Therapeutics Inc. Stockholder Litigation (No. 564, 2014 Del.) and Leal, et al. v. Meeks et al., (No. 706, 2014 Del.). This decision is applicable to any independent directors or special committees involved in negotiating and approving transactions, particularly interested-party transactions. Historically the invocation of the entire fairness standard in an interested party transaction has had a powerful “pro-plaintiff effect,” but this decision demonstrates that such cases remain a dynamic area of Delaware law.

Read "Delaware Supreme Court Confirms Exculpatory Clauses Have Teeth, and Can Be Used By Director Defendants At The Pleading Stage"