Delaware Courts Update: Supreme Court Issues Decision on Exculpatory Clauses
In a decision with important implications for directors of public companies, the Delaware Supreme Court overturned two Chancery Court opinions—In re Cornerstone Therapeutics Inc. Stockholder Litigation and Leal, et al. v. Meeks et al.—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. 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.