Fried Frank > <em>Solera </em>Decision Underscores (Again) Difficulties of Challenging a Transaction That Was Approved by Disinterested Stockholders
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Solera Decision Underscores (Again) Difficulties of Challenging a Transaction That Was Approved by Disinterested Stockholders


By: Andrew J. Colosimo, Aviva F. Diamant, Christopher Ewan, Arthur Fleischer, Jr., Andrea Gede-Lange, David J. Greenwald, Randi Lally, Mark H. Lucas, Scott B. Luftglass, Brian T. Mangino, Brian Miner, Robert C. Schwenkel, David L. Shaw, Peter L. Simmons, Matthew V. Soran, Steven J. Steinman, Gail Weinstein

The Delaware Court of Chancery’s recent Solera decision (Jan. 5, 2017), relating to the all-cash acquisition of Solera Holdings Inc. by a private equity firm, follows an increasingly familiar template. Based on the landmark 2015 Corwin decision, Chancellor Bouchard rejected applying enhanced scrutiny under Revlon in a post-closing action; held that the merger was “subject to the business judgment presumption because, in a fully-informed and uncoerced vote, a disinterested majority of Solera’s stockholders approved” it; found the nondisclosure claims to be without merit; and dismissed the plaintiff’s claims at the pleading stage of the litigation.

The decision is notable for:

  • Reiterating that, based on Corwin, post-closing damages actions challenging transactions that have been approved by the disinterested stockholders in a “fully-informed” vote will be accorded great deference and should be dismissed at the pleading stage;
  • Clarifying that the plaintiffs have the “burden of pleading” that the vote was not “fully-informed;”
  • Underscoring that there is a high standard for establishing the materiality of claims challenging proxy statement disclosure; and that plaintiffs cannot re-package substantive claims as disclosure claims; and
  • Apparently endorsing the view that the only transactions not subject to potential “cleansing” under Corwin are controller transactions (i.e., that  transactions that would be subject to entire fairness review because a majority of the directors approving the transaction were not independent and disinterested would be cleansed by a fully-informed, uncoerced vote of disinterested stockholders).
We discuss these key points and provide related practice points in the attached Fried Frank Briefing.

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