Court of Chancery Confirms Directors’ Self-Interest Does Not Exclude “Cleansing” Under Corwin—And Disclosure Is Sufficient If Stockholders Can “Stitch Together the Facts” to Infer Self-Interest—Columbia Pipeline

By: Abigail Pickering Bomba, Warren S. de Wied, Steven Epstein, Arthur Fleischer, Jr., David J. Greenwald, Scott B. Luftglass, Philip Richter, Robert C. Schwenkel, Peter L. Simmons, Gail Weinstein

Columbia Pipeline Group, Inc. Stockholder Litigation (March 7, 2017) is now the fifth in a series of Court of Chancery opinions that has interpreted Corwin as permitting “cleansing” of a transaction even when the directors allegedly breached the duty of loyalty. This case involved a more “vivid” conflict of interest issue than the previous cases, with the court finding that the plaintiffs had pled a valid pleadings-stage claim that the directors had acted primarily in their own self-interest (rather than, as in previous cases, the allegations being that the directors were not independent and disinterested). The court nonetheless dismissed the case, under Corwin, based on the transaction having been cleansed by the stockholder vote. Further, the opinion reaffirms that, for a stockholder vote to be deemed “fully informed” under Corwin, while directors must disclose the facts relating to their self-interest in a transaction, there is no requirement that they expressly disclose that they acted for a self-interested purpose. Finally, the opinion confirms disclosure by a sell-side financial adviser in its Form 13F of its ownership of shares in the buyer is generally sufficient, without repeating the disclosure in the proxy statement (at least where there is not an actual “economic conflict”).

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