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Court of Chancery Notes Uncertainty Whether Unocal Heightened Scrutiny Applies in Corwin Stockholder-Approved Transactions—Paramount Gold & Silver


By: 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

In Paramount Gold and Silver Stockholders Litigation (April 13, 2017), the court rejected the plaintiff-shareholders' primary claim that a royalty fee and termination fee should be considered, in combination, as an unreasonable deal protection device. The decision is most notable for the court's noting that there is an open issue as to whether, in a post-closing action, Corwin would “cleanse” a defensive action that might be found to be unreasonable under the Unocal standard of review—that is, whether a post-closing challenge to deal protection devices under Unocal would or would not survive if Corwin were applicable. The decision also highlights that, in post-closing non-controller actions, even when Corwin is not applicable (i.e., the transaction was not approved by stockholders in a fully informed, uncoerced vote), business judgment review generally will be applicable in any event (under Cornerstone) unless the plaintiff meets the high bar for pleading a valid claim of breach of the duty of loyalty or bad faith.

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