Richards Layton & Finger

Reviewing the Standards of Review in Delaware

March 2011

On January 21, 2011, the Court of Chancery issued Reis v. Hazelett Strip-Casting Corp., a post-trial decision regarding the fairness of a reverse stock split and the resulting injury to the minority stockholders. In Reis, Vice Chancellor Laster provided a revealing look into the Court’s position on when to apply the three principal standards of review governing Delaware corporate law: (1) business judgment; (2) enhanced scrutiny; and (3) entire fairness. The Court also provided a new justification for applying enhanced scrutiny in “final stage” transactions and imposed liability on non-independent directors under the entire fairness test without an explicit finding of breach of fiduciary duty.