Cornerstone and Zhongpin Reversed: Independent Directors May Be Dismissed Under Exculpatory Provisions Regardless of Standard of Review

May 14, 2015

Publication| Corporate Transactions| Corporate & Chancery Litigation

In In re Cornerstone Therapeutics Inc. Stockholder Litigation, Nos. 564, 2014 & 706, 2014 (Del. May 14, 2015), the Delaware Supreme Court resolved two consolidated interlocutory appeals. In the underlying cases, discussed here, the Court of Chancery refused to dismiss independent directors because the governing standard of review was held to be entire fairness.

The Supreme Court reversed and remanded, holding that a “plaintiff seeking only monetary damages must plead non-exculpated claims against a director who is protected by an exculpatory charter provision to survive a motion to dismiss, regardless of the underlying standard of review for the board’s conduct—be it Revlon, Unocal, the entire fairness standard, or the business judgment rule.” Therefore, even in a situation where entire fairness applies ab initio, independent directors may seek dismissal under a charter provision authorized by 8 Del. C. § 102(b)(7) where the plaintiffs are solely seeking monetary relief.

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