Controlling Stockholders May Face Liability if Found to have Acted in Coercive Manner in Exit Sale
By KEVIN C. LOGUE, RYAN H. MCLENNAN & ERIC M. JONES
In In re Delphi Financial Group Shareholder Litigation, the Delaware Court of Chancery was recently confronted with the issue of whether a controlling stockholder breaches its fiduciary duties to minority stockholders when it conditions its consent to a merger transaction upon the receipt of a control premium for its shares, notwithstanding a provision in the certificate of incorporation explicitly prohibiting such a control premium. While denying the preliminary injunction being sought by the minority stockholder plaintiffs, the decision cleared the path for the plaintiffs to pursue damages claims against the controlling stockholder as well as other defendants who assisted him. The decision emphasizes the risk of coercive behavior by controlling stockholders against minority stockholders in the sale context and serves as an important reminder that actions by controlling stockholders in the sale context are not completely immune from judicial review.