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Case Study: Cornerstone Therapeutics, Inc.

604 Words3 Pages

Last summer, the Delaware Supreme Court held that a lawsuit challenging an acquisition by a controlling shareholder seeking monetary damages against corporate fiduciaries must plead a non-exculpated claim against disinterested, independent directors to survive a motion to dismiss. The Court’s decision resolved two separate consolidated appeals by directors of Cornerstone Therapeutics, Inc. and Zhongpin, Inc. In each case, the Delaware Chancery Court denied the independent directors' motions to dismiss, analyzing that if the underlying transaction is subject to the “entire fairness” standard of review, all of the directors must remain defendants until the end of the litigation, regardless of any exculpatory language contained in the companies’ charter provisions.. In reversing on appeal, the Delaware Supreme Court held: …show more content…

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This Delaware Supreme Court decision is underscores the significant protections provided by exculpatory charter language to directors and special committees of public companies who are involved in negotiating and approving merger and acquisition transactions.

Subject to certain limitations, Delaware General Corporation Law §102(b)(7) permits corporate charter language limiting a director’s personal liability to shareholders for monetary damages for breach of fiduciary duty. Section 102(b)(7) reads in relevant

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