Corwin Doctrine Remains Powerful Antidote to Post-Closing Stockholder Deal Litigation

William Savitt, Ryan A. McLeod, and Anitha Reddy are partners at Wachtell, Lipton, Rosen & Katz. This post is based on their Wachtell memorandum, and is part of the Delaware law series; links to other posts in the series are available here.

The Delaware Court of Chancery this week dismissed post-closing merger litigation in deference to an informed and uncoerced stockholder vote. In re GGP, Inc. Stockholder Litig., C.A. No. 2018-0267-JRS (Del. Ch. May 25, 2021).

In 2018, Brookfield Property Partners acquired the 65% of shares of GGP, Inc. that it did not already own. Before opening merger talks, Brookfield made clear its intention that any transaction should be conditioned on approval by unaffiliated stockholders. Holders of 94% of the unaffiliated shares ultimately approved the deal reached by Brookfield and a special committee of the GGP board.

Following what the Court of Chancery called a “familiar rhythm,” stockholder plaintiffs demanded inspection of GGP’s books and records related to the transaction and then sued, claiming that Brookfield should be held liable for fiduciary breach as a controlling stockholder.

The Court of Chancery dismissed the action. In determining whether Brookfield was a controlling stockholder, the Court reemphasized the importance of voting power. While “mindful of the practical reality of an alleged controller’s voting power,” the Court found that “a 35.3% equity stake does not transmogrify a minority blockholder into a controlling stockholder (with the accompanying fiduciary duties to match).” Because plaintiffs had not alleged facts showing Brookfield’s ability to “dictate any action by the board” or “managerial supremacy” over GGP, the Court rejected the claim of control.

The Court then dismissed the complaint under the Corwin doctrine—the principle that transactions not involving conflicted controllers are entitled to business judgment protection when approved by an informed, uncoerced majority of disinterested stockholders.

The decision reanimates the principle that large blockholders should not be subjected to fiduciary duties unless they have managerial and voting power such that they are situated as if they had outright majority voting control. It likewise reinforces the principle of Corwin: that informed stockholders should generally be entitled to the last word in evaluating the wisdom of corporate transactions.

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