IN THE SUPREME COURT OF THE STATE OF DELAWARE

ARTHUR FLOOD, Individually and §

on behalf of all others similarly §

situated, § No. 101, 2018

§

Plaintiff Below, § Court Below: Court of Chancery

Appellant, § of the State of Delaware

§

v. § C.A. No. 2017-0032-JTL

§

SYNUTRA INTERNATIONAL, INC., §

LIANG ZHANG, JINRONG CHEN, §

LEI LIN, YALIN WU, XIUQING §

MENG, BEAMS POWER MERGER §

SUB LIMITED, and HOULIHAN §

LOKEY CAPITAL, INC., §

§

Defendants Below, §

Appellee. §

Submitted: September 12, 2018

Decided: October 9, 2018

Before STRINE, Chief Justice; VALIHURA, VAUGHN, SEITZ, and 

TRAYNOR, Justices, constituting the Court en Banc.

Upon appeal from the Court of Chancery. AFFIRMED.

Ryan M. Ernst, Esquire, Daniel P. Murray, Esquire, O’Kelly Ernst & Joyce, LLC, 

Wilmington, Delaware; Donald J. Enright, Esquire (Argued), Elizabeth K. Tripodi, 

Esquire, Levi & Korsinsky, LLP, Washington, D.C., for Appellant, Arthur Flood.

Matthew E. Fischer, Esquire, Matthew R. Dreyfuss, Esquire, Potter Anderson & 

Corroon LLP, Wilmington, Delaware; Roger A. Cooper, Esquire, Rishi N. Zutshi, 

Esquire (Argued), Vanessa C. Richardson, Esquire, Hana Choi, Esquire, Cleary 

Gottlieb Steen & Hamilton LLP, New York, New York, for Appellees, Synutra 

International, Inc, Jinrong Chen, Lei Lin, and Yalin Wu.
William M. Lafferty, Esquire, John P. DiTomo, Esquire, Morris, Nichols, Arsht & 

Tunnell LLP, Wilmington, Delaware; Lawrence Portnoy, Esquire, Rebecca L. 

Martin, Esquire, Davis Polk & Wardwell LLP, New York, New York, for Appellees, 

Liang Zhang, Xiuqing Meng, and Beams Power Investment Ltd. 

STRINE, Chief Justice, for the Majority:
In Kahn v. M&F Worldwide Corp. (“MFW”),

1 we held that business judgment 

review applied to a merger proposed by a controlling stockholder conditioned before 

the start of negotiations on “both the approval of an independent, adequatelyempowered Special Committee that fulfills its duty of care; and the uncoerced, 

informed vote of a majority of the minority stockholders.”

2

 In this appeal, the 

question is whether the Court of Chancery properly applied MFW by reading it as: 

i) allowing for the application of the business judgment rule if the controlling 

stockholder conditions its bid on both of the key procedural protections at the 

beginning stages of the process of considering a going private proposal and before 

any economic negotiations commence, and ii) requiring the Court of Chancery to 

apply traditional principles of due care and to hold that no litigable question of due 

care exists if the complaint fails to allege that an independent special committee 

acted with gross negligence. In our previous affirmance of the Court of Chancery 

in Swomley v. Schlecht,

3 we held that an interpretation of MFW based on these 

principles was correct. 

As to the first point, what is critical for the application of the business 

judgment rule is that the controller accept that no transaction goes forward without 

special committee and disinterested stockholder approval early in the process and 

 

1

88 A.3d 635 (Del. 2014). 

2

Id. at 644

3

128 A.3d 992 (Del. 2015) (TABLE). 
2

before there has been any economic horse trading. Stressing that in the controller’s

first expression of interest it failed to condition its proposal on the satisfaction of 

those two key conditions, the plaintiff ignores that the controller quickly conditioned 

its offer on both of MFW’s dual requirements — approval by an independent Special 

Committee and an affirmative vote by a majority of the minority stockholders —

before the Special Committee had even hired counsel. MFW’s required 

preconditions were therefore in place before any economic negotiation between the 

Special Committee and the controller occurred. Thus, before the Special Committee 

began substantive deliberations, it knew that any merger was conditioned on both its 

approval and the approval of a majority of the disinterested stockholders. So, 

consistent with our prior decision to identical effect in Swomley,

4 we therefore agree 

with the Court of Chancery that MFW applies “when the controller announces the 

conditions ‘before any negotiations took place.’”5 

As to the second point, the central objective of the MFW standard is to provide 

an incentive for controllers to embrace the procedural approach most favorable to 

minority investors, with the incentive of obtaining the protection of the business

 

4

Swomley, 2014 WL 4470947, at *21, aff’d 128 A.3d 992 (Del. 2015) (TABLE) (holding that 

MFW applied despite the fact that “the controller’s initial proposal hedged on whether the 

majority-of-the-minority condition would be waivable or not, but from the first meeting, the board 

resolved that any deal would require both the approval of a special committee and a majority-ofthe-minority vote”).

5

In re Synutra Int’l, Inc., No. 2017-0032-JTL, 2018 WL 705702, at *2 (Del. Ch. Feb. 2, 2017)

(quoting Swomley, 2014 WL 4470947, at *17–18). 
3

judgment rule standard of review. To lard on to the due care review a substantive 

review of the economic fairness of the deal approved by a Special Committee, as the 

plaintiff advocates, is to import improperly into a due care analysis the type of 

scrutiny used in entire fairness review and in appraisal cases. Thus, in Swomley and 

in this case, the Court of Chancery properly held that the business judgment rule

applied when the other conditions of MFW applied and the Special Committee

employed qualified legal and financial advisors and indisputably engaged in a 

deliberative process that cannot rationally be characterized as grossly negligent.6 

Accordingly, we affirm.

I.

This case comes before us from a dismissal of the plaintiff’s complaint by the 

Court of Chancery.7 The relevant pled facts can be summarized briefly. Liang 

Zhang and entities related to him controlled 63.5% of Synutra International Inc.’s 

stock.8 In January 2016, Zhang proposed to take Synutra private by acquiring the 

rest of the stock he did not control.

9

 In an initial letter, Zhang proposed purchasing 

 

6

See Swomley, 2014 WL 4470947, at *21, aff’d 128 A.3d 992 (Del. 2015) (TABLE) (holding that 

the “gross negligence standard,” a standard that “is only satisfied by conduct that really requires 

recklessness,” applies to whether the Special Committee “met its duty of care in negotiating a fair 

price” and that merely alleging that “[s]omebody could have negotiated that differently” does not 

establish a duty of care violation to overcome a motion to dismiss). 

7 Accordingly, we review whether the Court of Chancery’s decision was correct de novo. Dunlap 

v. State Farm Fire & Cas. Co., 878 A.2d 434, 438–39 (Del. 2005). 

8 Opening Br. at 1. 

9

Id. at 5. 
4

the remaining shares at $5.91, but he did not include a requirement that the sale be 

conditioned on the approval of a special committee and an affirmative vote of a 

majority of the minority stockholders.

10 To assist him in the proposed merger, Zhang 

retained Davis Polk & Wardwell LLP.11 Although Davis Polk was traditionally 

Synutra’s corporate counsel, Synutra’s CFO agreed to waive Davis Polk’s conflicts

of interest before the Board met to discuss Zhang’s proposed merger.12 

One week after Zhang issued his proposal, the Board met and formed a Special 

Committee.13 Before the meeting, the Board “agreed that it would not substantively 

evaluate” Zhang’s proposal.14 Although Davis Polk now represented Zhang, it 

advised the Board at this meeting on its fiduciary duties.15 The Board understood 

that Davis Polk represented Zhang, but nevertheless “requested the attendance . . . 

of representatives of Davis Polk who frequently advised [the Board] because those 

representatives were not involved in Davis Polk’s representation of [Zhang].”16 The

 

10 Id.; App. to Opening Br. at A22 (Verified Amended Class Action Complaint (Feb. 10, 2017)) 

(“As clearly evidenced by the Initial Proposal quoted in full above, Zhang did not condition the 

Proposed Buyout ab initio on approval by a special committee nor on approval by the majority of 

the minority unaffiliated stockholders.”). 

11 Opening Br. at 5 (“By the time of [the first] meeting, [Zhang] had already retained Davis Polk 

as legal counsel in connection with the Buyout.”).

12 Id.

13 Id. at 5–6. 

14 App. to Opening Br. at A152 (Schedule 14A, Definitive Proxy Statement, Synutra International, 

Inc. (Mar. 9, 2017)).

15 Opening Br. at 5–6. 

16 App. to Opening Br. at A152 (Schedule 14A, Definitive Proxy Statement, Synutra International, 

Inc. (Mar. 9, 2017)).
5

plaintiff does not allege that any negotiations occurred at this meeting.

17

 Rather, the 

only substantive action the plaintiff alleges was taken at the meeting was the decision 

to establish the Special Committee.18 Indeed, the proxy, which plaintiff incorporated 

into his complaint by reference, says that the Board did not discuss the substance of 

Zhang’s proposal at the meeting.19 Specifically, the proxy states that, at the January 

21, 2016 board meeting, the “board of directors agreed that it would not 

substantively evaluate the January 14 Proposal at this meeting and that Davis Polk’s 

advice to [the] board of directors would be limited to reminding the directors of their 

fiduciary duties under Delaware law and advising [the] board of directors on 

establishing a special committee to evaluate and, if appropriate, negotiate the 

January 14 Proposal.”20 The plaintiff pleads no facts to the contrary. 

Two weeks after the initial offer, and only one week after the Special 

Committee was formed, Zhang sent a second letter to the Special Committee 

stipulating that he would not proceed with the transaction unless it was approved by 

the Special Committee and approved by the holders of a majority of the voting stock 

not controlled by Zhang.21 No negotiations had commenced as of that time; the 

 

17 Id. at A63–65 (Verified Amended Class Action Complaint (Feb. 10, 2017)) (noting that the 

Board met, formed a Special Committee, and then, two weeks later, Zhang made his second 

proposal without alleging any discussions or interactions during that two-week period). 

18 Id. (Verified Amended Class Action Complaint (Feb. 10, 2017)). 

19 Id. at A152 (Schedule 14A, Definitive Proxy Statement, Synutra International, Inc. (Mar. 9, 

2017)).

20 Id. (Schedule 14A, Definitive Proxy Statement, Synutra International, Inc. (Mar. 9, 2017)).

21 Opening Br. at 7. 
6

Special Committee had not met and the complaint is devoid of any facts suggesting 

that the Special Committee and Zhang had engaged in any economic negotiations.22 

In fact, the plaintiff’s complaint makes clear that:

 the Special Committee did not engage its own investment bank 

or counsel until after this point;

23

 the Special Committee declined to engage in price negotiations 

until its banker could do due diligence and obtain projections;

24

and 

 the price negotiations did not begin until seven months after 

Zhang’s second offer conditioning any merger on both Special 

Committee and majority-of-the-minority approval.25 

Thus, the plaintiff does not allege any negotiations or other meetings occurred 

before Zhang’s second offer, which conditioned the take-private offer on MFW’s 

dual requirements. 

To highlight this reality, it is useful to underscore the chronology of the facts 

the complaint outlines. After receiving Zhang’s second offer — proposing the same 

price as the first offer — on January 30, 2016, the Special Committee hired Houlihan 

Lokey and Cleary Gottlieb as its independent financial and legal advisors.

26

 

Houlihan began discussions with management regarding the company’s financial 

 

22 See App. to Opening Br. at A46–90 (Verified Amended Class Action Complaint (Feb. 10, 

2017)). 

23 Id. at A152–53 (Schedule 14A, Definitive Proxy Statement, Synutra International, Inc. (Mar. 9, 

2017)).

24 Id. at A64–80 (Verified Amended Class Action Complaint (Feb. 10, 2017)). 

25 Id. at A60–67. 

26 Id. at A64–67.
7

projections. On March 22, 2016, Houlihan met with the company’s CFO to discuss 

what was needed for Houlihan to advise the Special Committee.27 The next day, the 

Special Committee met, received an update from Houlihan, and discussed Davis 

Polk’s preparations of an initial draft of the merger agreement.28 Houlihan received 

the company’s financial projections on April 22, 2016, met with the company’s 

management on April 28, 2016 to discuss the projections, and provided the Special 

Committee with “preliminary financial discussion materials” on June 3, 2016.29 

The Special Committee met again on July 20, 2016 and decided to have 

Houlihan initiate a market check.30 None of the 25 potential bidders Houlihan 

contacted were interested, which is not surprising given Zhang’s 63.5% voting 

control and the lack of any promise that he was a willing seller.

31

 

In August 2016, management provided Houlhian with updated, lower 

projections.32 Houlihan provided an updated financial analysis to the Special 

Committee on September 8, 2016.33 At that meeting, after seven months of analysis 

and consultation with its advisors, the Special Committee authorized Houlihan to 

negotiate a higher price with Zhang.34 The next day, Houlihan met with Zhang, and 

 

27 Id. at A66.

28 Id. at A66–67.

29 Id. at A68–69.

30 Id. at A70–71.

31 Id. at A71.

32 Id. at A71–72.

33 Id. at A73–74.

34 Id..
8

Zhang agreed to increase his offer to $6.05 per share.35 The Special Committee met 

again on September 22, 2016 and ultimately agreed to accept the $6.05 price, a 2.4%

bump from Zhang’s original offer, a 58% premium to the trading price of Synutra’s 

stock when the offer was first made public, a 31% and 20% premium to the 30- and 

60-day volume-weighted trading averages, respectively, and a price that Houlihan 

viewed as fair.

36

 

The plaintiff argues that this price was not fair. But, the plaintiff fails to allege 

any lack of independence on the part of the Special Committee,37 and admits that the 

Special Committee met 15 times over a nine-month period and was advised by 

independent financial, legal, and economic advisors.

38

 At bottom, the plaintiff just 

takes issue with the economic outcome of the negotiation and questions how skillful 

the Special Committee and its advisors were.39 The plaintiff does not allege that the 

 

35 Id. at A74–75.

36 Id. at A167 (Schedule 14A, Definitive Proxy Statement, Synutra International, Inc. (Mar. 9, 

2017)). 

37 Although the plaintiff makes some noise about Yalin Wu — a member of the Special Committee 

who was appointed to the Board at the Board meeting in which the Board formed the Special 

Committee — the Court of Chancery correctly found that a “charge that a director was nominated 

by or elected at the behest of those controlling the outcome of a corporate election” does not rebut 

the presumption of director independence. Aronson v. Lewis, 473 A.2d 805, 816 (Del. 1984). 

38 App. to Opening Br. at A64–79 (Verified Amended Class Action Complaint (Feb. 10, 2017)); 

id. at A151–167 (Schedule 14A, Definitive Proxy Statement, Synutra International, Inc. (Mar. 9, 

2017)). 

39 Opening Br. at 25 (“The Complaint alleged strikingly similar facts, demonstrating not only that 

the price was insufficient, but therefore, that the Special Committee was grossly negligent.”). 
9

majority-of-the-minority vote secured to approve the merger was coerced or not

fully informed.40

II. 

In this appeal, the plaintiff does not quibble with the MFW standard itself, but 

argues that the Court of Chancery misapplied it in two respects. Despite the fact that 

the controlling stockholder here conditioned his second offer on approval by the 

Special Committee and an affirmative majority-of-the-minority vote before any 

substantive economic negotiations occurred between himself and the Special 

Committee, the plaintiff argues that, because Zhang’s initial offer letter did not 

contain the Special Committee approval and majority-of-the-minority vote 

conditions, the business judgment rule does not apply.41 In the plaintiff’s view, if a 

controller’s first approach does not contain the required conditions, then it is stuck 

with entire fairness review, even if the controller still commits itself to MFW’s 

requirements early on before any economic negotiations.

42

 

The plaintiff grounds its argument in the language of our opinion in MFW that 

says both procedural protections must be in place “ab initio”

43 (Latin for “from the 

 

40 See App. to Opening Br. at A46–90 (Verified Amended Class Action Complaint (Feb. 10, 

2017)).

41 Opening Br. at 19 ([I]n a controlling stockholder squeeze-out merger, negotiations begin at the 

initial offer, and a control must self-disable at that point if it is to receive the benefits of the business 

judgment rule.”). 

42 Id. 

43 MFW, 88 A.3d at 646.
10

beginning”44), and in language from the Court of Chancery’s decision in MFW that 

uses the phrase “[f]rom inception.”

45

 The plaintiff argues for a quite specific and 

exacting reading of that language. Rather than meaning that the conditions be in 

place at the beginning of the Special Committee’s process and before economic 

bargaining occurs, the plaintiff argues that it means that the controller must include 

the conditions in its “first offer” or else lose out on the business judgment rule.46 

The plaintiff argues for the brightest of lines.47 

The defendants read the requirement that the conditions be in place “ab initio” 

or “from inception” less rigidly. They argue that what MFW requires is that these 

conditions be in place at the early stages of negotiations, and that they be in place 

before any substantive economic negotiations take place, so that the proffer of the 

conditions cannot be substituted for price concessions.48 

Below, the Court of Chancery sided with the defendants’ view, stating “[a] 

process meets the ab initio requirement when the controller announces the 

 

44 AB INITIO, Black’s Law Dictionary (10th ed. 2014). 

45 In re MFW, 67 A.3d at 529. 

46 Opening Br. at 18 (“Thus, the outset — the initio — of negotiations must tautologically be the 

first offer. Any other interpretation simply does not comport with the underlying concepts.”). 

47 Id. (suggesting that “negotiations commence with the initial proposal”) (emphasis omitted). 

48 Answering Br. at 19–20 (Moreover, despite Plaintiff’s contention that the ‘clear implication’ or 

[MFW’s] ab initio requirement is that ‘negotiations begin at the initial offer,’ neither this Court 

nor any other has adopted such a rule.”) (citation omitted). 
11

conditions ‘before any negotiations took place.’”49 As we did in our previous 

decision in Swomley, we read MFW as the Court of Chancery did here. 

Admittedly, our opinion and the Court of Chancery’s opinion in MFW uses 

what can be read as ambiguous language to express the requirement that the key dual 

procedural protections must be in place before economic negotiations so the 

protections are not used as a bargaining tool in substitution for economic concessions 

by the controller. In describing this prerequisite to the invocation of the business 

judgment rule standard of review, we and the Court of Chancery have said the 

conditions must be in place “ab initio,”50 before the “procession of the transaction,”51

“from inception,”52“from the time of the controller’s first overture,”53 and

“upfront.”

54

 From these uses, the plaintiff argues that MFW strictly hinges the 

 

49 In re Synutra, 2018 WL 705702, at *2 (quoting Swomley, 2014 WL 4470947, at *17–18). 

50 MFW, 88 A.3d at 646 (“We hold that business judgment is the standard of review that should 

govern mergers between a controlling stockholder and its corporate subsidiary, where the merger 

is conditioned ab initio upon both the approval of an independent, adequately-empowered Special 

Committee that fulfills its duty of care; and the uncoerced, informed vote of a majority of the 

minority stockholders.”). 

51 Id. at 645 (“To summarize our holding, in controller buyouts, the business judgment standard of 

review will be applied if and only if: (i) the controller conditions the procession of the transaction 

on the approval of both a Special Committee and a majority of the minority shareholders . . .”); 

see also In re MFW, 67 A.3d at 535 (“The business judgment rule is only invoked if: (i) the 

controller conditions the procession of the transaction on the approval of both a special committee 

and a majority of the minority stockholders . . .”). 

52 In re MFW, 67 A.3d at 528 (“From inception, the controlling stockholder knows that it cannot 

bypass the special committee's ability to say no.”). 

53 Id. at 503 (“[T]he court concludes that when a controlling stockholder merger has, from the time 

of the controller’s first overture, been subject to . . .”).

54 Id. at 505 (“After addressing that issue, the court then considers whether our Supreme Court has 

answered the question of what judicial standard of review applies to a merger with a controlling 

stockholder conditioned upfront on a promise that no transaction will proceed without (i) special

committee approval, and (ii) the affirmative vote of a majority of the minority stockholders. 
12

application of the business judgment rule on the controller including the two key 

procedural protections in the first offer. A controller gets one chance, as the master 

of its offer, to take advantage of MFW, and if it fails to do so, that is it. But in an 

earlier case, the Court of Chancery and we did not embrace this rigid reading of 

MFW. In the case of Swomley v. Schlecht, the Court of Chancery held that MFW’s 

“ab initio” requirement was satisfied even though “the controller’s initial proposal 

hedged on whether the majority-of-the-minority condition would be waivable or 

not” because the controller conditioned the merger on both of MFW’s dual 

requirements “before any negotiations took place.”55 We affirmed that wellreasoned conclusion, and adhere to that approach for reasons we now explain. 

For starters, the plaintiff’s cramped reading contradicts the use of “beginning” 

in everyday speech, when that term is applied to a multi-stage process of human 

events with periods of time leading to an ultimate conclusion.56 A goal scored in the 

fifth minute of a 90-minute game would be referred to as a goal at the beginning of 

the match. Enjoying the beginning of fall refers to those few weeks in late 

September and early October when the weather gets chilly and the leaves start to 

change color, not just the autumnal equinox. The beginning of a novel is not the 

 

Finally, having concluded that the question has not been answered by our Supreme Court, this 

court answers the question itself.”).

55 Swomley, 2014 WL 4470947, at *17–18. 

56 For instance, Merriam-Webster defines beginning as “the first part” or “a rudimentary stage or 

early period.” Beginning, Merriam-Webster, https://www.merriamwebster.com/dictionary/beginning. 
13

first word, but the first few chapters that introduce the reader to the characters, 

setting, and plot. Indeed, three years after Britain entered World War II,

57 Winston 

Churchill famously declared that the War had reached “the end of the beginning.”58 

Thus, as a matter of language, “from the beginning” can encompass more than 

the narrow sense in which the plaintiff reads those words. An ordinary person would 

conclude that Zhang had conditioned the merger on MFW’s dual requirements in the 

beginning stages of the process that led to the merger. More important, even if the 

plaintiff’s linguistic argument is one plausible reading of the literal words of MFW, 

that reading is at odds with the origins of why that decision requires that the 

controller condition its offer early in the process — i.e., before any substantive 

economic negotiations begin — on the two key procedural protections. 

The MFW standard emerged out of concerns created by Kahn v. Lynch 

Communication Systems, Inc., which held that approval of a controlling shareholder 

transaction by either “an independent committee of directors or an informed majority 

of minority shareholders shifts the burden of proof on the issue of [entire] fairness 

from the controlling or dominating shareholder to the challenging shareholderplaintiff.”59

 Lynch incentivized “the use of special negotiating committees in 

 

57 Britain declared war on Germany on September 3, 1939. 

58 Winston Churchill, The End of the Beginning (Churchill Society, Nov. 10, 1942), 

http://www.churchill-society-london.org.uk/EndoBegn.html.

59 638 A.2d 1110, 1117 (Del. 1994). 
14

addressing mergers with controlling stockholders,” but its practical effect “in the real 

world of transactions was to generate the use of special committees alone.”

60

 

Controllers were reluctant to condition mergers on a majority-of-the-minority vote 

upfront because it “added an element of transactional risk without much liabilityinsulating compensation in exchange.”61

 As a result, controllers were likely to, “at 

most, agree to such a [c]ondition at the insistence of a special committee and/or as a 

way to settle with the plaintiffs.”62 In essence, those subject to the economic 

consequences of the process — the minority stockholders — were left either without 

a say or with a say at the potential expense of additional consideration that might 

have been extracted by tougher economic bargaining. 

Enter MFW. To avoid one of Lynch’s adverse consequences — using a 

majority-of-the-minority vote as a chit in economic negotiations with a Special 

Committee — MFW reviews transactions under the favorable business judgment 

rule if “these two protections are established up-front.”63 MFW’s dual conditions 

create “a potent tool to extract good value for the minority” because from the start 

of negotiations “the controlling stockholder knows that it cannot bypass the special 

committee’s ability to say no.”

64

 The key concern of MFW was ensuring that 

 

60 In re Cox, 879 A.2d at 618. 

61 Id. 

62 Id. 

63 MFW, 88 A.3d at 644 (quoting In re MFW, 67 A.3d at 528). 

64 Id. (quoting In re MFW, 67 A.3d at 528).
15

controllers could not use the conditions as bargaining chips during economic 

negotiations: 

[T]he dual procedural protection merger structure optimally protects 

the minority stockholders in controller buyouts . . . . [W]hen these two 

protections are established up-front, a potent tool to extract good value 

for the minority is established. From inception, the controlling 

stockholder knows that it cannot bypass the special committee’s ability 

to say no. And, the controlling stockholder knows it cannot dangle a 

majority-of-the-minority vote before the special committee late in the 

process as a deal-closer rather than having to make a price move.65

This requirement — having MFW’s dual requirements in place at the start of 

economic negotiations — helps replicate a third-party process and, simultaneously, 

incentivizes controllers to precommit to MFW’s conditions early to take advantage 

of business judgment review.66 The essential element of MFW, then, is that these 

requirements cannot be dangled in front of the Special Committee, when

negotiations to obtain a better price from the controller have commenced, as a 

substitution for a bare-knuckled contest over price.

67

 

That is, the purpose of the words “ab initio,” and other formulations like it in 

the MFW decisions, require the controller to self-disable before the start of 

 

65 Id. (quoting In re MFW, 67 A.3d at 528) (emphasis added).

66 Id. (“The simultaneous deployment of the procedural protections employed here create a 

countervailing, offsetting influence of equal — if not greater — force. That is, where the controller 

irrevocably and publicly disables itself from using its control to dictate the outcome of the 

negotiations and the shareholder vote, the controlled merger then acquires the shareholderprotective characteristics of third-party, arm’s-length mergers, which are reviewed under the 

business judgment standard.”). 

67 Id. 
16

substantive economic negotiations, and to have both the controller and Special 

Committee bargain under the pressures exerted on both of them by these protections. 

Thus, so long as the controller conditions its offer on the key protections at the 

germination stage of the Special Committee process, when it is selecting its advisors, 

establishing its method of proceeding, beginning its due diligence, and has not 

commenced substantive economic negotiations with the controller, the purpose of 

the pre-condition requirement of MFW is satisfied. In that situation, the Special 

Committee and the controller know, at all times during economic bargaining, that a 

transaction cannot proceed if the Special Committee says no, and the Special 

Committee knows that if they agree to a price, their judgment will be subject to 

stockholder scrutiny and approval. 

And any ambiguity left by MFW’s various semantic phrases was clarified by 

Swomley where we affirmed the Court of Chancery in holding that MFW’s “ab 

initio” requirement is satisfied if the controller disables “before any negotiations 

t[ake] place.”

68

 In Swomley, the controller’s first proposal was not conditioned on 

both of MFW’s dual requirements, yet we affirmed the Court of Chancery’s holding 

that MFW applied, and the controller was thus entitled to business judgment rule 

review, because the controller conditioned the buyout on MFW’s dual requirements 

 

68 Swomley, 2014 WL 4470947, at *17–18. 
17

“before any negotiations took place.”

69

 We adhere to our prior decision in Swomley, 

which affirmed the Court of Chancery’s decision that to satisfy MFW’s “ab initio,”

or from inception, prong, a controller is required to condition the buyout on both the 

approval of an independent, fully empowered Special Committee and the approval 

of a majority of minority stockholders at the beginning stages of the process of 

considering a going private proposal and before any negotiations commence 

between the Special Committee and the controller over the economic terms of the 

offer. 

Of course, adopting any rule, including this one, may give rise to close cases. 

But our Court of Chancery is expert in the adjudication of corporate law cases. And 

when a plaintiff has pled facts that support a reasonable inference that the two 

procedural protections were not put in place early and before substantive economic 

negotiation took place, the Court of Chancery can be trusted to apply appropriate 

pleading stage principles and refuse to dismiss the case

But that situation does not exist here. The plaintiff has pled no facts 

supporting a reasonable inference that Zhang did not condition the merger on MFW’s 

dual procedural protections before any economic negotiations took place. Although 

plaintiff is entitled to reasonable inferences from the facts pled,70 we agree with the 

 

69 Id. 

70 See Dunlap, 878 A.2d at 438–39.
18

Court of Chancery that “[t]he plaintiff has not pled facts sufficient to call into 

question compliance with the ab initio requirement.”

71

 

The Court of Chancery found that Zhang “sent the Follow-up Letter just over 

two weeks after [he] first proposed the Merger, before the Special Committee ever 

convened and before any negotiations ever took place. The prompt sending of the 

Follow-up Letter prevented [Zhang] from using the [MFW] conditions as bargaining 

chips.”

72

 And the plaintiff pled no facts suggesting that the Special Committee or 

any member of the committee communicated with Zhang about the substance of the 

transaction before he sent the second letter.73 Indeed, Zhang disabled before the 

Special Committee had hired its advisors. And the Special Committee spent months 

working with its advisors before asking Zhang for additional consideration. All of 

the Special Committee’s work was done after Zhang had agreed to condition his 

buyout on MFW’s dual requirement. Zhang thus conditioned the buyout at the 

beginning of the process and is therefore entitled review under the business judgment 

rule standard. 

In its briefs before us and below, the plaintiff spent most of his time on its 

bright line, one shot argument.74 That was logical because the early second offer 

 

71 In re Synutra, 2018 WL 705702, at *3.

72 Id.

73 Id. 

74 See Opening Br. at 16–23. 
19

was followed by several months of due diligence that occurred before any bargaining 

took place between the Special Committee and Zhang over the economic terms of 

the proposed transaction. But in a cursory part of his brief in opposition to the 

motion to dismiss and his brief in this Court, the plaintiff did argue that the decision 

of Synutra’s CFO to grant Davis Polk a waiver constituted negotiations that, under 

Swomley, should prevent Zhang’s second offer from satisfying the “from inception” 

requirement of MFW.

75

 The plaintiff did so despite other pled facts demonstrating 

that the Special Committee was not even in existence at the time of the waiver much 

less involved in granting it.76 As we have noted, after Zhang sent his initial offer, 

Synutra’s CFO granted the company’s law firm, Davis Polk, a waiver that allowed 

it to represent Zhang. And although the proxy does state that “[t]he waiver of Davis 

Polk’s conflicts was negotiated and agreed by [Synutra’s CFO] on behalf of the 

Company before the Company’s board meeting,” in context — and from the facts 

 

75 See App. to Opening Br. at A369–70 (Plaintiff’s Combined Brief in Opposition to Defendants’ 

Motions to Dismiss the Verified Amended Class Action Complaint (Nov. 30, 2017)) (“Finally, the 

Proxy states that Cai [the CFO] ‘negotiated and agreed’ to a waiver of Davis Polk’s conflict of 

interest before the January 21 board meeting, clearly admitting that some negotiation with the 

Buyer Group had already taken place before the Board formed the Special Committee.”); Opening 

Br. at 21 (“Plaintiff clearly alleged that in the interim, Cai ‘negotiated and agreed’ to a waiver of 

Davis Polk’s conflict of interest before the January 21 board meeting, clearly admitting that some 

negotiation with the Buyer Group had already taken place before the Board formed the Special 

Committee.”). 

76 Id. at A64–80 (Verified Amended Class Action Complaint (Feb. 10, 2017)). 
20

pled — it is clear that the negotiation occurred around the terms of the waiver and 

not substantive terms of the proposed transaction.77 

Consistent with its close and diligent consideration of the record, the Court of 

Chancery examined the waiver issue and whether it disqualified Zhang’s second 

letter from satisfying MFW’s requirement that the two key procedural protections be 

in place at the beginning of the deal process and before economic negotiations 

commenced. In coming to the conclusion that the waiver did not preclude invocation 

of the business judgment rule, the Court of Chancery reasoned: 

The only arguably substantive event that happened before the Followup Letter was that the Company authorized Davis Polk to represent the 

Buyer Group by waiving any conflict that Davis Polk might have. 

Davis Polk was the Company’s long-time counsel. It would have been 

preferable, both optically and substantively, for the Buyer Group to 

retain its own counsel. That scenario would have given the Special 

Committee the choice of hiring its own independent counsel or using 

Davis Polk, if it preferred to take advantage of Davis Polk’s knowledge 

and expertise after considering the firm’s potential ties to the Buyer 

Group. The Special Committee retained Cleary Gottlieb Steen & 

Hamilton LLP (“Cleary Gottlieb”), a firm fully capable of going headto-head with Davis Polk. The complaint does not plead facts that would 

support a reasonable inference that the conflict waiver undercut the 

Special Committee’s effectiveness.78

We find no basis to quibble with the Court of Chancery’s analysis on this 

point. The Special Committee did not engage in any substantive negotiation of 

 

77 Id. at A152 ((Schedule 14A, Definitive Proxy Statement, Synutra International, Inc. (Mar. 9, 

2017)).

78 In re Synutra, 2018 WL 705702, at *2. 
21

Zhang’s offer until well after it had engaged in a lengthy due diligence process led 

by its independent financial and legal advisors.79 And the complaint pled no facts 

suggesting — or from which we can rationally infer — that the waiver was

exchanged for the two procedural protections or anything else. 

At oral argument, the plaintiff seized on this issue in a way that it did not 

emphasize below or in its briefs to us. As the defendants argue to us, it is likely that 

had the waiver not been granted, this would not have meant that Davis Polk could 

have represented the Special Committee. Had it done so, the plaintiffs would likely 

have argued that its role as counsel for the company controlled by Zhang rendered it 

incapable of bargaining adversely to him on behalf of the Special Committee. 

At best, therefore, Davis Polk would have been put in a neutral position, 

representing neither Zhang nor the Special Committee. This would have been 

perhaps the ideal, optimal situation to create a level playing field. But, on the pled 

facts, we agree with the Court of Chancery that the waiver did not obviate the 

application of the business judgment rule because no pled facts suggest any 

connection between the Davis Polk waiver and substantive consideration and 

negotiation of the economics of Zhang’s offer.80 Thus, as to the only question posed 

 

79 See id. at A46–90 (Verified Amended Class Action Complaint (Feb. 10, 2017)). 

80 Neither below nor in its briefs before us did the plaintiff argue that the waiver granted to Davis 

Polk prevented the satisfaction of another requirement of MFW, which is that the Special 

Committee be “empowered to freely select its own advisors and to say no definitively.” MFW, 88 

A.3d at 645. As the Court of Chancery found, the Special Committee selected a major law firm 

with substantial mergers and acquisitions experience to represent it. In re Synutra, 2018 WL 
22

to us, which is whether Zhang conditioned his offer sufficiently early to satisfy the 

“from inception” requirement of MFW, the Court of Chancery correctly answered 

yes. 

III.

The plaintiff’s other contention is that the Court of Chancery erred in finding 

that no due care violation was pled. The plaintiff reads dicta in footnote 14 of our 

MFW decision — dicta that conflict with the actual due care holding in MFW — as 

indicating that somehow a plaintiff may avoid the business judgment rule by raising 

questions about whether the Special Committee, despite concededly being 

independent, being advised by independent advisors, and conducting a lengthy 

procedural process, was adroit in bargaining. The plaintiff argues that this dicta 

allows him to plead a duty of care violation based on an insufficient price.81 

But the entire point of the MFW standard is to recognize the utility to 

stockholders of replicating the two key protections that exist in a third-party merger: 

 

705702, at *2 (“The Special Committee retained Cleary Gottlieb Steen & Hamilton LLP (‘Cleary 

Gottlieb’), a firm fully capable of going head-to-head with Davis Polk.”). The complaint is devoid 

of any pled fact supporting an inference that the Special Committee’s counsel was not equipped to 

represent the Special Committee skillfully and vigorously, nor that it failed to do so. And of 

course, the waiver granted to Davis Polk had no bearing on which financial advisor the Special 

Committee selected. Although we have no doubt that the selection of qualified advisors is 

important to the effectiveness of a special committee, the plaintiff did not argue, and has pled no 

facts supporting any inference, that the Special Committee here was not empowered to select a 

highly qualified legal counsel of its choice. 

81 Footnote 14 in MFW is dicta musing on whether the complaint in MFW could have survived a 

motion to dismiss. 88 A.3d at 645 n.14. But, one was never brought, and the skilled lawyers who 

ultimately won the case likely would have had much to say about whether that was so. Our system 

of justice depends on the courts hearing out both sides, and a footnote speculating about the 
23

an independent negotiating agent whose work is subject to stockholder approval.

82

 

If that standard injects the reviewing court into an examination of whether the 

Special Committee’s good faith efforts were not up to the court’s own sense of 

business effectiveness, the standard is without the very utility it was designed to 

accomplish, motions to dismiss will not be able to be granted, and controllers will 

therefore have no incentive to use the approach most favorable to minority 

stockholders.83 

For that reason, the key paragraph of MFW itself addressing whether there 

was any disagreement of fact about whether the Special Committee had acted with 

gross negligence reads as follows: 

The Special Committee Exercised Due Care. The Special Committee 

insisted from the outset that MacAndrews (including any “dual” 

employees who worked for both MFW and MacAndrews) be screened

off from the Special Committee’s process, to ensure that the process 

replicated arm’s-length negotiations with a third party. In order to 

 

outcome of a motion that was never brought is a clear example of dicta. More important, to the 

extent that note 14 is inconsistent with this decision, Swomley, or the Court of Chancery’s opinion

in MFW, it is hereby overruled. The whole point of MFW is to give a pathway whereby judicial 

review of the economics of a transaction can be avoided if the correct parties (impartial directors 

and the minority stockholders themselves) are given the appropriate authority. Footnote 14 

confusingly suggests that a due care violation can be premised, not on a court’s view that a special 

committee did not lean in and do its work with diligence, but on a court’s after the fact sense that 

the committee should have extracted more price concessions. That, of course, is not what due care 

review is about, and even more, the point of requiring the majority-of-the-minority condition is to 

allow the real parties in interest the say on economics and the chance to say no for themselves.

82 MFW, 88 A.3d at 644 (“[W]here the controller irrevocably and publicly disables itself from 

using its control to dictate the outcome . . . the controlled merger then acquires the shareholderprotective characteristics of third-party, arm’s-length mergers . . . .”).

83 Id. at 645 (“[T]he adoption of this rule will be of benefit to minority stockholders because it will 

provide a strong incentive for controlling stockholders to accord minority investors the 

transactional structure that . . . will provide them the best protection . . . .”) (emphasis omitted). 
24

carefully evaluate M & F’s offer, the Special Committee held a total of 

eight meetings during the summer of 2011 . . . . In scrutinizing the 

Special Committee’s execution of its broad mandate, the Court of 

Chancery determined there was no “evidence indicating that the 

independent members of the special committee did not meet their duty 

of care . . . .” To the contrary, the Court of Chancery found, the Special 

Committee “met frequently and was presented with a rich body of 

financial information relevant to whether and at what price a going 

private transaction was advisable.” The Court of Chancery ruled that 

“the plaintiffs d[id] not make any attempt to show that the MFW 

Special Committee failed to meet its duty of care . . . .” Based on the 

undisputed record, the Court of Chancery held that, “there is no triable 

issue of fact regarding whether the [S]pecial [C]ommittee fulfilled its 

duty of care.”84

As can be seen, that paragraph, which is a holding, focuses as it should on due 

care and not whether someone might question whether the Special Committee’s 

sufficiently diligent efforts resulted in a negotiated price that was fair. The price 

question is not one for a court applying the business judgment rule standard, and was 

for MFW’s stockholders to vote on themselves. 

Any ambiguity arguably created by the confusing dicta in MFW — suggesting 

that challenging price was sufficient to state a duty of care violation — was clarified 

by Swomley. In Swomley, the Court of Chancery held that, in the context of a 

controlling stockholder transaction that was preconditioned on MFW’s dual 

requirements, a plaintiff could not get past a motion to dismiss merely by suggesting 

that the Special Committee “could have negotiated [ ] differently” because that is “a 

 

84 Id. at 651–52. 
25

matter of strategy and tactics that’s debatable and isn’t a duty of care violation.”85 

And the Court of Chancery in Swomley held that the “[d]uty of care is measured by 

a gross negligence standard,” and “disagree[ing] with the [special] committee’s 

strategy” is not a duty of care violation.86 

This Court affirmed that holding, eliminating any ambiguity created by MFW

and confirming that a plaintiff can plead a duty of care violation only by showing 

that the Special Committee acted with gross negligence, not by questioning the 

sufficiency of the price.

Here, the Court of Chancery appropriately read MFW as requiring it to 

determine, under the high standard of gross negligence, whether the plaintiff had 

stated a due care claim. Given the Special Committee’s extensive deliberations,

receipt of extensive advice and information from its financial and legal advisors, and 

negotiations with Zhang, the Court of Chancery correctly found “[t]he complaint’s 

allegations, considered individually and in the aggregate, do not support an inference 

of gross negligence.”87

 

85 Swomley, 2014 WL 4470947, at *21, aff’d 128 A.3d 992 (Del. 2015) (TABLE).

86 Id.

87 In re Synutra, 2018 WL 705702, at *5–6. 
26

IV.

The Court of Chancery faithfully applied our precedents in holding that the 

business judgment rule applied and dismissing the plaintiff’s complaint. Its decision 

is hereby affirmed.
VALIHURA, Justice, dissenting:

I. Overview

I differ with the views of my learned colleagues on the important question of 

what the test should be for invoking business judgment protection in controller 

buyout transactions. The Majority’s adoption of the “when the negotiations begin” 

test invites factual inquiries that defeat the purpose of what should be more of a 

bright line and narrower pathway for pleading-stage dismissals in this context. 

Instead, I believe this Court did conclude in M&F Worldwide, and should reaffirm 

now, that in controller squeeze-out transactions where the controller is on both sides, 

the ab initio requirement is satisfied when the Dual Protections are contained in the 

controller’s initial formal written proposal. This bright-line makes sense because 

the controller dictates when to commence the transactional process so that the outset 

is clear. Here, the outset was the January 14 Proposal. 

Ordinarily, transactions involving conflicts of interest are subjected to our 

most rigorous form of judicial review: entire fairness. Under such circumstances, 

Defendants bear the burden of proving two elements: fair dealing and fair price. This 

is a heavy lift. However, this Court has recognized that conflicted transactions may 

merit a more deferential type of judicial examination when certain procedural 

protections are in place: when such conditions are satisfied, the sale process may be 
2

said to replicate arm’s-length dealing and, thus, the business judgment rule is 

appropriate. 

The Court of Chancery outlined these preconditions for business judgment 

review of conflicted transactions in In re MFW Shareholders Litigation,

1

and this 

Court adopted its framework—albeit, with some refinements—in Kahn v. M&F 

Worldwide.

2

 Adopting six prerequisites set forth by the trial court, this Court held 

that in controller buyout transactions: 

[T]he business judgment standard of review will be applied if and only 

if: (i) the controller conditions the procession of the transaction[s] on 

the approval of both a Special Committee and a majority of the minority 

stockholders; (ii) the Special Committee is independent; (iii) the 

Special Committee is empowered to freely select its own advisors and 

to say no definitively; (iv) the Special Committee meets its duty of care 

in negotiating a fair price; (v) the vote of the minority is informed; and 

(vi) there is no coercion of the minority.3

We explained further that “business judgment is the standard of review that 

should govern mergers between a controlling stockholder and its corporate 

subsidiary, where the merger is conditioned ab initio upon both the approval of an 

independent, adequately-empowered Special Committee that fulfills its duty of care; 

and the uncoerced, informed vote of a majority of the minority stockholders.”4

 

1

67 A.3d 496, 502 (Del. Ch. 2013), aff’d sub nom. Kahn v. M&F Worldwide Corp., 88 A.3d 635 

(Del. 2014).

2

88 A.3d 635 (Del. 2014). 

3

Id. at 645 (emphasis in original). 

4

Id. at 644. 
3

Thus, for the so-called MFW standard to apply: (1) the transaction must be 

conditioned ab initio on (2) approval by both (a) “an independent, adequatelyempowered Special Committee that fulfills its duty of care,” and (b) “the uncoerced, 

informed vote of a majority of the minority stockholders.”5 For simplicity, I refer to 

the six-factor test quoted above as the MFW Framework, and the two conditions—

(a) special committee approval, and (b) stockholder vote approval—as the Dual 

Procedural Protections. 

In reviewing the role of a Special Committee, we observed that “the special 

committee must ‘function in a manner which indicates that the controlling 

stockholder did not dictate the terms of the transaction and that the committee 

exercised real bargaining power “at an arms-length.”’”6 This requirement, which 

implicates the second, third, and fourth MFW factors, is a qualitative inquiry as to 

how the committee actually functioned—not simply a finding that the process 

checked certain boxes in the MFW formula.7 

 

5

Id.

6

Id. at 646 (quoting Kahn v. Tremont Corp., 694 A.2d 422, 429 (Del. 1997)).

7

See Gesoff v. IIC Indus., Inc., 902 A.2d 1130, 1148 (Del. Ch. 2006) (“If a parent seeks to satisfy 

the high standard of entire fairness by establishing a special committee, its burden to show fair 

dealing cannot be satisfied by orchestrating a stylized mockery of arm’s-length negotiation.”

(citing Rabkin v. Olin Corp., 1990 WL 47648, at *6 (Del. Ch. Apr. 17, 1990))).
4

As such, M&F Worldwide was careful to warn that defendants would have 

difficulties in invoking such protections through a motion to dismiss.8 We observed 

that, “[i]f a plaintiff that can plead a reasonably conceivable set of facts showing that 

any or all of those enumerated conditions did not exist, that complaint would state a 

claim for relief that would entitle the plaintiff to proceed and conduct discovery.”9 

In my view, the plaintiff Arthur Flood (“Plaintiff”) has pled facts making it 

reasonably conceivable that at least one of the MFW preconditions was not satisfied. 

Plaintiff has sufficiently pled that the controller did not establish the Dual Procedural 

Protections as preconditions to a deal up front, ab initio. As to other preconditions, 

I agree with the Majority that the Plaintiff presented some refined arguments on 

appeal that were, at best, only weakly alluded to below. For example, Plaintiff did 

not expressly allege in the Amended Complaint that the Davis Polk conflict and 

conflict waiver gave rise to a challenge to the Special Committee’s empowerment to 

 

8 M&F Worldwide, 88 A.3d at 646 (“As we have previously noted, deciding whether an 

independent committee was effective in negotiating a price is a process so fact-intensive and 

inextricably intertwined with the merits of an entire fairness review (fair dealing and fair price) 

that a pretrial determination of burden shifting is often impossible.” (citing Ams. Mining Corp. v. 

Theriault, 51 A.3d 1213 (Del. 2012))).

9

Id. at 645 (citations omitted); see also id. at 645 n.14 (noting that the complaint in MFW would 

have survived a motion to dismiss under this standard and warranted discovery; the case was only 

dismissed at summary judgment); In re Martha Stewart Living Omnimedia, Inc. S’holder Litig., 

2017 WL 3568089, at *17 (Del. Ch. Aug. 18, 2017) (“This strict or ‘formalistic’ approach to 

pleadings-stage transactional standard of review determinations in In re MFW and M&F 

Worldwide was not at all surprising. Because the court was addressing whether the minority 

stockholders’ claim should be dismissed before discovery, both this court and the Supreme Court 

took pains to provide a detailed road map of the points of protection the controller must visit to 

earn business judgment deference on a motion to dismiss.” (citations omitted)). 
5

freely select its own advisors, although he did raise the Davis Polk conflict in the 

complaint and opening brief below.10 At oral argument before the trial court, the 

Davis Polk conflict waiver was raised by Plaintiff—but more in the context of 

arguing that “negotiations” had commenced and, therefore, the ab initio requirement 

had not been satisfied. 

It was only in response to a question from the trial court at oral argument on 

the motion to dismiss that Plaintiff eventually argued that there was an issue with 

the Special Committee’s empowerment to freely select its advisors.11 Thereafter, on 

appeal, Plaintiff’s counsel argued before this Court that the empowerment issue was 

“intertwined” with the ab initio argument, but he conceded that he had not framed 

the issue as an “empowerment” issue before the trial court.12 Though I agree that 

the “empowerment” issue was not fairly presented below, those intervening events 

are intertwined with the ab initio requirement and illustrate how the “negotiations” 

test can devolve into the type of fact-intensive inquiry we were trying to avoid. 

Accordingly, I believe the motion to dismiss should have been denied based upon 

Defendants’ failure to satisfy the ab initio test. For the reasons set forth below, I 

respectfully dissent.

 

10 Plaintiff’s Combined Br. in Opposition to Defendants’ Motion to Dismiss, at A356, A382.

11 Oral Argument on Defendants’ Motion to Dismiss, at A510.

12 Oral Argument video at 17:45; 18:59–19:20, 

https://livestream.com/DelawareSupremeCourt/events/8366324/videos/180173490 [hereinafter 

Oral Argument].
6

II. Facts

I focus my examination of the facts on the three weeks relevant to Plaintiff’s 

most salient allegations on appeal, from mid-January 2016 to early February 2016.

On January 14, 2016, Mr. Zhang and Beams Power sent a letter to the 

Company’s directors that included a non-binding proposal to acquire all issued and 

outstanding shares of Synutra’s common stock not already beneficially owned by 

them for $5.91 per share in cash (the “January 14 Proposal”).13 The letter indicated, 

among other things, that they arrived at the $5.91-per-share price because they 

believed it represented a “fair and attractive opportunity for the minority 

stockholders to exit their investment in the Company.”14 The letter mentioned that 

the prospective buyers still needed to conduct the customary due diligence and that 

they had engaged Davis Polk & Wardwell LLP (“Davis Polk”) as their U.S. legal 

counsel. According to the letter, Davis Polk was prepared to negotiate and finalize 

the definitive transaction documents “promptly.”

But Davis Polk was also counsel to the Company. Thus, “[t]o avoid any 

conflict of interest arising from the role of Davis Polk,”15 the Company’s CFO, Ms. 

Ning Cai, began the process of engaging separate U.S. legal counsel for work related 

 

13 Schedule 14A, Synutra Int’l Inc. (March 9, 2017), at 19 (A151) [hereinafter, “Proxy”]. The 

facts are largely drawn from the Proxy and are not challenged on appeal. 

14 Id. 

15 Id. at 20 (A152).
7

to the January 14 Proposal. On January 15, 2016, Ms. Cai reached out to Wilson, 

Sonsini, Goodrich & Rosati P.C. (“Wilson Sonsini”) about the possibility of 

retaining that firm.

Meanwhile, Ms. Cai had been conducting diligence on Mr. Yalin Wu as a 

potential candidate for independent director of the Company. Mr. Zhang had 

referred him to her in early December 2015 after a “personal friend” of Mr. Zhang’s 

had recommended Mr. Wu as a potential candidate for an open seat. On January 19, 

2016, Ms. Cai nominated Mr. Wu as director. 

Ahead of the Company’s special telephonic board meeting scheduled for 

January 21, 2016, Ms. Cai also negotiated and signed a conflicts waiver with Davis 

Polk and asked Davis Polk representatives to attend that meeting. According to the 

Proxy, the Board requested the participation of Davis Polk despite the firm’s role as 

counsel to the Buyer Group because Davis Polk had “frequently advised” the Board, 

and the Company had not yet engaged separate U.S. legal counsel.16 The Davis Polk 

attorneys advising the Buyer Group were not the same Davis Polk attorneys advising 

the Board.

At the special telephonic meeting held on January 21, 2016, the Board 

unanimously voted to appoint Mr. Wu as an independent director, and he then joined 

the meeting. According to the Proxy: 

 

16 Id.
8

Representatives of Davis Polk advised the directors as to their fiduciary 

duties under Delaware law in considering and evaluating the January 

14 Proposal and further stated that it would be advisable for our board 

of directors to consider forming a special committee solely consisting 

of independent and disinterested directors to ensure that unaffiliated 

stockholders would be adequately protected during the board’s 

evaluation of the January 14 Proposal and any other alternative offers 

involving the Company.17 

The Board followed Davis Polk’s advice as disclosed in the Proxy. Other than 

Mr. Zhang, who abstained, the Board unanimously resolved to form a special 

committee (the “Committee”) of three independent directors “to consider and attend 

to all matters in connection with the January 14 Proposal and any other alternative 

proposals, and to ensure that the unaffiliated stockholders would be adequately 

protected during the Company’s consideration and evaluation of the proposed 

transaction.”18 Ms. Jinrong Chen served as chair, and Mr. Lei Lin and Mr. Wu 

rounded out the Committee. 

According to the Proxy, the Board authorized the Committee to retain its own 

legal counsel, financial advisor, or other agents related to the transaction 

contemplated under the January 14 Proposal. The Board further resolved that the 

Committee could pass resolutions by majority vote, and that it would direct the 

 

17 Id. at 21 (A153).

18 Id.
9

Company’s officers, advisors, and employees to provide any information and 

assistance to the Committee or its advisors.

Following the meeting, Davis Polk ceased representing the Company in 

connection with the January 14 Proposal or any such transaction. However, the firm 

continued to represent the Company on different matters through March 5, 2016.

Between January 21 and February 1, 2016, the members of the Committee—

alongside Synutra CFO Ms. Cai—interviewed four law firms for engagement as the 

Committee’s counsel, including Cleary Gottlieb Steen & Hamilton (“Cleary”). At 

their first meeting with Cleary, on January 23, a firm representative “introduced 

Cleary’s qualifications and experience in mergers and acquisitions transactions.”19 

At their second meeting, on January 29, Cleary “further introduced its practice and 

expertise, and specifically explained the fiduciary duties of the special committee in 

connection with the proposed transaction.”20 The Committee still had not finalized 

its engagement of Cleary as counsel.

That day, January 29, 2016, the Company retained Wilson Sonsini as the 

Company’s U.S. legal counsel.

The next day, January 30, 2016, the Committee received another letter from 

Mr. Zhang and Parent (the “January 30 Letter” or “Follow-up Letter”). In it, the 

 

19 Id.

20 Id.
10

Buyer Group reaffirmed the terms outlined in its January 14 Proposal and then 

included, for the first time,21 the Dual Procedural Protections.

The Committee convened a telephonic meeting the following day, February 

1, 2016. Ms. Cai and Cleary representatives also attended. At the meeting, the 

Committee decided to retain Cleary as independent U.S. legal counsel, and Cleary 

then advised the members on “the key issues and implications with respect to a 

going-private transaction, including the special committee’s evaluation of the 

fairness of the proposed transaction to the Company’s unaffiliated stockholders and 

the directors’ fiduciary duties under Delaware law.”22 They also discussed the next 

steps, including the hiring of an independent financial advisor, and the Committee 

instructed Ms. Cai and Cleary to begin reaching out to possible candidates.

After the meeting, Ms. Cai and Cleary contacted three investment banks to 

solicit their interest in serving as financial advisor, and, on February 2, the 

Committee interviewed three of them. The Committee decided to continue 

evaluating two of these banks, including Houlihan Lokey (“Houlihan”), and asked 

Cleary to start negotiating engagement letters with them.

 

21 The Proxy states that the January 30 Letter “confirmed” the following conditions, see id., but 

both parties agree that these conditions were first included in the January 30 Letter, so the use of 

“confirm” seems somewhat misleading. Id.

22 Id. at 22 (A154). 
11

On February 2, 2016, the Committee appointed Ms. Xuan Xie, a member of 

management (the Secretary to the Board), as the coordinator of the Committee. Ms. 

Xie was privy to the Committee’s deliberations throughout the process.23

On February 3, the full Board held a meeting, attended by attorneys from 

Wilson Sonsini. Mr. Zhang abstained from voting on the Board resolution setting 

forth the powers of the Committee.24 The Board resolved not to approve or 

recommend the proposed transaction absent a prior, favorable recommendation from 

the Committee.

On February 4, 2016, the Committee retained Houlihan as independent 

financial advisor, and the sale process began in earnest. 

Months later, on November 17, 2016, after the merger consideration was 

raised to $6.05 per share and Houlihan provided its opinion that the transaction was 

fair, from a financial point of view, to the minority stockholders, the Committee 

unanimously recommended that the Board approve the transaction.25 The Board 

then resolved to approve the merger agreement and to recommend the merger to 

 

23 Id. The Proxy states that, “[t]he duties and responsibilities of the coordinator of the special 

committee mainly included, among others, provision of administrative support to the special 

committee (e.g., meeting scheduling, logistics, budget management), internal and external 

communication in connection with the proposed transaction, and supervision of the 

communications and provision of information by the directors and employees of the Company in 

connection with the proposed transaction.” Id.

24 Id. at 23 (A155).

25 Id. at 34 (A166). 
12

stockholders—whose approval was required for the transaction to close—and the 

parties signed the agreement.26 

Following briefing and oral argument, in an order dated February 2, 2018, the 

Court of Chancery dismissed all claims. It found the MFW requirements satisfied, 

and because Plaintiff did not allege waste, it dismissed the complaint.27

III. Analysis

I believe the ab initio requirement was not satisfied here. In M&F Worldwide, 

we held that the business judgment rule applies to conflicted transactions “where the 

merger is conditioned ab initio upon both the approval of an independent, 

adequately-empowered Special Committee that fulfills its duty of care; and the 

uncoerced, informed vote of a majority of the minority stockholders.”28 Admittedly, 

the term, ab initio—meaning, literally, from the beginning—lacks some precision in 

the abstract. But in the context in which that term was used, it meant from the time 

of the controller’s first written proposal—as that is exactly what happened in that 

case. 

In MFW, the defendants argued that, where the merger is conditioned on the 

two procedural protections up front—and defendants show pretrial that those 

 

26 Id.

27 In re Synutra Int’l, Inc., 2018 WL 705702, at *6 (Del. Ch. Feb. 2, 2018) (ORDER) [hereinafter 

Chancery Order].

28 M&F Worldwide, 88 A.3d at 644. 
13

conditions were in fact satisfied—then the transaction process mimics an arm’slength, third-party merger as ordinarily consummated under 8 Del. C. § 251, and 

should be reviewed as such.29 The defendants argued that “Special Committee 

approval in a going private transaction is a proxy for board approval in a third-party 

transaction, and that the approval of the unaffiliated, noncontrolling stockholders 

replicates the approval of all the (potentially) adversely affected stockholders.”30 In 

the arm’s-length, third-party context, the buyer and target seeking to consummate a 

transaction under Section 251 know the requirements from the outset, given the 

existence of the statute: approval by both a majority of the board of directors31 and 

a majority of stockholders of each constituent corporation.32 M&F Worldwide

advises that, in order for conflicted transactions to mimic that process, the same 

should be true—the Dual Procedural Protections must be in place in the first 

proposal so that they may not be used as bargaining chips in the negotiations.33

 

29 Id. at 639–40 (“Defendants submit that a Special Committee approval in a going private 

transaction is a proxy for board approval in a third-party transaction, and that the approval of the 

unaffiliated, noncontrolling stockholders replicates the approval of all the (potentially) adversely 

affected stockholders.”).

30 Id. at 640; see also In re Cox Commc’ns, Inc. S’holders Litig., 879 A.2d 604, 618–19 (Del. Ch. 

2005) (likening independent special committee approval and majority-of-the-minority approval to 

the “independent integrity-enforcing functions” of board approval and stockholder approval in an 

arm’s-length transaction, respectively).

31 8 Del. C. § 251(b).

32 Id. § 251(c).

33 M&F Worldwide, 88 A.3d at 639 (noting that, when such conditions are satisfied, “the 

negotiation and approval process” are said to “replicate those that characterize a third-party 

merger”).
14

The Court of Chancery explained the rationale in MFW as follows:

When these two protections are established up-front, a potent tool to 

extract good value for the minority is established. From inception, the 

controlling stockholder knows that it cannot bypass the special 

committee’s ability to say no. And, the controlling stockholder knows 

it cannot dangle a majority-of-the-minority vote before the special 

committee late in the process as a deal-closer rather than having to 

make a price move. From inception, the controller has had to accept 

that any deal agreed to by the special committee will also have to be 

supported by a majority of the minority stockholders.34

The language used by both the Court of Chancery and this Court in M&F 

Worldwide is somewhat imprecise if taken out of that context. The Court of 

Chancery’s opinion in MFW held that those the protections had to be in place “from 

the time of the controller’s first overture.”35 However, on appeal, this Court used 

slightly different language in affirming and held that the Dual Procedural Protections 

had to be in place ab initio. We did quote with approval language from the trial 

court requiring those protections to be “established up-front” and “from inception.”36 

 

34 MFW, 67 A.3d at 528; see also In re Sauer-Danfoss, Inc. S’holder Litig., C.A. No. 8396-VCL 

(Del. Ch. Oct. 23, 2013) (TRANSCRIPT), at 77; id. at 80 (“[T]he controller has to step back in a 

matter analogous to a third-party transaction at both the board and stockholder levels, and they 

have to do so at the outset.”).

35 MFW, 67 A.3d at 502 (emphasis added); see also Sauer-Danfoss, C.A. No. 8396-VCL, at 75 

(“What MFW says, and which Cox Communications said before that, is that these have to be set 

up at the outset. So in the words of MFW, those conditions have to apply ‘from the time of the 

controller’s first overture.’”). But see id. at 78 (“[P]erhaps it’s an overstatement, to the extent from 

the time of the controller’s first overture suggests, that it actually has to be in the very first letter. 

Perhaps that might be a little bit of an overstatement, but they have to be out there from the 

beginning.”).

36 M&F Worldwide, 88 A.3d at 644 (quoting MFW, 67 A.3d at 528).
15

Although “first overture,” “up front,” and “from inception,” as well as “ab 

initio,” could also include anything on a continuum from first utterances to nascent 

stage discussions, we were addressing a situation where the Dual Protections were 

contained in the controller’s first written merger proposal. We quoted the relevant 

portions of the controller’s written proposal that contained the Dual Protections and 

then observed:

 “We hold that business judgment is the standard of review that 

should govern mergers between a controlling stockholder and its 

corporate subsidiary, where the merger is conditioned ab initio

upon both the approval of an independent adequately empowered 

Special Committee that fulfills its duty of care; and the 

uncoerced, informed vote of a majority of minority 

stockholders.”37

 “To reiterate, in this case, the controlling stockholder 

conditioned its offer upon the MFW Board agreeing ab initio, to 

both procedural protections . . . .

38

Thus, consistent with this rationale, “ab initio” means from the controller/buyer’s 

first written proposal, because in M&F Worldwide, the buyer stated in its initial letter 

proposal to the MFW board that it was conditioning its offer on satisfaction of the 

Dual Procedural Protections.39 

 

37 Id. (emphasis added).

38 Id. at 646 (emphasis added).

39 Id. at 640.
16

In the early post-M&F Worldwide case of In re Books-A-Million, Inc. 

Stockholders Litigation,

40 the controller group followed the M&F Worldwide 

playbook and “conditioned any transaction, from the outset, on approval by both a 

special committee of independent directors and a non-waivable vote of disinterested 

stockholders,” by imposing those requirements in his first letter proposal.41 In 

finding that the ab initio requirement was satisfied, the Court of Chancery observed 

that “[t]he Complaint does not allege that the Anderson Family delayed establishing 

the conditions, waivered from them, or sought to circumvent them.”42

In Swomley v. Schlecht,

43 this Court confronted an attempt to push the 

possibility of satisfying the ab initio requirement just slightly beyond the first offer. 

We summarily affirmed the Court of Chancery’s ruling that the ab initio requirement 

was satisfied even though the initial letter proposal “hedged on whether the majorityof-the-minority condition would be waivable or not.”44

 The Court of Chancery 

 

40 2016 WL 5874974 (Del. Ch. Oct. 10, 2016), aff’d, 164 A.3d 56 (Del. 2017).

41 Id. at *8 (also noting that the letter’s “operative text” was “substantively identical to what was 

held to be sufficient in M & F Worldwide”). 

42 Id. In In re Cox Communications, Inc. Shareholders Litigation—a precursor case to MFW—

the Court of Chancery awarded burden-shifting even though the Dual Procedural Protections were 

not in place at the first board meeting at which directors heard the controller’s plans to submit a 

takeover proposal because the controller submitted its proposal by letter immediately following

that meeting—i.e., that same day—and included the requirement of special committee approval. 

Cox, 879 A.2d at 607; see also In re Martha Stewart, 2017 WL 3568089, at *18 (whether the 

controller is on both sides, the MFW conditions can be included in the initial offer).

43 C.A. No. 9355-VCL (Aug. 27, 2014) (TRANSCRIPT), aff’d, 128 A.3d 992, 2015 WL 7302260

(Del. 2015) (TABLE).

44 Id. at 70.
17

found that the Dual Procedural Protections were in place ab initio because, “from 

the first meeting” at which the board considered the transaction—held the same day

the control group had proposed the transaction—the board resolved that any deal 

would require both the approval of a special committee and a majority-of-theminority vote, and the controller was part of the Board that passed those 

resolutions.45 In his transcript ruling, the Vice Chancellor observed that the plaintiff 

had failed to call into question the defendants’ satisfaction of the ab initio 

requirement because “[a]ll this went down before any negotiations took place, even 

before anything really started.”46

In this case, the Court of Chancery relied on Swomley in moving the ab initio

needle from “up front” and “from inception” of the first offer to holding that “a 

process meets the ab initio requirement when the controller announces the 

conditions ‘before any negotiations took place.’”47 The court reasoned that “[u]sing 

this point in time fulfills the goals of disabling the controller for purposes of the 

negotiations and ensuring that the controller ‘cannot dangle a majority-of-theminority vote before the special committee late in the process as a deal-closer rather 

than having to make a price move.’”48 

 

45 Id. 

46 Id. at 71.

47 Chancery Order, 2018 WL 705702, at *2 (quoting Swomley, C.A. No. 9355-VCL, at 71).

48 Id. (quoting M&F Worldwide, 88 A.3d at 644).
18

Perhaps in summarily affirming the transcript ruling in Swomley, we muddied 

the waters when we approved the trial court’s language suggesting that the start of 

“negotiations” (rather than the submission of the first proposal) is the test for 

determining whether the ab initio requirement is satisfied. But, as in M&F 

Worldwide, we held that the Dual Procedural Protections must be in place when the 

controller submits a written offer so that the Dual Procedural Protections cannot be 

“dangled” at a point “late in the process as a deal-closer rather than having to make 

a price move.”49 This makes sense in situations where the controller is on both sides, 

as the controller decides when to begin the negotiations and on what terms. In cases 

like this, the outset is clear. In any event, I do not believe our summary affirmance 

should be read as a deliberate intention on our part to expand the ab initio

requirement into a sliding scale factual inquiry involving an analysis of when serious 

bargaining began following submission of an initial written proposal.50

In contrast to the bright-line we tried to draw in M&F Worldwide, here, the 

Dual Procedural Protections were indisputably absent from the January 14 Proposal. 

They were still absent a week after the Board received the proposal and held its first 

meeting on January 21. More than two weeks passed before the Dual Procedural 

Protections were included in the controller’s January 30 Offer. 

 

49 MFW, 67 A.3d at 528.

50 Even Defendants conceded the factual nature of this inquiry. See Ans. Br. at 20 (“When 

negotiations actually begin must be determined based on the specific facts of the case at hand.”). 
19

Meanwhile, several important “things” occurred before the imposition of the 

Dual Procedural Protections. These “things” have led us down a path of a messy 

pleadings stage fact-intensive inquiry. Among other things, the Company’s CFO 

(Ms. Cai) unilaterally waived Davis Polk’s conflict and Davis Polk represented both 

the Buyer Group and the Board at the intervening January 21 Board meeting, and 

Ms. Cai continued to play a role in the Committee’s selection of both legal and 

financial advisors, and in other aspects of the Committee process—as did Ms. Xie 

following the January 30 Offer. 

As noted above, it was the trial court, during oral argument on the motion to 

dismiss, that raised the Committee empowerment issue by citing the case, In re 

Emerging Communications, Inc. Shareholders Litigation.

51

 In that case, the Court 

of Chancery viewed a controller’s retention of the target company’s longtime outside 

counsel and financial advisors—the same advisors whom the target had used in an 

earlier, failed acquisition bid, and who had been the company’s counselors for its 

“entire existence”—as negatively impacting the transaction’s overall fairness.52 The 

court considered it “unfair” because those advisors “possessed material nonpublic 

 

51 2004 WL 1305745, at *32 (Del. Ch. May 3, 2004). 

52 Id.
20

information about [the company’s] values, business and prospects” and “were in the 

best position to represent the interests of the [company’s] minority.”53 

Treatises and Delaware court opinions alike have long emphasized that “no 

role is more critical with respect to protection of shareholder interests in these 

matters than that of the expert lawyers who guide sometimes inexperienced directors 

through the process . . . .”54 After all, “professional advisors have the ability to 

influence directors who are anxious to make the right decision but who are often in 

terra [in]cognit[a].”55 As one treatise cautions, not everyone has heeded the value 

of independence, and “[e]xamples abound of situations where advisors were 

‘preselected’ by someone other than the [special committee]—either management 

 

53 Id. See also Michael D. Allen, Srinivas M. Raju & Gregory V. Varallo, Special Committees 

Law & Practice, § 3.06[4] (1st ed. 2011) (available via Lexis) (“[N]otwithstanding the critical 

importance of counsel being independent and free from conflict, there are also situations in which 

some background with the company will make counsel more, rather than less, valuable to the 

committee.”).

54 See Allen, supra note 53, at § 3.06[1] (available via Lexis) (“The retention of competent and 

skilled advisors may be the decision by the committee that is most critical to the success of the 

committee’s work.”); Andrew M. Johnston & S. Mark Hurd, Special Committees of Independent 

Directors, 79 C.P.S. (BNA), at A-19 (“The selection by the [special committee] of competent, able 

advisors is of critical importance to the proper discharge of the [special committee’s] 

responsibilities.”). See also In re Fort Howard Corp. S’holders Litig., 1988 WL 83147, at 

*720 (Del. Ch. Aug. 8, 1988) (“It is obvious that no role is more critical with respect to protection 

of shareholder interests in these matters than that of the expert lawyers who guide sometimes 

inexperienced directors through the process.”).

55 Tremont, 694 A.2d at 429; Allen, supra note 53, at § 3.06[1] (“[N]o matter how straightforward 

the task of a committee may seem, [the special committee’s] assignment will soon descend into 

terra incognita and having a skilled guide along the way is likely to mean the difference between 

a special committee that helps the corporation (in terms of shifting burdens or otherwise) and one 

that does not.”).
21

or the interested party—which, in turn, compromised the work of the [special 

committee].”56 

It was only on appeal that Plaintiff squarely contended that they were entitled 

to a pleading-stage inference that the Buyer Group sought to influence the 

Committee’s work at its nascent stages, before it had its own counsel to protect it. 

And only on appeal did Plaintiff focus more specifically on Defendants’ various 

departures from certain “best practices” that potentially impact the functioning of 

the Committee. 

For example, Plaintiff, on appeal, emphasized the fact that the Committee 

allowed the Company’s CFO to continue to participate in the workings of the 

Committee, including the selection of its ostensibly independent advisors. Although 

back and forth bargaining on deal terms may not have commenced at that point, the 

Committee’s selection of counsel can set the tone and significantly impact the 

quality of the Committee’s work.57 We recognized this in Kahn v. Tremont Corp.,

58

where we questioned the independence of a special committee that “promptly” 

selected a legal advisor recommended by the company’s general counsel. We 

 

56 Johnston, supra note 54, at A-19.

57 See Kahn v. Dairy Mart Convenience Stores, Inc., 1996 WL 159628, at *8 n.6 (Del. Ch. Mar. 

29, 1996) (“Another critical factor in assessing the reliability and independence of the process 

employed by a special committee, is the committee's financial and legal advisors and how they 

were selected.”).

58 694 A.2d 422, 429 (Del. 1997).
22

observed that “the circumstances surrounding the retaining of the Special 

Committee’s advisors, as well as the advice given, cast serious doubt on the 

effectiveness of the Special Committee.”59 Plaintiff attempted to draw a parallel 

here with Ms. Cai’s involvement in selection of the Committee’s financial advisor, 

and with Ms. Xie’s role as the Committee’s coordinator with the Board. 

On appeal, Plaintiff sharpened his focus on the Davis Polk conflict, and cites 

it as further evidence that the Board continued to stray from best practices. Instead 

of empowering a special committee with its own independent counsel, the Board, on 

January 21, received advice on their fiduciary duties and on setting up a special 

committee from the same law firm advising the Buyer Group, and in the presence of 

a key member of the controlling Buyer Group, Mr. Zhang, who was attending that 

meeting as a director and who did not recuse himself. 

As to the conflict waiver, the Court of Chancery observed that “[t]he only 

arguably substantive event that happened before the Follow-up Letter was that the 

Company authorized Davis Polk to represent the Buyer Group by waiving any 

conflict that Davis Polk might have.”60 The Court of Chancery recognized that “[i]t 

 

59 Id.; see also Dairy Mart, 1996 WL 159628, at *2, *8 n.6 (criticizing process where special 

committee chose law firm recommended by a former board member and current partner at law 

firm that was recommending the company). At oral argument before this Court, Plaintiff also 

criticized the Committee’s involvement of Ms. Xie in their deliberative process. Video at 20:31; 

see also Proxy, at 22 (A154).

60 Chancery Order, 2018 WL 705702, at *2. 
23

would have been preferable, both optically and substantively, for the Buyer Group 

to retain its own counsel.”61 As it further explained, “[t]hat scenario would have 

given the Special Committee the choice of hiring its own independent counsel or 

using Davis Polk, if it preferred to take advantage of Davis Polk’s knowledge and 

expertise after considering the firm’s potential ties to the Buyer Group.”62 But the 

trial court concluded, after having denied Plaintiff’s motion for expedited discovery, 

that “[t]he granting of the conflict waiver to Davis Polk did not transform the Followup Letter from a pre-negotiation self-disablement into a mid-stream trade-off.”63

 

When these intervening events are viewed in the aggregate, Plaintiff 

convincingly says, albeit in mud-splatter fashion, that they were entitled to pleadingstage inferences that there was “too much interaction, intermingling, and 

overlapping between the Buyer Group and the Board”64 to conclude, as a matter of 

law, that the ab initio requirement was satisfied.65 The authorities cited above 

 

61 Id.

62 Id.

63 Id. at *3. The trial court denied Plaintiff’s motion for expedited discovery, concluding that 

“[t]he controlling stockholder transaction in this case facially followed the MFW framework,” and 

that “[t]he plaintiff has not advanced meaningful challenges to that framework.” Transcript of 

Teleconference re: Plaintiff’s Motion to Expedite and the Court’s Ruling at 18, 20–21 (Feb. 3, 

2017) (“But this is a situation where, when I balance things out, you have the MFW structure in 

place; you don’t have a meaningful challenge at this stage to the MFW structure; and given all that, 

it does not seem to me to be a situation that warrants cranking up the machinery of expedited 

proceedings.”).

64 Plaintiff’s Corrected Reply Br. at 9.

65 In assessing the circumstances of this case, I am reminded of Chancellor Allen’s observation in

In re Fort Howard Corp., 1988 WL 83147, at *12, that:

[O]ne’s view concerning bona fides, will, in settings such as this, almost always 

rest upon inferences that can be drawn from decisions made or courses of actions 
24

suggest to me that even if not part of back-and-forth bargaining on price terms, the 

Davis Polk conflict, the conflict waiver, and management’s involvement in the 

selection of the Committee’s advisors during those intervening weeks are 

substantive events of the type that can impact the functioning and quality of the 

Committee’s work. The bright-line rule we articulated in M&F Worldwide would 

deem the ab initio requirement to be satisfied upon including the Dual Protections 

in the controller’s first written offer (here, the January 14 Proposal) and would avoid 

the factual morass we find ourselves in when intervening events begin to bleed into 

Committee empowerment and other issues potentially impacting the functioning of 

the Committee process.66 Thus, whether these events described in the Proxy were 

the focus of laser-like attention below is not the main point. Rather, they serve to 

illustrate why it is sensible to conclude that the Dual Procedural Protections should 

have been included in the January 14 Proposal and why the bright-line rule set forth 

in M&F Worldwide is preferable. 

 

pursued by the board (or a Special Committee). Rarely will direct evidence of bad 

faith-admissions or evidence of conspiracy-be available. Moreover, due regard for 

the protective nature of the stockholders’ class action, requires the court, in these 

cases, to be suspicious, to exercise such powers as it may possess to look 

imaginatively beneath the surface of events, which, in most instances, will itself be 

well-crafted and unobjectionable. Here, there are aspects that supply a suspicious 

mind with fuel to feed its flame. 

66 Of course, any test this Court could set forth could be subject to gamesmanship. For example, 

parties could verbally agree, after a series of discussions, to all material terms and then submit a 

written proposal embodying “the deal.” The trial court would have to retain the ability to address 

well-pled allegations of deliberate circumvention of the MFW Framework. 
25

In sum, adhering to a bright-line requirement that the MFW Framework be 

precisely implemented is appropriate in the context of controller squeeze-out 

transactions where the outset of the process is within the control of the controller. 

The controller’s ability to control the outset justifies insistence on the formalistic 

requirement of precisely implementing the MFW Framework. M&F Worldwide’s

strict and detailed roadmap is particularly appropriate where the courts must address 

whether the minority stockholders claims should be dismissed before discovery, and 

in ascertaining which standard of review should apply—as opposed to other contexts 

where we have eschewed rigid “blueprints.”67 Finally, I am unsympathetic to 

Defendants’ argument that sticking to a bright line rule would potentially punish 

innocent failures to include the conditions in the controller’s first written proposal 

and thereby disadvantage minority stockholders. The MFW Framework was 

intended to be a clear roadmap in controller buyouts and corporate counsel who 

routinely practice in the area are familiar with it.68 

 

67 See, e.g., McMillan v. Intercargo Corp., 768 A.2d 492, 502 (Del. Ch. 2000) (Strine, V.C.) 

(stating that the Revlon obligation is a “contextually-specific application of the directors’ duty to 

act in accordance with their fiduciary obligations, and there is no single blueprint that a board must 

follow” (internal quotations omitted)).

68 After all, we are not talking here about when the autumn leaves turn color, World War II, reading 

novels, or soccer. See Majority Op. at 12–13.