The Omnipresent Specter of Omnicare

ABSTRACTIn this Article, written for a symposium commemorating the tenth anniversary of the Delaware Supreme Court's opinion in Omnicare, Inc. v. NCS Healthcare, Inc., I argue, notwithstanding reports to the contrary, that Omnicare is still very much with us. Although there is a line of cases that qualifies the narrow holding of the opinion, the strong reading of Omnicare, which requires a fiduciary out in every merger agreement and elevates the "unremitting" duty to remain "fully informed" to an absolute jurisprudential principle, lives on in Delaware law, animating the Court of Chancery's controversial rulings in the recent standstill cases.Shifting from descriptive to normative, the Article argues that Omnicare's survival is regrettable because it introduces inconsistencies into the fundamental structure of corporate law. Finally, this Article offers a way out of the doctrinal bind by articulating an approach to enhanced scrutiny that would allow courts both to police justifiable concerns regarding strong deal protections while also preserving the ability of boards to act in shareholders' best interests. Although this approach to enhanced scrutiny would require a revision of some aspects of Delaware doctrine, on the whole it does considerably less violence to the basic structure of corporate law than the majority opinion in Omnicare currently does.I. INTRODUCTIONThe Delaware Supreme Court's opinion in Omnicare, Inc. v. NCS Healthcare, Inc.1 is widely regarded as the most controversial opinion of that court in a quarter century.2 It had immediate and wide-ranging implications both for transactional practice, effectively requiring a fiduciary out in every merger agreement,3 and for the doctrinal underpinnings of Delaware corporate law, drawing into question the traditional change-of-control paradigm and elevating the duty to be "fully informed" to an absolute.4 It attracted controversy immediately, starting with the strongly worded dissents of the immediate former and current Chief Justices and soon followed by a raftof commentary from practitioners and academics alike.5Yet, it is also commonplace to hear that Omnicare is dead. Not long after the decision, Chief Justice Steele confidently predicted that the opinion would have "the life expectancy of a fruit fly."6 Other voices from the bench have suggested that the opinion is "of questionable continued vitality"7 and an "aberrational departure."8 Practitioners, meanwhile, counsel their clients on how to avoid the implications of the holding.9 Academics, accordingly, have begun to eulogize the decision.10However, to paraphrase Mark Twain, the reports of Omnicare's demise have been greatly exaggerated. My descriptive thesis in this Article is that far from having been buried and forgotten, the underlying principles of the Omnicare decision continue to animate Delaware corporate law jurisprudence and continue to channel the actions of transaction planners. I will demonstrate the continued vitality of Omnicare by separating two readings of the decision: a weak reading, focusing narrowly on the facts of the case, and a strong one, based upon the broad language of the opinion.11 Those who claim Omnicare is dead can support their view by pointing to a line of cases that indeed challenges the weak reading of the opinion.12 However, I shall show that neither the factual context nor the doctrinal underpinnings of these cases challenges the strong reading of Omnicare.13 Rather, the core reasoning underlying the strong reading recently arose as the basis for the holding in a number of important Court of Chancery decisions.14 This, I argue, is the omnipresent specter of Omnicare.What ought we to make of this? In the wake of Omnicare, I argued in the pages of the Journal of Corporation Law that the decision was a mistake.15 Ten years later, it still is. In my earlier analysis of the opinion, I focused on its economic consequences, building a simple game theoretic model to illustrate the intuitive proposition that the ability to trade certainty has value and that taking this ability away may prove detrimental to the merger marketplace. …