Title: Kahn v. Stern, et al.
Citation: N/A
Docket Number: 393, 2017
State: Delaware
Issuer: Delaware Supreme Court
Date: March 15, 2018

IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
ALAN KAHN, 
§ 
 
 
 
 
 
 
§  
 
Plaintiff Below, 
§ 
No. 393, 2017 
 
Appellant, 
§ 
 
 
§ 
Court Below: Court of Chancery 
 
v. 
§ 
of the State of Delaware 
 
 
§ 
MICHAEL D. STERN, EDWARD A.  
§ 
C.A. No. 12498-VCG 
STERN, JOSEPH P. DALY, JOHN W.  § 
POLING, and JEFFREY P. BACHER,  § 
 
 
 
§ 
 
Defendants Below, 
§ 
 
Appellees. 
§ 
 
 
 
§ 
 
Submitted:   March 7, 2018 
Decided:   March 15, 2018 
 
Before STRINE, Chief Justice; VALIHURA, VAUGHN, SEITZ, and 
TRAYNOR, Justices, constituting the Court en Banc. 
 
O R D E R 
 
 
We affirm this decision on the grounds that the Court of Chancery properly 
found that the pled facts did not support a rational inference that any of the directors 
faced a non-exculpated claim for breach of fiduciary duty on the theory that merger 
consideration was improperly diverted into payments for two management 
directors.1  The pled facts do not support a rational inference to that effect, and the 
                                                 
1 In his opening brief, the plaintiff framed his singular argument as follows: The defendants “acted 
in bad faith in approving a Merger that diverted consideration from stockholders to the Stern 
brothers.”  Appellant’s Opening Br. 18. 
2 
 
transaction at issue resulted from a thorough market check and was to a buyer 
without any prior ties to management.2  To the extent, however, that the Court of 
Chancery’s decision suggests that it is an invariable requirement that a plaintiff plead 
facts suggesting that a majority of the board committed a non-exculpated breach of 
its fiduciary duties in cases where Revlon duties are applicable,3 but the transaction 
has closed and the plaintiff seeks post-closing damages, we disagree with that 
statement.4  Likewise, to the extent that the Court of Chancery’s decision might be 
read as suggesting that a plaintiff in this context must plead facts that rule out any 
                                                 
2 Kahn v. Stern, 2017 WL 3701611, at *4 (Del. Ch. Aug. 28, 2017). 
3 The presence of an exculpatory charter provision does not mean that Revlon duties no longer 
apply.  Rather, Revlon remains applicable as a context-specific articulation of the directors’ duties 
but directors may only be held liable for a non-exculpated breach of their Revlon duties.  See RBC 
Capital Mkts, LLC v. Jervis, 129 A.3d 816, 874 (Del. 2015); McMillan v. Intercargo Corp., 768 
A.2d 492, 502 (Del. Ch. 2000); In re Lear Corp. S’holder Litig., 967 A.2d at 655. 
4 For example, there are iconic cases, such as MacMillan, that are premised on independent board 
members not receiving critical information from conflicted fiduciaries.  Mills Acquisition Co. v. 
Macmillan, Inc., 559 A.2d 1261, 1283 (Del. 1989) (“Given the materiality of these tips, and the 
silence of [the conflicted directors] in the face of their rigorous affirmative duty of disclosure at 
the September 27 board meeting, there can be no dispute but that such silence was misleading and 
deceptive.  In short, it was a fraud upon the board.”).  And there are also cases where impartial 
board members did not oversee conflicted members sufficiently.  MacMillan itself has a famous 
passage pointing to this possibility.  Id. at 1280 (“The board was torpid, if not supine, in its efforts 
to establish a truly independent auction, free of [the CEO and Chairman’s] interference and access 
to confidential data.  By placing the entire process in [his] hands . . . through his own chosen 
financial advisors, with little or no board oversight, the board materially contributed to the 
unprincipled conduct of those upon whom it looked with a blind eye.”).  See also In re Toys “R” 
Us, Inc. S’holder Litig., 877 A.2d 975, 1002 (Del. Ch. 2005) (“[T]he paradigmatic context for a 
good Revlon claim . . . is when a supine board under the sway of an overweening CEO bent on a 
certain direction, tilts the sales process for reasons inimical to the stockholders’ desire for the best 
price.”). 
 
In fairness to the Vice Chancellor, the plaintiff himself embraced the majority formulation 
the decision used and also conceded to us that he argued the case below as if the business judgment 
rule applied.  We nonetheless feel obliged to affirm on narrow grounds lest the decision below, 
which came on an unusual set of pled facts and a specific framing of the issues by the parties that 
itself was unusual, be read too sweepingly. 
3 
 
possibility other than bad faith, rather than just pleading facts that support a rational 
inference of bad faith, we disagree with that statement as well.5  With these concerns 
expressed, we affirm the judgment of the Court of Chancery. 
 
NOW, THEREFORE, IT IS ORDERED that the judgment of the Court of 
Chancery is hereby AFFIRMED. 
 
 
 
 
 
BY THE COURT:  
 
 
 
 
 
 
 
 
/s/ Leo E. Strine, Jr. 
 
 
 
 
 
 
 
 
Chief Justice  
 
                                                 
5 Brinckerhoff v. Enbridge Energy Co., Inc., 159 A.3d 242, 258–60 (Del. 2017), as revised (Mar. 
28, 2017) (“Relying on Parnes v. Bally Entertainment Corporation, and corporate notions of 
waste, we held [in Brinkerhoff III] that to state a claim based on bad faith, [the general partner’s] 
decision to enter into the Joint Venture Transaction must be so far beyond the bounds of reasonable 
judgment that it seems essentially inexplicable on any ground other than bad faith. . . . [W]e depart 
from [that] decision . . . and hold that to plead a claim that [the general partner] did not act in good 
faith, [the plaintiff] must plead facts supporting an inference that [the general partner] did not 
reasonably believe that the . . . transaction was in the best interests of the Partnership.”) (emphasis 
added) (internal quotations omitted) (citing Parnes v. Bally Entm’t Corp., 722 A.2d 1243 (Del. 
1999)).