Opinion ID: 2308640
Heading Depth: 1
Heading Rank: 16

Heading: The Chancellor's Formulation of Cinerama's Burden of Proof of Director Self-Interest

Text: The Chancellor concluded that a plaintiff's burden of proof of a director's self-interest in an arms-length third-party transaction should be greater than in a classic self-dealing transaction where a director or directors stand on both sides of a transaction. Absent evidence of self-dealing, the court ruled that evidence of any personal or special benefit accruing to a director in an otherwise arms-length transaction does not establish a lack of independence sufficient to rebut the business judgment rule unless the director's self-interest is also found to be material. The Chancellor then defined a director's self-interest in a third-party transaction as not material unless sufficient to create a reasonable probability: (1) that the independence of judgment of a reasonable person in the director's position would be affected; and (2) that such director's individual self-interest would have affected the collective decision of the board. Applying this two-part standard, the Chancellor found Cinerama's evidence of director self-interest sufficient to meet the first part of the materiality test only as to Director Sullivan, and possibly Director Ryan, but, as to each, to fail the second requirement. The court concluded that Sullivan's or Ryan's material self-interests did not taint the board's overall independence. [30]