Court Opinion

ID: 2737657
Source: CourtListenerOpinion
Date Created: 2014-09-26 21:16:20.274048+00
Date Added: 2024-06-11T09:16:11.536432
License: Public Domain

COURT OF CHANCERY
                                     OF THE
    SAM GLASSCOCK III          STATE OF DELAWARE                     COURT OF CHANCERY COURTHOUSE
     VICE CHANCELLOR                                                          34 THE CIRCLE
                                                                       GEORGETOWN, DELAWARE 19947

                           Date Submitted: September 26, 2014
                            Date Decided: September 26, 2014

Seth D. Rigrodsky, Esquire                        Donald J. Wolfe, Jr., Esquire
Brian D. Long, Esquire                            Kevin R. Shannon, Esquire
Gina M. Serra, Esquire                            Christopher N. Kelly, Esquire
Jeremy J. Riley, Esquire                          Potter Anderson & Corroon LLP
Rigrodsky & Long, P.A.                            1313 N. Market Street
2 Righter Parkway, Suite 120                      Hercules Plaza, 6th Floor
Wilmington, DE 19803                              Wilmington, Delaware 19899-0951

                                                  Kurt M. Heyman, Esquire
                                                  Patricia L. Enerio, Esquire
                                                  Dawn Kurtz Crompton, Esquire
                                                  Proctor Heyman LLP
                                                  300 Delaware Ave., Suite 200
                                                  Wilmington, Delaware 19801

                 Re:    In re Cornerstone Therapeutics Inc. Stockholder Litigation,
                        Consolidated Civil Action No. 8922-VCG

Dear Counsel:

         In a recent Memorandum Opinion1 I denied Motions to Dismiss brought by

Defendants Christopher Codeanne, Michael Enright, James A. Harper, Michael

Heffernan, Laura Shawver, Craig Collard, and Robert Stephan (collectively, the

“Director Defendants”), finding that, since entire fairness applied to the transaction

1
 In re Cornerstone Therapeutics Inc. S’holder Litig., 2014 WL 4418169 (Del. Ch. Sept. 10,
2014).
at issue in this litigation ab initio, under the holding of Emerald Partners II2 the

Director Defendants must await a determination of entire fairness at trial before

this Court may consider whether they are exculpated from liability by a Section

102(b)(7) provision.3 On September 23, 2014, the Director Defendants moved for

an interlocutory appeal of that decision under Delaware Supreme Court Rule 42. I

heard Plaintiffs’ oral response to the application on September 26, 2014.

       A Rule 42 interlocutory appeal may be certified by this Court only when the

appealed decision (1) “determines a substantial issue,” (2) “establishes a legal

right,” and (3) meets one or more criteria further enumerated in the Rule, including

that the decision falls under any of the criteria for certification of questions of law

set forth in Rule 41.4 Here, all three requirements of Rule 42 are met. In opposing

the application for interlocutory appeal, Plaintiffs argue that my decision in the

Memorandum Opinion to decline to consider the Director Defendants’ exculpation

from liability at the motion-to-dismiss stage does not raise a substantial issue, as it

merely concerns the timing of when the exculpation provision will be considered.

However, my determination, if reversed, could lead to the dismissal of the Director

Defendants from this litigation, and thus constitutes a substantial issue in the

course of this litigation.       Further, my ruling in the Memorandum Opinion

2
  Emerald Partners v. Berlin (Emerald Partners II), 787 A.2d 85 (Del. 2001).
3
  In re Cornerstone Therapeutics, 2014 WL 4418169, at *12.
4
  Supr. Ct. R. 42(b).
                                              2
establishes a legal right in that it necessitates the Director Defendants be held as

parties to the litigation, unable to assert their Section 102(b)(7) defense, at least

until a determination of entire fairness at trial. Finally, my ruling satisfies the

criteria enumerated in Rule 42(b)(i) by meeting the “[c]onflicting decisions”

qualification for certification of questions of law set forth in Rule 41(b)(ii);5 the

Director Defendants accurately point out that decisions of this Court are conflicting

on the determinative question of law: when dealing with a transaction subject to

entire fairness review ab initio, whether breach of duty on the part of facially

disinterested directors “who negotiated with the controller or otherwise facilitated

the transaction needs to be specifically pled; and whether an exculpation provision

adopted pursuant to Section 102(b)(7) must be ignored at the motion-to-dismiss

stage, to await consideration after the transaction has been reviewed for entire

fairness at trial.”6 The legal test aside, Plaintiffs argue that interlocutory appeal is

5
  Supr. Ct. R. 41(b)(ii).
6
  In re Cornerstone Therapeutics, 2014 WL 4418169, at *5. Compare DiRienzo v. Lichtenstein,
2013 WL 5503034, at *10–11 (Del. Ch. Sept. 30, 2013) (“To burden the Special Committee with
proving entire fairness, [plaintiff] must allege sufficiently that the committee members breached
a non-exculpated fiduciary duty. This inquiry necessarily requires consideration of the
Company’s 102(b)(7) provision.”), and In re S. Peru Copper Corp. S’holder Derivative Litig., 52
A.3d 761, 787 n.72 (Del Ch. 2011) (dismissing disinterested directors on summary judgment
based on a Section 102(b)(7) provision because “[t]he entire fairness standard ill suits the inquiry
whether disinterested directors who approve a self-dealing transaction and are protected by an
exculpatory charter provision authorized by 8 Del. C. § 102(b)(7) can be held liable for breach of
fiduciary duties. Unless there are facts suggesting that the directors consciously approved an
unfair transaction, the bad faith preference for some other interest than that of the company and
the stockholders that is critical to disloyalty is absent. The fact that the transaction is found to be
unfair is of course relevant, but hardly sufficient, to that separate, individualized inquiry.”), with
In re Orchard Enterprises, Inc. S’holder Litig., 88 A.3d 1, 38 (Del. Ch. 2014) (“[W]hen a case
                                                  3
nonetheless not warranted here because resolution of the appeal, even in the

Director Defendants’ favor, would not terminate this litigation, but would have the

effect of interrupting the parties’ progress toward trial. I do not find this argument

persuasive, however; I have not entered a stay in the proceedings and thus the

parties may proceed to trial concurrent with the Supreme Court’s consideration of

this appeal, should the Court elect to entertain it.

       For the foregoing reasons, the Director Defendants’ Application for

Certification of Interlocutory Appeal is granted.                      An appropriate Order

accompanies this Opinion.

                                                      Sincerely,

                                                      /s/ Sam Glasscock III

                                                      Sam Glasscock III

involves a controlling stockholder with entire fairness as the standard of review, and when there
is evidence of procedural and substantive unfairness, a court cannot summarily apply Section
102(b)(7) on a motion for summary judgment to dismiss facially independent and disinterested
directors. Under those circumstances, it is not possible to hold as a matter of law that the ‘factual
basis for [the] claim solely implicates a violation of the duty of care.’ Rather, ‘the inherently
interested nature of [the transaction becomes] inextricably intertwined with issues of loyalty.’
The court must conduct a trial, determine whether the transaction was entirely fair, and if not,
‘identify the breach or breaches of fiduciary duty upon which liability for damages will be
predicated in the ratio decidendi of its determination that entire fairness has not been
established.’ Only then can the court conduct the director-by-director analysis necessary to
determine who is exculpated from liability.” (citations omitted)).
                                                 4
   IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN RE CORNERSTONE                            ) CONSOLIDATED
THERAPEUTICS INC.                            ) Civil Action No. 8922-VCG
STOCKHOLDER LITIGATION                       )

  ORDER GRANTING LEAVE TO APPEAL FROM INTERLOCUTORY

                                     ORDER

      This 26th day of September, 2014, the Defendants having made application

pursuant to Rule 42 of the Supreme Court for an order certifying an appeal from

the interlocutory order of this Court, dated September 10, 2014; and the Court

having found that such order determines substantial issues and establishes legal

rights and that the following criteria of Supreme Court Rule 42(b) apply: 42(b)(i);

      IT IS SO ORDERED that the Court’s order of September 10, 2014, is

hereby certified to the Supreme Court of the State of Delaware for disposition in

accordance with Rule 42 of that Court.

Dated: September 26, 2014                     /s/ Sam Glasscock III
                                              Vice Chancellor

                                         5