Court Opinion

ID: 2731696
Source: CourtListenerOpinion
Date Created: 2014-09-10 15:03:25.004944+00
Date Added: 2024-06-11T12:19:22.430649
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

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

                        MEMORANDUM OPINION

                        Date Submitted: June 5, 2014
                      Date Decided: September 10, 2014

Seth D. Rigrodsky, Brian D. Long, and Gina M. Serra, of Rigrodsky & Long, P.A.,
Wilmington, Delaware; OF COUNSEL: Ira M. Press and J. Brandon Walker, of
Kirby McInerney LLP, New York, New York, and Shane Rowley, of Levi &
Korsinsky LLP, New York, New York, Attorneys for the Plaintiffs.

Donald J. Wolfe, Jr., Kevin R. Shannon, and Christopher N. Kelly, of Potter
Anderson & Corroon LLP, Wilmington, Delaware; OF COUNSEL: Anthony M.
Candido, Robert C. Myers, and John P. Alexander, of Clifford Chance US LLP,
New York, New York, Attorneys for Defendants Cornerstone Therapeutics Inc.,
Michael Enright, Christopher Codeanne, James H. Harper, Michael Heffernan, and
Laura Shawver.

Kurt M. Heyman and Patricia L. Enerio, of Proctor Heyman LLP, Wilmington,
Delaware, Attorneys for Defendants Craig A. Collard and Robert M. Stephan.

GLASSCOCK, Vice Chancellor
      This case involves the acquisition of the minority interest in a corporation by

a controlling stockholder, in a manner alleged not to be entirely fair. Because the

controller is a fiduciary that stood on both sides of this transaction, the controller

will have to demonstrate on a developed record that the transaction was entirely

fair to the minority (or that mechanisms were in place approximating an arm’s-

length transaction, in which case its burden may be reduced). The Amended

Complaint also pleads breaches of fiduciary duty against directors of the company

appointed as members of a special committee formed to negotiate with the

controller and other disinterested directors who voted to recommend the

transaction, as well as a claim against the company for aiding and abetting

directors’ breaches of fiduciary duty. This Memorandum Opinion addresses those

defendants’ Motions to Dismiss.

                                      I. FACTS

                                    1. The Parties

      Cornerstone Therapeutics Inc. (“Cornerstone,” or the “Company”) is a

publicly-traded Delaware pharmaceutical company, headquartered in Cary, North

Carolina.1 Cornerstone’s business “focuse[s] on commercializing products for the

hospital, niche respiratory, and related specialty products” industry by “acquiring

companies and . . . registration-stage products that fit within its focus areas,” and

1
  The facts cited herein are taken from the Verified Amended Complaint unless otherwise
indicated.

                                          2
“marketing [those] products through its wholly-owned subsidiary, Aristos

Pharmaceuticals, Inc.”2 Craig A. Collard is the Company’s founder and, prior to

the February 3, 2014 merger at issue in this litigation (the “Merger”), was its CEO.

As of February 3, 2014, Cornerstone’s board of directors consisted of Collard,

Anton Giorgio Failla, Robert M. Stephan, Marco Vecchia, James A. Harper, Laura

Shawver, Christopher G. Codeanne, Michael D. Enright, and Michael Heffernan.

      In May 2009, Chiesi Farmaceutici S.p.A. (“Chiesi”), a privately-held Italian

drug manufacturer, purchased 11,902,741 shares of Cornerstone common stock,

obtaining a controlling position in the Company, pursuant to a “series of

agreements with the Company and certain of its stockholders, including Collard,”3

in exchange for approximately $15.5 million in cash and a ten-year distribution

license for Chiesi’s “Curosoft” product, “a treatment for respiratory distress

syndrome in premature infants.”4 In connection with that transaction, Cornerstone

and Chiesi entered into a “Governance Agreement,” which granted Chiesi certain

majority stockholder rights and placed restrictions on Chiesi’s ability to make

purchases and transfers of Cornerstone stock. According to the Plaintiffs, “[a]s

part of the 2009 Chiesi Transaction, the Company agreed that Chiesi was permitted

to purchase additional shares from the Company, other stockholders, or on the

2
  Am. Compl. ¶ 33.
3
  Id. ¶ 49.
4
  Id. ¶ 37.

                                         3
market, such that Chiesi would be able to maintain its beneficial ownership of 51%

of Cornerstone’s outstanding common stock.”5

          In December 2010, Chiesi purchased an additional 450,000 shares of

Cornerstone stock from entities controlled by Collard, after which Chiesi owned

55.51% of Cornerstone’s outstanding stock. In March 2012, pursuant to a Stock

Purchase Agreement, Chiesi purchased an additional 1,443,913 shares, increasing

its interest in Cornerstone to above 60%. In June 2012, Cornerstone and Chiesi

entered into a senior secured loan facility, pursuant to which Chiesi obtained a

right to convert certain debt to common stock, and became the beneficial owner of

65.4% of Cornerstone common stock.

                                2. The Special Committee

          On February 18, 2013, Chiesi delivered to the Cornerstone board a letter (the

“Offer Letter”) “offering to acquire all of the outstanding shares of common stock

of Cornerstone not owned by Chiesi at a price range of $6.40 to $6.70 per share.”6

The Offer Letter explained that “[d]uring the last few months we have conducted

an extensive review of Cornerstone based on publicly available information, our

own deep experience in the pharmaceutical industry and consultations with our

outside advisors,” and that, “[a]t $6.40 to $6.70 per share, our proposal represents a

20% to 25% premium over [the] Friday, February 15, 2013 closing price of

5
    Id. ¶ 38.
6
    Id. ¶ 45.

                                            4
$5.35.”7 The Offer Letter did not condition Chiesi’s offer on the approval of a

majority of the minority stockholders.

        As noted above, in February 2013, Cornerstone’s board consisted of nine

directors.    Of those nine directors, three had current or prior employment

relationships with Chiesi.    Specifically, Failla served at that time as Head of

Business Development at Chiesi; Vecchia served “as Head of Legal and Corporate

Affairs at Chiesi and as a member of the board of directors of several Chiesi

subsidiaries;”8 and Stephan had “served as Vice President and Secretary from 1997

to 2012 and [had] served as a director from April 2009 to 2012 of Chiesi

Pharmaceuticals, Inc., USA, a subsidiary of Chiesi.”9

        In response to Chiesi’s Offer Letter, the Cornerstone board formed a special

committee of five directors—Harper, Shawver, Codeanne, Enright, and Heffernan

(the “Special Committee”). Although the Defendants contend that the members of

the Special Committee were disinterested and independent, the Plaintiffs disagree.

Rather, the Plaintiffs allege that Harper and Shawver lacked independence in

evaluating Chiesi’s offer due to their involvement with Phenomix Corporation, Inc.

(“Phenomix”), a company that in 2009 signed a $191 million agreement with

Chiesi. At that time, Harper was a director, and Shawver was the CEO and a

7
  Id. ¶ 50.
8
  Id. ¶ 18.
9
  Id. ¶ 17.

                                          5
director, of Phenomix, but by 2013 Phenomix was defunct and existed only to

wind up its affairs. Although the Phenomix deal was consummated in 2009—

several years prior to Chiesi’s February 2013 Offer Letter—and Phenomix was

defunct by that time, the Plaintiffs contend that Harper and Shawver’s relationships

demonstrate that neither individual could have acted independently in evaluating

the transaction.     Further, the Plaintiffs allege that Codeanne, Enright, and

Heffernan lacked independence because those directors were “hand-picked by

Collard,” who sold stock to Chiesi in May 2009 and December 2010.10

        The Plaintiffs additionally contend that “[t]he Special Committee [held] only

illusory power,” as “Chiesi made clear from the outset that it was not interested in

divesting its controlling interest or considering alternative strategic transactions.”11

The Plaintiffs point to Chiesi’s Offer Letter, which concluded with the statement

that “we are interested only in acquiring the remaining shares of Cornerstone and

we have no interest in a disposition of our controlling interest or in considering any

other strategic transaction involving Cornerstone.”12

        Upon its formation in February 2013, the Special Committee obtained

Clifford Chance US LLP as legal counsel and Lazard as its financial advisor. The

Plaintiffs challenge the Special Committee’s decision to retain Lazard, in light of

10
   Id. ¶ 47.
11
   Id. ¶ 46.
12
   Id. ¶ 45.

                                           6
“the fact that Lazard informed the Special Committee that it had current and recent

past financial advisory relationships with, or connections to, Chiesi.”13

Specifically, the Plaintiffs find fault in the Special Committee’s accepting that “(i)

an employee of Lazard S.r.l. . . . is a member of the board of directors of Chiesi;

(ii) an analyst at Lazard Italy is the nephew of the Chairman of Chiesi; and (iii)

bankers at the Lazard group (including a senior member of the proposed team for

this engagement) had solicited Chiesi.”14

                3. Chiesi and the Special Committee Negotiate a Deal

       According to the Defendants, Chiesi’s Offer Letter “prompted a vigorous,

arm’s-length negotiation process between Chiesi and the Special Committee,

which lasted nearly seven months,”15 and during which “the Special Committee

met 37 times . . . and received six separate detailed financial presentations from its

independent financial advisor.”16 Upon receiving Chiesi’s Offer Letter, the Special

Committee reviewed Cornerstone’s most recent management forecasts as well as

Lazard’s financial analysis of the Company. Based on those figures, the Special

Committee concluded that “a value range of $11.00 to $12.00 per Company share

was fair for the minority stockholders.”17 As a result, on April 26, 2013, at the

13
   Id. ¶ 51.
14
   Id.
15
   Company’s Op. Br. in Supp. of Mot. to Dismiss at 9.
16
   Id. at 9 n.6.
17
   Am. Compl. ¶ 52.

                                              7
instruction of the Special Committee, Lazard informed Chiesi’s financial advisor

that the Committee considered Chiesi’s $6.40 to $6.70 proposed range to be

inadequate, but that the Committee would consider a deal with Chiesi at $12.00 per

share. On May 2, 2013, Chiesi counter-offered at $8.25 per share and “indicated

that Chiesi was not willing to go any higher.”18 In addition, Chiesi’s financial

advisor reminded the Special Committee that “Chiesi, as the majority stockholder

of the Company, had the right to remove and replace all of the non-Chiesi directors

and the Company’s senior management team.”19

       Despite the threat of removal, four days later, on May 6, 2013, the Special

Committee rejected Chiesi’s $8.25 offer and made a counter-proposal at $11.00 per

share. According to the Plaintiffs, two days later, Chiesi’s CEO called Enright, the

Special Committee’s Chairman, “to express his disappointment and frustration

with the Special Committee’s $11.00 per share counter-proposal, and further

threatened to enter into a ‘cooling-off’ period or to terminate discussions

altogether.”20

       On May 9, 2013, Cornerstone released its financial results for the first

quarter of 2013, which were “below the first quarter performance figures projected

18
   Id. ¶ 54.
19
   Id. (typeface altered from original).
20
   Id. ¶ 55 (emphasis added).

                                           8
in the Company’s financial forecast.”21     As a result, the Special Committee

provided Lazard with management’s updated financial forecast. Following a May

16, 2013 telephonic meeting with Lazard, “the Special Committee directed Lazard

to [further] revise the financial projections contained in the [updated forecast]

downward to reflect certain negative adjustments . . . and to create an updated

preliminary financial analysis.”22 The Plaintiffs allege that, “[b]ased on those

adjustments by the Special Committee to the financial forecast, which had a

downward impact on the range of values in Lazard’s updated preliminary financial

analyses, and the Special Committee’s fear that Chiesi would terminate discussions

if it did not lower its $11.00 proposal price, the Special Committee instructed

Lazard to make a counter-proposal of $10.25 per share.”23 However, at that time,

the Special Committee also requested that Chiesi permit Lazard to solicit interest

from third-party acquirers. Chiesi rejected the Special Committee’s $10.25 offer

on May 29, 2013, and informed the Special Committee that it was unwilling to

consider any third-party offers.

        Weeks later, on June 11, 2013, Cornerstone received a letter from a

competitor, Exela Pharma Sciences, LLC (“Exela”), “advis[ing] the Company that

it was seeking regulatory approval for an injectable drug that would directly

21
   Id. ¶ 56.
22
   Id. ¶ 57.
23
   Id.

                                        9
compete with one of Cornerstone’s products, Cardene I.V.,” and “alleg[ing] that

the patents associated with Cardene I.V. were invalid, unenforceable, and/or would

not be infringed by Exela’s product.”24 Because it was unclear whether those

patents would be enforceable, and what impact that uncertainty had on the

business, the Special Committee considered structuring a transaction with Chiesi to

include a contingent value right; the Committee ultimately decided, however, that

such a structure was unworkable. Instead, in light of the uncertainty surrounding

the enforceability of Cornerstone’s Cardene I.V. patent, the Special Committee

approached Chiesi with a revised offer of $9.75 per share. On August 5, 2013,

Chiesi counter-offered at $9.25. On August 9, 2013, the Special Committee met

with Lazard to discuss the Company’s second quarter results and Chiesi’s $9.25

offer. Lazard advised that the offer “would be a good result, but that the Special

Committee should continue to negotiate to obtain a higher price.”25

          On September 11, 2013, representatives of the Special Committee and

Chiesi met and agreed in principle to an acquisition at $9.50 per share. Over the

next several days, the parties negotiated an agreement (the “Merger Agreement”),

which ultimately conditioned the Merger on the approval of a majority of the

minority stockholders. On September 15, 2013, the Special Committee convened

with directors Collard and Stephan, and Lazard opined that “$9.50 per share was

24
     Id. ¶ 59.
25
     Id. ¶ 63.

                                        10
fair from a financial point of view to the Company’s stockholders.”26 The Special

Committee then unanimously approved the Merger Agreement. Later the same

day, the full board met to consider the transaction. Failla and Vecchia recused

themselves, while Stephan and Collard voted in favor of the Merger Agreement.

          The Company filed its preliminary proxy recommending the Merger on

October 17, 2013. A definitive proxy was filed on December 26, 2013. A special

stockholder meeting was convened on January 13, 2014, adjourned to solicit

additional proxies, and reconvened on February 3, 2014. The Merger Agreement

was approved by more than 80% of the minority stockholders on that date.

                                  4. Procedural History

          The Plaintiffs filed Complaints in this and related actions in September and

October 2013. Those Complaints were consolidated on October 22, 2013, and on

December 11, 2013, the Plaintiffs filed an Amended Complaint. The Amended

Complaint asserts three Counts: Count I for breach of fiduciary duty against the

Special Committee, Collard, and Stephan (collectively, the “Director Defendants”),

as well as the affiliated directors Failla and Vecchia; Count II for breach of

fiduciary duty against Chiesi and Chiesi’s merger subsidiary; and Count III for

aiding and abetting breaches of fiduciary duty against Cornerstone. On January

31, 2013, the Company and the Director Defendants (not including the affiliated

26
     Id. ¶ 65.

                                           11
directors) moved to dismiss Counts I and III of the Amended Complaint. I heard

oral argument on those Defendants’ Motions to Dismiss on June 5, 2014. The

remainder of this Memorandum Opinion addresses the merits of those Motions.

                            II. STANDARD OF REVIEW

       On a motion to dismiss for failure to state a claim, this Court must accept as

true all well-pled allegations contained in the plaintiff’s complaint, and draw all

reasonable inferences in the plaintiff’s favor.27 “If the well-pled factual allegations

of the complaint would entitle the plaintiff to relief under a reasonably conceivable

set of circumstances, the [C]ourt must deny the motion to dismiss.”28

“Nonetheless, the Court need not accept conclusory allegations that are

unsupported by specific facts or draw unreasonable inferences in favor of [the

plaintiff].”29

                                    III. ANALYSIS

       The Defendants in this action have moved to dismiss Count I against the

Director Defendants and Count III against the Company. I address those Motions

below.

27
   Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Holdings LLC, 27 A.3d 531, 535 (Del.
2011).
28
   Zebroski v. Progressive Direct Ins. Co., 2014 WL 2156984, at *6 (Del. Ch. Apr. 30, 2014).
29
   Eurofins Panlabs, Inc. v. Ricerca Biosciences, LLC, 2014 WL 2457515, at *3 (Del. Ch. May
30, 2014).

                                            12
             1. Special Committee and Approving Disinterested Directors

       This litigation involves the acquisition of a company by a controlling

stockholder, negotiated by a special committee and recommended to the minority

by the board of directors, but not at the outset of negotiations made contingent on a

non-waivable condition requiring the approval of a majority of the minority

stockholders.      Since a controlling stockholder stands on both sides of this

transaction, and since the Amended Complaint adequately alleges that the Merger

was not entirely fair to the minority,30 the transaction is subject ab initio to entire

fairness review, as the Defendants concede.31 The transaction, therefore, must be

reviewed on a developed factual record with respect to the controller and the

directors affiliated with the controller. This Motion to Dismiss, however, involves

only the disinterested directors who served on the Special Committee appointed to

negotiate with the controller, and the disinterested directors who voted in favor of

the transaction.

30
   See Monroe Cnty. Emps.’ Retire. Sys. v. Carlson, 2010 WL 2376890, at *2 (Del. Ch. June 7,
2010) (“Delaware law is clear that even where a transaction between the controlling shareholder
and the company is involved—such that entire fairness review is in play—plaintiff must make
factual allegations about the transaction in the complaint that demonstrate the absence of
fairness.”); In re Boston Celtics Ltd. P’ship S’holders Litig., 1999 WL 641902, at *4 (Del. Ch.
Aug. 6, 1999) (“[I]t is also necessary for the plaintiff to allege specific items of misconduct that
demonstrate unfairness, in order to survive a motion to dismiss.”); Solomon v. Pathe Commons
Corp., 1995 WL 250374, at *5 (Del. Ch. Apr. 21, 1995) (“Even in a self-interested transaction in
order to state a claim a shareholder must allege some facts that tend to show that the transaction
was not fair.”).
31
   Oral Arg. Tr. 8:16–19.

                                                13
       The Plaintiffs and the Director Defendants face two areas of disagreement.

First, the parties dispute the pleading standard for facially disinterested directors;

whether breach of duty on the part of those 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. Second, assuming that individualized

breaches of duty on the part of the negotiating disinterested directors must be pled

in the complaint, the parties dispute whether the Plaintiffs have sufficiently alleged

that the Director Defendants breached their duty of loyalty in negotiating and

approving the Merger with Chiesi.

       The Plantiffs contend that, where the applicable standard of review is entire

fairness, the Court should decline to dismiss director defendants based on a

plaintiff’s failure to plead a non-exculpated breach of duty, even where those

directors are not themselves interested in the transaction, because “entire fairness

review exists, in part, to allow for thorough discovery and fact-finding in order to

‘uncover’ possible violations of the duty of loyalty by ‘facially independent

directors’ who may be unduly influenced by a controller.”32 The Defendants,

citing this Court’s decision in DiRienzo v. Lichtenstein, reject that contention,

32
   Pl.’s Br. in Opp’n to Mot. to Dismiss at 21–22 (citing In re Orchard Enters., Inc. S’holder
Litig., 88 A.3d 1, 28 (Del. Ch. 2014)).

                                             14
arguing instead that “the pendency of entire fairness claims against the controlling

stockholder [does not] relieve the Plaintiffs of their obligation to plead a

cognizable claim against each of the Special Committee members,” and that, “[t]o

the contrary, ‘[t]o burden the Special Committee with proving entire fairness, [the

Plaintiffs] must allege sufficiently that the committee members breached a non-

exculpated fiduciary duty.’”33 The Defendants’ argument is by no means without

persuasive force, as I discuss below. I find, however, that where, as here, entire

fairness is the standard of review ab initio, controlling case precedent directs that

negotiating and facilitating directors must await a developed record, post-trial,

before their liability is determined.

       The Plaintiffs, citing the Emerald Partners line of cases and this Court’s

recent decision in In re Orchard Enterprises,34 contend that, because the entire

fairness standard governs the validity of the transaction and the controlling

stockholders’ liability at trial, I must deny the Director Defendants’ Motion to

Dismiss, and that “a trial must be held to determine whether the transaction was

entirely fair, and if it was not, to ‘identify the breach or breaches of fiduciary duty

upon which liability for damages will be predicated in the ratio decidendi of its

33
   Company’s Reply Br. in Supp. of Mot. to Dismiss at 4 (emphasis added) (citing DiRienzo v.
Lichtenstein, 2013 WL 5503034, at *11 (Del. Ch. Sept. 30, 2013)).
34
   88 A.3d 1 (Del. Ch. 2014).

                                            15
determination that entire fairness has not been established.’”35                  The Director

Defendants point out, however, that this Court has dismissed disinterested

directors, pre-trial; explaining in In re Southern Peru Copper Corp. that:

       The 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.
       In this sense, the more stringent, strict liability standard applicable to
       interested parties such as [the controlling stockholder] is critically
       different than that which must be used to address directors such as
       those on the Special Committee.36

Both Orchard and Southern Peru, however distinct their points of view, involved

motions for summary judgment upon a developed factual record, and they are not

controlling in the instant context of a motion to dismiss. Any difference between

those two cases involves the timing of the inquiry into director liability, either

before or after a finding, post-trial, of entire fairness; neither, as does this case,

involves the sufficiency of the pleadings of the complaint. I have, however,

considered the rationales of these cases closely here.

35
  Pl.’s Br. in Opp’n to Mot. to Dismiss at 24 (citing In re Orchard Enters., Inc., 88 A.3d at 37).
36
  In re S. Peru Copper Corp. S’holder Derivative Litig., 52 A.3d 761, 787 n.72 (Del. Ch. 2011)
(emphasis added).

                                               16
       The lack of congruity in our case law with respect to transactions subject to

entire fairness is, I believe, best explained by examining the difference of, on the

one hand, the theory by which fiduciaries who benefit from a transaction involving

property of their principals are held strictly liable in rescission or disgorgement if

the transaction is not scrupulously fair to the principals and, on the other hand, the

theory under which other, disinterested fiduciaries may be liable for damages for

the same transaction if they facilitated the transaction in a way that breached their

fiduciary duties. In other words, fiduciaries who used the corporate machinery to

facilitate a self-interested transaction are strictly liable37 absent entire fairness;

disinterested fiduciaries may also be liable, but only if they breached a duty.

       To explain this, it is helpful to examine the underpinnings of applying entire

fairness review. Directors control the corporation on behalf of the stockholders.

Controlling stockholders also exercise power over the corporation they control,

which belongs, in part, to others—the (non-controlling) stockholders. As such,

both directors and controllers are fiduciaries for those stockholders and are

accordingly constrained to act with fidelity toward them.                           Most severely

constrained are dealings between a corporate fiduciary and the corporation itself,

where the fiduciary stands on both sides of the transaction, implicating the

37
  I use the term “strict liability” in this Memorandum Opinion in the same sense it was used in
Southern Peru; a fiduciary that directs a corporate transaction in which it is interested is liable to
the stockholders unless the transaction is entirely fair, without further proof of fault on the part of
the fiduciary.

                                                 17
fiduciary’s duty of loyalty. Early common law prevented corporate directors from

transacting business with a corporation for which they served.38 In the twentieth

century, that standard relaxed to permit a fiduciary to transact with the corporation;

our Courts clarified that such self-interested transactions are not void, but voidable,

such that “where the fairness of such transactions is challenged the burden is upon

those who would maintain them to show their entire fairness and where a sale is

involved the full adequacy of the consideration.”39 That entire fairness standard—

applied in Delaware since at least the 1920s40—is premised on the idea that,

ordinarily, court review of director decision-making is circumscribed by the

deferential business judgment rule, but where a director is interested in the

transaction, that presumption cannot apply and the Court must substantively review

the interested decision for fairness to the stockholders.41 Absent fairness, the

38
   See, e.g., Wardell v. Union Pac. R. Co., 103 U.S. 651, 658 (1880) (“It is among the rudiments
of the law that the same person cannot act for himself and at the same time, with respect to the
same matter, as the agent of another whose interests are conflicting. . . . Directors of
corporations, and all persons who stand in a fiduciary relation to other parties, and are clothed
with power to act for them, are subject to this rule; they are not permitted to occupy a position
which will conflict with the interest of parties they represent and are bound to protect.”).
39
   Geddes v. Anaconda Copper Mining Co., 254 U.S. 590, 599 (1921).
40
   See Lofland v. Cahall, 118 A. 1, 3 (Del. Ch. 1922) (citing as a “general principle[] of law and
equity” that has not been “seriously questioned,” the premise that “[d]irectors of a corporation
are trustees for the stockholders, and their acts are governed by the rules applicable to such a
relation, which exact of them the utmost good faith and fair dealing, especially where their
individual interests are concerned”); Keenan v. Eshleman, 2 A.2d 904, 908 (Del. 1938)
(“[D]ealing as they did with another corporation of which they were sole directors and officers,
they assumed the burden of showing the entire fairness of the transaction.”).
41
   See Nixon v. Blackwell, 626 A.2d 1366, 1375–76 (Del. 1993) (“The entire fairness analysis
essentially requires ‘judicial scrutiny.’ In business judgment rule cases, an essential element is
the fact that there has been a business decision made by a disinterested and independent

                                               18
conflicted transaction can be set aside, or the benefiting fiduciary forced to

disgorge any unfair benefits of the transaction.42               This is consistent with the

treatment of self-dealing fiduciaries in other settings, such as trusts and estates.43

       As stated above, in certain circumstances, the common law imposes

fiduciary duties on controlling stockholders as well as directors.                      In Allied

Chemical & Dye Corp. v. Steel & Tube Co. of America,44 this Court made clear

that our common law has imposed fiduciary duties on controlling stockholders for

decades. In describing the source of those duties, that decision explains:

       that under certain circumstances these [fiduciary] relations [between a
       majority and minority stockholder] are clear. No one, of course
       questions the fiduciary character of the relationship which the
       directors bear to the corporation. The same considerations of
       fundamental justice which impose a fiduciary character upon the

corporate decisionmaker. When there is no independent corporate decisionmaker, the court may
become the objective arbiter.” (citations omitted)).
42
   See, e.g., In re S. Peru Copper Corp. S’holders Derivative Litig., 52 A.3d 761, 813–19 (Del.
Ch. 2011) (considering whether to remedy the self-dealing transaction at issue by either
“cancel[ing] or requir[ing] the defendants to return to [the company] the shares that [the
company] issued in excess of [the] fair value” or granting “rescissory damages in the amount of
the present market value of the excess number of shares that [the defendants] hold as a result of
[the company] paying an unfair price in the Merger”).
43
    See, e.g., In re MAXXAM, Inc., 659 A.2d 760, 775 (Del. Ch. 1995) (“Rescission is a
permissible equitable remedy in cases where a self-dealing fiduciary breaches its duty of loyalty.
. . . In cases where rescission is found to be impractical, rescissory damages may be an
appropriate substitutionary form of equitable relief.”); Stegemeier v. Magness, 728 A.2d 557,
565–66 (Del. 1999) (holding that ordinarily the trustee’s self-dealing would “be voidable by the
beneficiaries,” but that, since the subsequent sale of the purchased land to third parties has made
rescission impossible, the appropriate remedy is damages in the amount of “profit made by the
trustee”); RESTATEMENT (THIRD) OF TRUSTS § 100 (2012) (“A trustee who commits a breach of
trust is chargeable with (a) the amount required to restore the values of the trust estate and trust
distributions to what they would have been if the portion of the trust affected by the breach had
been properly administered; or (b) the amount of any benefit to the trustee personally as a result
of the breach.”).
44
   120 A. 486 (Del. Ch. 1923).

                                                19
        relationship of the directors to the stockholders will also impose, in a
        proper case, a like character upon the relationship which the majority
        of the stockholders bear to the minority. When in the conduct of the
        corporate business, a majority of the voting power in the corporation
        join hands in imposing its policy upon all, it is beyond all reason and
        contrary, it seems to me, to the plainest dictates of what is just and
        right, to take any view other than that they are to be regarded as
        having placed upon themselves the same sort of fiduciary character
        which the law impresses upon the directors in their relation to all the
        stockholders. Ordinarily, the directors speak for and determine the
        policy of the corporation. When the majority of the stockholders do
        this, they are, for the moment, the corporation. Unless the majority in
        such case are to be regarded as owing a duty to the minority such as is
        owed by the directors to all, then the minority are in a situation that
        exposes them to the grossest frauds and subjects them to most
        outrageous wrongs.45

The ability of a controlling stockholder to determine the policies of the

corporation—often described as control over the “corporate machinery”46—is two-

fold:    First, controlling stockholders may exercise an ability to authorize a

transaction by stockholder vote, and second, controlling stockholders may exercise

the ability to control the composition of the board.47

45
   Id. at 491 (emphasis added).
46
   See Singer v. Magnavox Co., 380 A.2d 969, 979–80 (Del. 1977), overruled by Weinberger v.
UOP, Inc., 457 A.2d 701 (Del. 1983) (“[T]hose who control the corporate machinery owe a
fiduciary duty to the minority in the exercise thereof over corporate powers and property, and the
use of such power to perpetuate control is a violation of that duty.”); Roland Int’l Corp. v.
Najjar, 407 A.2d 1032, 1034 (Del. 1979), overruled by Weinberger, 457 A.2d 701 (“The
fiduciary duty is violated when those who control a corporation’s voting machinery use that
power to ‘cash out’ minority shareholders, that is, to exclude them from continued participation
in the corporate life, for no reason other than to eliminate them.”).
47
   Compare Weinberger v. UOP, Inc., 409 A.2d 1262, 1265 (Del. Ch. 1979) (“The rationale
underlying the decisions in Singer and Tanzer is deeply rooted in our corporate law. It is based
upon the principle that whenever a majority shareholder . . . undertakes to exercise an available
statutory power so as to impose the will of the majority upon the minority, such action gives rise
to a fiduciary duty on the part of the majority shareholder to deal fairly with the minority whose

                                               20
       Controlling stockholders are fiduciaries to minority stockholders when

exercising corporate control. The duty a controlling stockholder owes when it

stands on both sides of the transaction—i.e., where the controlling stockholder has

a personal interest, as well as an interest as a fiduciary for the corporation—is to

ensure that the transaction is entirely fair.48 Permitting a controlling stockholder to

partake in an interested transaction, but with the caveat that it must demonstrate the

transaction is entirely fair, strikes a balance between protecting the interests of

minority stockholders (including their interest in receiving maximum value for

their shares, which sale to a controller may achieve), and preserving the voting

rights of majority stockholders.49

property interests are thus controlled.”), and id. at 1266 (referencing a “use of corporate voting
machinery by a majority shareholder so as to mandate a preconceived result”), with Harman v.
Masoneilan Int’l, Inc., 442 A.2d 487, 492 (Del. 1982) (“In Sterling, this Court recognized as a
‘settled’ rule of law in Delaware that a majority shareholder and its director designees occupy a
fiduciary relationship to the minority shareholders from which springs a duty of fairness in
dealing with the minority’s property interests.” (emphasis added)), and In re Loral Space &
Commc’ns Inc., 2008 WL 4293781, at *21 (Del. Ch. Sept. 19, 2008) (“In determining whether a
blockholder who has less than absolute voting control over the company is a controlling
stockholder such that the entire fairness standard is invoked, the question is whether the
blockholder, ‘as a practical matter, possesses a combination of stock voting power and
managerial authority that enables him to control the corporation, if he so wishes.’” (emphasis
added)), and Savin Bus. Machs. Corp. v. Rapifax Corp., 1978 WL 2498 (Del. Ch. Feb. 15, 1978)
(noting that controlling stockholder controlled the corporation’s board of directors), and Kaplan
v. Centex Corp., 284 A.2d 119, 123 (Del. Ch. 1971) (explaining that control “may be exercised
directly or through nominees”), and Sterling v. Mayflower Hotel Corp., 93 A.2d 107, 109–10
(Del. Ch. 1952) (“Plaintiffs invoke the settled rule of law that Hilton as majority stockholder of
Mayflower and the Hilton directors as its nominees occupy, in relation to the minority, a
fiduciary position in dealing with Mayflower’s property.” (emphasis added)).
48
   See Sterling, 93 A.2d at 109–110.
49
   See In re Trans World Airlines, Inc. S’holders Litig., 1988 WL 111271, at *8 (Del. Ch. Oct.
21, 1988) (“[A]lthough [the controlling stockholder] is a controlling shareholder who bears
fiduciary obligations, he also has rights that may not be ignored. His rights include a right to

                                               21
       Under ordinary circumstances, the burden to demonstrate entire fairness

remains with the fiduciary—the controlling stockholder—to demonstrate that a

transaction in which it stood on both sides is entirely fair. That is because:

       In the absence of divided interests, the judgment of the majority
       stockholders and/or the board of directors, as the case may be, is
       presumed made in good faith and inspired by a bona fides of purpose.
       But when the persons, be they stockholders or directors, who control
       the making of a transaction and the fixing of its terms, are on both
       sides, then the presumption and deference to sound business judgment
       are no longer present. Intrinsic fairness, tested by all relevant
       standards, is then the criterion.50

However, beginning in the 1970s and ’80s, our courts considered shifting the

burden of demonstrating entire fairness to the plaintiff, and ultimately shifting the

standard of review from entire fairness to business judgment in transactions where

the controller ceded some, or all, of the control of the corporate machinery. The

burden-shifting principle was first to crystallize. In Weinberger v. UOP, Inc., our

Supreme Court held that “[w]here corporate action has been approved by an

informed vote of a majority of the minority shareholders . . . the burden entirely

shifts to the plaintiffs to show that the transaction was unfair to the minority.”51

Eventually, this Court applied burden-shifting to transactions where a special

effectuate a transaction of this kind so long as the terms are intrinsically fair.”); Tanzer v. Int’l
Gen. Indus, Inc., 379 A.2d 1121, 1124 (Del. 1977), overruled by Weinberger, 457 A.2d 701 (“In
sum, for more than fifty years our Courts have held, consistent with the general law on the
subject, that a stockholder in a Delaware corporation has a right to vote his shares in his own
interest, including the expectation of personal profit, limited, of course, by any duty he owes to
other stockholders.”).
50
   David J. Greene & Co. v. Dunhill Int’l, Inc., 249 A.2d 427, 430–31 (Del. Ch. 1968).
51
   Weinberger, 457 A.2d at 703.

                                                22
committee of independent directors negotiates with a controller, so long as “the

majority shareholder [does] not dictate the terms of the merger” and “the special

committee [has] real bargaining power that it can exercise with the majority

shareholder on an arms length basis.”52                  The standard-shifting principle,

meanwhile, was met with more resistance, and for a brief period of time this Court

split on the issue.53 In In re Trans World Airlines, Inc. Shareholders Litigation,

Chancellor Allen found that the use of either a special committee of disinterested

directors or a majority-of-the-minority stockholder vote not only shifts the burden

to the plaintiff, but also, “when properly employed, [has] the judicial effect of

making the substantive law aspect of the business judgment rule applicable.”54

Only two years later, however, in Citron v. E.I. Du Pont de Nemours & Co., the

Court backed away from this position, holding that entire fairness is the applicable

standard of review regardless of whether either sanitizing mechanism was in

place.55 The Citron court reasoned that, although conditioning an offer on the

approval of the minority stockholders may shift the burden of demonstrating entire

fairness, this protection—even when used in conjunction with a disinterested

52
   Rabkin v. Olin Corp., 1990 WL 47648, at *6 (Del. Ch. Apr. 17, 1990).
53
   The evolution of this area of law is well explicated in William T. Allen, Jack B. Jacobs & Leo
E. Strine, Jr., Function Over Form: A Reassessment of Standards of Review in Delaware
Corporation Law, 56 BUS. LAW. 1287, 1306 (2001).
54
   In re Trans World Airlines, 1988 WL 11271, at *7.
55
   Citron v. E.I. duPont de Nemours & Co., 584 A.2d 490, 501–02 (Del. Ch. 1990).

                                               23
special committee to negotiate the transaction—does not warrant application of the

business judgment rule, because:

       Parent subsidiary mergers . . . are proposed by a party that controls,
       and will continue to control, the corporation, whether or not the
       minority stockholders vote to approve or reject the transaction. The
       controlling stockholder relationship has the inherent potential to
       influence, however subtly, the vote of minority stockholders in a
       manner that is not likely to occur in a transaction with a
       noncontrolling party.56

Rather, the burden-shifting device merely provides an incentive for controlling

stockholders to structure transactions that are more likely to be fair to, albeit

imperfect for, the minority stockholders.57

       In 1994, our Supreme Court in Kahn v. Lynch resolved the split in favor of

the Citron interpretation, holding that “even when an interested cash-out merger

transaction receives the informed approval of a majority of minority stockholders

or an independent committee of disinterested directors, an entire fairness analysis

is the only proper standard of judicial review,” and further emphasizing that with

respect to special committees in controlling stockholder transactions, “[p]articular

consideration must be given to evidence of whether the special committee was

truly independent, fully informed, and had the freedom to negotiate at arm’s

length.”58 Recently, our Supreme Court refined its view once more in Kahn v. M

56
   Id. at 502.
57
   Am. Mining Corp. v. Theriault, 51 A.3d 1213, 1242 (Del. 2012).
58
   638 A.2d 1110, 1117, 1120–21 (Del. 1994).

                                              24
& F Worldwide Corp., holding that a transaction structured ab initio on approval

both by an empowered independent, disinterested committee of directors and by a

fully informed majority of the minority stockholders is in fact entitled to deference

under the business judgment rule.59 Such a transaction becomes, in effect, an

unconflicted, arm’s-length transaction.60           Looked at another way, in such a

transaction the controlling stockholder has ceded that control; without control of

the corporate machinery, with respect to that transaction it is no longer in a

fiduciary relationship to the minority, and thus imposing entire fairness review and

its accompanying strict liability would not be appropriate. Like any stockholder,

absent the fiduciary duty that attaches with controller status, the erstwhile

controller may act in its own self-interest.

       As the case law cited above explains, where a controller stands on both sides

of a transaction, it is subject to judicial remedy unless the transaction is entirely

fair. Where a director stands on both sides of the transaction, she is similarly held

to an entire fairness standard. Where the director is disinterested—has no financial

stake—and negotiates or facilitates the transaction, she is not strictly liable for

entire fairness as is an interested fiduciary. She may, however, be liable for breach

59
  88 A.3d 635, 644 (Del. 2014).
60
   See id. at 645 (“[W]here 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 shareholder-protective characteristics of third-party, arm’s-length mergers,
which are reviewed under the business judgment standard.”).

                                               25
of fiduciary duty if she has breached a non-exculpated duty in connection with the

negotiation or facilitation of the transaction.61 It is the fundamental difference in

the type of potential liability of two different groups of fiduciaries—strict in the

case of interested fiduciaries,62 breach-based in the case of disinterested

fiduciaries—that, I believe, has led to some lack of clarity in our case law.

       To plead a case sufficient to withstand a motion to dismiss with regard to a

stockholder who has transacted with the corporation, the plaintiff must merely

plead facts raising an inference that the defendant stockholder is a controller and

that the transaction was not entirely fair to the majority.63 Such a matter must

proceed to a trial at which the fairness of the transaction must be scrutinized. This

case involves a separate question: What is the pleading standard for disinterested

directors charged with a breach of fiduciary duty in connection with the same

transaction? This question arises in a context in which it is unquestionable that

interested parties will be held to entire fairness, and that disinterested director

61
    See, e.g., In re Orchard Enters., Inc. S’holder Litig., 88 A.3d 1, 37 (Del. Ch. 2014)
(determining that, in a case against independent directors protected by a Section 102(b)(7)
exculpation provision, “[t]he director defendants can avoid personal liability for paying monetary
damages only if they have established that their failure to withstand an entire fairness analysis is
exclusively attributable to a violation of the duty of care.” (quoting Emerald Partners v. Berlin
(Emerald Partners II), 787 A.2d 85, 94 (Del. 2001)).
62
   See supra note 37.
63
   Monroe Cnty. Emps.’ Ret. Sys. v. Carlson, 2010 WL 2376890, at *2 (Del. Ch. Apr. 26, 2010);
see also In re Boston Celtics Ltd. P’ship S’holders Litig., 1999 WL 641902, at *4 (Del. Ch. Aug.
6, 1999) (“[I]t is also necessary for the plaintiff to allege specific items of misconduct that
demonstrate unfairness, in order to survive a motion to dismiss.”); Solomon v. Pathe Commons
Corp., 1995 WL 250374, at *5 (Del. Ch. Apr. 21, 1995) (“Even in a self-interested transaction in
order to state a claim a shareholder must allege some facts that tend to show that the transaction
was not fair.”).

                                                26
liability must ultimately be conditioned on a non-exculpated breach of duty; the

question properly is, must specific facts raising an inference of a non-exculpated

breach be pled with respect to each director defendant, or is it enough at the

motion-to-dismiss stage to have pled that a disinterested director facilitated a

transaction with a controller that was not entirely fair, upon which pleading the

actions of the director, as regards her personal liability, must receive judicial

scrutiny upon a fully developed factual record?

       The Director Defendants, citing cases in this Court,64 argue that the pleading

standard for an interested fiduciary in a case subject to entire fairness cannot

logically be applied to disinterested directors alleged to have breached a duty.

With respect to those directors—including the moving Director Defendants here—

they argue that particularized pleadings are required that, if true, raise an inference

that such director breached a non-exculpated duty. There is much, in my view, to

recommend such a pleading requirement. It is consistent with our treatment of

directors alleged to have breached duties in non-controller-dominated transactions,

where the requirement of specific pleading of non-exculpated breaches of duty

allows management of the corporation to proceed unaffected by frivolous litigation

64
  DiRienzo v. Lichtenstein, 2013 WL 5503034 (Del. Ch. Sept. 30, 2013); In re S. Peru Copper
Corp. S’holder Derivative Litig., 52 A.3d 761 (Del. Ch. 2011); In re Fredericks of Hollywood,
Inc., 2000 WL 130630 (Del. Ch. 2000), aff’d sub nom., Malpiede v. Townson, 780 A.2d 1075
(Del. 2001); In re Lukens Inc. S’holders Litig., 757 A.2d 720 (Del. Ch. 1999); In re Gen. Motors
Class H S’holders Litig., 734 A.2d 611 (Del. Ch. 1999).

                                              27
and protects the directors’ ability to pursue appropriate levels of risk without fear

of liability, so long as their actions are consistent with the duty of loyalty. The

Plaintiffs argue strenuously that considerations of conflicted loyalties are

necessarily involved in controller transactions that make such a standard

problematic in the controller context, but it is not entirely clear why this should be

so. If the concern is potential entrenchment, that can be specifically pled; it does

not appear to be a concern in this particular case, since the directors were not

retained once the merger was complete.65 If the concern is loyalty to the controller

for having caused the director to remain in office in the past, that can be pled as

well, but does not strike me as, without more, sufficient to sustain an inference that

the director acted disloyally or negotiated in bad faith. All the other human

relationship interests that may show a conflict of loyalty can be pled, if they exist,

but doctrinally it seems insufficient to simply plead that that a director has

participated in a transaction with a controller and thus an inference of disloyalty

arises sufficient to sustain a complaint against her. In fact, such an automatic

inference is problematic in several ways.

      The automatic inference that a director negotiating or facilitating a

transaction with a controller, without more, is a conflicted or disloyal director

makes service on a special committee risky, and thus unattractive to qualified and

65
  The Amended Complaint does not allege whether the Director Defendants were aware that a
merger would lead to their discharge, however.

                                           28
disinterested directors. Since directors who refuse to negotiate with a controller

may also be breaching a fiduciary duty, but will receive the deferential business

judgment review for such an alleged breach, the automatic inference creates an

incentive to reject entering negotiations with controllers, a rejection that may cost

minority stockholders value.66 The automatic inference seems inconsistent with

our Supreme Court’s recent opinion in M & F Worldwide, which suggests that a

motion to dismiss may be granted where the transaction is conditioned ab initio on

a majority-of-the-minority vote and is negotiated by a facially disinterested and

independent special committee,67 a proposition recently found persuasive in this

Court.68 And the pleading rule the Defendants advocate would have little adverse

effect on the minority stockholders, to whom the controller would still be liable

66
    Where the board is approached by a controller with an offer, the best interest of the
stockholders may involve negotiation and consummation of a transaction. Of course, it might
also involve no transaction at all. In theory, if the independent, disinterested directors
inescapably face a trial for any challenged transaction with the controller, but know their actions
will be reviewed under the business judgment rule if they refrain from the transaction, value-
enhancing transactions will be forgone. Whether this incentive is routinely sufficient to
overcome the hidden incentives which may encourage such directors to strike a deal with a
controller, in the real world, is an open question.
67
    Since a challenge to a controller transaction is subject to dismissal under the business
judgment standard only where the controller ceded control ab initio to an effective vote of the
majority of the minority, and where the transaction was negotiated on the part of the corporation
by a disinterested, independent, and effective special committee, Kahn v. M & F Worldwide
Corp., 88 A.3d 635, 644–45 (Del. 2014), denying a motion to dismiss in such a case would
logically require a specific pleading that the special committee was interested, not independent,
or otherwise ineffective.
68
   See Swomley v. Schlecht, C.A. No. 9355-VCL, at 66:17–68:14 (Del. Ch. Aug. 27, 2014)
(TRANSCRIPT) (applying the M & F Worldwide analysis in granting a motion to dismiss,
reasoning that “the whole point of encouraging [the M & F Worldwide] structure was to create a
situation where defendants could effectively structure a transaction so that they could obtain a
pleading-stage dismissal against breach of fiduciary duty claims”).

                                                29
absent entire fairness. Such a pleading rule would not negate judicial scrutiny of

the directors’ actions in the context of the fairness of the transaction, which would

occur whether or not they remained defendants.

       The rule advocated by the Plaintiffs also has advantages, of course.

Controller transactions are the corporate transactions where the possibility of

divided director loyalties, often cryptic and unknowable at the pleading stage, is of

greatest concern, as has been explicitly stated by this Court.69 Holding directors

who negotiated or facilitated the transaction as defendants until a post-trial

determination of entire fairness has been made, for purposes of determining at that

point whether those defendants have breached non-exculpated fiduciary duties,

will undoubtedly result in justice being done in cases where, under the Defendants’

pleading rule, faithless directors would not be called to account. This advantage

comes with costs alluded to above, obviously. Such a trade-off is experienced in

business-judgment rule cases as well, but the rate of director crypto-disloyalty or

concealed interest is undoubtedly higher in controller cases.

69
   See In re Orchard Enters., Inc. S’holder Litig., 88 A.3d 1, 37 (Del. Ch. 2014) (“A controlling
stockholder transaction ‘of course is the context in which the greatest risk of undetectable bias
may be present.’ Under controlling Delaware Supreme Court precedent, entire fairness governs
a controlling stockholder transaction, even if a special committee of independent directors or a
majority-of-the-minority vote is used, because of the risk that when push comes to shove,
directors who appear to be independent and disinterested will favor or defer to the interests and
desires of the majority stockholder.” (quoting Kahn v. Tremont Corp. (Tremont I), 1996 WL
145452, at *7 (Del. Ch. Mar. 21, 1996)).

                                               30
       In any event, I am not free to make a policy determination here, because

controlling precedent requires me to deny the Motion to Dismiss under these

circumstances. As our Supreme Court in Emerald Partners v. Berlin (“Emerald

Partners II”) made clear, a controller transaction of the type at issue here is

“subject to the entire fairness standard of review ab initio,”70 and:

       [W]hen entire fairness is the applicable standard of judicial review,
       this Court has held that injury or damages becomes a proper focus
       only after a transaction is determined not to be entirely fair. A
       fortiori, the exculpatory effect of a Section 102(b)(7) provision only
       becomes a proper focus of judicial scrutiny after the directors’
       potential personal liability for the payment of monetary damages has
       been established.71

Correspondingly, the Emerald Partners II Court determined that “when entire

fairness is the applicable standard of judicial review, a determination that the

director defendants are exculpated from paying monetary damages can be made

only after the basis for their liability has been decided,” that is, upon a fully-

developed factual record and a determination of whether the transaction was

entirely fair.72

       I find, consistent with Emerald Partners II, that the Plaintiffs have made a

sufficient pleading that a stockholder controlled the corporate machinery; that it

used that machinery to facilitate a transaction of which it thus stood on both sides;

70
   787 A.2d 85, 98 (Del. 2001).
71
   Id. at 93 (citing Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156, 1166 (Del. 1995)).
72
   Id. at 94.

                                                31
that the transaction was not entirely fair to the minority; and that the Director

Defendants negotiated or facilitated the unfair transaction. Such a pleading is

sufficient, under controlling precedent, to withstand a motion to dismiss on behalf

of the Director Defendants. Once the question of entire fairness is resolved after

trial, and if I find the transaction not entirely fair, then the issue of whether the

Director Defendants breached a non-exculpated duty may be addressed.

      I note that, even under the Director Defendants’ proposed pleading standard,

their Motion to Dismiss would nonetheless be problematic here. The Plaintiffs’

allegations in the Amended Complaint—that prior business relationships call into

question the independence of the Director Defendants—are, to my mind, weak.

The Amended Complaint also alleges, however, that an agent of the controller,

frustrated by the hard bargaining of the Special Committee members, explicitly

threatened their removal from office. In addition to the relevance of that allegation

to fair process, the threat raises questions about the ability of the Special

Committee to act in the best interest of the minority, unconflicted by self-interest.

Because the pleading standard laid out in Emerald Partners II controls my decision

in any event, I need not consider the matter further at the motion-to-dismiss stage.

                                  2. The Company

      Finally, Cornerstone moves to dismiss Count III of the Plaintiffs’ Amended

Complaint, which asserts that the Company “aided and abetted the Individual

                                         32
Defendants in the breaches of their fiduciary duties.”73 “A corporation cannot aid

and abet violations by the fiduciaries who serve it.”74 Accordingly, the Company’s

Motion to Dismiss Count III must be granted.

                                       IV. CONCLUSION

          For the reasons discussed above, the Defendants’ Motions to Dismiss are

DENIED with respect to Count I and GRANTED with respect to Count III. An

appropriate Order accompanies this Memorandum Opinion.

73
     Am. Compl. ¶ 130.
74
     In re Orchard Enters., Inc., 88 A.3d at 54.

                                                   33