Court Opinion

ID: 4319128
Source: CourtListenerOpinion
Date Created: 2018-10-09 15:09:34.245673+00
Date Added: 2024-06-11T14:45:45.479362
License: Public Domain

IN THE SUPREME COURT OF THE STATE OF DELAWARE

ARTHUR FLOOD, Individually and
                             §
on behalf of all others similarly
                             §
situated,                    §                No. 101, 2018
                             §
     Plaintiff Below,        §                Court Below: Court of Chancery
     Appellant,              §                of the State of Delaware
                             §
     v.                      §                C.A. No. 2017-0032-JTL
                             §
SYNUTRA INTERNATIONAL, INC., §
LIANG ZHANG, JINRONG CHEN,   §
LEI LIN, YALIN WU, XIUQING   §
MENG, BEAMS POWER MERGER     §
SUB LIMITED, and HOULIHAN    §
LOKEY CAPITAL, INC.,         §
                             §
     Defendants Below,       §
     Appellee.               §

                           Submitted: September 12, 2018
                           Decided:   October 9, 2018

Before STRINE, Chief Justice; VALIHURA, VAUGHN, SEITZ, and
TRAYNOR, Justices, constituting the Court en Banc.

Upon appeal from the Court of Chancery. AFFIRMED.

Ryan M. Ernst, Esquire, Daniel P. Murray, Esquire, O’Kelly Ernst & Joyce, LLC,
Wilmington, Delaware; Donald J. Enright, Esquire (Argued), Elizabeth K. Tripodi,
Esquire, Levi & Korsinsky, LLP, Washington, D.C., for Appellant, Arthur Flood.

Matthew E. Fischer, Esquire, Matthew R. Dreyfuss, Esquire, Potter Anderson &
Corroon LLP, Wilmington, Delaware; Roger A. Cooper, Esquire, Rishi N. Zutshi,
Esquire (Argued), Vanessa C. Richardson, Esquire, Hana Choi, Esquire, Cleary
Gottlieb Steen & Hamilton LLP, New York, New York, for Appellees, Synutra
International, Inc, Jinrong Chen, Lei Lin, and Yalin Wu.
William M. Lafferty, Esquire, John P. DiTomo, Esquire, Morris, Nichols, Arsht &
Tunnell LLP, Wilmington, Delaware; Lawrence Portnoy, Esquire, Rebecca L.
Martin, Esquire, Davis Polk & Wardwell LLP, New York, New York, for Appellees,
Liang Zhang, Xiuqing Meng, and Beams Power Investment Ltd.

STRINE, Chief Justice, for the Majority:
      In Kahn v. M&F Worldwide Corp. (“MFW”),1 we held that business judgment

review applied to a merger proposed by a controlling stockholder conditioned before

the start of negotiations on “both the approval of an independent, adequately-

empowered Special Committee that fulfills its duty of care; and the uncoerced,

informed vote of a majority of the minority stockholders.”2 In this appeal, the

question is whether the Court of Chancery properly applied MFW by reading it as:

i) allowing for the application of the business judgment rule if the controlling

stockholder conditions its bid on both of the key procedural protections at the

beginning stages of the process of considering a going private proposal and before

any economic negotiations commence, and ii) requiring the Court of Chancery to

apply traditional principles of due care and to hold that no litigable question of due

care exists if the complaint fails to allege that an independent special committee

acted with gross negligence. In our previous affirmance of the Court of Chancery

in Swomley v. Schlecht,3 we held that an interpretation of MFW based on these

principles was correct.

      As to the first point, what is critical for the application of the business

judgment rule is that the controller accept that no transaction goes forward without

special committee and disinterested stockholder approval early in the process and

1
  88 A.3d 635 (Del. 2014).
2
  Id. at 644
3
  128 A.3d 992 (Del. 2015) (TABLE).
before there has been any economic horse trading. Stressing that in the controller’s

first expression of interest it failed to condition its proposal on the satisfaction of

those two key conditions, the plaintiff ignores that the controller quickly conditioned

its offer on both of MFW’s dual requirements — approval by an independent Special

Committee and an affirmative vote by a majority of the minority stockholders —

before the Special Committee had even hired counsel.                         MFW’s required

preconditions were therefore in place before any economic negotiation between the

Special Committee and the controller occurred. Thus, before the Special Committee

began substantive deliberations, it knew that any merger was conditioned on both its

approval and the approval of a majority of the disinterested stockholders. So,

consistent with our prior decision to identical effect in Swomley,4 we therefore agree

with the Court of Chancery that MFW applies “when the controller announces the

conditions ‘before any negotiations took place.’”5

       As to the second point, the central objective of the MFW standard is to provide

an incentive for controllers to embrace the procedural approach most favorable to

minority investors, with the incentive of obtaining the protection of the business

4
  Swomley, 2014 WL 4470947, at *21, aff’d 128 A.3d 992 (Del. 2015) (TABLE) (holding that
MFW applied despite the fact that “the controller’s initial proposal hedged on whether the
majority-of-the-minority condition would be waivable or not, but from the first meeting, the board
resolved that any deal would require both the approval of a special committee and a majority-of-
the-minority vote”).
5
  In re Synutra Int’l, Inc., No. 2017-0032-JTL, 2018 WL 705702, at *2 (Del. Ch. Feb. 2, 2017)
(quoting Swomley, 2014 WL 4470947, at *17–18).

                                                2
judgment rule standard of review. To lard on to the due care review a substantive

review of the economic fairness of the deal approved by a Special Committee, as the

plaintiff advocates, is to import improperly into a due care analysis the type of

scrutiny used in entire fairness review and in appraisal cases. Thus, in Swomley and

in this case, the Court of Chancery properly held that the business judgment rule

applied when the other conditions of MFW applied and the Special Committee

employed qualified legal and financial advisors and indisputably engaged in a

deliberative process that cannot rationally be characterized as grossly negligent.6

       Accordingly, we affirm.

                                                I.

       This case comes before us from a dismissal of the plaintiff’s complaint by the

Court of Chancery.7 The relevant pled facts can be summarized briefly. Liang

Zhang and entities related to him controlled 63.5% of Synutra International Inc.’s

stock.8 In January 2016, Zhang proposed to take Synutra private by acquiring the

rest of the stock he did not control.9 In an initial letter, Zhang proposed purchasing

6
  See Swomley, 2014 WL 4470947, at *21, aff’d 128 A.3d 992 (Del. 2015) (TABLE) (holding that
the “gross negligence standard,” a standard that “is only satisfied by conduct that really requires
recklessness,” applies to whether the Special Committee “met its duty of care in negotiating a fair
price” and that merely alleging that “[s]omebody could have negotiated that differently” does not
establish a duty of care violation to overcome a motion to dismiss).
7
  Accordingly, we review whether the Court of Chancery’s decision was correct de novo. Dunlap
v. State Farm Fire & Cas. Co., 878 A.2d 434, 438–39 (Del. 2005).
8
  Opening Br. at 1.
9
  Id. at 5.

                                                3
the remaining shares at $5.91, but he did not include a requirement that the sale be

conditioned on the approval of a special committee and an affirmative vote of a

majority of the minority stockholders.10 To assist him in the proposed merger, Zhang

retained Davis Polk & Wardwell LLP.11 Although Davis Polk was traditionally

Synutra’s corporate counsel, Synutra’s CFO agreed to waive Davis Polk’s conflicts

of interest before the Board met to discuss Zhang’s proposed merger.12

       One week after Zhang issued his proposal, the Board met and formed a Special

Committee.13 Before the meeting, the Board “agreed that it would not substantively

evaluate” Zhang’s proposal.14 Although Davis Polk now represented Zhang, it

advised the Board at this meeting on its fiduciary duties.15 The Board understood

that Davis Polk represented Zhang, but nevertheless “requested the attendance . . .

of representatives of Davis Polk who frequently advised [the Board] because those

representatives were not involved in Davis Polk’s representation of [Zhang].”16 The

10
   Id.; App. to Opening Br. at A22 (Verified Amended Class Action Complaint (Feb. 10, 2017))
(“As clearly evidenced by the Initial Proposal quoted in full above, Zhang did not condition the
Proposed Buyout ab initio on approval by a special committee nor on approval by the majority of
the minority unaffiliated stockholders.”).
11
   Opening Br. at 5 (“By the time of [the first] meeting, [Zhang] had already retained Davis Polk
as legal counsel in connection with the Buyout.”).
12
   Id.
13
   Id. at 5–6.
14
   App. to Opening Br. at A152 (Schedule 14A, Definitive Proxy Statement, Synutra International,
Inc. (Mar. 9, 2017)).
15
   Opening Br. at 5–6.
16
   App. to Opening Br. at A152 (Schedule 14A, Definitive Proxy Statement, Synutra International,
Inc. (Mar. 9, 2017)).

                                               4
plaintiff does not allege that any negotiations occurred at this meeting.17 Rather, the

only substantive action the plaintiff alleges was taken at the meeting was the decision

to establish the Special Committee.18 Indeed, the proxy, which plaintiff incorporated

into his complaint by reference, says that the Board did not discuss the substance of

Zhang’s proposal at the meeting.19 Specifically, the proxy states that, at the January

21, 2016 board meeting, the “board of directors agreed that it would not

substantively evaluate the January 14 Proposal at this meeting and that Davis Polk’s

advice to [the] board of directors would be limited to reminding the directors of their

fiduciary duties under Delaware law and advising [the] board of directors on

establishing a special committee to evaluate and, if appropriate, negotiate the

January 14 Proposal.”20 The plaintiff pleads no facts to the contrary.

       Two weeks after the initial offer, and only one week after the Special

Committee was formed, Zhang sent a second letter to the Special Committee

stipulating that he would not proceed with the transaction unless it was approved by

the Special Committee and approved by the holders of a majority of the voting stock

not controlled by Zhang.21 No negotiations had commenced as of that time; the

17
   Id. at A63–65 (Verified Amended Class Action Complaint (Feb. 10, 2017)) (noting that the
Board met, formed a Special Committee, and then, two weeks later, Zhang made his second
proposal without alleging any discussions or interactions during that two-week period).
18
   Id. (Verified Amended Class Action Complaint (Feb. 10, 2017)).
19
   Id. at A152 (Schedule 14A, Definitive Proxy Statement, Synutra International, Inc. (Mar. 9,
2017)).
20
   Id. (Schedule 14A, Definitive Proxy Statement, Synutra International, Inc. (Mar. 9, 2017)).
21
   Opening Br. at 7.

                                              5
Special Committee had not met and the complaint is devoid of any facts suggesting

that the Special Committee and Zhang had engaged in any economic negotiations.22

In fact, the plaintiff’s complaint makes clear that:

             the Special Committee did not engage its own investment bank
              or counsel until after this point;23

             the Special Committee declined to engage in price negotiations
              until its banker could do due diligence and obtain projections;24
              and

             the price negotiations did not begin until seven months after
              Zhang’s second offer conditioning any merger on both Special
              Committee and majority-of-the-minority approval.25

       Thus, the plaintiff does not allege any negotiations or other meetings occurred

before Zhang’s second offer, which conditioned the take-private offer on MFW’s

dual requirements.

       To highlight this reality, it is useful to underscore the chronology of the facts

the complaint outlines. After receiving Zhang’s second offer — proposing the same

price as the first offer — on January 30, 2016, the Special Committee hired Houlihan

Lokey and Cleary Gottlieb as its independent financial and legal advisors.26

Houlihan began discussions with management regarding the company’s financial

22
   See App. to Opening Br. at A46–90 (Verified Amended Class Action Complaint (Feb. 10,
2017)).
23
   Id. at A152–53 (Schedule 14A, Definitive Proxy Statement, Synutra International, Inc. (Mar. 9,
2017)).
24
   Id. at A64–80 (Verified Amended Class Action Complaint (Feb. 10, 2017)).
25
   Id. at A60–67.
26
   Id. at A64–67.

                                               6
projections. On March 22, 2016, Houlihan met with the company’s CFO to discuss

what was needed for Houlihan to advise the Special Committee.27 The next day, the

Special Committee met, received an update from Houlihan, and discussed Davis

Polk’s preparations of an initial draft of the merger agreement.28 Houlihan received

the company’s financial projections on April 22, 2016, met with the company’s

management on April 28, 2016 to discuss the projections, and provided the Special

Committee with “preliminary financial discussion materials” on June 3, 2016.29

       The Special Committee met again on July 20, 2016 and decided to have

Houlihan initiate a market check.30 None of the 25 potential bidders Houlihan

contacted were interested, which is not surprising given Zhang’s 63.5% voting

control and the lack of any promise that he was a willing seller.31

       In August 2016, management provided Houlhian with updated, lower

projections.32      Houlihan provided an updated financial analysis to the Special

Committee on September 8, 2016.33 At that meeting, after seven months of analysis

and consultation with its advisors, the Special Committee authorized Houlihan to

negotiate a higher price with Zhang.34 The next day, Houlihan met with Zhang, and

27
   Id. at A66.
28
   Id. at A66–67.
29
   Id. at A68–69.
30
   Id. at A70–71.
31
   Id. at A71.
32
   Id. at A71–72.
33
   Id. at A73–74.
34
   Id..

                                           7
Zhang agreed to increase his offer to $6.05 per share.35 The Special Committee met

again on September 22, 2016 and ultimately agreed to accept the $6.05 price, a 2.4%

bump from Zhang’s original offer, a 58% premium to the trading price of Synutra’s

stock when the offer was first made public, a 31% and 20% premium to the 30- and

60-day volume-weighted trading averages, respectively, and a price that Houlihan

viewed as fair.36

       The plaintiff argues that this price was not fair. But, the plaintiff fails to allege

any lack of independence on the part of the Special Committee,37 and admits that the

Special Committee met 15 times over a nine-month period and was advised by

independent financial, legal, and economic advisors.38 At bottom, the plaintiff just

takes issue with the economic outcome of the negotiation and questions how skillful

the Special Committee and its advisors were.39 The plaintiff does not allege that the

35
   Id. at A74–75.
36
   Id. at A167 (Schedule 14A, Definitive Proxy Statement, Synutra International, Inc. (Mar. 9,
2017)).
37
   Although the plaintiff makes some noise about Yalin Wu — a member of the Special Committee
who was appointed to the Board at the Board meeting in which the Board formed the Special
Committee — the Court of Chancery correctly found that a “charge that a director was nominated
by or elected at the behest of those controlling the outcome of a corporate election” does not rebut
the presumption of director independence. Aronson v. Lewis, 473 A.2d 805, 816 (Del. 1984).
38
   App. to Opening Br. at A64–79 (Verified Amended Class Action Complaint (Feb. 10, 2017));
id. at A151–167 (Schedule 14A, Definitive Proxy Statement, Synutra International, Inc. (Mar. 9,
2017)).
39
   Opening Br. at 25 (“The Complaint alleged strikingly similar facts, demonstrating not only that
the price was insufficient, but therefore, that the Special Committee was grossly negligent.”).

                                                 8
majority-of-the-minority vote secured to approve the merger was coerced or not

fully informed.40

                                                    II.

        In this appeal, the plaintiff does not quibble with the MFW standard itself, but

argues that the Court of Chancery misapplied it in two respects. Despite the fact that

the controlling stockholder here conditioned his second offer on approval by the

Special Committee and an affirmative majority-of-the-minority vote before any

substantive economic negotiations occurred between himself and the Special

Committee, the plaintiff argues that, because Zhang’s initial offer letter did not

contain the Special Committee approval and majority-of-the-minority vote

conditions, the business judgment rule does not apply.41 In the plaintiff’s view, if a

controller’s first approach does not contain the required conditions, then it is stuck

with entire fairness review, even if the controller still commits itself to MFW’s

requirements early on before any economic negotiations.42

        The plaintiff grounds its argument in the language of our opinion in MFW that

says both procedural protections must be in place “ab initio”43 (Latin for “from the

40
   See App. to Opening Br. at A46–90 (Verified Amended Class Action Complaint (Feb. 10,
2017)).
41
   Opening Br. at 19 ([I]n a controlling stockholder squeeze-out merger, negotiations begin at the
initial offer, and a control must self-disable at that point if it is to receive the benefits of the business
judgment rule.”).
42
   Id.
43
   MFW, 88 A.3d at 646.

                                                     9
beginning”44), and in language from the Court of Chancery’s decision in MFW that

uses the phrase “[f]rom inception.”45 The plaintiff argues for a quite specific and

exacting reading of that language. Rather than meaning that the conditions be in

place at the beginning of the Special Committee’s process and before economic

bargaining occurs, the plaintiff argues that it means that the controller must include

the conditions in its “first offer” or else lose out on the business judgment rule.46

The plaintiff argues for the brightest of lines.47

       The defendants read the requirement that the conditions be in place “ab initio”

or “from inception” less rigidly. They argue that what MFW requires is that these

conditions be in place at the early stages of negotiations, and that they be in place

before any substantive economic negotiations take place, so that the proffer of the

conditions cannot be substituted for price concessions.48

       Below, the Court of Chancery sided with the defendants’ view, stating “[a]

process meets the ab initio requirement when the controller announces the

44
   AB INITIO, Black’s Law Dictionary (10th ed. 2014).
45
   In re MFW, 67 A.3d at 529.
46
   Opening Br. at 18 (“Thus, the outset — the initio — of negotiations must tautologically be the
first offer. Any other interpretation simply does not comport with the underlying concepts.”).
47
   Id. (suggesting that “negotiations commence with the initial proposal”) (emphasis omitted).
48
   Answering Br. at 19–20 (Moreover, despite Plaintiff’s contention that the ‘clear implication’ or
[MFW’s] ab initio requirement is that ‘negotiations begin at the initial offer,’ neither this Court
nor any other has adopted such a rule.”) (citation omitted).

                                                10
conditions ‘before any negotiations took place.’”49 As we did in our previous

decision in Swomley, we read MFW as the Court of Chancery did here.

       Admittedly, our opinion and the Court of Chancery’s opinion in MFW uses

what can be read as ambiguous language to express the requirement that the key dual

procedural protections must be in place before economic negotiations so the

protections are not used as a bargaining tool in substitution for economic concessions

by the controller. In describing this prerequisite to the invocation of the business

judgment rule standard of review, we and the Court of Chancery have said the

conditions must be in place “ab initio,”50 before the “procession of the transaction,”51

“from inception,”52 “from the time of the controller’s first overture,”53 and

“upfront.”54 From these uses, the plaintiff argues that MFW strictly hinges the

49
   In re Synutra, 2018 WL 705702, at *2 (quoting Swomley, 2014 WL 4470947, at *17–18).
50
   MFW, 88 A.3d at 646 (“We hold that business judgment is the standard of review that should
govern mergers between a controlling stockholder and its corporate subsidiary, where the merger
is conditioned ab initio upon both the approval of an independent, adequately-empowered Special
Committee that fulfills its duty of care; and the uncoerced, informed vote of a majority of the
minority stockholders.”).
51
   Id. at 645 (“To summarize our holding, in controller buyouts, the business judgment standard of
review will be applied if and only if: (i) the controller conditions the procession of the transaction
on the approval of both a Special Committee and a majority of the minority shareholders . . .”);
see also In re MFW, 67 A.3d at 535 (“The business judgment rule is only invoked if: (i) the
controller conditions the procession of the transaction on the approval of both a special committee
and a majority of the minority stockholders . . .”).
52
   In re MFW, 67 A.3d at 528 (“From inception, the controlling stockholder knows that it cannot
bypass the special committee's ability to say no.”).
53
   Id. at 503 (“[T]he court concludes that when a controlling stockholder merger has, from the time
of the controller’s first overture, been subject to . . .”).
54
   Id. at 505 (“After addressing that issue, the court then considers whether our Supreme Court has
answered the question of what judicial standard of review applies to a merger with a controlling
stockholder conditioned upfront on a promise that no transaction will proceed without (i) special
committee approval, and (ii) the affirmative vote of a majority of the minority stockholders.

                                                 11
application of the business judgment rule on the controller including the two key

procedural protections in the first offer. A controller gets one chance, as the master

of its offer, to take advantage of MFW, and if it fails to do so, that is it. But in an

earlier case, the Court of Chancery and we did not embrace this rigid reading of

MFW. In the case of Swomley v. Schlecht, the Court of Chancery held that MFW’s

“ab initio” requirement was satisfied even though “the controller’s initial proposal

hedged on whether the majority-of-the-minority condition would be waivable or

not” because the controller conditioned the merger on both of MFW’s dual

requirements “before any negotiations took place.”55                We affirmed that well-

reasoned conclusion, and adhere to that approach for reasons we now explain.

       For starters, the plaintiff’s cramped reading contradicts the use of “beginning”

in everyday speech, when that term is applied to a multi-stage process of human

events with periods of time leading to an ultimate conclusion.56 A goal scored in the

fifth minute of a 90-minute game would be referred to as a goal at the beginning of

the match.     Enjoying the beginning of fall refers to those few weeks in late

September and early October when the weather gets chilly and the leaves start to

change color, not just the autumnal equinox. The beginning of a novel is not the

Finally, having concluded that the question has not been answered by our Supreme Court, this
court answers the question itself.”).
55
   Swomley, 2014 WL 4470947, at *17–18.
56
   For instance, Merriam-Webster defines beginning as “the first part” or “a rudimentary stage or
early       period.”              Beginning,     Merriam-Webster,          https://www.merriam-
webster.com/dictionary/beginning.

                                               12
first word, but the first few chapters that introduce the reader to the characters,

setting, and plot. Indeed, three years after Britain entered World War II,57 Winston

Churchill famously declared that the War had reached “the end of the beginning.”58

       Thus, as a matter of language, “from the beginning” can encompass more than

the narrow sense in which the plaintiff reads those words. An ordinary person would

conclude that Zhang had conditioned the merger on MFW’s dual requirements in the

beginning stages of the process that led to the merger. More important, even if the

plaintiff’s linguistic argument is one plausible reading of the literal words of MFW,

that reading is at odds with the origins of why that decision requires that the

controller condition its offer early in the process — i.e., before any substantive

economic negotiations begin — on the two key procedural protections.

       The MFW standard emerged out of concerns created by Kahn v. Lynch

Communication Systems, Inc., which held that approval of a controlling shareholder

transaction by either “an independent committee of directors or an informed majority

of minority shareholders shifts the burden of proof on the issue of [entire] fairness

from the controlling or dominating shareholder to the challenging shareholder-

plaintiff.”59   Lynch incentivized “the use of special negotiating committees in

57
   Britain declared war on Germany on September 3, 1939.
58
    Winston Churchill, The End of the Beginning (Churchill Society, Nov. 10, 1942),
http://www.churchill-society-london.org.uk/EndoBegn.html.
59
   638 A.2d 1110, 1117 (Del. 1994).

                                         13
addressing mergers with controlling stockholders,” but its practical effect “in the real

world of transactions was to generate the use of special committees alone.”60

Controllers were reluctant to condition mergers on a majority-of-the-minority vote

upfront because it “added an element of transactional risk without much liability-

insulating compensation in exchange.”61 As a result, controllers were likely to, “at

most, agree to such a [c]ondition at the insistence of a special committee and/or as a

way to settle with the plaintiffs.”62 In essence, those subject to the economic

consequences of the process — the minority stockholders — were left either without

a say or with a say at the potential expense of additional consideration that might

have been extracted by tougher economic bargaining.

       Enter MFW. To avoid one of Lynch’s adverse consequences — using a

majority-of-the-minority vote as a chit in economic negotiations with a Special

Committee — MFW reviews transactions under the favorable business judgment

rule if “these two protections are established up-front.”63 MFW’s dual conditions

create “a potent tool to extract good value for the minority” because from the start

of negotiations “the controlling stockholder knows that it cannot bypass the special

committee’s ability to say no.”64 The key concern of MFW was ensuring that

60
   In re Cox, 879 A.2d at 618.
61
   Id.
62
   Id.
63
   MFW, 88 A.3d at 644 (quoting In re MFW, 67 A.3d at 528).
64
   Id. (quoting In re MFW, 67 A.3d at 528).

                                            14
controllers could not use the conditions as bargaining chips during economic

negotiations:

       [T]he dual procedural protection merger structure optimally protects
       the minority stockholders in controller buyouts . . . . [W]hen these two
       protections are established up-front, a potent tool to extract good value
       for the minority is established. From inception, the controlling
       stockholder knows that it cannot bypass the special committee’s ability
       to say no. And, the controlling stockholder knows it cannot dangle a
       majority-of-the-minority vote before the special committee late in the
       process as a deal-closer rather than having to make a price move.65

       This requirement — having MFW’s dual requirements in place at the start of

economic negotiations — helps replicate a third-party process and, simultaneously,

incentivizes controllers to precommit to MFW’s conditions early to take advantage

of business judgment review.66 The essential element of MFW, then, is that these

requirements cannot be dangled in front of the Special Committee, when

negotiations to obtain a better price from the controller have commenced, as a

substitution for a bare-knuckled contest over price.67

       That is, the purpose of the words “ab initio,” and other formulations like it in

the MFW decisions, require the controller to self-disable before the start of

65
   Id. (quoting In re MFW, 67 A.3d at 528) (emphasis added).
66
    Id. (“The simultaneous deployment of the procedural protections employed here create a
countervailing, offsetting influence of equal — if not greater — force. That is, where 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.”).
67
   Id.

                                                15
substantive economic negotiations, and to have both the controller and Special

Committee bargain under the pressures exerted on both of them by these protections.

Thus, so long as the controller conditions its offer on the key protections at the

germination stage of the Special Committee process, when it is selecting its advisors,

establishing its method of proceeding, beginning its due diligence, and has not

commenced substantive economic negotiations with the controller, the purpose of

the pre-condition requirement of MFW is satisfied. In that situation, the Special

Committee and the controller know, at all times during economic bargaining, that a

transaction cannot proceed if the Special Committee says no, and the Special

Committee knows that if they agree to a price, their judgment will be subject to

stockholder scrutiny and approval.

         And any ambiguity left by MFW’s various semantic phrases was clarified by

Swomley where we affirmed the Court of Chancery in holding that MFW’s “ab

initio” requirement is satisfied if the controller disables “before any negotiations

t[ake] place.”68 In Swomley, the controller’s first proposal was not conditioned on

both of MFW’s dual requirements, yet we affirmed the Court of Chancery’s holding

that MFW applied, and the controller was thus entitled to business judgment rule

review, because the controller conditioned the buyout on MFW’s dual requirements

68
     Swomley, 2014 WL 4470947, at *17–18.

                                            16
“before any negotiations took place.”69 We adhere to our prior decision in Swomley,

which affirmed the Court of Chancery’s decision that to satisfy MFW’s “ab initio,”

or from inception, prong, a controller is required to condition the buyout on both the

approval of an independent, fully empowered Special Committee and the approval

of a majority of minority stockholders at the beginning stages of the process of

considering a going private proposal and before any negotiations commence

between the Special Committee and the controller over the economic terms of the

offer.

         Of course, adopting any rule, including this one, may give rise to close cases.

But our Court of Chancery is expert in the adjudication of corporate law cases. And

when a plaintiff has pled facts that support a reasonable inference that the two

procedural protections were not put in place early and before substantive economic

negotiation took place, the Court of Chancery can be trusted to apply appropriate

pleading stage principles and refuse to dismiss the case

         But that situation does not exist here.     The plaintiff has pled no facts

supporting a reasonable inference that Zhang did not condition the merger on MFW’s

dual procedural protections before any economic negotiations took place. Although

plaintiff is entitled to reasonable inferences from the facts pled,70 we agree with the

69
     Id.
70
     See Dunlap, 878 A.2d at 438–39.

                                           17
Court of Chancery that “[t]he plaintiff has not pled facts sufficient to call into

question compliance with the ab initio requirement.”71

       The Court of Chancery found that Zhang “sent the Follow-up Letter just over

two weeks after [he] first proposed the Merger, before the Special Committee ever

convened and before any negotiations ever took place. The prompt sending of the

Follow-up Letter prevented [Zhang] from using the [MFW] conditions as bargaining

chips.”72 And the plaintiff pled no facts suggesting that the Special Committee or

any member of the committee communicated with Zhang about the substance of the

transaction before he sent the second letter.73 Indeed, Zhang disabled before the

Special Committee had hired its advisors. And the Special Committee spent months

working with its advisors before asking Zhang for additional consideration. All of

the Special Committee’s work was done after Zhang had agreed to condition his

buyout on MFW’s dual requirement. Zhang thus conditioned the buyout at the

beginning of the process and is therefore entitled review under the business judgment

rule standard.

       In its briefs before us and below, the plaintiff spent most of his time on its

bright line, one shot argument.74 That was logical because the early second offer

71
   In re Synutra, 2018 WL 705702, at *3.
72
   Id.
73
   Id.
74
   See Opening Br. at 16–23.

                                           18
was followed by several months of due diligence that occurred before any bargaining

took place between the Special Committee and Zhang over the economic terms of

the proposed transaction. But in a cursory part of his brief in opposition to the

motion to dismiss and his brief in this Court, the plaintiff did argue that the decision

of Synutra’s CFO to grant Davis Polk a waiver constituted negotiations that, under

Swomley, should prevent Zhang’s second offer from satisfying the “from inception”

requirement of MFW.75 The plaintiff did so despite other pled facts demonstrating

that the Special Committee was not even in existence at the time of the waiver much

less involved in granting it.76 As we have noted, after Zhang sent his initial offer,

Synutra’s CFO granted the company’s law firm, Davis Polk, a waiver that allowed

it to represent Zhang. And although the proxy does state that “[t]he waiver of Davis

Polk’s conflicts was negotiated and agreed by [Synutra’s CFO] on behalf of the

Company before the Company’s board meeting,” in context — and from the facts

75
   See App. to Opening Br. at A369–70 (Plaintiff’s Combined Brief in Opposition to Defendants’
Motions to Dismiss the Verified Amended Class Action Complaint (Nov. 30, 2017)) (“Finally, the
Proxy states that Cai [the CFO] ‘negotiated and agreed’ to a waiver of Davis Polk’s conflict of
interest before the January 21 board meeting, clearly admitting that some negotiation with the
Buyer Group had already taken place before the Board formed the Special Committee.”); Opening
Br. at 21 (“Plaintiff clearly alleged that in the interim, Cai ‘negotiated and agreed’ to a waiver of
Davis Polk’s conflict of interest before the January 21 board meeting, clearly admitting that some
negotiation with the Buyer Group had already taken place before the Board formed the Special
Committee.”).
76
   Id. at A64–80 (Verified Amended Class Action Complaint (Feb. 10, 2017)).

                                                19
pled — it is clear that the negotiation occurred around the terms of the waiver and

not substantive terms of the proposed transaction.77

       Consistent with its close and diligent consideration of the record, the Court of

Chancery examined the waiver issue and whether it disqualified Zhang’s second

letter from satisfying MFW’s requirement that the two key procedural protections be

in place at the beginning of the deal process and before economic negotiations

commenced. In coming to the conclusion that the waiver did not preclude invocation

of the business judgment rule, the Court of Chancery reasoned:

       The only arguably substantive event that happened before the Follow-
       up Letter was that the Company authorized Davis Polk to represent the
       Buyer Group by waiving any conflict that Davis Polk might have.
       Davis Polk was the Company’s long-time counsel. It would have been
       preferable, both optically and substantively, for the Buyer Group to
       retain its own counsel. That scenario would have given the Special
       Committee the choice of hiring its own independent counsel or using
       Davis Polk, if it preferred to take advantage of Davis Polk’s knowledge
       and expertise after considering the firm’s potential ties to the Buyer
       Group. The Special Committee retained Cleary Gottlieb Steen &
       Hamilton LLP (“Cleary Gottlieb”), a firm fully capable of going head-
       to-head with Davis Polk. The complaint does not plead facts that would
       support a reasonable inference that the conflict waiver undercut the
       Special Committee’s effectiveness.78

       We find no basis to quibble with the Court of Chancery’s analysis on this

point. The Special Committee did not engage in any substantive negotiation of

77
   Id. at A152 ((Schedule 14A, Definitive Proxy Statement, Synutra International, Inc. (Mar. 9,
2017)).
78
   In re Synutra, 2018 WL 705702, at *2.

                                              20
Zhang’s offer until well after it had engaged in a lengthy due diligence process led

by its independent financial and legal advisors.79 And the complaint pled no facts

suggesting — or from which we can rationally infer — that the waiver was

exchanged for the two procedural protections or anything else.

       At oral argument, the plaintiff seized on this issue in a way that it did not

emphasize below or in its briefs to us. As the defendants argue to us, it is likely that

had the waiver not been granted, this would not have meant that Davis Polk could

have represented the Special Committee. Had it done so, the plaintiffs would likely

have argued that its role as counsel for the company controlled by Zhang rendered it

incapable of bargaining adversely to him on behalf of the Special Committee.

       At best, therefore, Davis Polk would have been put in a neutral position,

representing neither Zhang nor the Special Committee. This would have been

perhaps the ideal, optimal situation to create a level playing field. But, on the pled

facts, we agree with the Court of Chancery that the waiver did not obviate the

application of the business judgment rule because no pled facts suggest any

connection between the Davis Polk waiver and substantive consideration and

negotiation of the economics of Zhang’s offer.80 Thus, as to the only question posed

79
  See id. at A46–90 (Verified Amended Class Action Complaint (Feb. 10, 2017)).
80
  Neither below nor in its briefs before us did the plaintiff argue that the waiver granted to Davis
Polk prevented the satisfaction of another requirement of MFW, which is that the Special
Committee be “empowered to freely select its own advisors and to say no definitively.” MFW, 88
A.3d at 645. As the Court of Chancery found, the Special Committee selected a major law firm
with substantial mergers and acquisitions experience to represent it. In re Synutra, 2018 WL

                                                21
to us, which is whether Zhang conditioned his offer sufficiently early to satisfy the

“from inception” requirement of MFW, the Court of Chancery correctly answered

yes.

                                               III.

       The plaintiff’s other contention is that the Court of Chancery erred in finding

that no due care violation was pled. The plaintiff reads dicta in footnote 14 of our

MFW decision — dicta that conflict with the actual due care holding in MFW — as

indicating that somehow a plaintiff may avoid the business judgment rule by raising

questions about whether the Special Committee, despite concededly being

independent, being advised by independent advisors, and conducting a lengthy

procedural process, was adroit in bargaining. The plaintiff argues that this dicta

allows him to plead a duty of care violation based on an insufficient price.81

       But the entire point of the MFW standard is to recognize the utility to

stockholders of replicating the two key protections that exist in a third-party merger:

705702, at *2 (“The Special Committee retained Cleary Gottlieb Steen & Hamilton LLP (‘Cleary
Gottlieb’), a firm fully capable of going head-to-head with Davis Polk.”). The complaint is devoid
of any pled fact supporting an inference that the Special Committee’s counsel was not equipped to
represent the Special Committee skillfully and vigorously, nor that it failed to do so. And of
course, the waiver granted to Davis Polk had no bearing on which financial advisor the Special
Committee selected. Although we have no doubt that the selection of qualified advisors is
important to the effectiveness of a special committee, the plaintiff did not argue, and has pled no
facts supporting any inference, that the Special Committee here was not empowered to select a
highly qualified legal counsel of its choice.
81
   Footnote 14 in MFW is dicta musing on whether the complaint in MFW could have survived a
motion to dismiss. 88 A.3d at 645 n.14. But, one was never brought, and the skilled lawyers who
ultimately won the case likely would have had much to say about whether that was so. Our system
of justice depends on the courts hearing out both sides, and a footnote speculating about the

                                               22
an independent negotiating agent whose work is subject to stockholder approval.82

If that standard injects the reviewing court into an examination of whether the

Special Committee’s good faith efforts were not up to the court’s own sense of

business effectiveness, the standard is without the very utility it was designed to

accomplish, motions to dismiss will not be able to be granted, and controllers will

therefore have no incentive to use the approach most favorable to minority

stockholders.83

       For that reason, the key paragraph of MFW itself addressing whether there

was any disagreement of fact about whether the Special Committee had acted with

gross negligence reads as follows:

       The Special Committee Exercised Due Care. The Special Committee
       insisted from the outset that MacAndrews (including any “dual”
       employees who worked for both MFW and MacAndrews) be screened
       off from the Special Committee’s process, to ensure that the process
       replicated arm’s-length negotiations with a third party. In order to

outcome of a motion that was never brought is a clear example of dicta. More important, to the
extent that note 14 is inconsistent with this decision, Swomley, or the Court of Chancery’s opinion
in MFW, it is hereby overruled. The whole point of MFW is to give a pathway whereby judicial
review of the economics of a transaction can be avoided if the correct parties (impartial directors
and the minority stockholders themselves) are given the appropriate authority. Footnote 14
confusingly suggests that a due care violation can be premised, not on a court’s view that a special
committee did not lean in and do its work with diligence, but on a court’s after the fact sense that
the committee should have extracted more price concessions. That, of course, is not what due care
review is about, and even more, the point of requiring the majority-of-the-minority condition is to
allow the real parties in interest the say on economics and the chance to say no for themselves.
82
   MFW, 88 A.3d at 644 (“[W]here the controller irrevocably and publicly disables itself from
using its control to dictate the outcome . . . the controlled merger then acquires the shareholder-
protective characteristics of third-party, arm’s-length mergers . . . .”).
83
   Id. at 645 (“[T]he adoption of this rule will be of benefit to minority stockholders because it will
provide a strong incentive for controlling stockholders to accord minority investors the
transactional structure that . . . will provide them the best protection . . . .”) (emphasis omitted).

                                                 23
          carefully evaluate M & F’s offer, the Special Committee held a total of
          eight meetings during the summer of 2011 . . . . In scrutinizing the
          Special Committee’s execution of its broad mandate, the Court of
          Chancery determined there was no “evidence indicating that the
          independent members of the special committee did not meet their duty
          of care . . . .” To the contrary, the Court of Chancery found, the Special
          Committee “met frequently and was presented with a rich body of
          financial information relevant to whether and at what price a going
          private transaction was advisable.” The Court of Chancery ruled that
          “the plaintiffs d[id] not make any attempt to show that the MFW
          Special Committee failed to meet its duty of care . . . .” Based on the
          undisputed record, the Court of Chancery held that, “there is no triable
          issue of fact regarding whether the [S]pecial [C]ommittee fulfilled its
          duty of care.”84

          As can be seen, that paragraph, which is a holding, focuses as it should on due

care and not whether someone might question whether the Special Committee’s

sufficiently diligent efforts resulted in a negotiated price that was fair. The price

question is not one for a court applying the business judgment rule standard, and was

for MFW’s stockholders to vote on themselves.

          Any ambiguity arguably created by the confusing dicta in MFW — suggesting

that challenging price was sufficient to state a duty of care violation — was clarified

by Swomley. In Swomley, the Court of Chancery held that, in the context of a

controlling stockholder transaction that was preconditioned on MFW’s dual

requirements, a plaintiff could not get past a motion to dismiss merely by suggesting

that the Special Committee “could have negotiated [ ] differently” because that is “a

84
     Id. at 651–52.

                                             24
matter of strategy and tactics that’s debatable and isn’t a duty of care violation.” 85

And the Court of Chancery in Swomley held that the “[d]uty of care is measured by

a gross negligence standard,” and “disagree[ing] with the [special] committee’s

strategy” is not a duty of care violation.86

      This Court affirmed that holding, eliminating any ambiguity created by MFW

and confirming that a plaintiff can plead a duty of care violation only by showing

that the Special Committee acted with gross negligence, not by questioning the

sufficiency of the price.

      Here, the Court of Chancery appropriately read MFW as requiring it to

determine, under the high standard of gross negligence, whether the plaintiff had

stated a due care claim. Given the Special Committee’s extensive deliberations,

receipt of extensive advice and information from its financial and legal advisors, and

negotiations with Zhang, the Court of Chancery correctly found “[t]he complaint’s

allegations, considered individually and in the aggregate, do not support an inference

of gross negligence.”87

85
   Swomley, 2014 WL 4470947, at *21, aff’d 128 A.3d 992 (Del. 2015) (TABLE).
86
   Id.
87
   In re Synutra, 2018 WL 705702, at *5–6.

                                           25
                                        IV.

      The Court of Chancery faithfully applied our precedents in holding that the

business judgment rule applied and dismissing the plaintiff’s complaint. Its decision

is hereby affirmed.

                                         26
VALIHURA, Justice, dissenting:

                                   I.    Overview

      I differ with the views of my learned colleagues on the important question of

what the test should be for invoking business judgment protection in controller

buyout transactions. The Majority’s adoption of the “when the negotiations begin”

test invites factual inquiries that defeat the purpose of what should be more of a

bright line and narrower pathway for pleading-stage dismissals in this context.

Instead, I believe this Court did conclude in M&F Worldwide, and should reaffirm

now, that in controller squeeze-out transactions where the controller is on both sides,

the ab initio requirement is satisfied when the Dual Protections are contained in the

controller’s initial formal written proposal. This bright-line makes sense because

the controller dictates when to commence the transactional process so that the outset

is clear. Here, the outset was the January 14 Proposal.

      Ordinarily, transactions involving conflicts of interest are subjected to our

most rigorous form of judicial review: entire fairness. Under such circumstances,

Defendants bear the burden of proving two elements: fair dealing and fair price. This

is a heavy lift. However, this Court has recognized that conflicted transactions may

merit a more deferential type of judicial examination when certain procedural

protections are in place: when such conditions are satisfied, the sale process may be
said to replicate arm’s-length dealing and, thus, the business judgment rule is

appropriate.

          The Court of Chancery outlined these preconditions for business judgment

review of conflicted transactions in In re MFW Shareholders Litigation,1 and this

Court adopted its framework—albeit, with some refinements—in Kahn v. M&F

Worldwide.2 Adopting six prerequisites set forth by the trial court, this Court held

that in controller buyout transactions:

          [T]he business judgment standard of review will be applied if and only
          if: (i) the controller conditions the procession of the transaction[s] on
          the approval of both a Special Committee and a majority of the minority
          stockholders; (ii) the Special Committee is independent; (iii) the
          Special Committee is empowered to freely select its own advisors and
          to say no definitively; (iv) the Special Committee meets its duty of care
          in negotiating a fair price; (v) the vote of the minority is informed; and
          (vi) there is no coercion of the minority.3

          We explained further that “business judgment is the standard of review that

should govern mergers between a controlling stockholder and its corporate

subsidiary, where the merger is conditioned ab initio upon both the approval of an

independent, adequately-empowered Special Committee that fulfills its duty of care;

and the uncoerced, informed vote of a majority of the minority stockholders.”4

1
 67 A.3d 496, 502 (Del. Ch. 2013), aff’d sub nom. Kahn v. M&F Worldwide Corp., 88 A.3d 635
(Del. 2014).
2
    88 A.3d 635 (Del. 2014).
3
    Id. at 645 (emphasis in original).
4
    Id. at 644.

                                              2
          Thus, for the so-called MFW standard to apply: (1) the transaction must be

conditioned ab initio on (2) approval by both (a) “an independent, adequately-

empowered Special Committee that fulfills its duty of care,” and (b) “the uncoerced,

informed vote of a majority of the minority stockholders.”5 For simplicity, I refer to

the six-factor test quoted above as the MFW Framework, and the two conditions—

(a) special committee approval, and (b) stockholder vote approval—as the Dual

Procedural Protections.

          In reviewing the role of a Special Committee, we observed that “the special

committee must ‘function in a manner which indicates that the controlling

stockholder did not dictate the terms of the transaction and that the committee

exercised real bargaining power “at an arms-length.”’”6 This requirement, which

implicates the second, third, and fourth MFW factors, is a qualitative inquiry as to

how the committee actually functioned—not simply a finding that the process

checked certain boxes in the MFW formula.7

5
    Id.
6
    Id. at 646 (quoting Kahn v. Tremont Corp., 694 A.2d 422, 429 (Del. 1997)).
7
  See Gesoff v. IIC Indus., Inc., 902 A.2d 1130, 1148 (Del. Ch. 2006) (“If a parent seeks to satisfy
the high standard of entire fairness by establishing a special committee, its burden to show fair
dealing cannot be satisfied by orchestrating a stylized mockery of arm’s-length negotiation.”
(citing Rabkin v. Olin Corp., 1990 WL 47648, at *6 (Del. Ch. Apr. 17, 1990))).

                                                 3
       As such, M&F Worldwide was careful to warn that defendants would have

difficulties in invoking such protections through a motion to dismiss.8 We observed

that, “[i]f a plaintiff that can plead a reasonably conceivable set of facts showing that

any or all of those enumerated conditions did not exist, that complaint would state a

claim for relief that would entitle the plaintiff to proceed and conduct discovery.”9

       In my view, the plaintiff Arthur Flood (“Plaintiff”) has pled facts making it

reasonably conceivable that at least one of the MFW preconditions was not satisfied.

Plaintiff has sufficiently pled that the controller did not establish the Dual Procedural

Protections as preconditions to a deal up front, ab initio. As to other preconditions,

I agree with the Majority that the Plaintiff presented some refined arguments on

appeal that were, at best, only weakly alluded to below. For example, Plaintiff did

not expressly allege in the Amended Complaint that the Davis Polk conflict and

conflict waiver gave rise to a challenge to the Special Committee’s empowerment to

8
  M&F Worldwide, 88 A.3d at 646 (“As we have previously noted, deciding whether an
independent committee was effective in negotiating a price is a process so fact-intensive and
inextricably intertwined with the merits of an entire fairness review (fair dealing and fair price)
that a pretrial determination of burden shifting is often impossible.” (citing Ams. Mining Corp. v.
Theriault, 51 A.3d 1213 (Del. 2012))).
9
  Id. at 645 (citations omitted); see also id. at 645 n.14 (noting that the complaint in MFW would
have survived a motion to dismiss under this standard and warranted discovery; the case was only
dismissed at summary judgment); In re Martha Stewart Living Omnimedia, Inc. S’holder Litig.,
2017 WL 3568089, at *17 (Del. Ch. Aug. 18, 2017) (“This strict or ‘formalistic’ approach to
pleadings-stage transactional standard of review determinations in In re MFW and M&F
Worldwide was not at all surprising. Because the court was addressing whether the minority
stockholders’ claim should be dismissed before discovery, both this court and the Supreme Court
took pains to provide a detailed road map of the points of protection the controller must visit to
earn business judgment deference on a motion to dismiss.” (citations omitted)).

                                                4
freely select its own advisors, although he did raise the Davis Polk conflict in the

complaint and opening brief below.10 At oral argument before the trial court, the

Davis Polk conflict waiver was raised by Plaintiff—but more in the context of

arguing that “negotiations” had commenced and, therefore, the ab initio requirement

had not been satisfied.

       It was only in response to a question from the trial court at oral argument on

the motion to dismiss that Plaintiff eventually argued that there was an issue with

the Special Committee’s empowerment to freely select its advisors.11 Thereafter, on

appeal, Plaintiff’s counsel argued before this Court that the empowerment issue was

“intertwined” with the ab initio argument, but he conceded that he had not framed

the issue as an “empowerment” issue before the trial court.12 Though I agree that

the “empowerment” issue was not fairly presented below, those intervening events

are intertwined with the ab initio requirement and illustrate how the “negotiations”

test can devolve into the type of fact-intensive inquiry we were trying to avoid.

Accordingly, I believe the motion to dismiss should have been denied based upon

Defendants’ failure to satisfy the ab initio test. For the reasons set forth below, I

respectfully dissent.

10
   Plaintiff’s Combined Br. in Opposition to Defendants’ Motion to Dismiss, at A356, A382.
11
   Oral Argument on Defendants’ Motion to Dismiss, at A510.
12
            Oral        Argument            video        at        17:45;         18:59–19:20,
https://livestream.com/DelawareSupremeCourt/events/8366324/videos/180173490 [hereinafter
Oral Argument].

                                              5
                                        II.    Facts

           I focus my examination of the facts on the three weeks relevant to Plaintiff’s

most salient allegations on appeal, from mid-January 2016 to early February 2016.

           On January 14, 2016, Mr. Zhang and Beams Power sent a letter to the

Company’s directors that included a non-binding proposal to acquire all issued and

outstanding shares of Synutra’s common stock not already beneficially owned by

them for $5.91 per share in cash (the “January 14 Proposal”).13 The letter indicated,

among other things, that they arrived at the $5.91-per-share price because they

believed it represented a “fair and attractive opportunity for the minority

stockholders to exit their investment in the Company.” 14 The letter mentioned that

the prospective buyers still needed to conduct the customary due diligence and that

they had engaged Davis Polk & Wardwell LLP (“Davis Polk”) as their U.S. legal

counsel. According to the letter, Davis Polk was prepared to negotiate and finalize

the definitive transaction documents “promptly.”

           But Davis Polk was also counsel to the Company. Thus, “[t]o avoid any

conflict of interest arising from the role of Davis Polk,”15 the Company’s CFO, Ms.

Ning Cai, began the process of engaging separate U.S. legal counsel for work related

13
   Schedule 14A, Synutra Int’l Inc. (March 9, 2017), at 19 (A151) [hereinafter, “Proxy”]. The
facts are largely drawn from the Proxy and are not challenged on appeal.
14
     Id.
15
     Id. at 20 (A152).

                                              6
to the January 14 Proposal. On January 15, 2016, Ms. Cai reached out to Wilson,

Sonsini, Goodrich & Rosati P.C. (“Wilson Sonsini”) about the possibility of

retaining that firm.

           Meanwhile, Ms. Cai had been conducting diligence on Mr. Yalin Wu as a

potential candidate for independent director of the Company. Mr. Zhang had

referred him to her in early December 2015 after a “personal friend” of Mr. Zhang’s

had recommended Mr. Wu as a potential candidate for an open seat. On January 19,

2016, Ms. Cai nominated Mr. Wu as director.

           Ahead of the Company’s special telephonic board meeting scheduled for

January 21, 2016, Ms. Cai also negotiated and signed a conflicts waiver with Davis

Polk and asked Davis Polk representatives to attend that meeting. According to the

Proxy, the Board requested the participation of Davis Polk despite the firm’s role as

counsel to the Buyer Group because Davis Polk had “frequently advised” the Board,

and the Company had not yet engaged separate U.S. legal counsel.16 The Davis Polk

attorneys advising the Buyer Group were not the same Davis Polk attorneys advising

the Board.

           At the special telephonic meeting held on January 21, 2016, the Board

unanimously voted to appoint Mr. Wu as an independent director, and he then joined

the meeting. According to the Proxy:

16
     Id.

                                          7
           Representatives of Davis Polk advised the directors as to their fiduciary
           duties under Delaware law in considering and evaluating the January
           14 Proposal and further stated that it would be advisable for our board
           of directors to consider forming a special committee solely consisting
           of independent and disinterested directors to ensure that unaffiliated
           stockholders would be adequately protected during the board’s
           evaluation of the January 14 Proposal and any other alternative offers
           involving the Company.17

           The Board followed Davis Polk’s advice as disclosed in the Proxy. Other than

Mr. Zhang, who abstained, the Board unanimously resolved to form a special

committee (the “Committee”) of three independent directors “to consider and attend

to all matters in connection with the January 14 Proposal and any other alternative

proposals, and to ensure that the unaffiliated stockholders would be adequately

protected during the Company’s consideration and evaluation of the proposed

transaction.”18 Ms. Jinrong Chen served as chair, and Mr. Lei Lin and Mr. Wu

rounded out the Committee.

           According to the Proxy, the Board authorized the Committee to retain its own

legal counsel, financial advisor, or other agents related to the transaction

contemplated under the January 14 Proposal. The Board further resolved that the

Committee could pass resolutions by majority vote, and that it would direct the

17
     Id. at 21 (A153).
18
     Id.

                                              8
Company’s officers, advisors, and employees to provide any information and

assistance to the Committee or its advisors.

           Following the meeting, Davis Polk ceased representing the Company in

connection with the January 14 Proposal or any such transaction. However, the firm

continued to represent the Company on different matters through March 5, 2016.

           Between January 21 and February 1, 2016, the members of the Committee—

alongside Synutra CFO Ms. Cai—interviewed four law firms for engagement as the

Committee’s counsel, including Cleary Gottlieb Steen & Hamilton (“Cleary”). At

their first meeting with Cleary, on January 23, a firm representative “introduced

Cleary’s qualifications and experience in mergers and acquisitions transactions.”19

At their second meeting, on January 29, Cleary “further introduced its practice and

expertise, and specifically explained the fiduciary duties of the special committee in

connection with the proposed transaction.”20 The Committee still had not finalized

its engagement of Cleary as counsel.

           That day, January 29, 2016, the Company retained Wilson Sonsini as the

Company’s U.S. legal counsel.

           The next day, January 30, 2016, the Committee received another letter from

Mr. Zhang and Parent (the “January 30 Letter” or “Follow-up Letter”). In it, the

19
     Id.
20
     Id.

                                            9
Buyer Group reaffirmed the terms outlined in its January 14 Proposal and then

included, for the first time,21 the Dual Procedural Protections.

          The Committee convened a telephonic meeting the following day, February

1, 2016. Ms. Cai and Cleary representatives also attended. At the meeting, the

Committee decided to retain Cleary as independent U.S. legal counsel, and Cleary

then advised the members on “the key issues and implications with respect to a

going-private transaction, including the special committee’s evaluation of the

fairness of the proposed transaction to the Company’s unaffiliated stockholders and

the directors’ fiduciary duties under Delaware law.”22 They also discussed the next

steps, including the hiring of an independent financial advisor, and the Committee

instructed Ms. Cai and Cleary to begin reaching out to possible candidates.

          After the meeting, Ms. Cai and Cleary contacted three investment banks to

solicit their interest in serving as financial advisor, and, on February 2, the

Committee interviewed three of them.                 The Committee decided to continue

evaluating two of these banks, including Houlihan Lokey (“Houlihan”), and asked

Cleary to start negotiating engagement letters with them.

21
  The Proxy states that the January 30 Letter “confirmed” the following conditions, see id., but
both parties agree that these conditions were first included in the January 30 Letter, so the use of
“confirm” seems somewhat misleading. Id.
22
     Id. at 22 (A154).

                                                10
          On February 2, 2016, the Committee appointed Ms. Xuan Xie, a member of

management (the Secretary to the Board), as the coordinator of the Committee. Ms.

Xie was privy to the Committee’s deliberations throughout the process.23

          On February 3, the full Board held a meeting, attended by attorneys from

Wilson Sonsini. Mr. Zhang abstained from voting on the Board resolution setting

forth the powers of the Committee.24 The Board resolved not to approve or

recommend the proposed transaction absent a prior, favorable recommendation from

the Committee.

          On February 4, 2016, the Committee retained Houlihan as independent

financial advisor, and the sale process began in earnest.

          Months later, on November 17, 2016, after the merger consideration was

raised to $6.05 per share and Houlihan provided its opinion that the transaction was

fair, from a financial point of view, to the minority stockholders, the Committee

unanimously recommended that the Board approve the transaction.25 The Board

then resolved to approve the merger agreement and to recommend the merger to

23
   Id. The Proxy states that, “[t]he duties and responsibilities of the coordinator of the special
committee mainly included, among others, provision of administrative support to the special
committee (e.g., meeting scheduling, logistics, budget management), internal and external
communication in connection with the proposed transaction, and supervision of the
communications and provision of information by the directors and employees of the Company in
connection with the proposed transaction.” Id.
24
   Id. at 23 (A155).
25
     Id. at 34 (A166).

                                               11
stockholders—whose approval was required for the transaction to close—and the

parties signed the agreement.26

           Following briefing and oral argument, in an order dated February 2, 2018, the

Court of Chancery dismissed all claims. It found the MFW requirements satisfied,

and because Plaintiff did not allege waste, it dismissed the complaint.27

                                      III.    Analysis

           I believe the ab initio requirement was not satisfied here. In M&F Worldwide,

we held that the business judgment rule applies to conflicted transactions “where the

merger is conditioned ab initio upon both the approval of an independent,

adequately-empowered Special Committee that fulfills its duty of care; and the

uncoerced, informed vote of a majority of the minority stockholders.”28 Admittedly,

the term, ab initio—meaning, literally, from the beginning—lacks some precision in

the abstract. But in the context in which that term was used, it meant from the time

of the controller’s first written proposal—as that is exactly what happened in that

case.

           In MFW, the defendants argued that, where the merger is conditioned on the

two procedural protections up front—and defendants show pretrial that those

26
     Id.
27
  In re Synutra Int’l, Inc., 2018 WL 705702, at *6 (Del. Ch. Feb. 2, 2018) (ORDER) [hereinafter
Chancery Order].
28
     M&F Worldwide, 88 A.3d at 644.

                                              12
conditions were in fact satisfied—then the transaction process mimics an arm’s-

length, third-party merger as ordinarily consummated under 8 Del. C. § 251, and

should be reviewed as such.29 The defendants argued that “Special Committee

approval in a going private transaction is a proxy for board approval in a third-party

transaction, and that the approval of the unaffiliated, noncontrolling stockholders

replicates the approval of all the (potentially) adversely affected stockholders.”30 In

the arm’s-length, third-party context, the buyer and target seeking to consummate a

transaction under Section 251 know the requirements from the outset, given the

existence of the statute: approval by both a majority of the board of directors 31 and

a majority of stockholders of each constituent corporation.32 M&F Worldwide

advises that, in order for conflicted transactions to mimic that process, the same

should be true—the Dual Procedural Protections must be in place in the first

proposal so that they may not be used as bargaining chips in the negotiations.33

29
   Id. at 639–40 (“Defendants submit that a Special Committee approval in a going private
transaction is a proxy for board approval in a third-party transaction, and that the approval of the
unaffiliated, noncontrolling stockholders replicates the approval of all the (potentially) adversely
affected stockholders.”).
30
  Id. at 640; see also In re Cox Commc’ns, Inc. S’holders Litig., 879 A.2d 604, 618–19 (Del. Ch.
2005) (likening independent special committee approval and majority-of-the-minority approval to
the “independent integrity-enforcing functions” of board approval and stockholder approval in an
arm’s-length transaction, respectively).
31
     8 Del. C. § 251(b).
32
     Id. § 251(c).
33
  M&F Worldwide, 88 A.3d at 639 (noting that, when such conditions are satisfied, “the
negotiation and approval process” are said to “replicate those that characterize a third-party
merger”).

                                                13
         The Court of Chancery explained the rationale in MFW as follows:

         When these two protections are established up-front, a potent tool to
         extract good value for the minority is established. From inception, the
         controlling stockholder knows that it cannot bypass the special
         committee’s ability to say no. And, the controlling stockholder knows
         it cannot dangle a majority-of-the-minority vote before the special
         committee late in the process as a deal-closer rather than having to
         make a price move. From inception, the controller has had to accept
         that any deal agreed to by the special committee will also have to be
         supported by a majority of the minority stockholders.34

         The language used by both the Court of Chancery and this Court in M&F

Worldwide is somewhat imprecise if taken out of that context. The Court of

Chancery’s opinion in MFW held that those the protections had to be in place “from

the time of the controller’s first overture.”35 However, on appeal, this Court used

slightly different language in affirming and held that the Dual Procedural Protections

had to be in place ab initio. We did quote with approval language from the trial

court requiring those protections to be “established up-front” and “from inception.”36

34
  MFW, 67 A.3d at 528; see also In re Sauer-Danfoss, Inc. S’holder Litig., C.A. No. 8396-VCL
(Del. Ch. Oct. 23, 2013) (TRANSCRIPT), at 77; id. at 80 (“[T]he controller has to step back in a
matter analogous to a third-party transaction at both the board and stockholder levels, and they
have to do so at the outset.”).
35
   MFW, 67 A.3d at 502 (emphasis added); see also Sauer-Danfoss, C.A. No. 8396-VCL, at 75
(“What MFW says, and which Cox Communications said before that, is that these have to be set
up at the outset. So in the words of MFW, those conditions have to apply ‘from the time of the
controller’s first overture.’”). But see id. at 78 (“[P]erhaps it’s an overstatement, to the extent from
the time of the controller’s first overture suggests, that it actually has to be in the very first letter.
Perhaps that might be a little bit of an overstatement, but they have to be out there from the
beginning.”).
36
     M&F Worldwide, 88 A.3d at 644 (quoting MFW, 67 A.3d at 528).

                                                   14
       Although “first overture,” “up front,” and “from inception,” as well as “ab

initio,” could also include anything on a continuum from first utterances to nascent

stage discussions, we were addressing a situation where the Dual Protections were

contained in the controller’s first written merger proposal. We quoted the relevant

portions of the controller’s written proposal that contained the Dual Protections and

then observed:

            “We hold that business judgment is the standard of review that
             should govern mergers between a controlling stockholder and its
             corporate subsidiary, where the merger is conditioned ab initio
             upon both the approval of an independent adequately empowered
             Special Committee that fulfills its duty of care; and the
             uncoerced, informed vote of a majority of minority
             stockholders.”37

            “To reiterate, in this case, the controlling stockholder
             conditioned its offer upon the MFW Board agreeing ab initio, to
             both procedural protections . . . .38

Thus, consistent with this rationale, “ab initio” means from the controller/buyer’s

first written proposal, because in M&F Worldwide, the buyer stated in its initial letter

proposal to the MFW board that it was conditioning its offer on satisfaction of the

Dual Procedural Protections.39

37
   Id. (emphasis added).
38
   Id. at 646 (emphasis added).
39
   Id. at 640.

                                          15
          In the early post-M&F Worldwide case of In re Books-A-Million, Inc.

Stockholders Litigation,40 the controller group followed the M&F Worldwide

playbook and “conditioned any transaction, from the outset, on approval by both a

special committee of independent directors and a non-waivable vote of disinterested

stockholders,” by imposing those requirements in his first letter proposal.41 In

finding that the ab initio requirement was satisfied, the Court of Chancery observed

that “[t]he Complaint does not allege that the Anderson Family delayed establishing

the conditions, waivered from them, or sought to circumvent them.”42

          In Swomley v. Schlecht,43 this Court confronted an attempt to push the

possibility of satisfying the ab initio requirement just slightly beyond the first offer.

We summarily affirmed the Court of Chancery’s ruling that the ab initio requirement

was satisfied even though the initial letter proposal “hedged on whether the majority-

of-the-minority condition would be waivable or not.”44 The Court of Chancery

40
     2016 WL 5874974 (Del. Ch. Oct. 10, 2016), aff’d, 164 A.3d 56 (Del. 2017).
41
  Id. at *8 (also noting that the letter’s “operative text” was “substantively identical to what was
held to be sufficient in M & F Worldwide”).
42
   Id. In In re Cox Communications, Inc. Shareholders Litigation—a precursor case to MFW—
the Court of Chancery awarded burden-shifting even though the Dual Procedural Protections were
not in place at the first board meeting at which directors heard the controller’s plans to submit a
takeover proposal because the controller submitted its proposal by letter immediately following
that meeting—i.e., that same day—and included the requirement of special committee approval.
Cox, 879 A.2d at 607; see also In re Martha Stewart, 2017 WL 3568089, at *18 (whether the
controller is on both sides, the MFW conditions can be included in the initial offer).
43
  C.A. No. 9355-VCL (Aug. 27, 2014) (TRANSCRIPT), aff’d, 128 A.3d 992, 2015 WL 7302260
(Del. 2015) (TABLE).
44
     Id. at 70.

                                                16
found that the Dual Procedural Protections were in place ab initio because, “from

the first meeting” at which the board considered the transaction—held the same day

the control group had proposed the transaction—the board resolved that any deal

would require both the approval of a special committee and a majority-of-the-

minority vote, and the controller was part of the Board that passed those

resolutions.45 In his transcript ruling, the Vice Chancellor observed that the plaintiff

had failed to call into question the defendants’ satisfaction of the ab initio

requirement because “[a]ll this went down before any negotiations took place, even

before anything really started.”46

           In this case, the Court of Chancery relied on Swomley in moving the ab initio

needle from “up front” and “from inception” of the first offer to holding that “a

process meets the ab initio requirement when the controller announces the

conditions ‘before any negotiations took place.’”47 The court reasoned that “[u]sing

this point in time fulfills the goals of disabling the controller for purposes of the

negotiations and ensuring that the controller ‘cannot dangle a majority-of-the-

minority vote before the special committee late in the process as a deal-closer rather

than having to make a price move.’”48

45
     Id.
46
     Id. at 71.
47
     Chancery Order, 2018 WL 705702, at *2 (quoting Swomley, C.A. No. 9355-VCL, at 71).
48
     Id. (quoting M&F Worldwide, 88 A.3d at 644).

                                              17
       Perhaps in summarily affirming the transcript ruling in Swomley, we muddied

the waters when we approved the trial court’s language suggesting that the start of

“negotiations” (rather than the submission of the first proposal) is the test for

determining whether the ab initio requirement is satisfied.                  But, as in M&F

Worldwide, we held that the Dual Procedural Protections must be in place when the

controller submits a written offer so that the Dual Procedural Protections cannot be

“dangled” at a point “late in the process as a deal-closer rather than having to make

a price move.”49 This makes sense in situations where the controller is on both sides,

as the controller decides when to begin the negotiations and on what terms. In cases

like this, the outset is clear. In any event, I do not believe our summary affirmance

should be read as a deliberate intention on our part to expand the ab initio

requirement into a sliding scale factual inquiry involving an analysis of when serious

bargaining began following submission of an initial written proposal.50

       In contrast to the bright-line we tried to draw in M&F Worldwide, here, the

Dual Procedural Protections were indisputably absent from the January 14 Proposal.

They were still absent a week after the Board received the proposal and held its first

meeting on January 21. More than two weeks passed before the Dual Procedural

Protections were included in the controller’s January 30 Offer.

49
  MFW, 67 A.3d at 528.
50
  Even Defendants conceded the factual nature of this inquiry. See Ans. Br. at 20 (“When
negotiations actually begin must be determined based on the specific facts of the case at hand.”).

                                               18
           Meanwhile, several important “things” occurred before the imposition of the

Dual Procedural Protections. These “things” have led us down a path of a messy

pleadings stage fact-intensive inquiry. Among other things, the Company’s CFO

(Ms. Cai) unilaterally waived Davis Polk’s conflict and Davis Polk represented both

the Buyer Group and the Board at the intervening January 21 Board meeting, and

Ms. Cai continued to play a role in the Committee’s selection of both legal and

financial advisors, and in other aspects of the Committee process—as did Ms. Xie

following the January 30 Offer.

           As noted above, it was the trial court, during oral argument on the motion to

dismiss, that raised the Committee empowerment issue by citing the case, In re

Emerging Communications, Inc. Shareholders Litigation.51 In that case, the Court

of Chancery viewed a controller’s retention of the target company’s longtime outside

counsel and financial advisors—the same advisors whom the target had used in an

earlier, failed acquisition bid, and who had been the company’s counselors for its

“entire existence”—as negatively impacting the transaction’s overall fairness.52 The

court considered it “unfair” because those advisors “possessed material nonpublic

51
     2004 WL 1305745, at *32 (Del. Ch. May 3, 2004).
52
     Id.

                                              19
information about [the company’s] values, business and prospects” and “were in the

best position to represent the interests of the [company’s] minority.” 53

       Treatises and Delaware court opinions alike have long emphasized that “no

role is more critical with respect to protection of shareholder interests in these

matters than that of the expert lawyers who guide sometimes inexperienced directors

through the process . . . .”54 After all, “professional advisors have the ability to

influence directors who are anxious to make the right decision but who are often in

terra [in]cognit[a].”55 As one treatise cautions, not everyone has heeded the value

of independence, and “[e]xamples abound of situations where advisors were

‘preselected’ by someone other than the [special committee]—either management

53
  Id. See also Michael D. Allen, Srinivas M. Raju & Gregory V. Varallo, Special Committees
Law & Practice, § 3.06[4] (1st ed. 2011) (available via Lexis) (“[N]otwithstanding the critical
importance of counsel being independent and free from conflict, there are also situations in which
some background with the company will make counsel more, rather than less, valuable to the
committee.”).
54
   See Allen, supra note 53, at § 3.06[1] (available via Lexis) (“The retention of competent and
skilled advisors may be the decision by the committee that is most critical to the success of the
committee’s work.”); Andrew M. Johnston & S. Mark Hurd, Special Committees of Independent
Directors, 79 C.P.S. (BNA), at A-19 (“The selection by the [special committee] of competent, able
advisors is of critical importance to the proper discharge of the [special committee’s]
responsibilities.”). See also In re Fort Howard Corp. S’holders Litig., 1988 WL 83147, at
*720 (Del. Ch. Aug. 8, 1988) (“It is obvious that no role is more critical with respect to protection
of shareholder interests in these matters than that of the expert lawyers who guide sometimes
inexperienced directors through the process.”).
55
   Tremont, 694 A.2d at 429; Allen, supra note 53, at § 3.06[1] (“[N]o matter how straightforward
the task of a committee may seem, [the special committee’s] assignment will soon descend into
terra incognita and having a skilled guide along the way is likely to mean the difference between
a special committee that helps the corporation (in terms of shifting burdens or otherwise) and one
that does not.”).

                                                20
or the interested party—which, in turn, compromised the work of the [special

committee].”56

          It was only on appeal that Plaintiff squarely contended that they were entitled

to a pleading-stage inference that the Buyer Group sought to influence the

Committee’s work at its nascent stages, before it had its own counsel to protect it.

And only on appeal did Plaintiff focus more specifically on Defendants’ various

departures from certain “best practices” that potentially impact the functioning of

the Committee.

          For example, Plaintiff, on appeal, emphasized the fact that the Committee

allowed the Company’s CFO to continue to participate in the workings of the

Committee, including the selection of its ostensibly independent advisors. Although

back and forth bargaining on deal terms may not have commenced at that point, the

Committee’s selection of counsel can set the tone and significantly impact the

quality of the Committee’s work.57 We recognized this in Kahn v. Tremont Corp.,58

where we questioned the independence of a special committee that “promptly”

selected a legal advisor recommended by the company’s general counsel. We

56
     Johnston, supra note 54, at A-19.
57
  See Kahn v. Dairy Mart Convenience Stores, Inc., 1996 WL 159628, at *8 n.6 (Del. Ch. Mar.
29, 1996) (“Another critical factor in assessing the reliability and independence of the process
employed by a special committee, is the committee's financial and legal advisors and how they
were selected.”).
58
     694 A.2d 422, 429 (Del. 1997).

                                              21
observed that “the circumstances surrounding the retaining of the Special

Committee’s advisors, as well as the advice given, cast serious doubt on the

effectiveness of the Special Committee.”59 Plaintiff attempted to draw a parallel

here with Ms. Cai’s involvement in selection of the Committee’s financial advisor,

and with Ms. Xie’s role as the Committee’s coordinator with the Board.

         On appeal, Plaintiff sharpened his focus on the Davis Polk conflict, and cites

it as further evidence that the Board continued to stray from best practices. Instead

of empowering a special committee with its own independent counsel, the Board, on

January 21, received advice on their fiduciary duties and on setting up a special

committee from the same law firm advising the Buyer Group, and in the presence of

a key member of the controlling Buyer Group, Mr. Zhang, who was attending that

meeting as a director and who did not recuse himself.

         As to the conflict waiver, the Court of Chancery observed that “[t]he only

arguably substantive event that happened before the Follow-up Letter was that the

Company authorized Davis Polk to represent the Buyer Group by waiving any

conflict that Davis Polk might have.”60 The Court of Chancery recognized that “[i]t

59
   Id.; see also Dairy Mart, 1996 WL 159628, at *2, *8 n.6 (criticizing process where special
committee chose law firm recommended by a former board member and current partner at law
firm that was recommending the company). At oral argument before this Court, Plaintiff also
criticized the Committee’s involvement of Ms. Xie in their deliberative process. Video at 20:31;
see also Proxy, at 22 (A154).
60
     Chancery Order, 2018 WL 705702, at *2.

                                              22
would have been preferable, both optically and substantively, for the Buyer Group

to retain its own counsel.”61 As it further explained, “[t]hat scenario would have

given the Special Committee the choice of hiring its own independent counsel or

using Davis Polk, if it preferred to take advantage of Davis Polk’s knowledge and

expertise after considering the firm’s potential ties to the Buyer Group.”62 But the

trial court concluded, after having denied Plaintiff’s motion for expedited discovery,

that “[t]he granting of the conflict waiver to Davis Polk did not transform the Follow-

up Letter from a pre-negotiation self-disablement into a mid-stream trade-off.”63

       When these intervening events are viewed in the aggregate, Plaintiff

convincingly says, albeit in mud-splatter fashion, that they were entitled to pleading-

stage inferences that there was “too much interaction, intermingling, and

overlapping between the Buyer Group and the Board”64 to conclude, as a matter of

law, that the ab initio requirement was satisfied.65 The authorities cited above

61
   Id.
62
   Id.
63
   Id. at *3. The trial court denied Plaintiff’s motion for expedited discovery, concluding that
“[t]he controlling stockholder transaction in this case facially followed the MFW framework,” and
that “[t]he plaintiff has not advanced meaningful challenges to that framework.” Transcript of
Teleconference re: Plaintiff’s Motion to Expedite and the Court’s Ruling at 18, 20–21 (Feb. 3,
2017) (“But this is a situation where, when I balance things out, you have the MFW structure in
place; you don’t have a meaningful challenge at this stage to the MFW structure; and given all that,
it does not seem to me to be a situation that warrants cranking up the machinery of expedited
proceedings.”).
64
   Plaintiff’s Corrected Reply Br. at 9.
65
   In assessing the circumstances of this case, I am reminded of Chancellor Allen’s observation in
In re Fort Howard Corp., 1988 WL 83147, at *12, that:
       [O]ne’s view concerning bona fides, will, in settings such as this, almost always
       rest upon inferences that can be drawn from decisions made or courses of actions

                                                23
suggest to me that even if not part of back-and-forth bargaining on price terms, the

Davis Polk conflict, the conflict waiver, and management’s involvement in the

selection of the Committee’s advisors during those intervening weeks are

substantive events of the type that can impact the functioning and quality of the

Committee’s work. The bright-line rule we articulated in M&F Worldwide would

deem the ab initio requirement to be satisfied upon including the Dual Protections

in the controller’s first written offer (here, the January 14 Proposal) and would avoid

the factual morass we find ourselves in when intervening events begin to bleed into

Committee empowerment and other issues potentially impacting the functioning of

the Committee process.66 Thus, whether these events described in the Proxy were

the focus of laser-like attention below is not the main point. Rather, they serve to

illustrate why it is sensible to conclude that the Dual Procedural Protections should

have been included in the January 14 Proposal and why the bright-line rule set forth

in M&F Worldwide is preferable.

       pursued by the board (or a Special Committee). Rarely will direct evidence of bad
       faith-admissions or evidence of conspiracy-be available. Moreover, due regard for
       the protective nature of the stockholders’ class action, requires the court, in these
       cases, to be suspicious, to exercise such powers as it may possess to look
       imaginatively beneath the surface of events, which, in most instances, will itself be
       well-crafted and unobjectionable. Here, there are aspects that supply a suspicious
       mind with fuel to feed its flame.
66
  Of course, any test this Court could set forth could be subject to gamesmanship. For example,
parties could verbally agree, after a series of discussions, to all material terms and then submit a
written proposal embodying “the deal.” The trial court would have to retain the ability to address
well-pled allegations of deliberate circumvention of the MFW Framework.

                                                24
       In sum, adhering to a bright-line requirement that the MFW Framework be

precisely implemented is appropriate in the context of controller squeeze-out

transactions where the outset of the process is within the control of the controller.

The controller’s ability to control the outset justifies insistence on the formalistic

requirement of precisely implementing the MFW Framework. M&F Worldwide’s

strict and detailed roadmap is particularly appropriate where the courts must address

whether the minority stockholders claims should be dismissed before discovery, and

in ascertaining which standard of review should apply—as opposed to other contexts

where we have eschewed rigid “blueprints.”67 Finally, I am unsympathetic to

Defendants’ argument that sticking to a bright line rule would potentially punish

innocent failures to include the conditions in the controller’s first written proposal

and thereby disadvantage minority stockholders.                   The MFW Framework was

intended to be a clear roadmap in controller buyouts and corporate counsel who

routinely practice in the area are familiar with it.68

67
   See, e.g., McMillan v. Intercargo Corp., 768 A.2d 492, 502 (Del. Ch. 2000) (Strine, V.C.)
(stating that the Revlon obligation is a “contextually-specific application of the directors’ duty to
act in accordance with their fiduciary obligations, and there is no single blueprint that a board must
follow” (internal quotations omitted)).
68
   After all, we are not talking here about when the autumn leaves turn color, World War II, reading
novels, or soccer. See Majority Op. at 12–13.

                                                 25