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In re Mindbody, Inc. Stockholders Litigation: Delaware Court of Chancery Rules “Paradigmatic Revlon Claim” Not Cleansed by Corwin Doctrine

March 23, 2021 (3 min read)

In an all-new Special Commentary to the 2021 Spring edition of CSC’s Delaware Laws Governing Business Annotated, attorneys Christopher Kelly and Daniel Rusk of Potter Anderson and Corroon LLP explore the far-reaching ramifications of the Delaware Court of Chancery’s Chancery’s In re Mindbody, Inc. Stockholders Litigation decision in Fall 2020:

In Corwin v. KKR Financial Holdings LLC, decided in October 2015, the Delaware Supreme Court held that “the business judgment rule is invoked as the appropriate standard of review for a post-closing damages action when a merger that is not subject to the entire fairness standard of review has been approved by a fully informed, uncoerced majority of the disinterested stockholders.”   Subsequent decisions by the Supreme Court and Court of Chancery have made clear that “Corwin cleansing” can be a powerful pleading-stage argument for defendants faced with post-closing stockholder litigation challenging a merger not involving a conflicted controlling stockholder, because “[w]hen the business judgment rule standard of review is invoked because of a vote, dismissal is typically the result.”    

Five years to the day after the Supreme Court issued its decision in Corwin, the Court of Chancery issued a decision in In re Mindbody, Inc. Stockholders Litigation, finding that Corwin cleansing did not apply to a stockholder challenge of a private equity buyout and largely denying the defendants’ motions to dismiss. As illustrated in the Mindbody decision, the efficacy of a Corwin-cleansing argument can be diminished where a complaint pleads a “paradigmatic claim” under Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. of undisclosed, unmanaged conflicts of interest on the part of a CEO who allegedly tilts the target’s sale process toward a favored bidder for personal gain rather than seek to maximize stockholder value—in such circumstances, disclosure deficiencies relating to the purportedly flawed process may well arise precluding a Court from finding that a stockholder vote was fully informed.  

The authors’ note in their detailed analysis that Mindbody “offers key practice pointers” regarding the role a board should play in the sale process, potential conflicts of interest, and appointing a director designee of a large stockholder to a transaction committee.

Spring 2021

In addition to the all-new commentary, the Spring 2021 Edition of Delaware Laws Governing Business Entities includes updates through Chapter 292 of the 150th Delaware General Assembly, as well as updates to the Rules of the Court of Chancery through February 5, 2021. Blackline Amendment Notes indicate clearly how legislation has changed.

There are more than 100 new case notes from Delaware state courts and from courts in other jurisdictions applying Delaware business entity law, as well as five new full text cases focusing on the latest legal developments concerning control groups, inspection of records, special litigation committees, and breach of fiduciary duty. A Table of New Annotations lists added cases, and gray bars in the body of the book indicate where they have been inserted.

In-depth legal analyses explore the impact of the legislation coming out of the 2020 Session, including changes to provisions dealing with electronic signatures and delivery of documents, registered agent resignations, and appraisal rights.

A comprehensive resource

CSCPublishing releases Delaware Laws Governing Business Entities—its flagship publication—twice a year to ensure that practitioners are working with the most up-to-date statutory information and have access to the very latest case law. Unique features such as the legislative analysis and special commentary in this Spring edition provide additional resources and valuable insight for legal professionals working with Delaware entities.

A comprehensive fee table provides up-to-date information for calculating annual franchise taxes and other related entity fees, while Volume 2 contains the helpful “Guidelines for Persons Litigating in the Court of Chancery.”

The book includes online access to more than 150 forms for incorporation/formation, qualification, mergers, dissolution, and name reservation for all business entity types in Delaware via the LexisNexis Online Download Center. A listing of the forms and contact information for Delaware’s Division of Corporations can be found in the book’s appendix.

The Spring 2021 Edition of Delaware Laws Governing Business Entities is available as a two-volume softbound book or as an ebook, compatible with dedicated e-reader devices, computers, tablets and smartphones that use e-reader software or applications. It is also available on the LexisNexis Digital Library.