Monday, December 14, 2015

‘Hotly Contested’ Entire-Fairness Decision Upheld

By Anne Sherry, J.D.

The Delaware Supreme Court affirmed a Chancery Court holding that a recapitalization was not entirely fair even though the price achieved was fair. Without adding to the discussion, the high court concluded that the trial court made no error of law or unsupported determination of fact and did not abuse its discretion (Fuchs v. Wren Holdings, LLC, December 11, 2015, Strine, L.).

The Chancery Court had found credible evidence that the plaintiffs’ stock had zero value. Therefore, regardless of the dilutive effect on the plaintiffs’ holdings, the recapitalization was approved at a fair price. Nevertheless, the court held that the transaction was not entirely fair due to a flawed recapitalization process: “A grossly unfair process can render an otherwise fair price, even when a company’s common stock has no value, not entirely fair.” Given that the price was fair, the court declined to award damages, even though the plaintiffs prevailed on their fiduciary duty and aiding-and-abetting claims.

Noting that the trial court “had to apply a challenging body of law in a hotly contested matter,” the Supreme Court upheld its determinations of law and fact and its exercise of remedial discretion.

The case is No. 281, 2015.

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