In a recent judgement, Delaware’s esteemed Chancery Court ruled that claims for injunctive relief under the Unocal standard are not subject to the Corwin cleansing principle. This important legal development came to light during In re Edgio, Inc. Stockholder Litigation.
For those not familiar with these legal concepts, under Corwin, a fully informed, uncoerced vote of the disinterested stockholders can reorient the standard of judicial review for some transactions. The review changes from a state of heightened scrutiny to one that follows the business judgment rule. However, there are limits to what Corwin cleansing can touch, and the recent case has clarified this perception further.
In the Edgio case, the Delaware Chancery clearly declared that certain transactions exist that Corwin cannot cleanse. These transactions include those where equity holders seek injunctive relief under the Unocal standard. It is important to mention here that the Unocal standard, named after Unocal Corp. v. Mesa Petroleum Co, is a test used by courts to evaluate the defensive actions of directors in response to takeover bids.
The most recent decision will have significant implications for corporate legal practitioners, especially those involved in managing and guiding transactional litigation. Legal professionals should be aware of the limits to Corwin cleansing, keeping in mind that even the disinterested, uncoerced votes of stockholders cannot sway the judicial standard of review for all types of transactions.
This latest development underscores the importance of staying updated and fully informed about the continually evolving nuances of corporate law, ensuring the most effective support and guidance for clients navigating complex transactions in today’s global business environment.