In re Cornerstone Therapeutics Inc. Stockholder Litigation

Court of Chancery of the State of Delaware · 2014 · Corporations

Reporter Citation Pending

Updated August 1, 2026

Corporationsexculpationmotion to dismisscontrolling stockholderentire fairnessspecial committeedisinterested directorsSection 102(b)(7)

Facts

Chiesi, Cornerstone’s controlling stockholder, proposed to acquire the remaining shares it did not own at $6.40 to $6.70 per share, and the offer was not initially conditioned on a majority-of-the-minority vote. Cornerstone’s board formed a special committee of facially disinterested directors to negotiate, and after months of negotiations the parties agreed to a merger at $9.50 per share; the final merger agreement did include a majority-of-the-minority approval condition. Plaintiffs alleged the merger was not entirely fair and that the special committee and approving disinterested directors facilitated the transaction despite pressure from Chiesi, including a reminder that Chiesi could remove non-Chiesi directors and management and an alleged explicit threat of removal. Plaintiffs also asserted that Cornerstone aided and abetted the directors’ breaches.

Issue

When a controlling stockholder transaction is subject ab initio to entire fairness review, may facially disinterested directors protected by an exculpatory charter provision be dismissed at the pleading stage unless plaintiffs plead a specific non-exculpated breach by each director? Also, can the corporation itself be liable for aiding and abetting breaches by its own fiduciaries?

Rule

Where a controller stands on both sides of a transaction and the complaint adequately pleads that the transaction was not entirely fair, the transaction is subject to entire fairness review ab initio. Under Emerald Partners II, when entire fairness is the governing standard, the exculpatory effect of a Section 102(b)(7) provision becomes a proper focus only after the basis for the directors’ liability has been decided on a developed record; thus, disinterested directors who negotiated or facilitated the challenged transaction cannot be dismissed at the pleading stage on exculpation grounds alone. A corporation cannot aid and abet breaches by the fiduciaries who serve it.

🔒

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.

Blue Mesa Medical, Inc., a Delaware corporation based in Denver, has a charter provision exculpating directors from monetary liability for duty-of-care breaches. Its 62% stockholder, Alder Bioventures LLC, proposes a freeze-out merger that is not conditioned at the outset on both special-committee approval and a nonwaivable majority-of-the-minority vote. Stockholders sue, alleging specific facts supporting unfair price and process, and alleging that three facially disinterested special-committee directors negotiated the deal.

On the disinterested directors' motion to dismiss, what is the strongest answer?

Explanation. The majority opinion holds that where a controller stands on both sides, the transaction is subject to entire fairness review ab initio if unfairness is adequately pleaded. In that setting, under Emerald Partners II as applied by the court, the exculpatory effect of Section 102(b)(7) becomes a proper focus only after liability is determined on a developed factual record. Thus, disinterested directors alleged to have negotiated or facilitated the transaction cannot be dismissed at the pleading stage on exculpation grounds alone. (Derived from In re Cornerstone Therapeutics Inc. Stockholder Litigation (n.d.).)