In re Cornerstone Therapeutics S'holder Litig.

Supreme Court of Delaware · 2015 · Corporations

115 A.3d 1173 (Del. 2015)

Updated August 22, 2026

CorporationsDelawarefiduciary dutydirectorsindependent directorsexculpatory charter provision102(b)(7)entire fairness

Facts

Both cases involved going-private mergers in which a controlling stockholder acquired the public minority shares of a Delaware corporation. In each case, the merger was negotiated by a special committee of independent directors, approved by a majority of the minority stockholders, and the corporation had a Section 102(b)(7) charter provision exculpating directors from monetary liability for duty of care breaches. The parties agreed that the M & F Worldwide safe harbor had not been followed, so entire fairness presumptively applied. Plaintiffs nevertheless sought damages not only from the controller and affiliated directors, but also from the independent directors, and those independent directors moved to dismiss on the ground that no non-exculpated claim had been pled against them.

Issue

In a damages action challenging an interested transaction presumptively subject to entire fairness review, must a plaintiff plead a non-exculpated claim against disinterested, independent directors who are protected by a Section 102(b)(7) exculpatory charter provision in order to survive those directors' motion to dismiss? Or does the mere applicability of entire fairness automatically require those directors to remain in the case?

Rule

A plaintiff seeking only monetary damages must plead a non-exculpated claim against each director protected by an exculpatory charter provision to survive that director's motion to dismiss, regardless of the underlying standard of review for the transaction, including entire fairness. A plaintiff may do so by pleading facts supporting a rational inference that the director harbored self-interest adverse to stockholders, acted to advance the self-interest of an interested party from whom the director could not be presumed independent, or acted in bad faith.

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

Lakeshore BioSystems, a Delaware corporation based in Chicago, has a charter provision eliminating directors' monetary liability for duty-of-care breaches. Its controlling stockholder proposes a cash-out merger, and stockholders sue only for damages, alleging the special committee's independent directors approved an unfair price but pleading no facts suggesting any of those directors were self-interested, lacked independence, or acted in bad faith.

If the independent directors move to dismiss, how should the court rule?

Explanation. When plaintiffs seek only monetary damages and the corporation has a Section 102(b)(7) provision, they must plead a non-exculpated claim against each director who seeks dismissal. The mere applicability of entire fairness to the transaction does not keep independent directors in the case absent well-pled loyalty or bad-faith allegations. (Derived from In re Cornerstone Therapeutics S'holder Litig. (2015).)