Valeant Pharmaceutical International v. Jerney

Delaware Court of Chancery · 2007 · Corporations

921 A.2d 732 (2007)

Updated August 22, 2026

Corporationsentire fairnessfair dealingfair priceself-compensationduty of loyaltyinterested directorscompensation committee

Facts

ICN's board unanimously approved a cash bonus pool of $50 million, later paid as $47.8 million, in connection with the Ribapharm IPO and planned spin-off, and Jerney voted for the plan and received a $3 million bonus. The process was dominated by Panic, who stood to receive the largest payment, and the compensation committee members were themselves interested because they would receive bonuses and at least two had circumstances calling their independence into question. Towers Perrin's work addressed an earlier options proposal, was based on inflated valuation assumptions, and did not fairly support the later cash payments. After the IPO was repriced from the expected $13-$15 range to $10 per share, the board did not reconsider the amount of the bonuses despite advice that it should do so.

Issue

Whether Jerney, an interested director who voted for and accepted a large cash bonus, proved that the compensation decision was entirely fair to the corporation. Also, whether Jerney could avoid liability by invoking reliance on expert advice under 8 Del. C. § 141(e), and what remedy followed if the bonuses were unfair.

Rule

When directors or officers approve self-interested compensation without approval by an independent committee, the transaction is subject to entire fairness review and the interested fiduciary bears the burden of proving both fair dealing and fair price. Entire fairness examines all aspects of the transaction, including how it was initiated, structured, negotiated, and approved, as well as its economic terms; reliance on expert advice may be a pertinent factor but does not provide a dispositive defense in an entire fairness case, especially for an interested fiduciary. If the self-dealing compensation transaction is not entirely fair, the recipient may be required to disgorge the full amount received, and may also be liable for additional damages caused by the breach of loyalty.

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

North Harbor Devices, Inc., a Delaware corporation based in Seattle, approved a $24 million cash bonus pool for its senior officers after a major asset sale. Three directors who voted for the plan were also recipients, and the compensation committee that recommended the plan included two directors who would receive bonuses themselves. No disinterested stockholder vote occurred.

If a derivative suit challenges the bonuses, which standard and burden most likely apply to the officer-directors who approved and accepted the payments?

Explanation. When directors or officers approve self-interested compensation without approval by an independent committee or other cleansing protection, the transaction is reviewed for entire fairness. The interested fiduciary bears the burden of proving both fair dealing and fair price. The majority opinion emphasized that self-compensation decisions lie outside presumptive business-judgment protection when properly challenged.