Background
Liberty Media Corporation was the controlling stockholder of SiriusXM Holdings Inc. Stockholder plaintiffs challenged a series of transactions through which Sirius became an independent company with no controlling stockholder and Liberty’s tracking stock—which had traded at a discount to the value of its underlying Sirius assets—was eliminated. Plaintiffs alleged that eliminating the tracking stock discount created a multi-billion-dollar benefit exclusively for Liberty at the expense of ordinary Sirius stockholders.
Various defendants moved to dismiss. The Court of Chancery granted the motion as to a two-person special committee that had negotiated and recommended the transactions (the “Committee Defendants”), but denied dismissal for the remaining non-committee board members (the “Non-Committee Defendants”). The Non-Committee Defendants had conceded, for purposes of the motion, that they lacked independence from Liberty and that they voted in favor of the challenged transactions.
The Non-Committee Defendants sought certification of an interlocutory appeal, arguing that a director’s mere vote in favor of a transaction is insufficient to satisfy the “action element” of In re Cornerstone Therapeutics Inc., Stockholder Litigation, 115 A.3d 1173 (Del. 2015), which requires plaintiffs to plead a non-exculpated claim to survive a motion to dismiss by a director protected by an exculpatory charter provision. The Court of Chancery declined to certify the appeal, and the Non-Committee Defendants applied directly to the Delaware Supreme Court.
The Court’s Holding
The Delaware Supreme Court refused the interlocutory appeal in the exercise of its discretion under Supreme Court Rule 42. Giving great weight to the trial court’s view, the Court agreed that exceptional circumstances warranting immediate review were absent and that the potential benefits of interlocutory review did not outweigh the inefficiency, disruption, and probable costs such an appeal would impose.
Central to the Court’s reasoning was the practical reality that the claims against Liberty and the Liberty Defendants will proceed regardless of the appeal’s outcome, meaning the Non-Committee Defendants would remain involved in discovery either way. Because the litigation would continue with all defendants in any event, the Court found that interlocutory review would not meaningfully conserve resources or serve the interests of justice under Rule 42(b)(iii)(H).
Key Takeaways
- Under Cornerstone, a director’s vote in favor of a conflicted transaction, combined with a pleaded lack of independence from the interested party, is sufficient at the pleading stage to allege the “action element” of a non-exculpated fiduciary duty claim — at least according to the Court of Chancery ruling left undisturbed here.
- The Delaware Supreme Court refused interlocutory review despite acknowledging some divergence among trial court decisions on what must be pled to satisfy Cornerstone‘s action element, because the litigation’s continued progression made immediate appellate resolution unlikely to save time or expense.
- Defendants who concede a lack of independence at the pleading stage face significant risk of surviving dismissal if they voted to approve the challenged transaction, even absent additional allegations of specific self-dealing conduct.
- The Court’s refusal leaves unresolved the noted split among Court of Chancery decisions on Cornerstone‘s action element, meaning the question may return to the Supreme Court after a full trial record is developed.
Why It Matters
This order, though procedural, carries real significance for M&A litigation in Delaware. The Court of Chancery’s underlying ruling — that a non-independent director’s vote alone satisfies the Cornerstone action element at the pleading stage — means that board members who lack independence from a controlling stockholder and simply vote for a transaction can be kept in fiduciary duty litigation even when sheltered by an exculpatory charter provision. For deal planners and independent directors, it underscores the importance of establishing genuine independence and a meaningful deliberative record before approving controller transactions.
The Supreme Court’s refusal to weigh in now also means practitioners must navigate the acknowledged uncertainty among trial court decisions on this point. Until the Supreme Court squarely addresses what conduct beyond a vote is required — or confirms that a vote is categorically sufficient — defendants in similar postures face meaningful dismissal risk whenever a complaint credibly pleads a lack of independence.