Transactions Involving Controlling Stockholder as a Result of Actual or Inherent Coercion are Subject to Entire Fairness Standard of Review
By: Annette Becker and Rich Minice
In In re Tesla Motors, Inc. Stockholder Litigation, C.A. No. 12711-VC (Del. Ch. Feb. 4, 2020), the Delaware Court of Chancery rejected the defendants’ (Elon Musk and the Tesla, Inc. (“Tesla”) board of directors (“Defendants”)) novel position that “inherent coercion” doctrine–as it relates to a controlling stockholder–evaporates when a case for breach of fiduciary duty moves beyond the pleading stage and stockholder ratification exists, and re-affirmed the Delaware principle that entire fairness is the appropriate standard of review. The Court rejected motions for summary judgment by both parties finding that there remained issues of material fact to be determined as to whether stockholder ratification was fully informed and uncoerced, and whether a majority of the Tesla board of directors approving the merger was independent.
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