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Tuesday
Oct302012

Special Committees and the "Controlled Mindset" -- Americas Mining Corp. v. Theriault (Part 3)

As for the "controlled mindset" analysis of the Chancery Court, the Supreme Court had little specific to say about it. The Court mentioned it a few times and noted that an analysis of entire fairness required the Chancery Court to apply "a disciplined balancing test".  The Court concluded that the record reflected that this "balancing" in fact had occurred. 

The record reflects that the Court of Chancery applied a "disciplined balancing test," taking into account all relevant factors. The Court of Chancery considered the issues of fair dealing and fair price in a comprehensive and complete manner. The Court of Chancery found the process by which the Merger was negotiated and approved constituted unfair dealing and that resulted in the payment of an unfair price.

The case demonstrates that the traditional safeguards -- independent directors and independent advisors -- do not invariably protect shareholders.  Special committees can still be subject to excessive influence of the controlling shareholder. 

Nothing in the opinion, however, suggested any meaningful method of determining when this untoward influence existed.  The use of the term "controlled mindset" was really a conclusion rather than an analytical framework.  Indeed, the determination was reminiscent of Potter Stewart's famous analytical framework, "I know it when I see it."

The case does demonstrate that the special committee approach used by the Delaware courts has significant problems.  Yet the practice of replacing substantive fairness with process is a continuing trend in the development of Delaware law. 

Some primary materials from the Chancery Court are posted on the DU Corporate Governance web site.

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