Commercial Division Blog
Allegations That Directors Were Acquainted With Interested Party Insufficient Basis for Claim That They Were Not Disinterested
On December 03, 2020, the First Department issued a decision in Matter of Cadus Corp. Stockholders Litig., 2020 NY Slip Op. 07279, holding that the fact that directors were acquainted with an interested party was an insufficient basis for a claim that they were not independent, explaining:
The motion court properly applied the business judgment rule instead of the entire fairness test to the buyout of defendant Cadus Corporation by its controlling shareholder, defendant Starfire Holding Corporation. Plaintiffs failed to show, as pertinent here, that the Special Committee that approved the transaction was not independent, that the Special Committee did not meet its duty of care in negotiating a fair price, or that the vote of the minority was not informed.
Plaintiffs failed to allege facts from which a reasonable inference could be drawn that a majority of the Special Committee members — defendants Jack Wasserman, Peter Liebert, and Tara Elias Schuchts — were sufficiently loyal to, beholden to, or otherwise influenced by an interested party defendant Carl C. Icahn, chairman, CEO and majority owner of Starfire so as to undermine their ability to judge the matter on its merits. Bare allegations that directors are friendly with, travel in the same social circles as, or have past business relationships with the proponent of a transaction are not enough to rebut the presumption of independence. Plaintiffs' allegations about the directors' friendships with Icahn are not sufficient to suggest the sort of personal relationship (one in which the parties are as thick as blood relations) that would circumvent this rule. Nor did plaintiffs demonstrate that any financial ties between Icahn and at least Liebert and Schuchts were material. Even if Wasserman were found to be conflicted based on his service on multiple boards of Icahn-controlled companies, including at the time of the buyout, this would not undermine the independence of the Special Committee as a whole, since plaintiffs did not allege that he controlled and dominated the committee or failed to disclose his interests to it.
(Internal quotations and citations omitted).
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