United States: Delaware Reaffirms Latitude Granted To Informed, Independent Boards Of Directors In "In Re Answers Corporation Shareholders Litigation"

In In re Answers Corporation Shareholders Litigation, the Delaware Court of Chancery granted summary judgment in favor of the director defendants facing claims arising out of the sale of Answers Corporation (Answers) in a 2011 go-private transaction. In its ruling, the Court found no evidence that the directors acted in bad faith or that the independent board members were controlled by the CEO or the nominees of the company's controlling stockholder, generally reaffirming the latitude Delaware courts will grant to an informed, independent board of directors.

Prior to the sale, Answers Corporation was a public company, with venture capital firm Redpoint Ventures as its largest shareholder. Redpoint held the right to nominate two directors on the company's seven-member board. Former shareholders of Answers alleged that its directors breached their duty of loyalty and failed to act in good faith in approving the merger, even though a majority of the board consisted of disinterested directors who had approved the transaction. Specifically, the plaintiffs alleged that (i) the two Redpoint-affiliated directors and Answers' CEO, who was also a director, were conflicted and controlled the negotiation process and (ii) that the entire board, including the four disinterested directors, acted in bad faith in selling the company.

Vice Chancellor Noble granted defendants' motion for summary judgment. Regarding the first allegation, the court noted that the plaintiffs failed to explain or demonstrate any evidence of control, or a persuasive theory as to why the independent directors would have decided to abdicate their fiduciary duties. The Court noted that "mere invocation of the phrase 'dominated and controlled' cannot alone create such an issue of disputed fact." On the allegation of bad faith, the court noted that despite plaintiffs' attempts to identify a variety of ways in which they believed the sale process could have been better conducted, there was no evidence that the board consciously disregarded, or utterly failed to attempt to comply with, its fiduciary duties.

In re Answers Corp. Shareholders Litig., C.A. No. 6170-VCN, 2014 Del. Ch. LEXIS 17 (Del. Ch. Feb. 3, 2014).

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