San Diego Law Review
Document Type
Article
Abstract
This Article proceeds as follows: Part II provides the background by giving a brief overview of the law governing transactions between a controlling stockholder and the corporation or its minority stockholders; laying out the complaints about recent Delaware court decisions applying this law; and explaining how S.B.-21 responded to these complaints through a belt and suspenders approach of narrowing both the definition of controlling stockholder and the difference in the legal treatment between controlling stockholder transactions and transactions with conflicted directors.
Part III explains the fundamental inconsistency created by the statute’s effort to limit the definition of controlling stockholder by focusing on voting power at the same time the statute sought to limit the impact of finding one to be a controlling stockholder by allowing so-called disinterested directors to insulate transactions with controlling stockholders from careful judicial scrutiny.
Part IV discusses three possible outcomes of this inconsistency: The good (interpreting the statute to follow the premise which underlies defining control in terms of the power to elect directors); the bad (interpreting the statute in a manner that will facilitate the tunneling of a disproportionate amount of corporate wealth to controlling stockholders who rely upon approval by the very directors they elect); and the ugly (judicial muddying of the waters by working backwards from what the court thinks of the merits of the challenged deal to find the gross negligence, lack of good faith, or lack of disinterest that will still allow the court to invalidate a transaction that court does not like despite the fact that these standards are designed to avoid the court evaluating the merits of the deal).
Recommended Citation
Franklin A. Gevurtz,
The Oxymoron at the Heart of Delaware’s Making Elon Happy Legislation,
63
San Diego L. Rev.
245
(2026).
Available at:
https://digital.sandiego.edu/sdlr/vol63/iss2/3