The Delaware Supreme Court upheld the Chancery Court decision in Chester County Retirement Systems v. Collins et al. In so doing, it noted one troubling aspect of the record as follows:
The plaintiff’s complaint pointed out the failure of the target to the merger to disclose that the chairman of its special committee was considering joining the special committee’s outside counsel as a partner. That fact was disclosed within weeks after the merger’s closing by the law firm in a hiring announcement. Although we, like the Court of Chancery, conclude that this fact was not material, one can understand why it caught the attention of the plaintiff, and prudence would seem to have counseled for bringing it to light earlier, especially given that the chairman’s intention to become a partner at that firm was going to become public in any event. Given when the eventual disclosure was made, the special committee chair and the committee’s outside lawyers presumably knew that this potential relationship was at
Even though we agree that this development was not material, the failure to disclose it in these circumstances nevertheless raised needless questions, in a high-salience context in which both cynicism and costs tend to run high anyway. Both of those factors increased here simply because of the fact that the chairman’s new relationship with outside counsel was disclosed after, and not before, the votes were counted. That said, the Court of Chancery correctly analyzed this and the other alleged disclosure deficiencies and found that the vote was fully informed and as a result the business judgment rule applied.