Delaware Chancery: “Entire Fairness” in Recapitalization Is More Than Just a Fair Price

Summary: Vice Chancellor Noble recently held that a recapitalization, although approved and implemented at a fair price, was not entirely fair due to the grossly unfair process, and that the affiliates of the venture firms, to the extent not liable as part of the control group, are liable as aiders and abettors. He concluded “that a price that, based on the only reliable valuation methodologies, was more than fair, does not ameliorate a process that was beyond unfair.” 

The court noted the difficulty of quantifying the value of the entitlement to “fair dealing.” Although the vice chancellor did not award damages, given the fact that the price was more than fair, he granted leave for plaintiffs to petition for attorneys’ fees and costs. Thus, there will be some additional personal exposure for the individual defendants from the finding of a lack of entire fairness in the recapitalization.