Delaware Business Litigation Report

Court Of Chancery Explains Effect Of Disinterested Director Approval

In re BJ's Wholesale Club Shareholders Litigation, C.A. 6623-VCN (January 31, 2013)

When a majority of a board of directors is not personally benefiting from a transaction they approve, the business judgment rule applies.  How do you overcome that BJR?  A plaintiff may do so by showing an "extreme set of facts" sufficient to support the inference the board acted in bad faith.  In trying to do so, however, it is not enough to allege the board "should have known" the deal stunk. Instead the plaintiff needs to allege facts that show the board actually knew that the deal was not in their company's best interests.

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