The Delaware Supreme Court has held that fairness review in duty of loyalty cases has two elements: fair dealing and fair price. Weinberger v. UOP, Inc., 457 A.2d 701 (1983). Fair dealing focuses on process: questions such as “when the transaction was timed, how it was initiated, structured, negotiated, disclosed to the directors, and how the approvals of the directors and the stockholders were obtained.” 457 A.2d at 711. Fair price focuses on the consideration paid or received in the transaction.

Weinberger says that the two elements of fairness must be considered together, that “the test for fairness is not a bifurcated one between fair dealing and fair price.” Id. But, of course, damages will be measured against a fair price. If that’s the case, I ask my students, does fair dealing really make any difference as long as the price is fair?

A Delaware Court of Chancery opinion, In Re Nine Systems Corporation Shareholders Litigation,  (Del. Ch. Sept. 4, 2014), recently dealt with that issue.  Vice Chancellor Noble concluded that the procedure followed by the company was unfair, so the element of fair dealing was not met. He decided that the price was fair but, considering the two elements together, decided that the burden of proving fairness had not been met.

Because of his finding that the price was fair, the Vice Chancellor rejected the plaintiffs’ claim for damages. However, he concluded that the court could require the defendants to pay certain of the plaintiffs' attorneys' fees and costs.

I now have an answer for my students. Even if the price is fair, fair dealing can still make a difference. Of course, I’m not sure anyone other than the plaintiffs’ attorneys will be terribly happy with the result.