The Delaware Supreme Court just decided an interesting new case, Diep v. Trimaran Pollo Partners et al., on director independence, over the dissent of Justice Valihura. 

El Pollo Loco is a publicly-traded restaurant chain controlled by Trimaran Pollo Partners, a holding company, which itself is controlled by private equity firm Trimaran Capital Partners, founded in part and controlled in part by Dean Kehler.  The plaintiff filed a derivative action alleging that after the IPO, El Pollo Loco received unfavorable news about the effects of certain price increases, and before this news was made public, several officers and directors – and Trimaran Pollo Partners – were permitted to sell stock.  Trimaran in particular did not receive written preclearance, in violation of the company’s insider trading policy.

After a different, earlier derivative action concerning the same events was filed, Kehler invited two new independent directors to join the board, Floyd and Lynton. Kehler had prior relationships with each – especially Lynton, with whom he had longstanding social ties – and when interviewing each, he mentioned the pending litigation.

Once they were on the board, the Diep case was filed, and the earlier derivative action voluntarily dismissed.  The company and the other…