Document: In Re CNX Gas Corp. S’holder Litig., C.A. No. 5377-VCL (Del. Ch. July 5, 2010)
Controlling shareholders of CNX Gas Corporation sought to certify for interlocutory appeal a decision of the Chancery Court denying a preliminary injunction by a class of minority shareholders against a unilateral two-step freeze-out merger. In the decision denying the preliminary injunction, the Court rejected the controlling shareholders’ position on the standard of review and held that the transaction would be reviewed for entire fairness under In re Cox Communications, Inc. Shareholders Litigation. The application sought interlocutory appellate review to clarify the appropriate standard of review for a unilateral two-step freeze-out by a controlling shareholder. The Chancery Court granted the application and found that review was warranted because attempts to apply Supreme Court precedent produced different conclusions regarding the appropriate standard for review, confusion regarding the inherent coercion in a two-step freeze-out merger, and conflict as to the degree to which a target board has a role in responding to a controller’s tender offer. In addition, the court determined that the issue presented a question not directly addressed by the Supreme Court, implicated fundamental issues of Delaware public policy, and determined a substantial legal issue for purposes of Rule 42(b). Update: On July 8th, the interlocutory appeal was denied by the Supreme Court of Delaware.