In Re Chelsea Therapeutics International Ltd. Stockholders Litigation, Consol. C.A. No. 9640-VCG (Del. Ch. May 20, 2016)

The Court of Chancery addressed a class action suit which alleged a breach of the duty of loyalty by several independent, disinterested members of the Board of Chelsea Therapeutic International, Ltd. (“Chelsea”).  The stockholders claimed the defendants acted in bad faith by knowingly selling Chelsea significantly below its standalone value, ignoring more favorable financial projections for the company, and instructing Chelsea’s financial advisors to ignore certain financial projections.

The Court of Chancery, noting that the application of bad-faith analysis was a “hazy jurisprudence,” rejected the plaintiffs’ arguments.  The Court found that the plaintiffs had failed to state a bad faith claim, which requires “an extreme set of facts to establish that disinterested directors were intentionally disregarding their duties, or that the decision under attack was so far beyond the bounds of reasonable judgment that it seems essentially inexplicable on any ground other than bad faith.”  The Court reasoned that the projections ignored by the defendants were “highly speculative” and the defendants’ choice to ignore them was not “without the bounds of reason.”