The Delaware Court of Chancery, a globally recognized epicenter for corporate law, is currently engaged in a significant intellectual debate surrounding the evolving landscape of controlling stockholder fiduciary duties. Vice Chancellor J. Travis Laster, a prominent jurist on the court, has penned a detailed response to a recent academic paper, "Control and its Discontents," authored by distinguished scholars Professors Jill E. Fisch and Steven Davidoff Solomon. In his analysis, Vice Chancellor Laster argues that the professors’ critique of three key Delaware decisions—Match, Sears Hometown, and Tornetta—rests on a flawed historical understanding of Delaware corporate law, leading to an inaccurate characterization of these rulings as radical departures rather than continuations of established principles.
Vice Chancellor Laster’s post, part of the esteemed Delaware Law Series hosted by the Harvard Law Corporate Governance blog, directly addresses what he perceives as the core inaccuracies in "Control and its Discontents." The professors’ paper, according to Vice Chancellor Laster, posits that these recent Delaware rulings represent a "sea change" by introducing novel and theoretically unjustified approaches to controlling stockholders. Based on this premise, Fisch and Solomon advocate for a return to what they describe as traditional limitations on judicial oversight of controlling stockholders. Specifically, they contend that historically, Delaware courts: (1) applied the stringent "entire fairness" standard of review exclusively to controlling stockholder freeze-outs and asset sales; (2) consistently exempted stockholder-level actions, such as voting and selling shares, from fiduciary review; and (3) narrowly defined "control" to only encompass stockholders possessing near-majority voting power.
Vice Chancellor Laster directly refutes these assertions, framing his response with the Aristotelian adage, "Plato is my friend, but truth is a greater friend." He asserts that the professors’ diagnosis is fundamentally incorrect because their historical account is inaccurate. He maintains that the approaches identified as "new" by "Control and its Discontents" were, in fact, firmly established in prior Delaware law. Consequently, he argues, the professors misapprehend the old law, mischaracterize Match, Sears Hometown, and Tornetta as deviations from precedent, and propose solutions that run contrary to established legal principles.
Entire Fairness: A Broader Application Than Asserted
A central tenet of Vice Chancellor Laster’s rebuttal is his challenge to the claim in "Control and its Discontents" that entire fairness review was, prior to 2016, limited to controlling stockholder freeze-outs and, with some leniency, asset sales. The professors identify the 2016 Delaware Supreme Court decision in EZCORP as the watershed moment when the law supposedly shifted. Vice Chancellor Laster counters that this characterization is inaccurate, citing two seminal Delaware Supreme Court decisions that directly contradict this assertion: Sinclair Oil (1971) and Nixon v. Blackwell (1993).
In Sinclair Oil, the Delaware Supreme Court applied entire fairness to a parent company’s decision to prevent its subsidiary from enforcing a contract against an affiliated entity. This scenario, Vice Chancellor Laster points out, is neither a freeze-out nor an asset sale. Similarly, in Nixon v. Blackwell, the court applied entire fairness to an Employee Stock Ownership Plan (ESOP) stock repurchase program and a key-man life insurance policy. These cases, both discussed in "Control and its Discontents" but, in Laster’s view, not adequately grappled with in terms of their implications for the professors’ argument, demonstrate a broader historical application of entire fairness beyond the specific transaction types cited by Fisch and Solomon.
Further bolstering his argument, Vice Chancellor Laster references other Delaware Supreme Court and Court of Chancery decisions. He highlights TWA (1988), where entire fairness was applied to a relational contract restricting a subsidiary’s aircraft procurement options. Additionally, he notes that Court of Chancery decisions consistently applied entire fairness to a range of controller transactions, including services agreements, management fees, license payments, and waivers of anti-takeover statutes. These examples, he emphasizes, are demonstrably outside the narrow categories of freeze-outs and asset sales.
The critical takeaway, according to Vice Chancellor Laster, is that the trigger for entire fairness review has consistently been the presence of a controlling stockholder conflict, not a specific transactional category. He argues that EZCORP did not initiate a change in this fundamental principle, nor did it introduce "MFW creep" in the manner suggested by the professors. Instead, he contends, EZCORP addressed a new issue related to cleansing mechanisms in non-freeze-out transactions. Before EZCORP, freeze-out mergers were the primary context for employing cleansing mechanisms to preempt entire fairness review. Non-freeze-out controller transactions often lacked the statutory protections of freeze-outs, such as Rule 13e-3 disclosures and appraisal rights, leaving ambiguity about the applicability of full cleansing outside that specific setting. EZCORP, Vice Chancellor Laster explains, actually reduced the scope of entire fairness exposure by extending the MFW framework to these non-freeze-out transactions, thus continuing a trend of "entire fairness retreat" rather than initiating a new one.
Vice Chancellor Laster posits that the Match decision was made against this jurisprudential backdrop. He asserts that Match applied the traditional test for when entire fairness applies and, crucially, confirmed the reduction in the traditional scope of entire fairness by extending the MFW cleansing framework to non-freeze-out transactions. He concludes this section by stating that Match did not alter what "Control and its Discontents" claims it did, asserting that this is not a matter of subtle interpretive disagreement but rather an accurate description of the transactions where prior Delaware precedent applied entire fairness.
Fiduciary Duties in Stockholder Voting: A Longstanding Obligation
Vice Chancellor Laster’s critique also targets the second foundational error he identifies in "Control and its Discontents": the assertion that controlling stockholders historically owed fiduciary duties only when entire fairness applied and, more significantly, never when exercising stockholder-level rights like voting. The professors’ paper, he notes, characterizes Sears Hometown as a pivotal moment, a "dam breaking," for holding that a controlling stockholder owed fiduciary duties while voting.
Vice Chancellor Laster clarifies a fundamental distinction often blurred in legal discourse: the difference between the standard of conduct and the standard of review. He explains that whether an individual or entity is a fiduciary and what duties they owe are functions of the standard of conduct. A court employs a standard of review to determine if that fiduciary standard of conduct has been breached. Directors, for instance, are fiduciaries who owe duties. Their conduct is typically reviewed under the business judgment rule. However, if the board lacks a disinterested and independent majority, courts shift to the entire fairness standard. Crucially, Vice Chancellor Laster emphasizes, a director does not owe fiduciary duties only when entire fairness applies; the same principle holds true for controlling stockholders. If a controlling stockholder does not face a conflict, entire fairness review is not triggered, but this does not negate their status as a fiduciary. "Control and its Discontents," he argues, fails to account for this fundamental aspect of Delaware law.
Furthermore, Vice Chancellor Laster contends that the claim that controlling stockholders have historically been exempt from fiduciary duties when voting runs directly counter to over a century of precedent, dating back to Allied Chemical in 1923. This early decision established that controlling stockholders owed fiduciary duties when voting to approve a sale of assets. Over the subsequent decades, Delaware jurisprudence extended this principle to mergers and charter amendments.
Vice Chancellor Laster addresses the two cases cited by Fisch and Solomon for the contrary proposition—Ringling Brothers (1947) and Bershad (1987). He argues that both these decisions, upon closer examination, acknowledge that controlling stockholders can owe duties when voting. Both opinions, he points out, state that stockholders generally can vote for any reason, provided they do not violate duties owed to fellow shareholders. This statement, he emphasizes, begins with a general rule of free voting followed by a critical exception: "except when they owe duties." He asserts that "Control and its Discontents" ignores this exception. Moreover, he highlights subsequent Delaware Supreme Court decisions, most notably Thorpe (1996), which explicitly hold that controlling stockholders owe fiduciary duties when voting.
Vice Chancellor Laster then addresses Sears Hometown directly. He explains that prior to this decision, Delaware case law had not fully integrated decisions applying fiduciary duties to affirmative controlling stockholder voting with other rulings that permitted controlling stockholders to freely vote against transactions, even if maintaining the status quo benefited them. Sears Hometown, in his view, attempted to apply this precedent forthrightly by distinguishing between an affirmative change to the status quo and a defensive preservation of it. While some precedent suggested the latter might be a non-fiduciary act, Vice Chancellor Laster offers a nuanced interpretation: it could be considered a fiduciary act that is inherently fair because minority stockholders maintain their existing position.
He concludes this section by reiterating that "Control and its Discontents" criticizes Sears Hometown for departing from the authors’ understanding of prior law, an understanding that he argues conflicts with more than a century of precedent. This, again, is not a matter of differing interpretations of ambiguous statements, but rather a failure to acknowledge the consistent holdings from Allied Chemical through Thorpe, and a disregard for the exception to the general rule articulated in Ringling Brothers and Bershad. It is inaccurate, he insists, to claim that prior to Sears Hometown, Delaware case law did not treat controlling stockholders as fiduciaries when voting, particularly when voting to alter the status quo.
Non-Majority Control: A Functional and Situational Assessment
The third major point of contention for Vice Chancellor Laster is the claim in "Control and its Discontents" that prior to the 1994 decision in Lynch, the traditional test for non-majority control was "objective and binary." The professors define "objective" as turning predominantly on voting power at levels exceeding 43.3% (as in Lynch), and "binary" as meaning a controlling stockholder was either always a controller or never, with control not being situationally specific. They criticize Tornetta for finding that Elon Musk exercised transactional control over Tesla for compensation purposes, despite owning only 22% of the stock.
Vice Chancellor Laster flatly denies the accuracy of these claims. He states that pre-1994 Delaware decisions found or inferred control at significantly lower ownership levels, citing examples of 10%, 17.5%, 20%, 25%, 31%, and 32.7%. While acknowledging that these decisions considered voting power, he asserts they did not treat it as the sole or dominant criterion. Non-majority control, he explains, necessitates a fact-specific assessment, and while not every case recognized control at those lower levels, enough did to demonstrably disprove the professors’ assertion.
He further refutes the claim that cases prioritized stock ownership. Instead, he highlights that courts considered multiple sources of influence, including managerial roles, historical patterns of deference from other shareholders, and the specific dynamics of a given transaction.
Finally, Vice Chancellor Laster dismisses the claim that control was binary before 1994. He points to decisions like Guth (1939) and Burry Biscuit (1948), which found or inferred control within the context of specific transactions, and contrast them with decisions like Puma (1971) and Kaplan (1971), which found control did not exist in specific transactional contexts. This demonstrates that control was not binary but rather fact-specific and situational. Therefore, he concludes, the criticisms of Tornetta in "Control and its Discontents" overlook this historical reality, and Tornetta itself adopted a functional approach to control that is consistent with longstanding precedent.
A Skepticism of Conflicts, Not Controllers
Vice Chancellor Laster addresses the professors’ most expansive claim: that Match, Sears Hometown, and Tornetta reveal a new and unjustified judicial hostility toward controllers. He categorizes this claim as differing in kind from the others, as it delves into the tone and perceived judicial sentiment rather than purely historical fact. While acknowledging that anyone can "check the record" on the historical accuracy of his points, he concedes that the "tone of more recent decisions" can be a subject of legitimate debate.
However, he argues that "Control and its Discontents" fundamentally mischaracterizes the court’s approach. The professors primarily fault recent Delaware decisions for failing to acknowledge that controllers can create value. Vice Chancellor Laster counters that Delaware decisions have not overlooked this point. He notes that recent opinions recognize that aligned controlling stockholders can indeed reduce agency costs and promote value. The courts, he explains, only intervene when uncleansed conflicts exist. This framework, he stresses, is not limited to controllers but targets conflicts universally, whether they involve controlling stockholders, directors, investment bankers, or even plaintiffs’ counsel. The focus is on the conflict, not the status of the actor.
Acknowledging Anticipation and Ongoing Debate
Despite his sharp critique of the historical premises in "Control and its Discontents," Vice Chancellor Laster offers a measure of credit to the professors’ paper. He acknowledges that the article deserves commendation for anticipating the direction of Delaware law. He points to the 2025 enactment of transactional safe harbors and a definition of "controlling stockholder" by Delaware’s General Assembly, which are consistent with some positions advocated in the professors’ article. While these amendments do not retroactively validate the article’s errant historical claims, they do underscore that "Control and its Discontents" captured the "practitioner zeitgeist" and likely influenced the evolution of the Delaware General Corporation Law.
However, Vice Chancellor Laster cautions that this does not signify the end of the debate over control. He clarifies that the safe harbor amendments establish remedial immunity for corporate fiduciaries who comply with their terms. Prior law, he emphasizes, remains relevant for aiding-and-abetting claims and for transactions falling outside these new safe harbors. Furthermore, the amendments do not alter the law governing LLCs, limited partnerships, or general partnerships, nor do they apply to other jurisdictions.
In conclusion, Vice Chancellor Laster calls for continued scholarly and practitioner engagement on the multifaceted issues surrounding controlling stockholders. He asserts that this debate, while valuable, should candidly acknowledge the existing case law and should not be predicated on easily disconfirmable, ahistorical claims. He reiterates his core message: truth, even when it requires correcting respected scholars, must prevail. The ongoing dialogue, he suggests, should focus on the significance of controlling stockholders, the balance between the costs and benefits of judicial oversight, and the merits of bright-line rules versus flexible standards, all grounded in an accurate understanding of Delaware’s rich corporate law history.
