"More fortunate than Goliath, eBay leaves this field with only a gash across its forehead; less fortunate than David, Craigslist leaves this field with something less than total victory." - Chancellor William Chandler III

In 2004, eBay acquired a 28 percent stake in privately held Craigslist and became one of only three Craigslist stockholders. Soon after, eBay acquired competing international classified sites and ultimately unveiled a direct U.S. rival in 2007, Kijiji. In response, Craigslist (i) adopted a poison pill to prevent a hostile takeover, (ii) staggered board elections in a manner that made it impossible for eBay to unilaterally appoint a director and (iii) diluted eBay’s ownership percentage by granting additional shares to the majority stockholders (the founders of Craigslist) who, in return, granted a right of first refusal in favor of the company. eBay filed suit challenging all three of these actions in 2008.

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In Binks v. DSL.net, Inc., the Delaware Chancery Court found that the defendant’s board acted consistent with its fiduciary duties under Revlon when, facing no other alternatives to bankruptcy, it approved a financing transaction that ultimately led to the sale of the company in a short form merger. The court found that the board acted in good faith, that a majority of its members were disinterested and that it was well-informed by an independent advisor.

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In a recent Delaware case, In re The Dow Chemical Company Derivative Litigation, the Court of Chancery dismissed a shareholder derivative suit brought against Dow’s Board of Directors in connection with Dow’s 2009 acquisition of Rohm & Haas. The ruling affirms the protections afforded to directors who employ a process designed to allow “an informed business judgment by a majority of disinterested and independent directors.”

The plaintiffs in this litigation alleged that the defendant Dow directors breached their fiduciary duties by (1) approving the merger agreement without a financing contingency for Dow, (2) misrepresenting the relationship between the transaction and a joint venture that Dow was pursuing with a Kuwaiti company, and (3) failing to detect and prevent a number of instances of alleged bribery and other corporate wrongdoing. The plaintiffs also asserted it would be futile to make a pre-suit demand on the board. In granting the defendants’ motion to dismiss, the court concluded that the Aronson standard for demand futility was not met. First, the court determined there was not a sufficient basis for concluding that a majority of the Dow directors lacked independence. Second, the court determined that the directors had acted within the protections of the business judgment rule, finding no reason to doubt that the directors’ actions were taken in good faith or that the directors were adequately informed.

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