## Facts

- Charter Communications, Inc. pursued acquisitions of Time Warner Cable and Bright House Networks, transactions generally viewed as value-increasing for Charter.
- Liberty Broadband Corporation, Charter’s largest stockholder (about 26%), allegedly influenced Charter’s board and officers in connection with two side arrangements benefiting Liberty.
- Charter issued additional equity to Liberty as part of the acquisition financing; the plaintiff alleged the issuance was structured to favor Liberty and was not necessary to fund the acquisitions.
- Charter also granted Liberty a proxy conferring an additional 6% of voting power, increasing Liberty’s voting control beyond its economic ownership.
- The acquisition agreements and the Liberty side arrangements were submitted to stockholders for approval in a single, up-or-down vote, without separate approval of the Liberty arrangements.
- A Charter stockholder sued asserting breach of fiduciary duty of loyalty claims against Liberty (as an alleged controller) and against Charter directors, pleading both derivative and direct theories, including voting-power dilution.
- Defendants moved to dismiss, arguing the board was independent and disinterested and that stockholder approval invoked Corwin business judgment review.

## Issues

1. Whether Corwin cleansing applied where allegedly self-interested controller-favored side deals were bundled with value-increasing acquisitions in a single stockholder vote.
2. Whether claims based on increased controller voting power and relative dilution of minority voting rights were direct, derivative, or both.
3. Whether the complaint pled a reasonably conceivable, non-exculpated duty of loyalty claim against an alleged controller and directors for approving and structuring the side deals.

## Decision

- The Court of Chancery denied the motions to dismiss in substantial part and allowed key fiduciary duty claims to proceed.
- At the pleadings stage, the court found it reasonably conceivable that Liberty exercised control despite owning less than a majority of Charter’s equity.
- The court treated the alleged reallocation or impairment of minority voting power as at least partially direct.
- The court declined to apply Corwin at the pleading stage because the stockholder vote was plausibly not an uncoerced, fully informed approval of the specific challenged side transactions.
- Given Charter’s § 102(b)(7) exculpation, the court found the complaint adequately alleged loyalty-based misconduct sufficient to survive dismissal.

## Legal Principles

- A stockholder with less than majority ownership may be treated as a controlling stockholder if the pleadings support a reasonable inference of actual control over corporate conduct.
- Corwin business judgment deference depends on a fully informed, uncoerced vote of disinterested stockholders on the challenged transaction; plausibly conflicted controller transactions and material disclosure or coercion allegations can prevent cleansing at the motion-to-dismiss stage.
- Bundling a value-increasing transaction with allegedly self-dealing side arrangements can support an inference of coercion where stockholders cannot approve the beneficial deal without also approving the challenged arrangements.
- Claims alleging impairment or dilution of stockholders’ voting power may be direct because they affect stockholders’ individual voting rights, not solely corporate economic injury.
- Where directors are exculpated from monetary liability for due-care claims under 8 Del. C. § 102(b)(7), a complaint must plead a non-exculpated loyalty breach to proceed past dismissal.

## Conclusion

The court permitted fiduciary duty claims to move forward where a significant stockholder was plausibly a controller who received unique voting-power benefits through side arrangements, and where a bundled, single stockholder vote did not clearly provide Corwin cleansing for the challenged transactions.


Sciabacucchi v. Liberty Broadband Corp., 2017 WL 2352152 (Del. Ch. May 31, 2017)