Cooke v. Oolie
Citation and Court
Cooke v. Oolie, No. 11134 (Del. Ch. 2000)
Facts
Oolie and Sagan were majority directors of a corporation who negotiated a transaction in which they personally received benefits—specifically, they were repaid personal loans they had made to the corporation—while the minority shareholders received nothing additional. The plaintiff minority shareholders challenged the transaction as a breach of fiduciary duty, arguing the directors had a conflict of interest that required heightened scrutiny.
Issue
Whether directors who receive a personal financial benefit from a corporate transaction must satisfy the entire fairness standard of review rather than the business judgment rule.
Holding
The Delaware Chancery Court held that because the majority directors received a personal benefit not shared by minority shareholders, the transaction was subject to entire fairness review, and the defendants failed to demonstrate that the transaction was entirely fair.
Rule / Doctrine
Under Delaware law, the business judgment rule does not apply to transactions in which a director has a conflict of interest—i.e., receives a personal benefit at the expense of shareholders. Such transactions are reviewed under the entire fairness standard, requiring the directors to prove both fair dealing and fair price.
Significance
Illustrates the shift from the business judgment rule to entire fairness review when directors have a conflict of interest in a corporate transaction. Important for understanding when director self-dealing triggers heightened judicial scrutiny and what defendants must prove to satisfy the entire fairness standard.