Corporations
Benihana of Tokyo, Inc. v. Benihana, Inc., 906 A.2d 114 (Del. 2006), affirming 891 A.2d 150 (Del. Ch. 2005)
Study notes for Benihana of Tokyo, Inc. v. Benihana, Inc.: professor notes, cold call prep, exam angles, and memory aids.
A fully informed, disinterested board majority approval of a financing transaction validates the transaction and protects it under the business judgment rule, regardless of the participation of an interested director.
The case highlights the interplay between fiduciary duty and the business judgment rule, particularly in scenarios involving interested directors and financing transactions. Professors would emphasize how the court evaluated the concept of a fully informed, disinterested majority and its role in ensuring that corporate governance remains sound despite potential conflicts of interest. The ruling underscores the importance of Delaware General Corporation Law (DGCL) §144, clarifying that while interested directors must disclose their interests, they are not automatically disqualified from participating in votes if a disinterested majority is present.
BIDL - Business Judgment, Informed Decision, Legitimacy (to remember that informed, disinterested approval allows directors to partake in votes without invoking entire fairness review).
| Case | Distinction |
|---|---|
| Smith v. Van Gorkom | In Smith v. Van Gorkom, the court found that the board acted without sufficient information, thus invalidating the decision. In contrast, Benihana emphasized informed decision-making as a safeguard. |
| Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. | While Revlon involved the duty of directors during a change of control, Benihana focused on financing transactions and the disinterested board's ability to approve despite the presence of an interested party. |
Allowing interested directors to participate in votes when a disinterested majority is present encourages efficient corporate governance and decision-making.
If interested directors remain involved in the decision-making process, it may compromise the integrity of the board's decisions, leading to conflicts of interest.
This case may appear on exams as a pivotal illustration of the business judgment rule's application in scenarios involving transactions with interested directors, focusing on the requirements for disinterested board approval under Delaware law.