On Monday, just after the arrival of the blizzard of 2016 in Delaware, the Court of Chancery created its own momentous event with the release of its opinion in In re EZCorp Consulting Agreement Derivative Litigation, C.A. No. 9962 (Jan. 25, 2016). Spanning 91 pages, the opinion treats its subjects with a scholarly level of analysis, worthy of review in its entirety. Publication limits do not permit a complete review of the opinion in this space, but I can focus on one of the many important aspects of the opinion: the identification of a doctrinal tension between an Aronson demand futility analysis, from Aronson v. Lewis, 473 A.2d 805 (Del. 1984), and how to determine the standard of review.
The facts of EZCorp are fairly simple and provide the backdrop for the larger discussion. Phillip Cohen indirectly controlled all of the voting power of EZCorp Inc. through his ownership of the general partner of a limited partnership that held all of the company’s Class B voting stock. The company’s Class A nonvoting stock was publicly traded. As a result of this arrangement, Cohen controlled all of the voting power in EZCorp but held only 5.5 percent of the equity. Over the years, the company entered into advisory services agreements with affiliates of Cohen. In September 2011, the company entered into an advisory services agreement with a Cohen affiliate to cover the company’s 2012 fiscal year. In October 2012, the company entered into an advisory services agreement with a Cohen affiliate to cover the company’s 2013 fiscal year. In October 2013, the company agreed to renew the 2012 agreement for the 2014 fiscal year. Each of these advisory services agreements was approved by the audit committee of the board.
