Unocal Corp. v. Mesa Petroleum Co.

In this case, famed corporate raider T. Boone Pickens, attempted a coercive deal structure to gain control of an oil and gas company called Unocal. The Unocal board responded with a plan to take on a lot of debt and give the money to shareholders other than Pickens's company, Mesa. So even if Pickens won the company, it would be laden with debt and the assets that debt generated would already be gone. Pickens sued, arguing that excluding Mesa from the deal was unfair because Mesa was the largest shareholder of Unocal---how can the board keep its fiduciary duties to shareholders if it is intentionally harming one of them?

The court held that the only way to protect the other shareholders was to exclude Mesa. So it didn't apply entire fairness. The court said it was applying the business judgment rule, but before doing so it would give enhanced scrutiny to the directors' decision.

This "enhanced scrutiny" is the third standard of review under Delaware law, and it applies to situations with stuctural conflicts for the directors. As laid out in Part IV, the directors bear the burden of showing they acted with proper motives and that the actions were reasonable.

Remember that enhanced scrutiny is not a fallback position that applies if the business judgment rule is rebutted. Enhanced scrutiny applies only to a few specific situations with structural conflicts for the board.