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*§ 262 Appraisal Rights*

(a) Any stockholder of a corporation of this State who holds shares of stock on the date of the making of a demand pursuant to subsection (d) of this section with respect to such shares, who continuously holds such shares through the effective date of the merger or consolidation, who has otherwise complied with subsection (d) of this section and who has neither voted in favor of the merger or consolidation nor consented thereto in writing pursuant to § 228 of this title *shall be entitled to an appraisal by the Court of Chancery of the fair value of the stockholder's shares of stock under the circumstances described in subsections (b) and (c) of this section*. As used in this section, the word "stockholder" means a holder of record of stock in a corporation; the words "stock" and "share" mean and include what is ordinarily meant by those words; and the words "depository receipt" mean a receipt or other instrument issued by a depository representing an interest in 1 or more shares, or fractions thereof, solely of stock of a corporation, which stock is deposited with the depository. (h) After the Court determines the stockholders entitled to an appraisal, the appraisal proceeding shall be conducted in accordance with the rules of the Court of Chancery, including any rules specifically governing appraisal proceedings. Through such proceeding, *the Court shall determine the fair value of the shares exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, together with interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors*. Unless the Court in its discretion determines otherwise for good cause shown, and except as provided in this subsection, interest from the effective date of the merger through the date of payment of the judgment

*§ 228* Consent of stockholders or members in lieu of meeting.

(a) Unless otherwise provided in the certificate of incorporation, *any action required* by this chapter to be taken at any annual or special meeting of stockholders of a corporation, or any action which may be taken at any annual or special meeting of such stockholders, *may be taken* without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, *shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting* at which all shares entitled to vote thereon were present and voted *and shall be delivered to the corporation by delivery to its registered office in this State*, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested.

*§ 102(b)7* Contents of certificate of incorporation.

(b) In addition to the matters required to be set forth in the certificate of incorporation by subsection (a) of this section, *the certificate of incorporation may also contain* any or all of the following matters: (7) *A provision eliminating or limiting the personal liability of a director* to the corporation or its stockholders *for monetary damages for breach of fiduciary duty as a director*, - Provided that such provision *shall not eliminate or limit* the liability of a director: (i) For any *breach of the director's duty of loyalty* to the corporation or its stockholders; (ii) for acts or omissions not in *good faith* or which involve intentional misconduct or a knowing violation of law; (iii) under § 174 of this title; or (iv) for any transaction from which the director derived an *improper personal benefit*.

*§ 211 * Meetings of stockholders.

(b) Unless directors are elected by written consent in lieu of an annual meeting as permitted by this subsection, *an annual meeting of stockholders shall be held for the election of directors on a date and at a time designated by or in the manner provided in the bylaws*. c) A failure to hold the annual meeting at the designated time or to elect a sufficient number of directors to conduct the business of the corporation shall not affect otherwise valid corporate acts or work a forfeiture or dissolution of the corporation except as may be otherwise specifically provided in this chapter...*If there be a failure* to hold the annual meeting or to take action by written consent to elect directors in lieu of an annual meeting *for a period of 30 days after the date designated* for the annual meeting, or *if no date has been designated, for a period of 13 months after the latest to occur* of the organization of the corporation, its last annual meeting or the last action by written consent to elect directors in lieu of an annual meeting, *the Court of Chancery may summarily order a meeting to be held upon the application of any stockholder or director*.

*Loudon v. Archer-Daniels-Midland Co.*

* Procedural Posture* - Appellant stockholder sought review of a decision of the Court which dismissed appellant's action against appellees, corporation and directors, challenging *the disclosures in a proxy statement for an annual meeting to elect directors*. *Overview* - Appellant stockholder filed an action against appellees, corporation and directors, challenging the disclosures in a proxy statement for an annual meeting to elect directors. Appellant contended that appellees had failed to disclose or had misstated material facts, including the resignation of a prior director, details concerning the selection of members for a special litigation committee, the details of a director's involvement in price fixing and other illegal activities, and whether or not appellee director approved the distribution of bonuses to corporate insiders. - The court of chancery dismissed the complaint for failure to state a claim upon which relief could be granted under Del. Ch. Ct. R. 12(b)(6). - On appeal, the court affirmed. The court held that appellees' nondisclosure of the background of the former director's resignation and omission from the management slate was *neither material nor actionable*. - The court also found that appellant failed to identify any specific facts that should have been disclosed regarding the special litigation committee. - The court rejected appellant's claims that appellees were required to disclose illegal activities and improper bonuses. *Outcome* - The court affirmed the decision of dismissing appellant stockholder's action against appellees, corporation and directors, challenging the disclosures in a proxy statement for an annual meeting to elect directors. - The court held that appellees' nondisclosures and misstatements were *neither material nor actionable*. - The court remanded for allowing appellant an opportunity to replead.

*§ 141* Board of directors; powers; number, qualifications, terms and quorum; committees; classes of directors; nonstock corporations; reliance upon books; action without meeting; removal.

*(a) The business and affairs of every corporation organized under this chapter shall be managed by or under the direction of a board of directors.* (b) The board of directors of a corporation shall consist of 1 or more members, each of whom *shall be a natural person*. - Directors need not be stockholders unless so required by the certificate of incorporation or the bylaws. - Any director may resign at any time upon notice given in writing or by electronic transmission to the corporation. (2) The board of directors may designate 1 or more committees, each committee to consist of 1 or more of the directors of the corporation. (d) The directors of any corporation organized under this chapter may, by the certificate of incorporation or by an initial bylaw, or by a bylaw adopted by a vote of the stockholders, be divided into 1, 2 or 3 classes.

*Guth v. Loft*

*Background info:* Guth ran Loft. Loft made and sold candies, syrups, beverages and food . Coca-Cola supplied Loft with it's coke syrup. Guth didn't like how expensive it was, so he acquired the trademark and formula for Pepsi-Cola. He didn't have the money to support the venture, so he used Loft's resources (capital, credit, facilities and employees) without the consent of Loft's board. *Rule of Law* - If a business opportunity is presented to a corporate officer or director in his representative capacity the law will not permit him to take the opportunity for himself if: 1- The corporation is *financially able* to undertake it; 2- The opportunity is *in the line* of the corporation's business and is *of practical advantage to it*; 3- The opportunity is one in which the *corporation has an interest* or a reasonable expectancy. - The Guth Corollary provides that when a business opportunity comes to a corporate officer or director *in his individual capacity* he can seize the opportunity for himself, as long as he does not steal corporate assets, if: 1- The opportunity, because of the nature of the enterprise, is *not essential to the corporation* 2- The opportunity is *not* one in which the corporation *has an interest* or expectancy; 3- Even if it was *not feasible for the corporation to pursue* the opportunity. - A fiduciary can still be estopped from seizing the opportunity for himself if he *used corporate asset's* to develop or acquire the opportunity. - Corporate assets include "company" time, cash, facilities, contracts, goodwill, and corporate information. -------------------------------------------------- *Overview* - The corporation filed a lawsuit against one of its officers after learning that the officer had acquired a corporate opportunity for himself. The lower court found in favor of the corporation. - The court affirmed the lower court's judgment, holding that *the business opportunity presented to the officer was one which the corporation was financially able to undertake and was in the line of the corporation's business, and, by embracing the opportunity, the self-interest of the officer was brought into conflict with that of the corporation*. - The court stated that the officer could not receive a benefit from his breach of his fiduciary duty. *Outcome* - The court affirmed the lower court's judgment. The court held that *the corporate officer violated his fiduciary duty to his corporation because the business opportunity presented to the officer was one which the corporation was financially able to undertake and was in the line of the corporation's business*.

*Corporate Opportunity* (from Scheuer's notes)

*Corporate Opportunity Doctorine* - There are ways you can be disloyal when you are not at both sides of the transaction. That is when you take a business opportunity take it for yourself, and the shareholders knew and sue because it would have been beneficial for the corporation. - Often this transaction will put the officer or director in competition with the corporation. *Corporate Opportunity test (slighting scale test)* It is a violation of the corporate opportunity doctrine if a Director steals an opportunity if: 1) The corporation is financially able to *undertake the opportunity.* 2) The opportunity is within *the corporation's line of business*. 3) The corporation *has an interest in the opportunity*: (has entered into a contract or negotiations, already has some sort of legal interest, then stealing it is worse than if they neve knew about it.) 4) By taking the opportunity the director will be *placed in a conflict of interest with the corporation*. - On the other side, it is safe to take the corporate opportunity for yourself if the following is true. The director can take an opportunity if: 1) The opportunity was *presented to the director in his individual capacity*. 2) The opportunity is *not essential to the corporation*. 3) The corporation *holds no interest in the opportunity*. 4) Director *has not wrongfully used corporation resources in pursuing the opportunity*.

*SCIENCE ACCESSORIES v. SUMMAGRAPHICS CORP* (lexis)

*Overview* - The former employer claimed the trial court erred when it ruled that the former employees had not committed a breach of fiduciary and contractual duties to the employer, which justified equitable relief. - The former employees claimed that the construction of the computer equipment was *completed on their own time and they had not agreed with the employer not to compete*. - The court affirmed the trial court's judgment and held that *there was no fiduciary duty owed by the employees to the employer to disclose to the employer that the employees were building the equipment and the employees had not signed any agreement with the employer that would require disclosure or prohibit them from building the equipment*. - The court further held that the construction of the equipment was not in violation of any fiduciary duty owed by the employees to the employer, because the employees *were free to make plans to leave the employer and construct the equipment on their own time.* *Outcome* - The court affirmed the trial court's judgment for the former employees, because the employees *owed no fiduciary duty to the former employer to disclose that they were constructing competitive computer equipment and there was not a contract between them that prohibited the employees from leaving and using the equipment to compete with their former employer.*

*Lyondell Chemical Co. v. Ryan*

*Rule of Law Corporate directors have a fiduciary duty *to attempt* to get the best sale price for the company. *Facts* - Dan Smith (defendant) was chairman and CEO of (Lyondell) (defendant). Blavatnik owned (Access), which owned (Basell). Basell's 2006 offer to acquire Lyondell was rejected. - A year later, an affiliate of Access filed a Schedule 13D disclosure indicating its right to purchase more than eight percent of Lyondell's stock from another company and Blavatnik's interest in Lyondell. - Lyondell's directors (defendants) called a meeting. Though the Schedule 13D made clear that Lyondell was "in play," the directors elected not to take any action at that time. - Blavatnik renewed his offer to Lyondell at $40 per share on July 9, 2007. Lyondell's board had a series of meetings to consider the offer. After negotiating with Blavatnik, the offer was increased to $48 per share. - The board's independent financial and legal advisers concluded that the offer was fair and a better deal was unlikely. On July 16, 2007, the board voted to recommend the merger to Lyondell's shareholders. The shareholders almost unanimously approved the merger. - Ryan and others (plaintiff) filed a class action suit in the Court of Chancery against Lyondell and its directors claiming *breach of fiduciary duties regarding the negotiations and final merger agreement*. The trial court dismissed all claims except the claims that the merger negotiation process was inadequate and the directors should not have agreed to the protection provisions. *Issue* Under Revlon, do corporate directors have a set of judicially prescribed fiduciary duties that must be fulfilled before a corporation may be sold? *Holding and Reasoning (Berger, J.)* - No. Under Revlon, *a corporation's board must attempt to get the best sale price* for the company as a matter of fiduciary duty. - Revlon did not impose any new fiduciary obligations. The obligation to seek the best price begins when the company prepares to enter a transaction that will cause a change in control. - Further, Revlon and subsequent cases did not create a checklist that corporate boards must follow during a sale. Under In re Walt Disney Co. Deriv Litig., bad faith will be found if a fiduciary actually intended to cause injury or consciously disregarded his duties, but not if the fiduciary was simply negligent. Stone v. Ritter makes clear that "only *a sustained or systemic failure* of the board to exercise oversight" will be deemed bad faith. Thus, the directors must be aware that they were not performing their fiduciary duties. - The issue in this case is whether the directors fulfilled their duty of loyalty by acting in good faith, not whether the directors fulfilled the duty of care. - Lyondell's board was made up of sophisticated business people who knew the market conditions. After being put on notice that the company was "at play," the board exercised its business judgment to wait for possible interest. - Lyondell's board was not required to take action under Revlon simply because the company was "in play." The duty to obtain the best price under Revlon did not take effect until the July 10 offer. The board determined that a better offer was unlikely and that the price Smith negotiated was fair. - There were no other offers between the board approval in July and the shareholder vote in November. Lyondell's directors *clearly acted with good faith*. The lower court erred in refusing to grant summary judgment to the defendants; that ruling is reversed

*Malone v. Brincat*

*Rule of Law* - Directors always owe a general fiduciary duty to shareholders to exercise due care, good faith, and loyalty. *Facts* - Mercury Finance Company is a publicly held Delaware corporation. Malone and the Danielles (plaintiffs), Mercury stockholders, brought an individual and class action suit against the directors of Mercury and KPMG Peat Marwick LLP (KPMG) (defendants). - The complaint alleges that Mercury's directors *breached their fiduciary duty of disclosure by intentionally overstating the company's financial condition* in its SEC filings and its disclosures to shareholders and that as a result of the false disclosures Mercury lost all of its value, approximately $2 billion. - The complaint also alleges that KPMG aided and abetted in the Mercury directors' breach of their fiduciary duty of disclosure. - The Mercury directors moved for dismissal, arguing that they did not owe a fiduciary duty of disclosure. KPMG also filed a motion to dismiss the claim against it. The Court of Chancery granted the motions to dismiss, with prejudice, finding that *directors have no duty of disclosure under Delaware law where there has been no request for shareholder action*. - Malone and the Danielles appealed. *Issue* - Do directors breach their general fiduciary duties of due care, loyalty, and good faith by knowingly giving stockholders false information? *Holding and Reasoning (Holland, J.)* - Yes. *Directors breach their general fiduciary duties of due care, loyalty, and good faith by knowingly giving stockholders false information*. - This court has previously held that a board of directors has a specific fiduciary duty to disclose all *material information within the board's control when it seeks shareholder action*. - The lower courts are divided as to whether a similar duty applies when there has been no request for shareholder action. However, directors always owe a general fiduciary duty to shareholders to exercise due care, good faith, and loyalty, regardless of whether there has been a request for shareholder action. - Thus, when directors choose to communicate publicly or directly with shareholders about corporate matters, they must exercise due care, good faith, and loyalty in doing so. This means that *such communications must be made honestly*. - The key issue in this case is therefore not whether the directors breached a specific duty of disclosure, but whether they breached their general duties of due care, loyalty, and good faith by knowingly giving stockholders false information. This court finds that *directors who knowingly disseminate false information to stockholders, either directly or by a public statement, violate their general fiduciary duties, whether or not the directors are seeking shareholder action*. - This violation can result in a derivative action on behalf of the corporation, or an action for damages. - However, in this case Malone and the Danielles have failed to expressly assert a derivative claim or allege compliance with the requirement of making a demand for action on the board prior to bringing suit. Nor have they asserted any individual cause of action for damages or articulated an appropriate remedy. - Nonetheless, Malone and the Danielles are entitled to file an amended complaint. The Court of Chancery's dismissal of the complaint is affirmed, but the dismissal with prejudice is reversed.

*Aronson v. Lewis*

*Rule of Law* - Stockholders wishing to bring a derivative suit must first make a demand for redress to the board of directors, unless such a demand would be futile. *Facts* - Harry Lewis (plaintiff) owns stock in Meyers Parking System, Inc., a Delaware corporation. Leo Fink is a director of Meyers and owns 47 percent of its outstanding stock. - Meyers' directors approved a lucrative employment agreement for Fink, and made interest-free loans to him. - Lewis brought suit against Meyers and its directors (defendants), alleging that the transactions were only approved because Fink had personally selected the directors of Meyers, and that the transactions had no business purpose and were a waste of corporate assets. - The complaint states that no demand was made on the board of directors to address the alleged wrongs, because (1) the directors participated in the wrongdoings; (2) Fink selected the directors and thus controlled the board; and (3) litigation brought by the directors would require them to sue themselves, precluding effective prosecution. - Meyers and its directors filed a motion to dismiss based on Lewis's failure to make a demand or to demonstrate that such a demand would be futile. - The Court of Chancery denied the motion to dismiss, finding that the allegations in the complaint raised a reasonable inference that the business judgment rule did not protect the directors' actions, and that the board therefore would not have been able to impartially consider and act on any such demand. - Meyers and its directors filed an interlocutory appeal, which this court granted. *Issue* May a court dismiss a shareholder's derivative action, where the shareholder has failed to make a demand on the board or allege facts sufficient to demonstrate that such a demand would be futile? *Holding and Reasoning (Moore, J.)* Yes. A court may dismiss a shareholder's derivative action if the shareholder has failed to make a demand on the board or allege facts sufficient to demonstrate that such a demand would be futile. Where a company's directors refuse to assert a claim belonging to the company, stockholders wishing to bring a derivative suit on behalf of the corporation must first make a demand for redress to the board of directors, unless such a demand would be futile. - Absent an abuse of discretion, courts will presume that directors, in making a business decision, acted on an informed basis, in good faith, and with the honest belief that the action was in the company's best interests. This business judgment rule applies to a board's response to a demand, the determination of whether a demand is futile, and to disinterested directors' attempts to dismiss an action that has been filed. - While the business judgment rule applies to director action, it may also apply to a conscious decision to refrain from acting. In Zapata Corp. v. Maldonado, 430 A.2d 779 (1981 Del.Supr.), the court held that the business judgment rule applies to a board's decision to refuse a shareholder's demand to bring suit, or, where the demand requirement is excused due to the futility of making such a demand, to a board's decision to terminate a derivative action brought by shareholders. - After Zapata, the question remained as to when a demand is futile, and therefore excused. This court finds that the proper test for demand futility is whether, under the facts alleged, *there is a reasonable doubt as to whether (1) the directors making the decision were disinterested and independent, or (2) the transaction at issue was otherwise the product of valid business judgment.* - If there is a reasonable doubt as to either factor, the demand requirement will be excused. To show that demand would be futile, a plaintiff alleging domination and control over the directors must allege facts demonstrating that the directors are beholden to the controlling person, either through personal or other relationships.

*Schnell v. Chris-Craft Industries, Inc.*

*Rule of Law* Corporate directors *may not act with the sole purpose of obstructing shareholder action*, even if the methods are legally permissible. *Facts* - Some dissident shareholders (plaintiffs) of Chris-Craft Industries, Inc. (defendant) wished to replace the existing directors at the next annual meeting, scheduled in the bylaws for January 11, 1972. - The directors employed various tactics *to make the contest more difficult* for the dissidents. They refused to turn over their list of shareholders and hired proxy solicitors to work on their behalf. - At the October 18, 1971 board meeting, the directors invoked a new provision of the Delaware Corporate Law *to advance the date of the annual meeting* by a month, to December 8, 1971. This change *made it virtually impossible* for the dissident shareholders to wage a successful proxy contest to unseat the incumbent directors. - The dissident shareholders petitioned the court to enjoin the board from changing the meeting date. The trial court denied the petition, and the shareholders appealed. *Issue* May corporate directors take action solely for the purpose of obstructing shareholder objectives? *Holding and Reasoning (Herrmann, J.)* - No. Directors of a corporation are bound to act in the best interest of the shareholders. *They may not take steps designed to perpetuate their own power at shareholder expense*, even if the maneuvers used are technically permitted by statute. Shareholder elections are particularly important events and may not be manipulated by directors for their personal gain. - In this case, the Delaware Corporate Law *permitted the directors to reschedule the annual meeting*. The result of the date change, *however, would be the total obstruction* of the dissident shareholder's efforts to unseat existing management. Because the directors' purpose was inequitable, *the rescheduling was improper*. Therefore, the decision of the trial court is reversed, and the trial court is ordered to reinstate January 11, 1972 as the date of the annual meeting.

*Blasius Industries, Inc. v. Atlas Corp.*

*Rule of Law* A board generally *cannot undertake action with the primary purpose of interfering with shareholder voting*, even if it acts in the good faith pursuit of the corporation's best interest. *Facts* - (Blasius) (plaintiff) holds 9 percent of the stock of Atlas Corp. (defendant). Blasius proposed that Atlas sell off some of its assets, issue bonds, and distribute a large one-time dividend to shareholders. - The directors of Atlas believed this was not in the company's best interest and rejected the idea. On December 30, 1987, Blasius formalized their proposal and also requested the election of eight new board members. This would increase the size of the board from eight to 15, the maximum allowed under the corporate charter. - Fearing a takeover by Blasius, the board held an emergency meeting the next day and amended the bylaws to add two additional board members. *This move was designed to prevent Blasius from seizing an eight to seven advantage on the board at the next election*. - Blasius sued Atlas, seeking to void the board's December 31, 1987 action as inequitable. *Issue* May a board, *acting on its good-faith* view of the corporation's best interest, take steps with *the primary purpose of interfering with shareholder voting?* *Holding and Reasoning (Allen, J.)* - No. Despite the general deference to the board's decision-making under the business judgment rule, *any board action that interferes with shareholder voting will be closely scrutinized*. - The shareholder franchise is the source of the board's power. When the board restricts shareholder voting, it changes the allocation of power between the board and the shareholders. Ordinarily, agents cannot unilaterally determine the scope of their power vis-à-vis their principal. - Therefore, while the board is given broad discretion in making most business decisions, *they are far less free to restrict shareholder voting*. - In this case, the Atlas board genuinely believed that Blasius' plans would harm the corporation. Its decision to expand the board by two members was *technically permissible under the Delaware Corporation Law*. Under the circumstances, *however, the action was inequitable and improper*. - The express motive for the expansion *was to prevent Blasius from acquiring control of the board in the immediate future*. The board could have spent corporate funds to educate shareholders on the possible negative effects of Blasius' proposals, in the hopes of persuading shareholders not to support Blasius' candidates. - The board was *not permitted, however, to deliberately restrict the shareholder's opportunity to place Blasius in power*. The directors' December 31, 1987 expansion of the board is therefore set aside as void.

*Unocal Corporation v. Mesa Petroleum Co.*

*Rule of Law* A board of directors may repurchase stock from a selected segment of its stockholders in order to defeat a perceived threat to the corporation's business so long as the board's selection of which stockholders to repurchase from is reasonable in relation to the threat and not motivated primarily out of a desire to effectuate a perpetuation of control. *Facts* - Mesa Petroleum Co. (Mesa) (plaintiff) owned 13 percent of Unocal Corporation's (Unocal) (defendant) stock. Mesa submitted a "two-tier" cash tender offer for an additional 37 percent of Unocal stock at a price of $54 per share. The securities that Mesa offered on the back end of the two-tiered tender offer were highly subordinated "junk bonds." - With the assistance of outside financial experts, the Unocal board of directors determined that the Mesa offer was completely inadequate as the value of Unocal stock on the front end of such a sale should have been at least $60 per share, and the junk bonds on the back end were worth far less than $54 per share. - To oppose the Mesa offer and provide an alternative to Unocal's shareholders, Unocal adopted a selective exchange offer, whereby Unocal would self-tender its own shares to its stockholders for $72 per share. The Unocal board also determined that Mesa would be excluded from the offer. The board approved this exclusion because if Mesa was able to tender the Unocal shares, Unocal would effectively subsidize Mesa's attempts to buy Unocal stock at $54 per share. - In sum, the Unocal board's goal was either to win out over Mesa's $54 per share tender offer, or, if the Mesa offer was still successful despite the exchange offer, to provide the Unocal shareholders that remained with an adequate alternative to accepting the junk bonds from Mesa on the back end. - Mesa brought suit, challenging Unocal's exchange offer and its exclusion of Mesa. The Delaware Court of Chancery granted a preliminary injunction to Mesa, enjoining Unocal's exchange offer. Unocal appealed. *Issue* May a board of directors repurchase stock from its stockholders selectively? *Holding and Reasoning (Moore, J.)* - Yes. Although in cases where a corporation purchases shares with corporate funds to remove a threat to control *the burden is on the directors to prove that their actions were reasonable*, the business judgment rule kicks in when the directors prove a good faith and reasonable investigation resulted in the purchase. - Thus, a board of directors may repurchase stock from its stockholders selectively in order to defeat a perceived threat to the corporation's business so long as the board's selection of which stockholders to repurchase from is *reasonable in relation to the threat and not motivated primarily out of a desire to effectuate a perpetuation of control*. - In the case at bar, Unocal's board's selective tender offer to the exclusion of Mesa was reasonable in relation to the threat posed by Mesa. Mesa's two-tiered tender offer to Unocal stockholders was inadequate on both the front and back ends. The offer's purpose was to force stockholders to accept the undervalued $54 per share offer so they could avoid being stuck with accepting junk bonds on the back end of the offer. Unocal was thus entitled to attempt to provide its stockholders with a viable alternative and it did so by offering $72 per share. This alternative would have effectively been thwarted if Mesa was included in the $72 per share offer as this would have subsidized Mesa's continuing efforts to buy Unocal stock. In addition, Unocal's selective exchange offer was designed to protect its stockholders from Mesa's tender offer, and Mesa certainly would not qualify in the class of stockholders being protected from its own offer. Accordingly, the selective exchange offer was reasonable in light of the threat posed to Unocal by Mesa's tender offer. It is therefore upheld under the business judgment rule and the Delaware Court of Chancery is reversed.

*Moran v. Household Int'l, Inc.*

*Rule of Law* A corporation's board of directors may give existing shareholders the right to buy the shares of a hostile purchaser at a discount. *Facts* - The board of directors (defendants) of Household International, Inc. (Household) (defendant) adopted a shareholder rights plan. - Under the plan, if a single entity made a tender offer for at least 30 percent of Household's shares or acquired at least 20 percent of Household's shares, Household's existing stockholders would have the right to buy that entity's shares at half price, following the entity's acquisition of the shares. The plan was adopted as a defense against future hostile takeovers. - Moran (plaintiff) was one of two directors who voted against the plan. Moran was also the chairman of the Dyson-Kissner-Moran Corporation (DKM) (plaintiff), which was the single largest stockholder of Household and had considered a buyout of Household. Moran and DKM (Moran) sued Household and its directors. The court of chancery ruled in the defendants' favor. Moran appealed. *Issue* May a corporation's board of directors give existing shareholders the right to buy the shares of a hostile purchaser at a discount? *Holding and Reasoning (McNeilly, J.)* - Yes. A corporation may defend against a hostile takeover by giving its shareholders the right to buy the shares of a hostile purchaser at a discount following a takeover, thereby diluting the value of the hostile purchaser's targeted shares. - Despite Moran's arguments to the contrary, the Delaware General Corporation Law, Del. Code tit. 8, § 157, provides sufficient authority for Household's rights plan. Section 157 allows a corporation to create and issue rights or options entitling the right or option holder to purchase stock from the corporation. While § 157 has never been used to authorize a takeover defense like the one in this case, its silence on the matter does not mean that such a use is prohibited. - The rights issued under the plan are also not sham rights that have no economic value, which Moran argues are not authorized under § 157. The rights of the existing stockholders to purchase a hostile bidder's shares at a discount can and will be exercised whenever those rights are triggered, either by a tender offer to purchase 30 percent of Household's shares or the acquisition of 20 percent of Household's shares. Moran also argues that Household's board of directors may not usurp stockholders' rights to receive hostile tender offers. However, there are several ways to make a tender offer despite the plan, such as conditioning the tender offer on the board's redemption of the rights. Finally, Moran argues that the plan restricts stockholders' rights to conduct a proxy contest, because it prevents stockholders from forming a group to solicit proxies if, together, those stockholders own 20 percent or more of Household's stock. However, most proxy contests are won on less than 20 percent ownership, and the effect of the plan on these contests will be minimal. The adoption of the plan was therefore within the authority of Household's directors. Under the business judgment rule, corporate directors that make a business decision are presumed to have acted on an informed basis, in good faith, and in the honest belief that the decision was in the company's best interests. Here, there are no allegations of bad faith on the part of Household's directors. The directors' adoption of the plan was a response to what they reasonably perceived to be a threat of hostile takeovers. The Household directors' decision is therefore protected under the business judgment rule.

*Sinclair Oil Corp. v. Levien*

*Rule of Law* A parent corporation must pass the intrinsic fairness test only when its transactions with its subsidiary constitute self-dealing. *Facts* - (Sinclair) (defendant) owned about 97 percent of the stock of its subsidiaryn(Sinven) (plaintiff). From 1960 to 1966, Sinclair caused Sinven to pay out $108 million in dividends, which was more than Sinven earned during the time period. - The dividends were made in compliance with law on their face, but Sinven contended that Sinclair caused the dividends to be paid out simply because Sinclair was in need of cash at the time. In addition, in 1961 Sinclair caused Sinven to contract with Sinclair International (International), another Sinclair subsidiary created to coordinate Sinclair's foreign business. - Under the contract, Sinven agreed to sell its crude oil to International. International, however, consistently made late payments and did not comply with minimum purchase requirements under the contract. - Sinven brought suit against its parent, Sinclair, for the damages it sustained as a result of the dividends, as well as breach of the contract with International. The Delaware Court of Chancery applied the intrinsic fairness standard and found in favor of Sinven on both claims. Sinclair appealed. *Issue* Must a parent corporation always pass the intrinsic fairness test when it transacts business that affects its subsidiary? *Holding and Reasoning (Wolcott, J.)* - No. A parent corporation *must pass the intrinsic fairness test only* when its transactions with its subsidiary *constitute self-dealing* in that the parent is on both sides of the transaction with its subsidiary and *the parent receives a benefit to the exclusion and at the expense of the subsidiary.* Otherwise, the business judgment rule will apply. - Starting with the issue of the dividends in the present case, the Delaware Court of Chancery improperly applied the intrinsic fairness standard. - The dividend payments were not self-dealing by Sinclair. Although they resulted in a lot of money changing hands from Sinven to Sinclair, *a portion of the money was also received by Sinven's minority shareholders.* - *There was no benefit to Sinclair that came at the expense of Sinven's minority shareholders* and so the payments do not constitute self-dealing. - Accordingly, the business judgment rule applies to the payments and *under the business judgment rule, the court can find no evidence that the decision to cause Sinven to pay dividends was fraudulent or made in bad faith*. - Sinclair, therefore, did not violate its fiduciary duty to Sinven by causing the dividends to be paid and the Delaware Court of Chancery is reversed on that issue. - On the other hand, in terms of Sinclair inducing the contract between Sinven and International, Sinclair was engaged in self-dealing, as Sinclair is the parent of both parties to the contract. Moreover, when the contract was breached by late payment, Sinclair was able to reap the benefits of the crude oil to the detriment of Sinven's minority shareholders. - As a result, the Delaware Court of Chancery was correct in applying the intrinsic fairness standard to Sinclair's involvement in the contract, and the court determines that the Delaware Court of Chancery was also correct in finding that Sinclair did not meet its burden of showing objective fairness under that standard. - Clearly Sinclair's involvement is not objectively fair because International breached the contract and *Sinclair reaped benefits without fully paying for them*. Sinclair thus breached its fiduciary duty to Sinven by its role in the formation and execution of the contract with International. - In accordance with the foregoing, the Delaware Court of Chancery is reversed in part and affirmed in part.

*Stone v. Ritter*

*Rule of Law* Directors will be *liable for failure to engage in proper corporate oversight where they fail to implement any reporting or information system*, or having implemented such a system, consciously fail to monitor or oversee its operations. *Facts* - (AmSouth) was forced to pay $50 million in fines and penalties on account of government investigations about AmSouth employees' failure to file suspicious activity reports that were required by the Bank Secrecy Act (BSA) and anti-money-laundering (AML) regulations. - AmSouth's directors were not penalized. The Federal Reserve and the Alabama Banking Department issued orders requiring AmSouth to improve its BSA/AML practices. The orders also required AmSouth to hire an independent consultant to review AmSouth's BSA/AML procedures. AmSouth hired KPMG Forensic Services (KPMG) to conduct the review. - KPMG found that the AmSouth directors had established programs and procedures for BSA/AML compliance, including a BSA officer, a BSA/AML compliance department, a corporate security department, and a suspicious banking activity oversight committee. The plaintiffs nonetheless brought suit against AmSouth directors (defendants) for *failure to engage in proper oversight of AmSouth's BSA/AML policies and procedures*. The Delaware Court of Chancery dismissed the plaintiffs' complaint. The plaintiffs appealed. *Issue* Can hindsight be used to determine whether directors exercised their corporate oversight responsibilities in good faith? *Holding and Reasoning (Holland, J.)* - No. Directors will be *liable for failure to engage in proper corporate oversight where they fail to implement any reporting or information system*, or having implemented such a system, consciously fail to monitor or oversee its operations. - *The standard* for such a determination is *whether the directors knew that they were not fulfilling their oversight duties and thus breached their duty of loyalty to the corporation by failing to act in good faith*. - This is a forward-looking standard and hindsight may not be used to determine whether directors exercised their corporate oversight responsibilities in good faith. - In the present case, the KPMG report shows that the AmSouth directors had substantial BSA/AML policies in place, including a BSA officer, a BSA/AML compliance department, a corporate security department, and a suspicious banking activity oversight committee. - *The implementation of this system discharges the directors' oversight responsibilities* because it is an adequate reporting system and it delegated monitoring responsibilities to AmSouth employees and departments. - Simply *because an AmSouth employee failed to follow the BSA/AML policies and procedures in place does not mean that the directors did not put the policies and procedures in place in good faith*. - As a result of the foregoing, the Delaware Court of Chancery's dismissal of the plaintiffs' complaint is affirmed.

*Marciano v. Nakash*

*Rule of Law* Interested director transactions are valid if they are intrinsically fair. *Facts* - Gasoline, Ltd. was a Delaware corporation, owned in equal parts by the Nakash family (plaintiffs) and the Marciano family (defendants). Gasoline was placed in custodial status because of a deadlock among its board of directors. - The Nakashes made $2.5 million in loans to Gasoline. It is undisputed that these were not disinterested transactions. Because of the deadlock, the transactions did not receive majority approval from the directors or shareholders. - The Court of Chancery validated the Nakashes' claims in Gasoline's liquidation proceedings, finding that the loans were valid and enforceable debts of Gasoline, *despite originating from self-dealing transactions*. The Marcianos argued that the loan transactions are *voidable regardless of their fairness or the good faith* of their participants, and that the Nakashes nonetheless failed to meet their burden of establishing fairness. *Issue* Where a state law permits a corporation to engage in an interested director transaction if it is ratified by the stockholders or board of directors, and the transaction is not ratified, is the transaction per se voidable? *Holding and Reasoning (Walsh, J.)* - No. *Where a state law permits a corporation to engage in an interested director transaction if it is ratified by the stockholders or board of directors*, and the transaction is not ratified, the transaction will still not be voidable *if it is intrinsically fair*. - Under Delaware corporate law, a director's fiduciary relationship with a corporation limits the extent to which he may benefit from dealings with that corporation. Under the common law per se rule of voidability, some transactions are constructively fraudulent, and therefore voidable. - *Section 144 of the Delaware General Corporation Law permits a corporation to engage in transactions with interested directors, provided the transaction is fair and is ratified by the stockholders or the board of directors*. - In this case, the transactions were not ratified by the stockholders or the board of directors, and therefore *do not pass* the section 144 test. The Marcianos argue that the interested transactions are therefore *per se voidable* under the common law rule. - However, this court finds that *the common law rule does not invalidate transactions that are intrinsically fair*. Thus, in reviewing an interested transaction, *a court must apply both the section 144 test and an intrinsic fairness test*. - *The intrinsic fairness test will apply where, as here, shareholder deadlock prevents ratification*. - In this case, the Court of Chancery properly applied the intrinsic fairness test to the interested director transactions, and its finding that the transactions were fair is supported by the record. The Court of Chancery's decision is therefore affirmed.

*Weinberger v. UOP, Inc.*

*Rule of Law* Minority shareholders voting in favor of a proposed merger must be informed of all material information regarding the merger for the merger to be considered fair. *Facts* - The Signal Companies, Inc. (Signal) acquired 50.5 percent of UOP, Inc.'s (UOP) (defendants) outstanding stock. Signal elected six members to the new board of UOP, five of which were either directors or employees of Signal. - After the acquisition, Signal still had a significant amount of cash on hand due to a sale of one of its subsidiaries. Signal was unsuccessful in finding other good investment opportunities for this extra cash so it decided to look into UOP once again. - Arledge and Chitiea, two Signal officers who were also UOP directors, conducted a "feasibility study" for Signal and determined that the other 49.5 percent of UOP would be a good investment for Signal for any price up to $24 per share. The study found that the return on investment at a purchase price of $21 per share would be 15.7 percent, whereas the return at $24 per share would be 15.5 percent. Despite this small difference in return, the difference in purchase price per share would mean a $17 million difference to the UOP minority shareholders. - This information was never passed along to Arledge and Chitiea's fellow UOP directors or the UOP minority shareholders. The UOP board agreed on a $21 per share purchase price. The UOP minority shareholders subsequently voted in favor of the merger. - Weinberger, et al. (plaintiffs) were UOP minority shareholders and brought suit, challenging the merger. The Delaware Court of Chancery found in favor of the defendants. The plaintiffs appealed. *Issue* Is a minority shareholder vote in favor of a proposed merger fair if the shareholders were not given information on the highest price that the buyer was willing to offer for the shares? *Holding and Reasoning (Moore, J.)* - No. The "entire fairness" of a merger is comprised of *fair dealing and fair price.* Minority shareholders voting in favor of a proposed merger must be informed of all material information regarding the merger for the dealing to be fair. - Failure to *provide the minority shareholders with all material information* is a breach of fiduciary duty. Here, although Arledge and Chitiea had prepared their study for Signal and were actually Signal officers, they still owed a duty to UOP because they were also UOP directors. The feasibility study and, more specifically, the possible sale price of $24 per share and the resulting $17 million difference in amount paid to the UOP minority shareholders clearly *constitute material information* that the shareholders were entitled to know before voting. - Arledge and Chitiea's failure to disclose that information was a breach of their fiduciary duties and *their actions thus cannot be considered fair dealing*. - In terms of *fair price*, to determine whether the price of a cash-out merger was fair, a court is to consider "all relevant factors," something that the Delaware Court of Chancery did not do. On remand all relevant factors concerning the value of UOP should be considered in determining whether the price was fair. As a result of the foregoing, the Delaware Court of Chancery's findings that the circumstances of and price paid for the merger were fair are reversed and the case is remanded.

*Kahn v. M & F Worldwide Corp.*

*Rule of Law* The business judgment rule is the appropriate standard of review for a merger between a controlling stockholder and its subsidiary that is conditioned upon: (1) the approval of an independent, adequately-empowered special committee that fulfills its duty of care and (2) the uncoerced, informed vote of a majority of the minority stockholders. *Facts* MacAndrews & Forbes Holdings, Inc. (M & F) (defendant) was a 43 percent stockholder in M & F Worldwide Corp. (MFW). M & F proposed to buy the remaining common stock of MFW to take the corporation private. The transaction was subject to two stockholder-protective procedural conditions: (1) the approval of a special committee to be appointed by the MFW board of directors, and (2) the approval of a majority vote of MFW minority stockholders. The MFW board established the special committee, which approved the transaction. The minority stockholders voted to approve the merger. Kahn, et al. (plaintiffs) brought suit, arguing that even both protections combined are inadequate to protect minority stockholders, because directors on the special committee may be inept or timid and MFW minority stockholders may be subject to improper influence. The plaintiffs claimed that the entire fairness standard should apply to the merger. In addition, the plaintiffs alleged that the special committee was not independent because of various relationships between members of the special committee and M & F. The Delaware Court of Chancery ruled in favor of M & F. The plaintiffs appealed. *Issue* Is the business judgment rule the appropriate standard of review for a merger between a controlling stockholder and its subsidiary that is conditioned upon (1) the approval of an independent, special committee that fulfills its duty of care and (2) the informed vote of a majority of the minority stockholders? *Holding and Reasoning* Yes. The standard of review for a merger between a controlling stockholder and its subsidiary that is from the outset conditioned upon: (1) the approval of an independent, adequately-empowered special committee that fulfills its duty of care or (2) the uncoerced, informed vote of a majority of the minority stockholders is entire fairness. However, when a merger between a controlling stockholder and its subsidiary is conditioned upon both protections, the business judgment rule applies. There, the entire fairness standard is not necessary to adequately protect minority stockholders' interests, because the two procedural protections offer the merger "the shareholder-protective characteristics of third-party, arm's-length mergers, which are reviewed under the business judgment standard." This standard will only apply, however, if each characteristic of the special committee and stockholder vote is met. The special committee must (1) be independent, (2) be empowered to choose its own financial and legal advisors, and (3) exercise its duty of care. The minority stockholder vote must be: (1) informed and (2) uncoerced. In the present case, the court determines that the business judgment rule is the proper standard on which to review the merger, because each of the prerequisites involving the two stockholder protections is met. First, the special committee was independent. While certain members of the committee may have had social or business relationships with M & F, such bare allegations are not enough to rebut the presumption of independence. To establish a lack of independence, a plaintiff must show that a director is beholden to the acquiring interests. The plaintiffs in this case did not make such a showing. Additionally, there is no evidence that the special committee was not empowered or did not meet its duty of care. Similarly, there is no evidence that the MFW stockholder vote was coerced or uninformed. As a result, the business judgment rule is the proper standard of review for the merger. The judgment of the Delaware Court of Chancery is affirmed.

*In re The Walt Disney Co. Derivative Litigation*

*Rule of Law* The concept of *intentional dereliction of duty and a conscious disregard for one's responsibilities is an appropriate standard for determining whether fiduciaries have acted in good faith*. *Facts* - Michael Ovitz was hired as the president of The Walt Disney Company (Disney). Ovitz was a much respected and well known executive, and in convincing him to leave his lucrative and successful job with Creative Artists Agency (CAA), Disney signed Ovitz to a very lucrative contract. The contract was for five years, but if Ovitz were terminated without cause, he would be paid the remaining value of his contract as well as a significant severance package in the form of stock option payouts. - The contract was approved by Disney's compensation committee after its consideration of term sheets and other documents indicating the total possible payout to Ovitz if he was fired without cause. The compensation committee then informed Disney's board of directors of the provisions of the contract, including the total possible payout to Ovitz. The board approved the contract and elected Ovitz as president. - After Ovitz's first year on the job, it was clear that he was not working out as president and that he was "a poor fit with his fellow executives." However, Disney's CEO and attorneys could not find a way to fire him for any cause, so Disney instead fired him without cause, triggering the severance package in the contract. Ovitz ended up being paid $130 million upon his termination. - Disney shareholders (plaintiffs) brought derivative suits against Disney's directors for *failure to exercise due care and good faith in approving the contract and in hiring Ovitz*, and, even if the contract was valid, for *breaching their fiduciary duties by actually making the exorbitant severance payout to Ovitz*. - The Delaware Court of Chancery found that although *the process* of hiring Ovitz and the resulting contract did not constitute corporate "best practices," the Disney directors *did not breach any fiduciary duty* to the corporation. The Disney shareholders appealed. *Issue* Is the concept of *intentional dereliction of duty* and a conscious disregard for one's responsibilities an appropriate standard for determining whether fiduciaries have acted in good faith? *Holding and Reasoning (Jacobs, J.)* - Yes. As an initial matter, the court determines that the directors *did not breach their duty of due care* in approving the contract or hiring Ovitz because the directors were fully informed of all information available, including the total possible severance payout to Ovitz. - In terms of the bad faith claim, there are at least *three categories of fiduciary bad faith*. *The first two* are clearer: subjective bad faith, meaning *intent to harm*, and the lack of due care, meaning *gross negligence*. However, there is a form of fiduciary bad faith that is not intentional, but "is qualitatively more culpable than gross negligence." This category is appropriately captured by the concept of *intentional dereliction of duty and a conscious disregard for one's responsibilities*. - Therefore, although it is not the exclusive definition of fiduciary bad faith, that concept is an appropriate standard for determining whether fiduciaries have acted in good faith. - The court determines that because the Disney compensation committee and directors were *fully informed* about the total potential payout, and because of the well known skills and qualifications of Ovitz, the Delaware Court of Chancery properly held that the directors' actions, although not in line with corporate best practices, *did not violate a duty to act in good faith*. - Finally, the court finds that the directors did not violate any fiduciary duties by actually making the severance payout to Ovitz because the directors were entitled, under the business judgment rule, *to rely on advice* from Disney's CEO and attorneys that there were no grounds for Ovitz to be fired for cause. They were thus entitled to fire him without cause. As a result of the foregoing, the court finds in favor of the defendants and the Delaware Court of Chancery is affirmed.

*Cede & Co. v. Technicolor, Inc.*

*Rule of Law* The judicial *appraisal process must consider non-speculative future value* attributable to the acquiring party's post-merger plans for the company. *Facts* - Technicolor, Inc. (defendant) was in serious financial trouble in early 1982. Ron Perelman, controlling shareholder of (MAF), determined that Technicolor would be an attractive takeover candidate for MAF. Technicolor agreed to a two-step merger, in which MAF would first make a cash tender offer and then conduct a cash-out merger with any shareholders who did not accept the tender offer. - The tender offer opened in November 1982, and by the end of the month, MAF had acquired 82 percent of Technicolor's shares. Meanwhile, Perelman had developed a plan for improving Technicolor's performance, which included selling all of Technicolor's unprofitable units. - Cinerama, Inc. (plaintiff) did not accept the tender offer and dissented from the cash-out merger, which was completed in January 1983. Cinerama sued for an appraisal. - The trial court computed an appraisal value which excluded any value created by Perelman's plans for the new company, *on the reasoning that the appraisal should exclude any future value* which, but for the merger, would not exist. Cinerama appealed, arguing that Perelman's plans should be factored in. *Issue* Should the court appraisal process *consider non-speculative future value* attributable to the acquiring party's post-merger plans for the company *Holding and Reasoning (Holland, J.)* - Yes. A shareholder that dissents to a merger is entitled to receive his proportion of the enterprise's going concern value. That *valuation is calculated as of the date of the merger, but projected future value as of that time may be considered*. - In a two-step merger, a period of months may elapse between the announcement of the tender offer and the second-step merger. Significantly, during that time, the acquiring party gains control of the company. It may begin to implement new strategies. - *The appraised valuation should not include speculative future* gains, based on unverifiable claims made by the acquiring party. However, when the acquiring party has formulated *concrete steps that will affect the future value of the company, these factors must be considered*. - Here, MAF developed a strategy for Technicolor prior to beginning the two-step merger process. During the intermediate period while the tender offer was pending, MAF refined its strategy and took initial steps towards eliminating unprofitable divisions. - *Though the appraised value of Cinerama's shares should not include speculative future gains the company might make under MAF's control, MAF's specific plans to sell certain assets must be considered*. - The trial court erred as a matter of law when it ruled that any future value stemming from the merger could not be considered. This requirement has never been imposed by statute or by this court. The trial court therefore undervalued Technicolor's shares. The case is remanded *for a recalculation of Technicolor's value as of the date of the merger,* specifically considering Perelman's plans for the company.

*Smith v. Van Gorkom*

*Rule of Law* There is *a rebuttable presumption* that a business determination made by a corporation's board of directors *is fully informed* and made in *good faith* and *in the best interests of the corporation*. *Facts* - Jerome Van Gorkom, the CEO of Trans Union Corporation (Trans Union), engaged in his own negotiations with a third party for a buyout/merger with Trans Union. - Prior to negotiations, Van Gorkom determined the value of Trans Union to be $55 per share and during negotiations agreed in principle on a merger. There is no evidence showing how Van Gorkom came up with this value other than Trans Union's market price at the time of $38 per share. - Subsequently, Van Gorkom called a meeting of Trans Union's senior management, followed by a meeting of the board of directors (defendants). Senior management reacted very negatively to the idea of the buyout. However, the board of directors approved the buyout at the next meeting, based mostly on an oral presentation by Van Gorkom. The meeting lasted two hours and the board of directors *did not have an opportunity to review the merger agreement before or during the meeting*. - The directors *had no documents summarizing the merger, nor did they have justification for the sale price of $55 per share*. Smith et al. (plaintiffs) brought a class action suit against the Trans Union board of directors, alleging that the directors' decision to approve the merger was uninformed. The Delaware Court of Chancery ruled in favor of the defendants. The plaintiffs appealed. *Issue* May directors of a corporation *be liable to shareholders under the business judgment rule for approving a merger without reviewing the agreement* and only considering the transaction at a two-hour meeting? *Holding and Reasoning (Horsey, J.)* - Yes. Under the business judgment rule, a business determination made by a corporation's board of directors is *presumed to be fully informed and made in good faith and in the best interests of the corporation*. - However, *this presumption is rebuttable if the plaintiffs can show that the directors were grossly negligent in that they did not inform themselves of "all material information reasonably available to them."* - The court determines that in this case, the Trans Union board of directors did not make an informed business judgment in voting to approve the merger. The directors did not adequately inquire into Van Gorkom's role and motives behind bringing about the transaction, including where the price of $55 per share came from; the directors were uninformed of the intrinsic value of Trans Union; and, lacking this knowledge, the directors only considered the merger at a two-hour meeting, without taking the time to *fully consider the reasons, alternatives, and consequences*. - The evidence presented is sufficient to rebut the presumption of an informed decision under the business judgment rule. The directors' decision to approve the merger was not fully informed. As a result, the plaintiffs are entitled to the fair value of their shares that were sold in the merger, which is to be based on the intrinsic value of Trans Union. The Delaware Court of Chancery is reversed, and the case is remanded to determine that value.

*Arnold v. Society for Savings Bancorp, Inc.*

*Rule of Law* Under Delaware law, a corporation's directors may not be held liable for disclosure violations if there is a directors' liability limitation in the certificate of incorporation. *Facts* A subsidiary of Bank of Boston Corporation (BoB) (defendant) called BBC Connecticut Holding Corporation (BBC) (defendant) merged with Society for Savings (Society), a subsidiary of Society for Savings Bancorp, Incorporated (Bancorp) (defendant). Bancorp shareholder Robert H. Arnold (plaintiff) sued BoB, Bancorp, and twelve Bancorp directors in the Court of Chancery for omissions and misrepresentations in the proxy statement issued for the merger. - Bancorp included a limitation of directors' liability under Delaware General Corporation Law § 102(b)(7) in Article XIII of its certificate of incorporation. - The court concluded that any such errors in the proxy statement were immaterial and did not reach Arnold's other claims. - Arnold appealed to the Delaware Supreme Court claiming (1) the omissions and misrepresentations were material, (2) the duties set out in Revlon Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986), were applicable, and (3) the individual directors could be held liable for disclosure violations. *Issue* Under Delaware law, may a corporation's directors be held liable for disclosure violations if there is a directors' liability limitation in the certificate of incorporation? *Holding and Reasoning (Veasey, C.J.)* - No. Delaware General Corporation Law § 102(b)(7) allows a corporation to exempt its directors from liability for the breach of a fiduciary duty. - Sections 102(b)(7)(i)-(ii) create exceptions and will not exempt directors who breach the duty of loyalty or act in bad faith. - Further, a director may waive the protections of 102(b)(7) by a "voluntary and intentional relinquishment of [the] known right...with knowledge of all material facts and intent to waive." - In this case, Bancorp included a liability exemption in its certificate of incorporation under § 102(b)(7). The plain language of the statute makes clear that directors are protected from liability for breach of a fiduciary duty, which includes fiduciary disclosure duties. - The statute does not exclude such requirements. Despite the plaintiff's claims, the directors did not breach the duty of loyalty or act in bad faith. The plaintiff has not alleged sufficient facts to claim the directors did anything other than make a good faith decision about the materiality of facts that needed to be disclosed. - In addition, there has been no showing that a director took any separate action as an officer that would create liability. Lastly, the directors made no clear and unequivocal waiver of § 102(b)(7) rights. - Consequently, Bancorp's directors *may not be held personally liable for any disclosure violations*. - Although the trial court should have found that one of the disclosures was both material and misleading, the court's other findings are affirmed.

In re The Goldman Sachs Group, Inc. Shareholder Litigation

*Rule of Law* Under Delaware law, a court *will not* hold a corporate board of directors liable for excessive employee compensation, unless the compensation *amounts to waste*. *Facts* - (Goldman) compensates employees on a "pay for performance" theory. Goldman's management provides revenue estimates and proposes a compensation ratio to the Compensation Committee, which compares competitors' ratios. - From 2007 to 2009 Goldman's directors (defendants) proposed compensation around 44 percent of net revenues each year, immediately after Goldman was saved from financial ruin by a government bailout. Goldman's shareholders (plaintiffs) sued, alleging that the compensation structure encouraged employees to pursue risky investments to the detriment of shareholders. - The plaintiffs claimed that employees leveraged Goldman's assets more than competitors because the shareholders bore the risk while earning only 2 percent of the revenue in dividends. - In 2008, one group earned $9.06 billion in net revenue, but wound up losing $2.7 billion after bonuses. Goldman's Audit Committee oversaw risk, but the plaintiffs argue that it failed. The plaintiffs claim Goldman took positions in conflict with shareholders and profited while they lost equity. - The plaintiffs asked the Delaware Court of Chancery for equitable relief on the grounds that the directors *breached fiduciary duties because: (1) a majority of the directors who approved the compensation plan were interested, (2) the compensation plan was not an exercise of the board's business judgment, and (3) the approval of the plan amounted to waste. Goldman's charter contained an exculpation provision pursuant to 8 Del. C. § 102(b)(7).* *Issue* Must a court hold a corporate board of directors liable for excessive employee compensation?

*Graham v. Allis-Chalmers Manufacturing Co.*

*Rule of Law* Under Delaware law, corporate directors and officers *will not be held liable for losses resulting from their failure to supervise and manage the business, so long as those directors and officers reasonably relied on the honesty and integrity of their subordinates*. *Facts* - (Allis-Chalmers) (defendant) was an equipment manufacturer with sales of over $500,000,000 yearly. Allis-Chalmers's policy was to delegate responsibility to the lowest possible level of management. The board of directors met monthly to decide major policy, but was unable to address the particular issues of the company's subparts. - The directors met annually to go over budgets but did not set prices of individual products. Singleton (defendant) was the senior vice president in charge of one of Allis-Chalmers's groups. - In this group, the Power Equipment Division was managed by McMullen (defendant). Employees in that division took part in a price-fixing scheme with other manufacturers beginning in 1956. - Ultimately, Allis-Chalmers and four employees pled guilty to antitrust law violations. John and Yvonne Graham (plaintiffs) filed a derivative lawsuit against Allis-Chalmers's directors and the four indicted employees. - *None of the directors had any knowledge of the antitrust violations when the occurred*. When the directors did learn of the wrongdoing, *the Legal Division investigated and instructed subpoenaed employees to be truthful. The directors issued a new antitrust policy, and the Legal Division met with employees to prevent future violations.* - Despite the directors' lack of actual knowledge, the plaintiffs argue that the directors had notice of potential antitrust activity based on two Federal Trade Commission (FTC) decrees from 1937 warnings related to earlier antitrust activity by the company. Both decrees stated the companies consented to avoid further proceedings. - Various directors and officers were aware of the decrees, but believed they had been complied with. The plaintiffs argued that the directors had a duty to find and prevent antitrust violations. The Vice Chancellor refused to impose liability, and the plaintiffs appealed to the Supreme Court of Delaware. *Issue* Must corporate directors and officers be held liable for losses resulting from their *failure to actively supervise* and manage the corporate affairs? *Holding and Reasoning (Wolcott, J.)* - No. Generally a corporation's directors and officers *have a right to reasonably rely on the honesty and integrity of company employees*. - *Reliance is no longer reasonable if the directors and officers are put on notice that wrongdoing may be happening*. - Director and officer *liability may be imposed if, after such notice, nothing is done to find and prevent misconduct*. - Nevertheless, directors and officers *are not under a duty to "install and operate a corporate system of espionage to ferret out wrongdoing which they have no reason to suspect exists."* - The question of when a director has breached the common law duty of supervising and managing the business is dependent on the surrounding circumstances. *Liability is proper if a director recklessly trusts an employee who is clearly untrustworthy*, seriously neglects her duties, or willfully or negligently ignores "obvious danger signs of employee wrongdoing." - In this case, the directors had no actual knowledge of wrongdoing. The 1937 FTC decrees were insufficient to put the directors on notice of possible future misconduct. Due to the sheer size of Allis-Chalmers,* it was impossible for the directors to personally know and supervise all of the company's employees*. Further, *the board acted immediately when it learned of the wrongdoing*. The directors had no duty to assume the company's employees were potentially criminals. The ruling of the Vice Chancellor is affirmed.

*In re Citigroup Inc. Shareholder Derivative Litigation*

*Rule of Law* Under the business judgment rule, corporate *directors will not be held personally liable for failure to manage business risk unless their conduct rose to the level of gross negligence*. *Facts* - In 2005, the housing bubble burst. This caused a number of subprime lenders to fail. According to its shareholders (plaintiffs), (Citigroup) began engaging in subprime lending in 2006. Citigroup sold financial products that the plaintiffs claim exposed it to $55 billion is subprime liability. - By November 2007, Citigroup was forced to give $7.6 billion in emergency financing to its structured investment vehicles (SIVs) and then bail them out by taking on $49 billion in assets. - Several of Citigroup's directors sat on the Audit and Risk Management Committee (ARM), which met frequently to discuss and manage risk. The plaintiffs sued existing and former Citigroup directors and officers (defendants), seeking to hold them personally liable for the company's losses. - The plaintiffs claim that the defendants *failed to oversee, manage, and disclose* Citigroup's exposure due related to the subprime lending market, despite red flags that the housing market was about to collapse. *Issue* May corporate directors be held personally liable for failure to manage the company's business risk?

*Kahn v. Lynch Communication Sys.*

*Rule of Law* Under the entire fairness standard, the burden of proof will not shift to the plaintiff if the transaction is approved by an independent committee that has no real bargaining power. *Facts* - Alcatel U.S.A. Corp. (Alcatel) (defendant) owed 43.3 percent of Lynch Communication Systems, Inc. (Lynch) (defendant) stock. Lynch's charter required a supermajority vote to approve any business combination. - The Lynch board had 11 directors, five of which were Alcatel designees. Lynch's management recommended that Lynch acquire Telco Systems, Inc. (Telco). - Alcatel rejected this and proposed that Lynch acquire Celwave Systems, Inc. (Celwave), one of Alcatel's affiliates. The Lynch board established an independent committee to consider the Celwave proposal. Alcatel's investment banker suggested a stock-for-stock merger. The committee rejected the proposal, because its own investment banker said Celwave was overvalued. - Instead of further negotiating with the Lynch board about its Celwave proposal, Alcatel responded by offering to buy the rest of Lynch's stock for $14 cash per share. The committee determined that $14 was inadequate. After a few rounds of negotiations, the committee accepted Alcatel's offer of $15.50 per share. - Although some committee members considered $15.50 inadequate, they accepted the offer under the pressure that there were no alternatives for Lynch, because Alcatel could block any alternative transaction and would proceed with a hostile tender offer if this one got rejected. - The Lynch board approved the cash-out merger based on the committee's recommendation. Alcatel's nominees did not participate in the approval. Alan Kahn (plaintiff), a minority shareholder of Lynch, sued to challenge the cash-out merger. - The court of chancery found that Alcatel owed the fiduciary duties of a controlling shareholder to other Lynch shareholders, because Alcatel exercised actual control over Lynch by dominating its corporate affairs. However, the court held that the independent committed effectively negotiated the transactions at arm's length, and therefore, the burden of proof shifted to the challenging shareholder, Kahn. Kahn appealed. *Issue* Under the entire fairness standard, will the burden of proof shift to the plaintiff if the transaction is approved by an independent committee that has no real bargaining power? *Holding and Reasoning (Holland, J.)* - No. Under the entire fairness standard, the burden of proof will not shift to the plaintiff if the transaction is approved by an independent committee that has no real bargaining power. As established in Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983), a controlling shareholder sitting on both sides of a transaction bears the burden of proving the transaction's entire fairness. - Thus, the standard of review for a cash-out merger by a controlling shareholder is entire fairness. An approval of the transaction by an independent committee shifts the burden of proving that the transaction is unfair to the plaintiff. - However, the mere existence of an independent committee does not shift the burden. The controlling shareholder must not dictate the terms of the merger, and the independent committee must have "real bargaining power." Here, the independent committee's ability to bargain at arm's length with Alcatel was questionable. - Although the committee effectively rejected the merger with Celwave, as to Alcatel's offer to buy Lynch, the committee lacked the ability to negotiate with Alcatel at arm's length. Alcatel threatened to proceed with a hostile tender offer if the committee did not accept the $15.50 offer. - Even though initially the committee was able to negotiate for a few rounds, the arm's length bargaining ended when the committee "surrendered to" Alcatel's final offer. Therefore, the judgment that the committee negotiated the transaction at arm's length is reversed and remanded. The burden of proof remains on Alcatel.

*Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc.*

*Rule of Law* When the break-up of a corporation is inevitable, the duty of the corporation's board of directors changes from maintaining the company as a viable corporate entity to maximizing the shareholders' benefit when the company is eventually and inevitably sold. *Facts* - Pantry Pride, Inc. (Pantry Pride) (plaintiff) sought to acquire Revlon, Inc. (Revlon) (defendant) and offered $45 per share. - Revlon determined the price to be inadequate and declined the offer. Despite defensive efforts by Revlon, including an offer to exchange up to 10 million shares of Revlon stock for an equivalent number of Senior Subordinated Notes (Notes) of $47.50 principal at 11.75 percent interest, Pantry Pride remained committed to the acquisition of Revlon. - Pantry Pride raised its offer to $50 per share and then to $53 per share. Meanwhile, Revlon was in negotiations with Forstmann Little & Co. (Forstmann) (defendant) and agreed to a leveraged buyout by Forstmann, subject to Forstmann obtaining adequate financing. Under the agreement, Revlon stockholders would receive $56 per share and Forstmann would assume Revlon's debts, including what amounted to a waiver of the Notes covenants. Upon the announcement of that agreement, the market value of the Notes began to drop dramatically and the Notes holders threatened suit against Revlon. At about the same time, Pantry Pride raised its offer again, this time to $56.25 per share. Upon hearing this, Forstmann raised its offer under the proposed agreement to $57.25 per share, contingent on two pertinent conditions. First, a lock-up option giving Forstmann the exclusive option to purchase part of Revlon for $100-$175 million below the purported value if another entity acquired 40 percent of Revlon shares. Second, a "no-shop" provision, which constituted a promise by Revlon to deal exclusively with Forstmann. - In return, Forstmann agreed to support the par value of the Notes even though their market value had significantly declined. The Revlon board of directors approved the agreement with Forstmann and Pantry Pride brought suit, challenging the lock-up option and the no-shop provision. - The Delaware Court of Chancery found that the Revlon directors had breached their duty of loyalty and enjoined the transfer of any assets, the lock-up option, and the no-shop provision. The defendants appealed. *Issue* When the break-up of a corporation is inevitable, does the corporation's board of directors violate its duty of loyalty to the shareholders if its first consideration is not maximizing the shareholders' benefit when the company is eventually and inevitably sold? *Holding and Reasoning (Moore, J.)* Yes. In cases where a board implements "anti-takeover measures," the burden is on the directors to prove that their actions were reasonable. - However, the business judgment rule kicks in if they prove a good faith and reasonable investigation resulted in their decision. - In the present case, the Revlon board's initial defensive measures—its exchange offer for Notes—was reasonable under the holding in Unocal Corporation v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985), given the board's determination that Pantry Pride's offer was less than adequate. - However, when Pantry Pride continually increased its offer, the court determines that it became obvious that "the break-up of [Revlon] was inevitable." At that point, the Revlon board's duty was changed from maintaining Revlon as a viable corporate entity to maximizing the shareholders' benefit when the company was eventually and inevitably sold. - By granting the lock-up option to Forstmann that in turn guaranteed par value for the Note holders who were threatening litigation against Revlon, it is apparent that the Revlon board of directors had their own legal interests in mind, rather than the maximization of Revlon shareholders' benefits. - There was essentially an auction ongoing between Forstmann and Pantry Pride for Revlon's shares and the granting of the lock-up option effectively ended the auction rather than letting the auction play out to obtain the highest bid for the Revlon stockholders. - The Revlon board put its own legal interests first to the detriment of the stockholders. This constitutes a breach of the board's duty of loyalty and therefore the board is not entitled to the deference of the business judgment rule. The lock-up option should be enjoined and the Delaware Court of Chancery is affirmed.

*Zirn v. VLI Corp* (Language )

*What is the DE standard for the disclosure?* - The requirement that a director disclose to shareholders all material facts bearing upon a merger vote arises under the duties of care and loyalty. - An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.... It does not require proof of a substantial likelihood that disclosure of the omitted fact would *779 have caused the reasonable investor to change his vote. *Edited* - The director must disclose to shareholders all material facts. - The fact will be material when there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote even if it would not have caused him to change his vote. - The TSC materiality standard is an objective one, measured from the point of view of the reasonable investor. "[I]f an omission is immaterial, the fact that it was made by a party with some incentive to be less than candid cannot render the omission material." Barkan, 567 A.2d at 1288. Conversely, a material omission is not rendered immaterial simply because the party making the omission honestly believes it insignificant.

*Kahn v. M & F Worldwide Corp.* (language )

*You can use the business judgement rule on the duty of loyalty* To summarize our holding, HN2 in controller buyouts, the business judgment standard of review will be applied if and only if: (i) the controller conditions the procession of the transaction on the approval of both a Special Committee and a majority of the minority stockholders. (ii) the Special Committee is A. independent. B. empowered to freely select its own advisors and to say no definitively. C. meets its duty of care in negotiating a fair price. (III) the vote of the minority is informed, and there is no coercion of the minority. -Business Judgment Review Properly Applied We have determined that the business judgment rule standard of review applies to this controlling stockholder buyout. Under that standard, the claims against the Defendants must be dismissed unless no rational person could have believed that the merger was favorable to the minority stockholders.

*SINCLAIR v. LEVIEN* (Language)

- *A parent does indeed owe a fiduciary duty to its subsidiary when there are parent-subsidiary dealings.* - However, this alone will not evoke the intrinsic fairness standard. This standard will be *applied only when the fiduciary duty is accompanied by self-dealing.* - *Self-dealing* is the situation when a parent is on both sides of a transaction with its subsidiary. It occurs when the parent, by virtue of its domination of the subsidiary, *causes the subsidiary to act* in such a way that the parent receives something from the subsidiary *to the exclusion of, and the detriment to, the minority stockholders of the subsidiary*.

*Weinberger v. UOP, Inc.* (Language)

- Although perfection is not possible, or expected, the result here could have been entirely different if UOP had appointed an independent negotiating committee of its outside directors to deal with Signal at arm's length. - Given the absence of any attempt to structure this transaction on an arm's length basis, Signal cannot escape the effects of the conflicts it faced, particularly when its designees on UOP's board did not totally abstain from participation in the matter. There is no "safe harbor" for such divided loyalties in Delaware. When directors of a Delaware corporation are on both sides of a transaction, they are required to demonstrate their utmost good faith and the most scrupulous inherent fairness of the bargain. The requirement of fairness is unflinching in its demand that where one stands on both sides of a transaction, he has the burden of establishing its entire fairness, sufficient to pass the test of careful scrutiny by the courts. - The concept of fairness has two basic aspects: fair dealing and fair price. *The fair dealing* embraces questions of when the transaction was timed, how it was initiated, structured, negotiated, disclosed to the directors, and how the approvals of the directors and the stockholders were obtained. *The fair price* aspect of fairness relates to the economic and financial considerations of the proposed merger, including all relevant factors: assets, market value, earnings, future prospects, and any other elements that affect the intrinsic or inherent value of a company's stock. - Four things need both shareholders and board of directors' approval: 1. Merger 2. Sale of assets 3. Liquidation 4. Amending the Articles of Incorporation

*In re novell, inc. shareholder litigation* (Language)

- An independent and disinterested board, however, is not absolutely required to treat all bidders equally.123 The Board could have dealt with bidders differently if the shareholders' interests justified such a course. From the factual sources (primarily, the Amended Complaint) available to the Court on this motion to dismiss, those reasons—if they existed—cannot be ascertained. Perhaps the Attachmate offer was more credible. Perhaps Attachmate had no more due diligence needs. Perhaps Attachmate had its funding for the transaction arranged, while Party C was still searching for financing. Perhaps Novell had been for sale too long and there was concern that the process would become "stale" or that, if Party C were allowed an opportunity to evaluate the benefits of the Patent Sale, Attachmate would lose interest in a possible transaction.

*Guth v. Loft* (Language)

- Corporate officers and directors are not permitted to use their position of trust and confidence to further their private interests. - While technically not trustees, they stand in a fiduciary relation to the corporation and its stockholders. A public policy, existing through the years, and derived from a profound knowledge of human characteristics and motives. - If an officer or director of a corporation, in violation of his duty as such, acquires gain or advantage for himself, the law charges the interest so acquired with a trust for the benefit of the corporation, at its election, while it denies to the betrayer all benefit and profit. - It is true that *when a business opportunity comes to a corporate officer or director* [] in his individual capacity rather than in his official capacity, [] and the opportunity is not essential to his corporation, [] and the corporate has no interest or expectancy - the officer or director is *entitled to treat the opportunity as his own*. -------------------------------------- (1) Fiduciary (2) Financially able to undertake (3) In line of business (4) Practical advantage to it ----------------------------------------- - ( line of business ) Where a corporation is engaged in a certain business, and an opportunity is presented to it embracing an activity as to which it has fundamental knowledge, practical experience and ability to pursue, which, logically and naturally, is adaptable to its business having regard for its financial position, and is one that is consonant with its reasonable needs and aspirations for expansion, it may be properly said that the opportunity is in the line of the corporation's business.

*Kahn v. Lynch Communication Sys.* (Language)

- Once again, this Court holds that HN10 the exclusive standard of judicial review in examining the propriety of an interested cash-out merger transaction by a controlling or dominating shareholder is entire fairness. Weinberger v. UOP, Inc., 457 A.2d 701 at 710-11. 5Link to the text of the note The initial burden of establishing entire fairness rests upon the party who stands on both sides of the transaction. Id. However, an approval of the transaction by an independent committee of directors or an informed majority of minority shareholders shifts the burden of proof on the issue of fairness from the controlling or dominating shareholder to the challenging shareholder-plaintiff.

*In re the WALT DISNEY* (Language)

- Fourth, the appellants stress that Crystal did not make a report in person to the compensation committee at its September 26 meeting. Although that is true, it is undisputed that Crystal was available by phone if the committee members had questions that could not be answered by those who were present. Moreover, Russell and Watson related the substance of Crystal's analysis and information to the committee. - The precise question is whether the Chancellor's articulated standard for bad faith corporate fiduciary conduct-intentional dereliction of duty, a conscious disregard for one's responsibilities-is legally correct. -The first category involves so-called "subjective bad faith," that is, fiduciary conduct motivated by an actual intent to do harm. -The second category of conduct, which is at the opposite end of the spectrum, involves lack of due care-that is, fiduciary action taken solely by reason of gross negligence and without any malevolent intent. - grossly negligent conduct, without more, does not and cannot constitute a breach of the fiduciary duty to act in good faith. The conduct that is the subject of due care may overlap with the conduct that comes within the rubric of good faith in a psychological sense, - The good faith required of a corporate fiduciary includes not simply the duties of care and loyalty, in the narrow sense that I have discussed them above, but all actions required by a true faithfulness and devotion to the interests of the corporation and its shareholders. A failure to act in good faith may be shown, for instance, where the fiduciary intentionally acts with a purpose other than that of advancing the best interests of the corporation, where the fiduciary acts with the intent to violate applicable positive law, or where the fiduciary intentionally fails to act in the face of a known duty to act, demonstrating a conscious disregard for his duties. There may be other examples of bad faith yet to be proven or alleged, but these three are the most salient.

*Blasius Industries, Inc. v. Atlas Corp.* (language)

- Generally, shareholders have only two protections against perceived inadequate business performance. They may *sell their stock* (which, if done in sufficient numbers, may so affect security prices as to create an incentive for altered managerial performance), or they may *vote to replace incumbent board members*. - From this point of view, as well, it appears that the ordinary considerations to which the business judgment rule originally responded are simply not present in the shareholder voting context. That is, *a decision by the board to act for the primary purpose of preventing the effectiveness of a shareholder vote* inevitably involves the question *who*, as between the principal and the agent, *has authority with respect to a matter of internal corporate governance*. - This court *struck down board acts done for the primary purpose of impeding the exercise of stockholder voting power*. In doing so, a per se rule was not applied. Rather, it was said that, in such a case, the board bears the heavy burden of demonstrating a compelling justification for such action. The only justification that can, in such a situation, be offered for the action taken is that the board knows better than do the shareholders what is in the corporation's best interest. While that premise is no doubt true for any number of matters, it is irrelevant (except insofar as the shareholders wish to be guided by the board's recommendation) when the question is who should comprise the board of directors. The theory of our corporation law confers power upon directors as the agents of the shareholders; it does not create Platonic masters.

Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. (Language )

- However, when Pantry Pride increased its offer to $50 per share, and then to $53, it became apparent to all that the break-up of the company was inevitable. The Revlon board's authorization permitting management to negotiate a merger or buyout with a third party was a recognition that the company was for sale. The duty of the board had thus changed from the preservation of Revlon as a corporate entity to the maximization of the company's value at a sale for the stockholders' benefit. This significantly altered the board's responsibilities under the Unocal standards. It no longer faced threats to corporate policy and effectiveness, or to the stockholders' interests, from a grossly inadequate bid. The whole question of defensive measures became moot. The directors' role changed from defenders of the corporate bastion to auctioneers charged with getting the best price for the stockholders at a sale of the company.

*Sandys v. Pincus*

- In a derivative suit, demand was excused under Del. Ch. Ct. R. 23.1, when plaintiff pleaded that *the controlling stockholder and one director and her husband co-owned an airplane, which was suggestive of an extremely intimate personal friendship between their families*. - Two other directors were partners at a prominent venture capital firm and that they and their firm not only controlled 9.2 percent of the corporation's equity as a result of being early-stage investors, but had other interlocking relationships with the controller and another selling stockholder outside of the corporation.

*GRAHAM v. ALLIS-CHALMERS MANUFACTURING COMPANY * (Language)

- On February 8, 1960, at the direction of the Board, a policy statement relating to anti-trust problems was issued, and the Legal Division commenced a series of meetings with all employees of the company in possible areas of anti-trust activity. The purpose and effect of these steps was to eliminate any possibility of further and future violations of the antitrust laws. - Plaintiffs have wholly failed to establish either actual notice or imputed notice to the Board of Directors of facts which should have put them on guard, and have caused them to take steps to prevent the future possibility of illegal price fixing and bid rigging. - it appears that *directors of a corporation in managing the corporate affairs are bound to use that amount of care which ordinarily careful and prudent men would use in similar circumstances*. - Their duties are those of control, and whether or not by neglect they have made themselves liable for failure to exercise proper control depends on the circumstances and facts of the particular case. -The precise charge made against these director defendants is that, even though they had no knowledge of any suspicion of wrongdoing on the part of the company's employees, they still should have put into effect a system of watchfulness which would have brought such misconduct to their attention in ample time to have brought it to an end. However, the Briggs case expressly rejects such an idea. - On the contrary, it appears that *directors are entitled to rely on the honesty and integrity of their subordinates until something occurs to put them on suspicion that something is wrong. If such occurs and goes unheeded, then liability of the directors might well follow.* - But absent cause for suspicion *there is no duty upon the directors to install and operate a corporate system of espionage to ferret out wrongdoing which they have no reason to suspect exists.* - In the last analysis, the question of whether a corporate director has become liable for losses to the corporation through neglect of duty is determined by the circumstances. *If he has recklessly reposed confidence in an obviously untrustworthy employee, has refused or neglected cavalierly to perform his duty as a director, or has ignored either willfully or through inattention obvious danger signs of employee wrongdoing*, the law will cast *the burden of liability upon him*. - This is not the case at bar, however, for as soon as it became evident that there were grounds for suspicion, the Board acted promptly to end it and prevent its recurrence.

Aronson v. Lewis (Language)

- Our view is that in determining demand futility the Court of Chancery in the proper exercise of its discretion must decide whether, under the particularized facts alleged, a reasonable doubt is created that: (1) the directors are disinterested and independent and (2) the challenged transaction was otherwise the product of a valid exercise of business judgment. - However, HN16 the mere threat of personal liability for approving a questioned transaction, standing alone, is insufficient to challenge either the independence or disinterestedness of directors, although in rare cases a transaction may be so egregious on its [**27] face that board approval cannot meet the test of business judgment, and a substantial likelihood of director liability therefore exists.

*SCIENCE ACCESSORIES CORPORATION v. SUMMAGRAPHICS CORPORATION* (Language)

- Similarly, while an agent may not put himself in a position against to his principal, *an agent is not thereby prevented from acting in good faith outside his employment even though it may adversely affect his principal's business*. - Further, an agent can make arrangements or plans to go into competition with his principal before terminating his agency, provided no unfair acts are committed or injury done his principal.

*Smith v. Van Gorkom* (language)

- The Court of Chancery concluded from the evidence that the Board of Directors' approval of the Pritzker merger proposal fell within the protection of the business judgment rule. -Under Delaware law, *the business judgment rule is the offspring of the fundamental principle, codified in 8 Del.C. § 141(a), that the business and affairs of a Delaware corporation are managed by or under its board of directors*. - In carrying out their managerial roles, directors are charged with an unyielding fiduciary duty to the corporation and its shareholders. *The business judgment rule exists to protect and promote the full and free exercise of the managerial power granted to Delaware directors*. - Zapata Corp. v. Maldonado, supra at 782. The rule itself "is a presumption that in making a business decision, the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company." -The determination of whether a business judgment is an informed one *turns on whether the directors have informed themselves "prior to making a business decision, of all material information reasonably available to them."* -While the Delaware cases use a variety of terms to describe the applicable *standard of care*, our analysis satisfies us that under the business judgment rule director liability is predicated upon concepts of *gross negligence*. -The directors (1) did not adequately inform themselves as to Van Gorkom's role in forcing the "sale" of the Company and in establishing the per share purchase price; (2) were uninformed as to the intrinsic value of the Company; and (3) given these circumstances, at a minimum, were grossly negligent in approving the "sale" of the Company upon two hours' consideration, without prior notice, and without the exigency of a crisis or emergency. - Here, the issue is whether *the directors informed themselves as to all information that was reasonably available to them*. Had they done so, they would have learned of the source and derivation of the $55 price and could not reasonably have relied thereupon in good faith.

In re The GOLDMAN SACHS GROUP, INC. SHAREHOLDER LITIGATION. language

- The Delaware General Corporation Law is, for the most part, enabling in nature.

*CEDE & CO. and cinerama, INC. v. TECHNICOLOR, INC* (Language)

- The rule posits a powerful presumption in favor of actions taken by the directors in that a decision made by a loyal and *informed board will not be overturned by the courts unless it cannot be "attributed to any rational business purpose."* - Thus, a shareholder plaintiff challenging a board decision has the burden at the outset to rebut the rule's presumption. *To rebut the rule, a shareholder plaintiff assumes the burden of providing evidence that directors, in reaching their challenged decision, breached any one of the triads of their fiduciary duty—good faith, loyalty or due care.* - If a shareholder plaintiff fails to meet this evidentiary burden, the business judgment rule attaches to protect corporate officers and directors and the decisions they make, and our courts will not second-guess these business judgments.

*SCIENCE ACCESSORIES v. SUMMAGRAPHICS CORP* (Note)

- This is the digital revolution in his infancy. They were digitizing information that we take now for granted. Brenner is the stranger to the operation. Then you have 3 key employees. There is a digitizer pen. He invents this and persuades this guys to jump ships with him. - There is no issue or relativeness. They used SAC resources to use the prototype. So the theory by the plaintiff is twofold: (1) Fiduciary (2) Contract - We are going to start with fiduciary. So this is in the line of business, this is exactly what they do. It is clearly superior to anything in the market. Brenner did not want SAC to take advantage of it. He says that it is not available for SAC. SAC couldn't financially develop it. That puts on the fiduciary side. There is no corporate opportunity doctrine. - The plaintiffs lawyer on behalf of the plaintiff says that it is an agency issue. They owe fiduciary duties to the principal. Agents have duties of loyalty: disclosure, can't compete,... (p. 13). These guys had it both way. We learned something very valuable. Can you do something in direct competition. You owe duty of loyalty, disclosure and you can't compete. You cannot do this. - There is another policy. You can free compete, you can compete with the principal. US wants to promote, you want people to feel free to do it. If you meet during business hours you have to catch up, you own that and don't do anything bad, don't steel supplies. - Regan had a client that sneaks blueprint outs and photocopies. He said that you could reverse engineered it. He wanted a short cut. In any case, you are allowed to do both. We are balancing this as long as you don't do bad acts (p. 15: Column 2). You can't misuse confidential information. Here no real bad acts or violations of the duty of loyalty. - You have the contract. So you have a non-compete: you can't work for another company. You have time and distance, it has to be reasonable. You cannot compete for 1 or 2 years, if employee mostly 1 year. If buyer of the business 5 year is possible. So reasonable time and reasonable distance. There is no such non-compete, if there was these guys are screwed. - Here there is no non-compete, but: If you make or conceive an idea while you work for me, whatever it is, while you are in my company, they own it. The argument was that it did not fall under that. The defendant says no way and the court agrees. - We know how it turns out: defendant is going to win. You say: you did not steal anything, no bad acts. The employment agreement said that 'make or conceive'. We own this too, he invented it so conceived. Made is build this? He does. What is the courts analysis? - The court makes finesse and say: that cannot mean that. They say that they took the idea, but it was Brenners idea. The construction of it added no new benefit. It was not that they added something new. Since it was nothing new. What if Brenner invented the magwire almost? He is in his lab and is over 2000 experiments in and everything fails and he tried every possible filament and one of the persons gives the idea. Under this contract, who owns this idea? Derivative ownership whatever that contribution. - We had a case and home pregnancy test. 18 years of research and I took 18 days to find the missing thing: he went into settlement and got a piece of it. - So employees can have fiduciary duties. The part of this case that I used a lot are the agency's duties. You owe the company fiduciary duties. When can you find customers? After you quit. We are going to protect you as potential new business, but once you are competing you have to back off. You can't go wrong if no hiding of information from the employer, but you can't compete, you can't do that. In corporate opportunity case: you can be close to the line. You can go to the board and be safe.

*In re CITIGROUP INC. SHAREHOLDER DERIVATIVE LITIGATION.* (Language)

- Thus, *to establish oversight liability a plaintiff must show that the directors knew they were not discharging their fiduciary obligations or that the directors demonstrated a conscious disregard for their responsibilities such as by failing to act in the face of a known duty to act*. The test is rooted in concepts of bad faith; indeed, *a showing of bad faith is a necessary condition to director oversight liability*. - While it may be possible for a plaintiff to meet the burden under some set of facts, plaintiffs, in this case, have failed to state a Caremark claim sufficient to excuse demand based on a theory that the directors did not fulfill their oversight obligations by failing to monitor the business risk of the company. - That the director defendants knew of signs of a deterioration in the subprime mortgage market, or even signs suggesting that conditions could decline further, is not sufficient to show *that the directors were or should have been aware of any wrongdoing at the Company or were consciously disregarding a duty* somehow to prevent Citigroup from suffering losses.

*LYONDELL V. RYAN* (Language)

- Thus, the directors' failure to take any specific steps during the sale process could not have demonstrated a conscious disregard of their duties. More importantly, there is a vast difference between an inadequate or flawed effort to carry out fiduciary duties and a conscious disregard for those duties. - Directors' decisions must be reasonable, not perfect. - The trial court approached the record from the wrong perspective. Instead of questioning whether disinterested, independent directors did everything that they (arguably) should have done to obtain the best sale price, the inquiry should have been whether those directors utterly failed to attempt to obtain the best sale price.

Moran v. Household Intern., Inc. (Language)

- Thus, while the Rights Plan does deter the formation of proxy efforts of a certain magnitude, it does not limit the voting power of individual shares. On the evidence presented it is highly conjectural to assume that a particular effort to assert shareholder views in the election of directors or revisions of corporate policy will be frustrated by the proxy feature ofthe Plan.

Loudon v. Archer-Daniels-Midland Co. (Language)

- Tri-Star stands only for the narrow proposition that, where directors have breached their disclosure duties in a corporate transaction that has in turn caused impairment to the economic or voting rights of stockholders, there must at least be an award of nominal damages. - We hold that under Delaware law there is no per se rule that would allow damages for all director breaches of the fiduciary duty of *147 disclosure. The dictum in Tri-Star is confined to the facts of that case. Damages will be available only in circumstances where disclosure violations are concomitant with deprivation to stockholders' economic interests or impairment of their voting rights.n - There is an analytical distinction between "ownership claim issues" and "enterprise issues" facing a board of directors. "Enterprise issues" are usually those involving management decisions affecting the enterprise and do not go to the heart of the individual stockholder's personal property interests. "Ownership claim issues" involve board decisions that have an immediate and profound impact on stockholders' rights.

*Zirn v. VLI Corp*

- We are looking at the fiduciary duty of disclosure and VLI is the target corporation, it is publicly owned and we have AHP. - VLI has a patent. AHP enters into friendly negotiations. How much cash flow does this generate? The original agreement is to buy the corporation for $7/share. It is a pretty good premium, is this fair? There are two events that occur. - There is a problem with the patent and there is a gigantic stock problem. - Let us talk about the patent first. Somewhere in the middle they find out the patent has lapsed. Their exclusive right has been lost and the entire world can copy it. Meanwhile how did it lapsed? They had an exclusive on this, but the lawyer failed to file something. They get a new patent counsel and they want to get it back. What are the chances of getting it back? Originally merger with the condition that the patent gets reinstated. Then they want to forget about the merger and get a tender offer. They want to have the risk absorbed, but don't pay full for it so $6.25. Because this is a tender offer, under our Federal Disclosure Law, this is a market event. In a tender offer, the buyer has to file a document. Under Federal Securities law the director of the target have to file 14D-9 and they have to say: We file this because requirement and we advise you to accept. The disclosure document we are looking at is in this. There were two variables going on: 1) How do you manage to lose the patent in the middle of the deal? The price goes to $6.25. When they disclosed to the shareholders, the only thing they talked about was the patent problem. They said that there is a significant possibility that they will not prevail. Shareholders get this and they want to get out of here. 2) One other thing happened that was not disclosed. You have the patent going away and then the stock market. October 15, 1987 the stock market fell 100 points. That is 5% in a single day and everyone was like: Holy shit, what is going on? We talked for the first time about global market issues. We began talking about globalization of the economy. Then it went down with 22%. This is relevant here, because the stock market tanked in the middle of the deal. This is what you call compounding variables. You had a good process, talked to patent counsel, we talk about investment banker: $6.25 is good and the stock went to $2.5/share. They had 95% after the tender offer. They said that the fiduciary duty of disclosure was breached, the plaintiff say that you never told the shareholder that the lowering of the stock in the crash was part of the reason the price went down. p. 778 column 2 bottom (5, 6): The requirement that a director disclose to shareholders all material facts bearing upon a merger vote arises under the duties of care and loyalty. The three primary colors of fiduciary duty: care, loyalty and good faith. In fiduciary it is the same idea as colors. We don't talk about Revlon, but about disclosure. It is part of that story. Loyal: be loyal, care: be informed, good faith: with honest head that you do what is right. This is about an important decision. Tell them why it went down. Delaware quoted TSC Industries v. Northway on this page: "reasonable shareholder would consider this important". It is not like it would have changed your mind, but you would like to have known that. What is going on here? What is wrong with what happened. The trial court said that the director agreed to lower the price. The record also showed that they talked about the stock market crash. The disclosure argument was that we did not disclose that. The main reason was the patent. You don't have to disclose it if you did not think it was important. It is an objective test of materiality. How do we measure it? What would a reasonable shareholder would like to know about? Little footnote: if the directors literally did not consider the stock market at all, then you might have an argument. You have to give them both pieces of information. There is an argument that is material. If it was a temporary then you can not tender and hope that it is going to go back to $7. Notice very important here: p. 779 bottom column 2 last 8 lines. They are getting sued for money damages, they hired lawyers, they drafted the disclosure document and they said: well, let us talk about the patent problem. There is no business judgment rule for disclosure, no matter how good faith you are. The idea is that the disclosure law burst into '80's and this is an example of it. Whatever the good faith basis is, the only issue is getting it wrong. By the way and that is the hole in the case: evidence and 102(7). We have lawyer-client privilege and waiver subject matter. They can no longer say privilege because you waived it in the paper. Lawyers had to be very careful not to accidentally waive it. What did the 14D-9 say? That the lawyer said that it may not have the patent back. The court said that they waived the privilege by partial disclosure. The document said that there is a significant possibility. In this case they agreed to waive the privilege and the document say that the professional privilege is not prevail. The thing is that they didn't tell. It is going back to trial for one claim for money damages. The objective test: the court decides. No business judgment rule, does not matter if you have the good faith here. One new defense: 102(b)(7) exculpatory provision. It says that you can get an injunction, but you cannot sue me for money. If all you got is a care claim, you cannot sue me for money. In paragraph (17) p. 783 it says that it does not shield directors for equitable fraud. Here you have that weird sentence: the Supreme Court seems to say that it is care and loyalty. On p. 778 column 2 (5, 6): under the duties care and loyalty, there is a loyalty component so you cannot use 102(b)(7). If you only know Zirn you can ask yourself as a director: "Am I safe?"

In re Dow Chem. Co. Derivative Litig. (Language)

-("Allegations that Stewart and the other directors moved in the same social circles, attended the same weddings, developed business relationships before joining the board, and described each other as 'friends,' even when coupled with Stewart's 94% voting power, is insufficient, without [*32] more, to rebut the presumption of independence.")). -Simply put, plaintiffs take issue with the substantive decisions of the R&H Transaction, instead of the process the board followed. This Court made clear in Citigroup that HN16 substantive second-guessing of the merits of a business decision, like what plaintiffs ask the Court to do here, is precisely the kind of inquiry that the business judgment rule prohibits.

*Unocal Corp. v. Mesa Petroleum Co.* (Language)

-The general grant of power to a board of directors is conferred by 8 Del.C. § 141(a), which provides: (a) The business and affairs of every corporation organized under this chapter shall be managed by or under the direction of a board of directors, -The board has a large reservoir of authority upon which to draw. Its duties and responsibilities proceed from the inherent powers conferred by 8 Del.C. § 141(a), respecting management of the corporation's "business and affairs".6 Additionally, the powers here being exercised derive from 8 Del.C. § 160(a), conferring broad authority upon a corporation to deal in its own stock.7 From this it is now well established that in the acquisition of its shares a *954 Delaware corporation may deal selectively with its stockholders, provided the directors have not acted out of a sole or primary purpose to entrench themselves in office. -When a board addresses a pending takeover bid it has an obligation to determine whether the offer is in the best interests of the corporation and its shareholders. In that respect a board's duty is no different from any other responsibility it shoulders, and its decisions should be no less entitled to the respect they otherwise would be accorded in the realm of business judgment.9 See also Johnson v. Trueblood, 629 F.2d 287, 292-293 (3d Cir.1980). There are, however, certain caveats to a proper exercise of this function. Because of the omnipresent specter that a board may be acting primarily in its own interests, rather than those of the corporation and its shareholders, there is an enhanced duty which calls for judicial examination at the threshold before the protections of the business judgment rule may be conferred. - In the face of this inherent conflict directors must show that they had reasonable grounds for believing that a danger to corporate policy and effectiveness existed because of another person's stock ownership. Cheff v. Mathes, 199 A.2d at 554-55. However, they satisfy that burden "by showing good faith and reasonable investigation...." - A further aspect is the element of balance. If a defensive measure is to come within the ambit of the business judgment rule, it must be reasonable in relation to the threat posed. This entails an analysis by the directors of the nature of the takeover bid and its effect on the corporate enterprise. -In adopting the selective exchange offer, the board stated that its objective was either to defeat the inadequate Mesa offer or, should the offer still succeed, provide the 49% of its stockholders, who would otherwise be forced to accept "junk bonds", with $72 worth of senior debt. We find that both purposes are valid. - Thus, we are satisfied that the selective exchange offer is reasonably related to the threats posed. It is consistent with the principle that "the minority stockholder shall receive the substantial equivalent in value of what he had before." -- In conclusion, there was directorial power to oppose the Mesa tender offer, and to undertake a selective stock exchange made in good faith and upon a reasonable investigation pursuant to a clear duty to protect the corporate enterprise. Further, the selective stock repurchase plan chosen by Unocal is reasonable in relation to the threat that the board rationally and reasonably believed was posed by Mesa's inadequate and coercive two-tier tender offer. Under those circumstances the board's action is entitled to be measured by the standards of the business judgment rule. Thus, unless it is shown by a preponderance of the evidence that the directors' decisions were primarily based on perpetuating themselves in office, or some other breach of fiduciary duty such as fraud, overreaching, lack of good faith, or being uninformed, a Court will not substitute its judgment for that of the board.

*STONE v. RITTER * (Language)

-the duty oversight: *assuring themselves that information and reporting systems exist in the organization* that are reasonably designed to provide to senior management and to the board itself timely, accurate information sufficient to allow management and the board, each within its scope, to reach informed judgments concerning both the corporation's compliance with law and its business performance. when will the Director be liable? - only a sustained or systematic failure of the board to exercise oversight-such as *an utter failure to attempt to assure a reasonable information and reporting system exists*—will establish the lack of good faith that is a necessary condition to liability. - *A failure to act in good faith may be shown, for instance*, (1) where the fiduciary *intentionally acts with a purpose other than that of advancing the best interests* of the corporation, (2) where the fiduciary *acts with the intent to violate applicable positive law*, (3)or where the fiduciary *intentionally fails to act in the face of a known duty to act*, demonstrating a conscious disregard for his duties. There may be other examples of bad faith yet to be proven or alleged, but these three are the most salient. - This view of a failure to act in good faith results in two additional doctrinal consequences. *First*, although good faith may be described colloquially as part of a "triad" of fiduciary duties that includes the duties of care and loyalty, the obligation to act in *good faith does not establish an independent fiduciary duty* that stands on the same footing as the duties of care and loyalty. Only the latter two duties, where violated, may directly result in liability, whereas a failure to act in good faith may do so, but indirectly. - The second doctrinal consequence is that the *fiduciary duty of loyalty is not limited to cases involving a financial or other cognizable fiduciary conflict of interest. It also encompasses cases where the fiduciary fails to act in good faith.* - As the Court of Chancery aptly put it in Guttman, "[a] director cannot act loyally towards the corporation unless she acts in the good faith belief that her actions are in the corporation's best interest."

*In re Novell, Inc. S'holder Litig*

In this opinion, the Court's decision was based on its finding that the complaint stated *a "reasonably conceivable" bad faith* claim based on the "unexplained, extremely favorable" treatment by the board of directors (the "Directors") of Novell, Inc. ("Novell" or the "Company") towards the Company's acquirer, Attachmate Corporation ("Attachmate") over other potential acquirers. The motions to dismiss were otherwise granted. - After receiving an unsolicited, non-binding acquisition offer in March 2010, the Directors initiated a sales process in which over fifty potential buyers were contacted. - In May 2010, the Directors authorized Attachmate to partner with two of its principal shareholders for the purpose of submitting a preliminary proposal for the Company. The Directors never extended other potential bidders the same courtesy of working with strategic partners. - As of August 27, 2010, Attachmate had offered Novell $4.80 per share while an unnamed "Party C" bid $4.86 per share. Upon considering the proposals, the Directors granted Attachmate exclusivity until September 27, 2010, a period the Directors later extended. - On October 28, Attachmate submitted a revised bid of $5.25 per share while Party C submitted an unsolicited, non-binding proposal for $5.75 per share. Attachmate later raised its offer to $6.10 per share. - After deliberating on its options, the Directors decided to pursue further discussions with Attachmate. On November 21, 2010, the Directors approved a merger agreement under which Novell would be acquired by a wholly-owned subsidiary of Attachmate (the "Acquisition"). - On the same day, the Directors also approved the sale of certain patents and pending patent applications to a consortium of technology companies for $450 million (the "Patent Sale"). - Subsequently, various Novell shareholders ("Plaintiffs") filed class actions challenging both the Acquisition and the Patent Sale. Those actions were consolidated into the above named action. Thereafter, the defendants filed motions to dismiss. - Plaintiffs sought damages for, inter alia, various breaches of fiduciary duties by the Directors. They asserted, in part, that the Directors (i) because of "an improper and opaque" sales process *failed to maximize shareholder value with respect to the Acquisition and the Patent Sale; and (ii) allowed Attachmate to taint the process*. - The Court found that the Complaint stated a *"reasonably conceivable" claim that the Directors treated a serious bidder in a materially different way and that the Directors' approach might have deprived shareholders of the best offer reasonably attainable*. - The Court found that by not allowing Party C to team with any other interested bidder and not informing Party C of the Patent Sale, which would have provided a substantial amount of cash at closing, the Directors *treated Party C in a way that was both adverse and materially different than the way they treated Attachmate*. - The Court acknowledged that the Directors may be able to offer a reasonable explanation for that disparate treatment, but that they did not have the opportunity to "prove their case" at this stage in the proceeding. *The Complaint thus stated a claim for a breach of fiduciary duty*. - The Court then turned to the question of whether the Directors *acted in bad faith* or merely breached the duty of care, *because the Directors breach of the duty of care, absent bad faith, would be exculpated by the Section 102(b)(7) provision in Novell's charter.*

*In re Dow Chem. Co. Derivative Litig*

Procedural Posture Defendants, corporate officers and directors (CO/Ds), filed a motion to dismiss plaintiff corporate stockholders' (CSs) shareholder derivative action, seeking to recover for the corporation its losses that arose from a particular transaction. They alleged claims of, inter alia, breach of fiduciary duties (BFD). The dismissal request was based on the alleged failure to properly plead demand futility under Del. Ch. Ct. R. 23.1. Overview - The corporate board of directors entered into a joint venture (JV) with another corporation, wherein each corporation would take a 50 percent equity interest in a new company. That JV never reached fruition. The board also caused the corporation to enter into a strategic merger agreement, wherein the corporation acquired all of the merging company (MC). - Based on competition, the deal was not conditioned on financing. However, due to an economic downturn, the corporation refused to close the merger. - The MC filed suit against the corporation, which eventually resulted in a settlement and merger. The CSs filed suit and the CO/Ds sought dismissal. The court noted that: - *the CSs had to show that demand was futile under the Aronson and Rales tests. The court found that the insider trading claim was waived. - As the CSs failed to show that a majority of the board was either interested, lacked independence, or failed to make a valid business judgment, the *Arsonson test* was not satisfied. - Similarly, the Rales test was not met. As there was no showing of knowledge of bribery or any reason to suspect same, there was no conscious disregard of the duty to supervise against it. Outcome The court granted the dismissal motion as to all claims. The primary breach of fiduciary duties were dismissed with prejudice as to the named CSs. The remaining claims were dismissed without prejudice.