Almost every proposed corporate merger is met with a shareholder suit against the acquiring company, merger target and the target’s board of directors in which the shareholders assert that the board breached its fiduciary duties by failing to maximize the value of the company and disseminated proxy statements that contained inadequate disclosures. In a recent case – Dent v. Ramtron International Corp., CIV.A. 7950-VCP, 2014 WL 2931180 (Del. Ch. June 30, 2014) – the Delaware Court of Chancery dismissed such a shareholder suit, and in doing so provided a detailed explanation of the requirements of directors considering a merger.
In Dent, defendants Cypress Semiconductor and Ramtron International reached an agreement in which Cypress was going to purchase Ramtron. Plaintiff Paul Dent was a stockholder in Ramtron, and filed suit to enjoin the merger. The court dismissed the action with prejudice, taking the time to explain why the allegations were not sufficient to withstand the motion to dismiss.
The court first recognized that pursuant to Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 180 (Del. 1986), the board has a fiduciary duty to protect the interests of the corporation, to act in the best interests of its shareholders, and when directors have commenced a transaction process that will result in a change of control, to maximize the sale price of the enterprise. However, the court in Dent also recognized that the Revlon duties are only a specific application of directors’ traditional fiduciary duties of care and loyalty in the context of control transactions. If the corporation’s certificate contains an exculpatory provision pursuant to 8 Del. C. § 102(b)(7) barring claims for monetary liability against directors for breaches of the duty of care, the complaint must state a nonexculpated claim, i.e., a claim predicated on a breach of the directors’ duty of loyalty or bad faith conduct.
Accordingly, to survive a motion to dismiss based on bad faith, plaintiff must sufficiently allege that the board member intentionally failed to act in the face of a known duty to act, demonstrating a conscious disregard for his duties, or that the “decision under attack is so far beyond the bounds of reasonable judgment that it seems essentially inexplicable on any ground other than bad faith.”
This is an important decision because the court explains the number of deficiencies present in the plaintiff’s boilerplate allegations, which are becoming “routine in the ubiquitous shareholder litigation that immediately follows the announcement of any public company merger or acquisition transaction.” In such actions, the complaints contain the “proverbial laundry list of issues” including allegations that there are preclusive deal protection devices in place, lack of disclosure relating to management projections and information considered in connection with the fairness opinion, and the identity of comparable transactions, to name a few. The court addressed each of the allegations, explaining why the information is either not material, would not alter the total mix of information otherwise available, or was sufficiently disclosed, although maybe not with the level of detail requested by the plaintiff. The plaintiff’s otherwise conclusory statements were not sufficient to withstand a motion to dismiss, and the case was accordingly dismissed with prejudice.