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Supreme Court of Delaware
February 1, 1994, Submitted ; April 5, 1994, Decided
No. 272, 1993
[*1111] HOLLAND, Justice:
This is an appeal by the plaintiff-appellant, Alan R. Kahn ("Kahn"), from a final judgment of the Court of Chancery which was entered after a trial. The action, instituted by Kahn in 1986, originally sought to enjoin the acquisition of the defendant-appellee, Lynch Communication Systems, Inc. ("Lynch"), by the defendant-appellee, Alcatel U.S.A. Corporation ("Alcatel"), pursuant to a tender offer and cash-out merger. [**2] 1 Kahn amended his complaint to seek monetary damages after the Court of Chancery denied his request for a preliminary injunction. The Court of Chancery subsequently certified Kahn's action as a class action on behalf of all Lynch shareholders, other than the named defendants, who tendered their stock in the merger, or whose stock was acquired through the merger.
A three-day trial was held April 13-15, 1993. Kahn alleged that Alcatel was a controlling shareholder of Lynch and breached its fiduciary duties to Lynch and its shareholders. According to Kahn, Alcatel dictated the terms of the merger; made false, misleading, and inadequate disclosures; and paid an unfair price.
The Court of Chancery concluded that Alcatel was, in fact, a controlling shareholder that owed fiduciary duties to Lynch and its shareholders. It also concluded that Alcatel had not breached those fiduciary duties. Accordingly, the Court of [**3] Chancery entered judgment in favor of the defendants.
Kahn has raised three contentions 'in this appeal. Kahn's first contention is that the Court of Chancery erred by finding that "the tender offer and merger were negotiated by an independent committee," and then placing the burden of persuasion on the plaintiff, Kahn. Kahn asserts the uncontradicted testimony in the record demonstrated that the committee could not and did not bargain at arm's length with Alcatel. Kahn's second contention is that Alcatel's Offer to Purchase [*1112] was false and misleading because it failed to disclose threats made by Alcatel to the effect that if Lynch did not accept its proposed price, Alcatel would institute a hostile tender offer at a lower price. Third, Kahn contends that the merger price was unfair. Alcatel contends that the Court of Chancery was correct in its findings, with the exception of concluding that Alcatel was a controlling shareholder.
This Court has concluded that the record supports the Court of Chancery's finding that Alcatel was a controlling shareholder. However, the record does not support the conclusion that the burden of persuasion shifted to Kahn. Therefore, the burden of proving [**4] the entire fairness of the merger transaction remained on Alcatel, the controlling shareholder. Accordingly, the judgment of the Court of Chancery is reversed. The matter is remanded for further proceedings in accordance with this opinion.
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638 A.2d 1110 *; 1994 Del. LEXIS 112 **
ALAN R. KAHN, as custodian for Amanda Kahn and Kimberly Kahn, Plaintiff Below, Appellant, v. LYNCH COMMUNICATION SYSTEMS, INC., COMPAGNIE GENERALE d'ELECTRICITE, ALCATEL, S.A., ALCATEL USA CORP., FRANK M. DRENDEL, RAYMOND HONO, FRANCOIS H. de LAAGE de MEUX, JOHN GAILEY and GILLES DuPAY-d'AGEAC, Defendants Below, Appellees.
Subsequent History: [**1] Mandate Issued April 21, 1994. Released for Publication April 22, 1994.
Prior History: Court Below--Court of Chancery of the State of Delaware, in and for New Castle County. C.A. No. 8748
merger, shareholder, negotiate, dominating, arm's, stockholder, burden of proof, stock, controlling shareholder, per share, recommended, hostile, minutes, percent, board of directors, tender offer, cash-out, minority shareholder, special committee, bargaining power, shift a burden, shifted, terms, acquisition, bargaining, parties, ready to proceed, judicial review, fiduciary duty, lower price
Business & Corporate Law, Shareholders, Shareholder Duties & Liabilities, General Overview, Governments, Fiduciaries, Controlling Shareholders, Fiduciary Duties, Corporate Governance, Civil Procedure, Appeals, Standards of Review, Clearly Erroneous Review, Justiciability, Standing, Burdens of Proof, Mergers & Acquisitions Law, Fraudulent Transfers, Evidence, Burdens of Proof, Takeovers & Tender Offers, Mergers, Duties & Liabilities of Directors & Officers, Antitrust, Premerger Notifications, Rights of Dissenting Shareholders, Initial Burden of Persuasion, Duties & Liabilities of Shareholders, Directors & Officers, Management Duties & Liabilities, Liabilities & Rights of Successors