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Smith v. Van Gorkom

Supreme Court of Delaware

June 11, 1984, Submitted ; January 29, 1985, Decided

No. 255, 1982

Opinion

 [*863]  This appeal from the Court of Chancery involves a class action brought by shareholders of the defendant Trans Union Corporation ("Trans Union" or "the Company"),  [**2]  originally seeking rescission of a cash-out merger of Trans Union into the defendant New T Company ("New T"), a wholly-owned subsidiary of the defendant, Marmon Group, Inc. ("Marmon"). Alternate relief in the form of damages is sought against the defendant members of the Board of Directors of Trans Union,  [*864]  New T, and Jay A. Pritzker and Robert A. Pritzker, owners of Marmon. 1

 [**3]  Following trial, the former Chancellor granted judgment for the defendant directors by unreported letter opinion dated July 6, 1982. 2 Judgment was based on two findings: (1) that the Board of Directors had acted in an informed manner so as to be entitled to protection of the business judgment rule in approving the cash-out merger; and (2) that the shareholder vote approving the merger should not be set aside because the stockholders had been "fairly informed" by the Board of Directors before voting thereon. The plaintiffs appeal.

Speaking for the majority of the Court, we conclude that both rulings of the Court of Chancery are clearly erroneous. Therefore, we reverse and direct that judgment be entered in favor of the plaintiffs [**4]  and against the defendant directors for the fair value of the plaintiffs' stockholdings in Trans Union, in accordance with Weinberger v. UOP, Inc., Del.Supr., 457 A.2d 701 (1983). 3

We hold: (1) that the Board's decision, reached September 20, 1980, to approve the proposed cash-out merger was not the product of an informed business judgment; (2) that the Board's subsequent efforts to amend the Merger Agreement and take other curative action were ineffectual, both legally and factually; and (3) that the Board did not deal with complete candor with the stockholders by failing to disclose all material facts, which they knew or should have known, before securing the stockholders' approval of the merger.

The nature of this case requires a detailed factual statement. The following facts are [**5]  essentially uncontradicted: 4

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488 A.2d 858 *; 1985 Del. LEXIS 421 **; 46 A.L.R.4th 821; Fed. Sec. L. Rep. (CCH) P91,921

ALDEN SMITH and JOHN W. GOSSELIN, Plaintiffs Below, Appellants, v. JEROME W. VAN GORKOM, BRUCE S. CHELBERG, WILLIAM B. JOHNSON, JOSEPH B. LANTERMAN, GRAHAM J. MORGAN, THOMAS P. O'BOYLE, W. ALLEN WALLIS, SIDNEY H. BONSER, WILLIAM D. BROWDER, TRANS UNION CORPORATION, a Delaware corporation, MARMON GROUP, INC., a Delaware corporation, GL CORPORATION, a Delaware corporation, and NEW T. CO., a Delaware corporation, Defendants Below, Appellees

Subsequent History:  [**1]   As Amended March 14, 1985. Motion for Reargument of March 14, 1985, Reported at: 488 A.2d 858 at 898.

Reargument denied by Smith v. Van Gorkom, 1985 Del. LEXIS 590 (Del., Mar. 14, 1985)

Costs and fees proceeding at Smith v. Van Gorkom, 1985 Del. Ch. LEXIS 516 (Del. Ch., Oct. 11, 1985)

Prior History: Upon Appeal from the Court of Chancery.

Disposition:  Reversed and Remanded.

CORE TERMS

merger, stockholders, per share, proxy statement, shareholders, stock, merger agreement, business judgment, board of directors, approve, premium, Supplemental, buy-out, business judgment rule, senior management, leveraged, recommend, valuation, shares, financing, notice, offers, proxy, voted, member of the board, disclose, terms, announcement, mailed, board meeting

Civil Procedure, Appeals, Standards of Review, Clearly Erroneous Review, Business & Corporate Law, Management Duties & Liabilities, Fiduciary Duties, Business Judgment Rule, Governments, Fiduciaries, Directors & Officers, General Overview, Defenses, Scope of Authority, Evidence, Inferences & Presumptions, Torts, Proof, Custom, Business Customs, Negligence, Gross Negligence, Mergers & Acquisitions Law, Mergers, Duties & Liabilities of Directors & Officers, Duties & Liabilities of Shareholders, Takeovers & Tender Offers, Meetings & Voting, Special Meetings, Fundamental Changes