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Tooley v. Donaldson, Lufkin, & Jenrette, Inc.

Supreme Court of Delaware

September 23, 2003, Submitted ; April 2, 2004, Decided

No. 84, 2003

Opinion

 [*1033]  Plaintiff-stockholders brought [**2]  a purported class action in the Court of Chancery, alleging that the members of the board of directors of their corporation breached their fiduciary duties by agreeing to a 22-day delay in closing a proposed merger. Plaintiffs contend that the delay harmed them due to the lost time-value of the cash paid for their shares. The Court of Chancery granted the defendants' motion to dismiss on the sole ground that the claims were, "at most," claims of the corporation being asserted derivatively. They were, thus, held not to be direct claims of the stockholders, individually. Thereupon, the Court held that the plaintiffs lost their standing to bring this action when they tendered their shares in connection with the merger.

Although the trial court's legal analysis of whether the complaint alleges a direct or derivative claim reflects some concepts in our prior jurisprudence, we believe those concepts are not helpful and should be regarded as erroneous. We set forth in this Opinion ] the law to be applied henceforth in determining whether a stockholder's claim is derivative or direct. That issue must turn solely on the following questions: (1) who suffered the alleged harm (the corporation [**3]  or the suing stockholders, individually); and (2) who would receive the benefit of any recovery or other remedy (the corporation or the stockholders, individually)?

To the extent we have concluded that the trial court's analysis of the direct vs. derivative dichotomy should be regarded as erroneous, we view the error as harmless in this case because the complaint does not set forth any claim upon which relief can be granted. In its opinion, the Court of Chancery properly found on the facts pleaded that the plaintiffs have no separate contractual right to the alleged lost time-value of money arising out of extensions in the closing of a tender offer. These extensions were made in connection with a merger where the plaintiffs' right to any payment of the merger consideration had not ripened at the time the extensions were granted. No other individual right of these stockholders having been asserted in the complaint, it was correctly dismissed.

In affirming the judgment of the trial court as having correctly dismissed the complaint, we reverse only its dismissal with prejudice. 1 We remand this action to the Court of Chancery with directions to amend its order of dismissal to provide [**4]  that: (a) the action is dismissed for failure to state a claim upon which relief can be granted; and (b) that the dismissal is without prejudice. Thus, plaintiffs will have an opportunity to replead, if warranted under Court of Chancery Rule 11.

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845 A.2d 1031 *; 2004 Del. LEXIS 161 **

PATRICK TOOLEY AND KEVIN LEWIS, Plaintiffs Below, Appellants, v. DONALDSON, LUFKIN, & JENRETTE, INC., JOHN STEELE CHALSTY, HENRI DE CASTRIES, MICHAEL HEGARTY, EDWARD D. MILLER, STANLEY B. TULIN, DENIS DUVERNE, HENRI G. HOTTINGUER, W. EDWIN JARMAIN, JOE L. ROBY, HAMILTON E. JAMES, ANTHONY F. DADDINO, DAVID F. DeLUCIA, STUART M. ROBBINS, FRANCIS JUNGERS, W.J. SANDERS III, LOUIS HARRIS, JANE MACK GOULD AND JOHN C. WEST, Defendants Below, Appellees.

Subsequent History: On remand at Tooley v. AXA Fin., Inc., 2005 Del. Ch. LEXIS 67 (Del. Ch., May 13, 2005)

Prior History:  [**1]  Court Below: Court of Chancery of the State of Delaware, in and for New Castle County. C.A. No. 18414. Upon appeal from the Court of Chancery.

Tooley v. Donaldson, Lufkin & Jenrette, Inc., 2003 Del. Ch. LEXIS 10 (Del. Ch., Jan. 21, 2003)

Disposition: Affirmed in part, reversed in part and remanded.

CORE TERMS

stockholders, special injury, derivative, shares, contractual right, merger, tender offer, stock, derivative action, confusing, tendered, derivative claim, correctly, ripened, injury to a corporation, merger agreement, direct action, trial court, plaintiffs', shareholder, holder, rights

Business & Corporate Law, Shareholder Actions, Actions Against Corporations, Direct Actions, Civil Procedure, Class Actions, Derivative Actions, General Overview, Corporate Governance, Shareholders, Procedural Matters, Judicial Officers, Judges, Discretionary Powers, Enforcement of Corporate Rights, Meetings & Voting, Governments, Fiduciaries, Standing, Claim Presentation, Demand Requirement, Corporations, Corporate Finance, Directors & Officers, Compensation, Bonuses & Severance Pay, Shareholder Duties & Liabilities, Pleadings, Amendment of Pleadings