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Weinberger v. Uop

Supreme Court of Delaware

July 16, 1982, Submitted ; February 1, 1983, Decided

No. 58, 1981

Opinion

 [*702]  This post-trial appeal was reheard en banc from a decision of the Court of Chancery. 1  [*703]  It was brought by the class action plaintiff below, a former shareholder of UOP, Inc., who challenged the elimination of UOP's minority shareholders by a cash-out merger between UOP and its majority owner, The Signal Companies, Inc. 2 Originally, the defendants in this action were Signal, UOP, certain officers [**2]  and directors of those companies, and UOP's investment banker, Lehman Brothers Kuhn Loeb, Inc. 3 The present Chancellor held that the terms of the merger were fair to the plaintiff and the other minority shareholders of UOP. Accordingly, he entered judgment in favor of the defendants.

Numerous points were raised by the parties, but we address only the following questions presented by the trial court's opinion:

1) The plaintiff's duty to plead sufficient facts demonstrating the unfairness of the challenged merger;

2) The burden of proof upon the parties where the merger has been approved by the purportedly informed vote of a majority [**3]  of the minority shareholders;

3) The fairness of the merger in terms of adequacy of the defendants' disclosures to the minority shareholders;

4) The fairness of the merger in terms of adequacy of the price paid for the minority shares and the remedy appropriate to that issue; and

5) The continued force and effect of Singer v. Magnavox Co., Del. Supr., 380 A.2d 969, 980 (1977), and its progeny.

In ruling for the defendants, the Chancellor re-stated his earlier conclusion that the plaintiff in a suit challenging a cash-out merger must allege specific acts of fraud, misrepresentation, or other items of misconduct to demonstrate the unfairness of the merger terms to the minority. 4 We approve this rule and affirm it.

The Chancellor also held that even though the ultimate burden of proof is on the majority shareholder to show by [**4]  a preponderance of the evidence that the transaction is fair, it is first the burden of the plaintiff attacking the merger to demonstrate some basis for invoking the fairness obligation.  We agree with that principle. However, ] where corporate action has been approved by an informed vote of a majority of the minority shareholders, we conclude that the burden entirely shifts to the plaintiff to show that the transaction was unfair to the minority. See, e.g., Michelson v. Duncan, Del. Supr., 407 A.2d 211, 224 (1979). But in all this, the burden clearly remains on those relying on the vote to show that they completely disclosed all material facts relevant to the transaction.

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457 A.2d 701 *; 1983 Del. LEXIS 371 **

WILLIAM B. WEINBERGER, Plaintiff Below, Appellant, v. UOP, INC., et al., Defendants Below, Appellees

Subsequent History: Later proceeding at Weinberger v. UOP, Inc., 1983 Del. Ch. LEXIS 571 (Del. Ch., May 25, 1983)

On remand at, Application denied by, Stay vacated by Weinberger v. UOP, Inc., 1984 Del. Ch. LEXIS 606 (Del. Ch., Apr. 24, 1984)

On remand at, Judgment entered by Weinberger v. UOP, Inc., 1985 Del. Ch. LEXIS 378 (Del. Ch., Jan. 30, 1985)

Prior History:  [**1]  On appeal and rehearing from the Court of Chancery of the State of Delaware in and for New Castle County.

Weinberger v. UOP, Inc., 426 A.2d 1333, 1981 Del. Ch. LEXIS 445 (Del. Ch., 1981)

Disposition:  Reversed and remanded.

CORE TERMS

merger, stock, shares, per share, shareholders, appraisal, minority shareholder, negotiations, stockholders, outside director, acquisition, valuation, telephone, voting, fair value, announcement, relevant factors, circumstances, subsidiaries, outstanding, cash-out, monetary, minutes, terms, business purpose, fair dealing, tender offer, proceedings, bargaining, disclosure

Business & Corporate Law, Meetings & Voting, Special Meetings, Fundamental Changes, Commercial Law (UCC), Sales (Article 2), Form, Formation & Readjustment, General Overview, Evidence, Burdens of Proof, Ultimate Burden of Persuasion, Directors & Officers, Management Duties & Liabilities, Shareholders, Fiduciary Duties, Duty of Loyalty, Torts, Duty, Affirmative Duty to Act, Causes of Action, Scope of Authority, Mergers & Acquisitions Law, Mergers, Duties & Liabilities of Directors & Officers, Antitrust, Premerger Notifications, Takeovers & Tender Offers, Rights of Dissenting Shareholders, Tax Law, Federal Income Tax Computation, Tax Accounting, Appraisal Actions & Dissent Rights, Right to Dissent, Mergers & Acquisitions, Civil Procedure, Remedies, Damages, Monetary Damages