Hewlett v. Hewlett-Packard Co. - C.A. No. 19513-NC, 2002 Del. Ch. LEXIS 44 (Ch. Apr. 8, 2002)

Rule:

The standard governing a Del. Ch. Ct. R. 12(b)(6) motion to dismiss is well-established. A party is entitled to dismissal of the complaint only where it is clear from its allegations that the plaintiff would not be entitled to relief under any set of facts that could be proven to support the claim. Moreover, the court is required to accept all of plaintiff's factual allegations as true and give plaintiff the benefit of all inferences that may be drawn from the facts. Dismissal is appropriate under Del. Ch. Ct. R. 12(b)(6) only where it appears with a reasonable certainty that a plaintiff would not be entitled to the relief sought under any set of facts that could be proven to support the action.

Facts:

Plaintiffs, Walter B. Hewlett, Edwin E. van Bronkhorst, and the William R. Hewlett Revocable Trust (collectively, "the Hewlett Parties"), opposed the merger between Hewlett-Packard Company ("HP") and Compaq Computer Corporation and waged a vigorous proxy contest against it. On March 19, 2002, HP held its special meeting of stockholders to vote on the proposed combination. Following the meeting, HP announced that the proposed merger had been approved by a slim, but sufficient, margin of votes. The independent inspector of elections has not informed either party of any preliminary results of the voting. Nine days after HP's stockholder meeting, the Hewlett Parties filed the present action, pursuant to 8 Del. C. § 225(b), seeking a declaration that the merger was not validly approved. According to the Hewlett Parties, a large number of votes were cast in favor of the merger by a stockholder whose approval was obtained through coercion, intimidation, or enticement by HP management. Moreover, they asserted that the HP management procured its proxies in favor of the merger by knowingly making material misrepresentations about key financial numbers at the center of HP's proxy campaign. HP moved to dismiss the complaint.

Issue:

Should the Hewlett Parties’ complaint be dismissed for failure to state a claim?

Answer:

No.

Conclusion:

The court found that shareholders were free to do whatever they wanted with their votes, including selling them. However, management could not use corporate assets to buy votes in a hotly contested proxy contest about an extraordinary transaction that would significantly transform the corporation, unless it could be demonstrated that the management’s vote-buying activity did not have a deleterious effect on the corporate franchise. Therefore, in the instant action, the vote-buying allegations stated a cognizable claim for relief. The complaint also raised an inference that the corporation’s management knowingly misrepresented material information about the resulting integration, in order to obtain merger approval. This was also sufficient to state a claim. Accordingly, the motion to dismiss was denied.