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Generally speaking, a fiduciary's financial interest in a transaction as a stockholder (such as receiving liquidity value for her shares) does not establish a disabling conflict of interest when the transaction treats all stockholders equally.
Plaintiff stockholders instituted the present complaint against defendants, a corporation and its board members, including a controlling stockholder (controller), arising from a merger, alleging that the defendants’ breached their fiduciary duty because the controller refused to consider an acquisition offer. According to the plaintiffs, the acquisition offer would have cashed out all the minority stockholders; instead, the board ultimately accepted a bid for 65% stock and 35% cash, and consummated a merger on those terms. Defendants moved to dismiss under Del. Ch. Ct. R. 12(b)(6).
Did the plaintiffs fail to state a claim for breach of fiduciary duty against the defendants, thereby warranting the grant of the defendants’ motion to dismiss?
The court found the stockholders' claims did not support an inference that the controller's interest in obtaining liquidity in the sale of the corporation constituted a conflict of interest justifying the invocation of the entire fairness standard and supporting a finding that the complaint pleaded a non-exculpated duty of loyalty claim. Rather, the facts demonstrated that the business judgment rule applied to the board's decision to approve the merger. The court noted that the controller received the same treatment in the merger as the other stockholders. In other words, although the controller was allowed to seek a premium for his own controlling position, he did not and instead allowed the minority to share ratably in the control premium. According to the court, the controller had more incentive than anyone to maximize the sale price of the company, and Delaware did not require a controlling stockholder to penalize itself and accept less than the minority in order to afford the minority better terms. Accordingly, the defendants’ motion to dismiss was granted with prejudice.