In re Wheelabrator Techs. S'holders Litig. - 663 A.2d 1194 (Del. Ch. 1995)

Rule:

Del. Code Ann. tit. 8, § 144(a)(2) provides that an interested transaction is not voidable if it is approved in good faith by a majority of disinterested stockholders. Approval by fully informed, disinterested shareholders pursuant to § 144(a)(2) invokes the business judgment rule and limits judicial review to issues of gift or waste with the burden of proof upon the party attacking the transaction. The result is the same in interested transaction cases not decided under § 144. Where there is independent shareholder ratification of interested director actions, the objecting stockholder has the burden of showing that no person of ordinary sound business judgment would say that the consideration received for the options is a fair exchange for the options granted.

Facts:

Plaintiffs, who were shareholders of Wheelabrator Technologies, Inc. (“WTI”). Instituted the present shareholder class action against WTI and the eleven members of WTI’s board of directors. According to the plaintiffs, the defendants breached their fiduciary obligation to disclose to the class material information concerning the merger between WTI and Waste Management, Inc.’s wholly-owned subsidiary. The plaintiffs also claim that in negotiating and approving the merger, the director defendants breached their fiduciary duties of loyalty and care. The defendants filed a motion for summary judgment pursuant to Del. Ch. Ct. R. 56(e), denying that they breached any duty of disclosure, and contending that the merger was approved by a fully informed shareholder vote.

Issue:

Under the circumstances, were the defendants entitled to summary judgment on the plaintiffs’ claim of breach of fiduciary duties of loyalty and care?

Answer:

Yes, as to the plaintiffs’ duty of care claims; no, as to the plaintiffs’ duty of loyalty claim.

Conclusion:

The court held that the class failed to adduce evidence sufficient to defeat summary judgment on the duty of disclosure claim, as proxy statements in a vote to approve the merger were consistent with relevant facts. Moreover, the court averred that the fully-informed shareholder vote approving the merger operated to extinguish the class' duty of care claims, but not its duty of loyalty claim; and the business judgment standard of review, with the class having the burden of proof, rather than the entire fairness standard, applied to the class' claim against the directors that alleged their recommendation of the merger violated the duty of loyalty.