La. Mun. Police Emples. Ret. Sys. v. Crawford - 918 A.2d 1172 (Del. Ch. 2007)

Rule:

Directors of Delaware corporations, as part of their fiduciary duties of care and loyalty, are bound by a duty of disclosure. Directors must fully and fairly disclose all material information within the board's control when it seeks shareholder action. Information is material when there is a substantial likelihood that a reasonable shareholder would consider the omitted information important in deciding how to vote. Plaintiffs must show a substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable shareholder. That is, there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the "total mix" of information made available.

Facts:

Plaintiffs, shareholders and a corporation, filed an action seeking to enjoin a merger between defendant corporations already agreed between two boards of directors and ready to be put to shareholders. Plaintiffs sought a preliminary injunction preventing a meeting of one defendant corporation's shareholders to approve the merger. Plaintiffs alleged that individual defendants breached their fiduciary duties by agreeing to the merger that contained deal protection measures inconsistent with their fiduciary duties, by failing to investigate and consider other merger opportunities, and by failing to disclose to shareholders information material to their decision to accept the offer.

Issue:

Should the meeting of the shareholders be enjoined because of the defendants’ breach of fiduciary duties?

Answer:

Yes, but only for a period of at least twenty days after defendants made proper disclosures to the shareholders.

Conclusion:

The court concluded that although plaintiffs established a reasonable probability of success on the merits of their disclosure claims, they were only partially successful on the other two prongs of the preliminary injunction analysis. Shareholders faced neither irreparable harm nor extraordinary inequity in the absence of the desired injunction. That conclusion rested critically upon the availability of appraisal rights. As to appraisal rights, defendants specifically conditioned payment of a $ 6 cash "special dividend" on shareholder approval of the merger agreement. As the relevant defendant corporation failed to inform shareholders of their appraisal rights, the meeting had to be enjoined for at least the statutorily required notice period of 20 days after defendants properly disclosed to shareholders (a) their right to seek appraisal and (b) the structure of fees paid to investment bankers.