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McMullin v. Beran - 765 A.2d 910 (Del. 2000)


The business judgment rule operates as both a procedural guide for litigants and a substantive rule of law. Procedurally, the initial burden is on the shareholder plaintiff to rebut the presumption of the business judgment rule. To meet that burden, the shareholder plaintiff must effectively provide evidence that the defendant board of directors, in reaching its challenged decision, breached any one of its triad of fiduciary duties: loyalty, good faith, or due care. Substantively, if the shareholder plaintiff fails to meet that evidentiary burden, the business judgment rule attaches and operates to protect the individual director-defendants from personal liability for making the board decision at issue. 


Mary E. McMullin, a minority shareholder of ARCO Chemical Company ("Chemical"), filed a putative class action against Chemical's directors, alleging breach of their fiduciary duties in connection with the sale of Chemical to a third party at the behest of the 80 percent majority shareholder. Defendants' motions to dismiss under Del. Ch. Ct. R. 12(b)(6) were granted. 


Was the dismissal proper?




The appellate court reversed, examining defendants' statutory duties and fiduciary responsibilities to minority shareholders in evaluating the proposed sale by the majority shareholder, and finding defendants owed them fiduciary duties of care, loyalty, and good faith in recommending the sale, even though defendants could not negotiate or halt the sale. Defendants had the duty to act on an informed basis to independently ascertain and communicate how the merger consideration compared to defendant company's value as a going concern. Plaintiff alleged defendants breached these duties, compromised its deliberative process, and failed to disclose necessary, material information to allow minority shareholders to decide whether to accept the tender offer or seek an appraisal under Del. Code Ann. tit. 8, § 262. Thus, the dismissal was improper.

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