Law School Case Brief
Solomon v. Pathe Commc'ns Corp. - 672 A.2d 35 (Del. 1996)
The standard for granting a motion under Del. Ch. Ct. R. 12(b)(6) requires that when evaluating a motion to dismiss for failure to state a claim, the truthfulness of all well-pleaded allegations in the complaint is to be assumed. Further, the court must give the pleader the benefit of all reasonable inferences that can be drawn from its pleading. Additionally, a motion to dismiss, at such a preliminary stage, requires the court to determine with "reasonable certainty" that a plaintiff could prevail on no set of facts that can be inferred from the pleadings. The complaint itself need only give general notice of the claim asserted. However, conclusions will not be accepted as true without specific allegations of fact to support them.
Credit Lyonnais Banque Nederland N.V. ("CLBN”), the acquiring corporation, made a voluntary tender offer to shareholders of Pathe Communications Corporation ("Pathe”), the target corporation, in conjunction with its planned foreclosure on a security interest. CLBN took a perfected security interest in the large majority of the Pathe’s stock, as well as a large majority of the stock of one of its subsidiaries, and acquired the right to vote all or nearly all of the shares of the two corporations under two voting trust agreements. Pathe’s shareholder, Robert Solomon, brought a suit alleging a breach of the duty of care by the directors for failing to negotiate a sufficient tender price and failing to dispute the foreclosure, and a breach of the duty of fair dealing by the directors for failing to oppose the tender offer. CLBN moved, pursuant to Chancery Rule 12(b), to dismiss the suit, arguing that (1) the complaint failed to state a claim upon which relief could be granted; (2) the Court of Chancery lacked personal jurisdiction over CLBN; and, (3) service of process upon CLBN was ineffective. The other Defendants moved to dismiss only on the grounds that the complaint failed to state a claim under Rule 12(b)(6). The Court of Chancery granted the motion to dismiss for failure to state a claim under Chancery Rule 12(b)(6), but did not decide the issues of personal jurisdiction and service of process. Solomon contended that the Chancellor incorrectly applied a heightened pleading standard when considering the Rule 12(b)(6) motion because he used a standard similar to the "pleading with particularity" requirement for shareholder derivative suits as set forth in Chancery Rule 23.1.
Did the Chancellor properly dismiss Solomon’s complaint?
The court held that the complaint failed to state a cause of action for a breach of the duty of care because it made only conclusory assertions and that the complaint failed to state a cause of action for a breach of the duty of care because there was no right to receive a particular price for totally voluntary tender offers. As to whether the Chancellor correctly dismissed the action before before addressing the merits of the motion to dismiss based on lack of personal jurisdiction and insufficiency of service of process. The general rule is that a challenge based on lack of personal jurisdiction as to a defendant (Rule 12(b)(2)) must be ruled upon before a motion to dismiss for failure to state a claim under Rule 12(b)(6) can be considered. Only CLBN, however, moved to dismiss on jurisdictional grounds in addition to moving to dismiss for failure to state a claim. Pathe and the individual Defendants did not challenge the Chancery Court's jurisdiction, but merely moved to dismiss the amended complaint for failure to state a claim. In this case, it was proper to rule on the motion to dismiss before establishing personal jurisdiction due to judicial economy.
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