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The business judgment rule presumes that a board acted independently, with due care, in good faith and in the honest belief that its actions were in the stockholders' best interests.
An amendment to defendant Cincinnati Milacron’s certificate of incorporation was recommended by resolution of defendant corporation’s board of directors and approved by a requisite stockholder vote. The amendment resulted in the implementation of a recapitalization plan. Plaintiff Josephine Williams, an individual minority stockholder, brought suit against defendant corporation and certain members of the board of directors, challenging the validity of the amendment and recapitalization. The court of chancery granted summary judgment in favor of defendants, holding that Milacron's adoption of the Amendment and Recapitalization was valid. Specifically, the court held that Unocal applied, and found that the Board had reasonable grounds to believe that a corporate threat existed and that the Recapitalization was a reasonable response to that threat, there being no improper action or motive. Plaintiff appealed.
Under the circumstances, was the recapitalization valid, thereby warranting the grant of summary judgment in favor of the defendants?
The court affirmed the grant of summary judgment in favor of the defendants, holding that the business judgment rule applied to the action of the independent majority of the board of directors in recommending the amendment to defendant corporation's stockholders, and in this case, the plaintiff did not rebut the presumption of validity under the business judgment rule. The court further held that because a fully informed majority of stockholders voted for the amendment pursuant to Del. Code. Ann. tit. 8, § 242, the stockholder vote was dispositive.