Central Laborers' Pension Fund v. McAfee, Inc. ( 2017 )

Filed 11/15/17
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SIXTH APPELLATE DISTRICT
CENTRAL LABORERS’ PENSION FUND, H039508
(Santa Clara County
Plaintiff and Appellant, Super. Ct. Nos. CV180413,
CV180420,
v. CV180597,
CV180928)
MCAFEE, INC. et al.,
Defendants and Respondents.
This is a class action brought by former public shareholders of security technology
company McAfee, Inc. Intel Corporation acquired McAfee in a cash sale at $48 per
share for a total of $7.68 billion (merger). Plaintiff Central Laborers’ Pension Fund
(plaintiff), on behalf of itself and the class, alleges that McAfee, Intel, and the former
members of McAfee’s board of directors—comprised of nine outside directors and the
former president and CEO, David DeWalt (together defendants)—engaged in an unfair
merger process contaminated by conflicts. Plaintiff claims that in pursuit of his own
self-interest, DeWalt withheld material information about negotiations with Intel
management from McAfee’s board of directors, whose members failed to safeguard the
process and who consequently approved an undervalued price per share. Plaintiff also
claims that defendants omitted material information from the merger proxy statement on
which McAfee’s public shareholders relied in voting for the merger.
The trial court, applying Delaware law, granted summary judgment for
defendants. The court found no triable issue of material fact regarding the individual
defendants’ alleged breaches of fiduciary duty, and concomitantly no liability on behalf
of McAfee and Intel for aiding and abetting. Plaintiff challenges the summary judgment
as well as an earlier order setting the matter for a trial to the court without a jury.
For the reasons stated herein, we affirm the judgment as to the nine outside
director defendants and reverse the judgment as to DeWalt and the corporate defendants.
I. FACTUAL AND PROCEDURAL BACKGROUND1
A. FACTUAL OVERVIEW
1. The Company
McAfee was founded in 1989 as a Delaware corporation with headquarters in
Santa Clara. At the time of the merger, it was the world’s largest dedicated security
technology company. David DeWalt joined McAfee in 2007 as president and CEO and
served on the board of directors, bringing about 15 years of executive experience in the
software industry, including the sale of a company under his leadership. DeWalt’s
reputation according to one investment bank’s analysis was “for building and
subsequently selling businesses.”
1
Portions of the record and the parties’ briefs on appeal were filed under seal
pursuant to this court’s orders of June 25, 2014, November 25, 2014 and June 18, 2015.
Having determined that the facts relevant to our decision on the appeal are no longer
subject to an “overriding interest that overcomes the right of public access” to the records
(see Cal. Rules of Court, rule 2.550(d); NBC Subsidiary (KNBC-TV), Inc. v. Superior
Court (1999) 20 Cal. 4th 1178, 1222, fn. 46), we informed the parties on October 19,
2017, of the court’s intent to unseal the appellate record. We have considered the filed
response of defendants Intel and McAfee, which indicates no opposition to the unsealing
of the record currently before this court. Accordingly, concurrent with the filing of this
opinion, we hereby order the records previously filed under seal by orders dated June 25,
2014, November 25, 2014, and June 18, 2015, to be unsealed in their entirety. (Cal.
Rules of Court, rule 2.551(h).) The unsealing of these records does not affect any
continuing obligations of the parties under the trial court’s October 22, 2010 Stipulated
Confidentiality Order, as amended and supplemented, such as with respect to information
produced during discovery and designated confidential, or to other intellectual property
and trade secrets not contained in the previously-sealed records on appeal in this case.
2
The nine other members of the board—defendants Charles Robel, Carl Bass,
Thomas Darcy, Leslie Denend, Jeffrey Miller, Lorrie Norrington, Denis O’Leary, Robert
Pangia, and Anthony Zingale—were outside, nonmanagement, nonemployee directors
with combined executive and board experience in the technology, investment banking,
and accounting fields, including dozens of merger and acquisition transactions. None of
the independent directors joined Intel as directors or employees after the merger.
McAfee maintained close working relationships and alliances with numerous
technology companies. As part of its regular diligence, the board of directors discussed
McAfee’s strategic relationships with other technology companies along a “full spectrum
of options” from technology partnerships to mergers and acquisitions. It was DeWalt’s
role to update the board on these ongoing discussions, which he did as part of a “regular
review process that the board and management went through . . . almost every meeting.”
2. McAfee and Intel—Business Relationship and Early Merger
Discussions
Before the merger, McAfee had a nearly decade-long relationship with Intel as a
supplier of security software and a partner in research and development and marketing
initiatives. In 2009, the companies agreed to collaborate in developing enhanced security
technology using the expertise of both companies through a joint
research-and-development project called “Patmos.” Intel’s Software and Services Group,
led by the group’s general manager and senior vice-president Renee James (James), was
around this time also considering potential acquisitions as part of Intel’s security strategy,
including the possibility of acquiring an existing platform security company such as
McAfee.
In March 2010, Intel requested a meeting with McAfee. DeWalt and Gerhard
Watzinger, a McAfee executive vice-president, speculated that Intel might want to “beat
us up about Patmos” because McAfee had not prioritized the project, leading Intel to
complain on multiple occasions that McAfee was not meeting the collaboration
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deadlines. In an e-mail to James, DeWalt expressed excitement about the opportunities
for security products and the potential for “an amazing partnership.” DeWalt asked if
James had an agenda to propose for the meeting and suggested they “expand slightly and
review all key business synergies and financial models,” noting that his chief strategy
officer and “head of M&A [Watzinger]” would attend. Watzinger prepared a
presentation that included one slide each on “key synergies,” financial outlook, and
“accretive” benefits to revenue and shareholder value. The McAfee employee
responsible for the financial outlook slide described it as a “high level,” “back of the
envelope” and nonexpert view of potential benefits.
James later testified that the McAfee presentation “surprised” her because she
anticipated a meeting about the joint development effort. DeWalt testified that the group
led by James met “to ask questions about our business in the spirit of partnership, but
certainly the questions that were being asked were probably more leading than just a
partnership discussion.”
After the March 2010 meeting, McAfee and Intel management continued their
partnership discussions. Intel began vetting investment banks for advisory services in
connection with a potential “deal” in the security sector. At one point Intel offered the
advisory position to Morgan Stanley. Morgan Stanley declined, noting internally that it
anticipated a more lucrative “revenue opportunity” providing sell-side advice to McAfee.
Meanwhile, DeWalt and James stayed in regular contact, which DeWalt
understood as “partner oriented” and indicative of Intel’s interest in security and in
McAfee. A close collaboration began between McAfee and Intel management in a
project that was dubbed “Inca.” On April 4, 2010, representatives of both sides met at
Intel’s headquarters. The objective of the Inca meeting was to provide Intel with
“necessary McAfee and technology background to build synergy matrix and [financial]
model” and to “[i]dentify top opportunities for combined assets.” The discussion
centered on a list of eight joint business opportunities, including Patmos, that each
4
represented a “$1B+ opportunity.” Inca discussions continued throughout April and May
2010. McAfee added a segment-by-segment analysis of business opportunities to Intel’s
technology asset list, highlighting McAfee’s “value-add” in terms of the eight “Billion
Dollar” ideas. In early and mid-May 2010, Intel sent detailed inquiries to McAfee on
monetization, joint market penetration, and McAfee’s growth strategy and revenue
direction.
In May and June 2010, James proposed to Intel’s board of directors that Intel
engage in acquisition discussions with McAfee. Intel’s internal valuation analyses of
McAfee as presented to the Intel board of directors in June 2010 reflected a range of
values from a standalone price per share of $42 to as high as $56 to $90 per share for
“strategic synergies” from an acquisition. The Intel board of directors approved an
acquisition offer range of $45 to $49 per share.
3. June 11 Proposal at $45 per share
James met with DeWalt on June 10, 2010 and verbally conveyed Intel’s interest in
making an offer at the price of $45 per share. DeWalt recalled it as the “first meeting . . .
where there was a strong indication of interest and that there might be an offer to follow.”
DeWalt’s response to James was “if it didn’t start with a five, it was a non starter.”
James later testified that “Dave [DeWalt] let me know 45 didn’t work. . . . Dave’s words
were: It needs to start with a 5.”
The next day, James sent DeWalt a written request for exclusive negotiating rights
and nonbinding proposal to acquire McAfee in a cash offer at $45 per share (June 11
proposal) subject to the completion of due diligence and board and regulatory approvals.
The proposed price represented a 43 percent premium over McAfee’s stock price, which
had fallen since late 2009 and was trading in the low 30s. The June 11 proposal stated
that Intel intended to operate McAfee as a standalone subsidiary and to retain “the current
management team.” DeWalt notified McAfee board chairman Robel, who called a
special meeting for the next day.
5
In an e-mail to Intel’s CEO and board subcommittee dated June 11, 2010, James
reported “preliminary progress” with McAfee and stated that DeWalt had requested a
nonbinding letter of intention to enter into due diligence despite “a price gap to their
potential expectations . . . .” In a follow-up exchange with Andy Bryant (of Intel), James
stated that DeWalt’s “expected price” was “50.” Bryant responded that a deal was
possible “if that is where he is starting.” James also recounted the meeting to her Intel
colleague Donald Harbert, whose notes indicate that James believed the “gap is $5.00”
between Intel’s indication of interest at $45 and McAfee’s expectations for an opening
bid. Harbert’s notes indicate that McAfee’s stock price was “down” and Intel should
make an offer “now before the stock goes up.” The notes also reference a retention plan
for the “top 41” and that DeWalt would “only want to stay 2 years.”
4. McAfee’s Response to the June 11 Proposal
The McAfee board was informed of ongoing joint partnership discussions between
Intel and McAfee in the spring of 2010. Several board members testified that Intel had
indicated “a stronger interest in security” and a “greater interest beyond the partnering
development deal” or product development relationship that “could have the potential to
turn into something.”
Yet several directors described Intel’s June 11 proposal as unexpected and a
surprise, based on views that Intel was not a likely acquirer and that DeWalt’s briefings
about discussions with Intel had remained focused on the joint venture. Defendant Robel
explained that he thought Intel’s increased interest in security and questions about
McAfee’s business might have been a “fishing expedition” because a combination with
Intel was “pretty out of the box.” The board members were not aware of project Inca and
management’s detailed analysis of potential synergies that could be developed in an Intel
acquisition. Robel testified that before the June 11 proposal, the board had not placed a
view on a value of the company in a sale “because the board hadn’t even considered
putting the company in play.”
6
The McAfee board met in formal sessions nine times following receipt of the
June 11 proposal. At the first special meeting on June 12, 2010, DeWalt reviewed
McAfee’s relationship with Intel and updated the board on the partnering discussions that
had taken place since late February 2010. DeWalt told the board that he believed Intel
could be convinced to increase its price per share following initial due diligence. The
board at that time retained transactional counsel, Wilson Sonsini, and considered several
investment banks to serve as McAfee’s financial advisor, ultimately selecting Morgan
Stanley. The terms of engagement tied Morgan Stanley’s compensation to the
acquisition price and provided a higher fee for each per-share increase in sale price, with
a multi-million dollar bonus for a price equal to or greater than $50 per share and a bonus
of several times that amount for a sale at $55 per share or more.
McAfee’s board reconvened several days later for an update on the due diligence
sessions and McAfee’s internal forecast. Morgan Stanley offered its preliminary analysis
of the July 11 proposal in view of McAfee’s financial performance, possible standalone
scenarios, other potential bidders, and Morgan Stanley’s valuation of McAfee at between
$55.09 per share (base case) to $60.20 per share (high case). Following these
discussions, the board decided to reject the June 11 proposal and directed DeWalt to
communicate to Intel that $45 per share was inadequate. The focus of the board was to
obtain an offer at a price that was “something above $50.” According to defendant Lorrie
Norrington, the board “had the specific conversation that 45 was too low and that . . . it
has to start with a five in order for the board to consider the offer.”
DeWalt and Morgan Stanley separately communicated McAfee’s rejection of the
$45 offer. DeWalt testified that there was “an impasse” because “Intel wouldn’t accept
anything that started with a five and we wouldn’t accept anything that didn’t start with a
five . . . .” James similarly recalled that DeWalt told her “that he thought it needed to be
in the mid 50s. Fifty-two to 54.” James’s internal communications with Andy Bryant
reflected this understanding of McAfee’s position as well, based on conversations with
7
DeWalt and on communications between the financial advisors and legal counsel. In an
e-mail exchange on June 30, James told Bryant that DeWalt had been unwilling to affirm
a price “other than he would work to get his board to say ‘they would do 50’ . . . and we
know some of the board is at 52-55.” Bryant advised James to not go to Intel’s board of
directors for increased authorization “unless we know 50 is ok.”
James spoke with DeWalt over the July 4th weekend and asked “will 50 get the
deal done, if we go back to the board?” DeWalt, according to James, “said, no, 52 to 54.
He stuck to it.” James explained that she did not speak with DeWalt for “a couple weeks
after” and decided to wait until the second quarter results, noting that McAfee was “in a
falling market, their stock was going down, and we knew their quarter wasn’t good. So
we said: You know what? We see real weaknesses in their business. And we were
concerned that we needed to wait and get more data.”
Correspondence continued between James and DeWalt immediately following the
July 4th weekend. DeWalt provided Intel with McAfee’s preliminary second quarter
results, which he described to James as “very strong,” adding “Renee, I’m hoping this is
exactly the type of ‘good new news’ that might help move things forward on your end.”
The view internally was more subdued. DeWalt testified the results were “mixed” with
McAfee having “missed pretty substantially” analyst expectations in a few key categories
but having beat expectations in others. Robel explained that “we believed, and the Street
believed, it was not a good quarter. And it was not . . . there was a cloud around the
company’s ability to grow in the future.” James also recalled McAfee’s second quarter
results as being “weak” with “very weak forward guidance.”
McAfee’s board met again on July 8, at which time DeWalt reported a pause in the
merger discussions as Intel wished to wait until the full financial statements from
McAfee’s second quarter became available. Morgan Stanley confirmed DeWalt’s
information and reported that they had reiterated that Intel would need to increase its
$45-per-share offer before McAfee would engage in more complete due diligence.
8
Morgan Stanley also reported that one other potential acquirer identified by the board had
indicated that it was not interested in pursuing an acquisition. DeWalt apparently did not
inform the board about James’s inquiry if $50 would “get the deal done” if she went
back to Intel’s board.
5. Revised Offer at $48 per share, Merger Agreement, and Proxy
Statement
Intel revised its acquisition offer to $48 per share in a letter dated July 19 and
delivered to DeWalt on July 20. The offer represented a 58 percent premium over
McAfee’s stock closing price on July 19 and demanded a 30-day exclusivity agreement.
McAfee’s board convened special meetings on July 21 and July 22 to discuss the
revised offer. DeWalt reported that based on his discussions with James, Intel “was not
willing to further increase its offer” price. Morgan Stanley reported that it had received
similar information from Intel’s financial advisor and that it believed Intel would
withdraw its offer if McAfee sought alternative bids or failed to agree to a 30-day
exclusivity period. Morgan Stanley presented a valuation summary and the board
discussed the conditions of the offer, market trends for mergers and acquisitions, the
interest and ability of other potential acquirers to complete an acquisition, and whether to
seek a further increase in the offer price. DeWalt reviewed the second quarter financial
results and reasons that revenues had fallen below expectations, as well as several
successes that McAfee had achieved that quarter. At the end of the meeting on July 22,
McAfee’s board authorized negotiations based on the $48-per-share offer but directed
counsel to seek a shorter term of exclusivity.
The McAfee board held three special meetings in August to consider aspects of
the proposed transaction. DeWalt’s compensation and employment agreement with Intel
also was negotiated and reviewed by the board’s compensation committee. At the
meeting on August 18, Morgan Stanley delivered a formal fairness opinion concluding
that the acquisition price of $48 per share was “fair from a financial point of view” to the
9
shareholders. The board approved the merger on August 18, 2010. On August 19, Intel
and McAfee jointly announced an agreement for Intel to acquire all of McAfee’s
common stock for $48 per share in cash. The merger agreement included a “fiduciary
out” clause that permitted McAfee to terminate the deal if it received a better offer
unsolicited.
The proxy statement dated September 21, 2010, described in relevant part the
McAfee-Intel joint partnership (Patmos) in 2009 and the meeting between James and
DeWalt on June 10, 2010. It described McAfee’s process, price negotiations, and
communications with Intel between the June 11 proposal at $45 per share and receipt of
the revised offer on July 20 at $48 per share, as well as Morgan Stanley’s fairness
opinion and the board’s deliberations and consideration of alternative prospects before
approving the agreement on August 18. It did not mention project Inca or pre-due
diligence discussions or exchanges prior to the June 11 proposal. It also did not mention
any $50 per share “overture” but stated that on June 26, James and DeWalt “agreed to
revisit valuation discussions at a later date” after DeWalt had indicated that McAfee’s
board would not be interested in accepting an offer below $50 per share, and James had
responded that Intel’s board would not support an offer price of $50 per share. The proxy
statement summarized details of the merger agreement, including the $230 million
termination fee, nonsolicitation (“no shop”) provision, “fiduciary out” provision, and
DeWalt’s and other executive’s employment agreements.
No other company expressed interest in purchasing McAfee following the merger
announcement. On November 2, 2010, McAfee’s shareholders approved the merger,
with 99.9 percent of voting shares in favor.
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B. PROCEDURAL HISTORY
This class action consolidated several lawsuits filed in the Superior Court of Santa
Clara County in August 20102 after Intel and McAfee announced the merger agreement
on August 19. The plaintiffs did not seek a preliminary injunction to prevent the McAfee
shareholder vote from going forward.
1. Operative Complaint
The operative, consolidated amended complaint (complaint) was filed on
January 6, 2011, after McAfee’s shareholders voted in favor of the merger on
November 2, 2010, but before the deal closed after regulatory approvals. The complaint
asserted a single cause of action for breach of fiduciary duties and aiding and abetting,
claiming that the 10 individual defendants,3 aided and abetted by McAfee and Intel (both
Delaware corporations), breached their fiduciary duties of care, loyalty, candor, good
faith and independence by failing to ensure a fair process and by depriving McAfee’s
public shareholders of the true and fair value of their McAfee stock.
The complaint alleged that DeWalt “in particular” acted out of self-interest during
the merger process in order to ensure his gains in an acquisition, and that he allegedly
kept the other board members “in the dark” throughout the merger process—including by
concealing information about management’s exchanges with Intel on the value of
McAfee’s prospects and future products and by effectively “capping” McAfee’s price
expectations at $50. The complaint further alleged that the individual defendants, who
stood to receive accelerated vesting of their stock upon completion of the merger “at a
2
Two lawsuits also were filed in the Delaware Court of Chancery and
consolidated; the plaintiffs in that action voluntarily dismissed their complaints in
July 2011.
3
The individual defendants, as noted in our discussion of the facts, are David
DeWalt, Charles Robel, Carl Bass, Thomas Darcy, Leslie Denend, Jeffrey Miller, Lorrie
Norrington, Denis O’Leary, Robert Pangia, and Anthony Zingale.
11
value of over $3 million,” accepted a “rubber-stamp fairness opinion” by Morgan Stanley
regarding the $48-per-share offer.
It alleged that in order to protect the deal with Intel, defendants entered into a
merger agreement that was “steeped in preclusive deal protection provisions designed to
guarantee that Intel did not lose its preferred position.” These included a “ ‘No Shop’ ”
provision that required McAfee to discontinue any discussions with other potential
acquirers, a “ ‘Matching Rights’ ” provision that gave Intel five days to match any
competing acquisition proposals that McAfee might receive, and a “ ‘Termination Fee’ ”
provision in which McAfee would pay Intel $230 million if it accepted a higher offer
despite the no shop provision.
The complaint also alleged that defendants withheld material information in proxy
statements, depriving McAfee’s shareholders of information about the flawed sales
process, conflicts of interest that burdened the board and its advisors, McAfee’s intrinsic
value and prospects going forward, material benefits that defendants and McAfee
management would secure only if the acquisition succeeded, and the flawed financial
analysis supporting Morgan Stanley’s fairness opinion.
The complaint in sum asserted that (1) defendants were motivated by lucrative
personal gains, (2) the acquisition price of $48 per share was unfair and undervalued
below McAfee management’s own estimates, (3) the proxy statements to McAfee’s
public shareholders omitted material information about the merger process and the basis
for Morgan Stanley’s fairness analysis, and (4) defendants consequently breached their
fiduciary obligation to obtain the highest value reasonably available for McAfee’s
shareholders.
The trial court overruled demurrers to the consolidated amended complaint on
June 29, 2011.
12
2. Trial Setting
In January 2012, the trial court granted plaintiff’s motion to intervene, certified the
class, and appointed plaintiff as class representative. Several months later, defendants
moved to amend certain pretrial and trial-setting orders to specify that the case would be
tried to the court in a bench trial. Defendants argued that plaintiff was not entitled to a
jury trial because under Delaware law, breach of fiduciary duty claims are equitable in
nature and are subject to the exclusive jurisdiction of the Delaware Court of Chancery,
with no right to a trial by jury in that court. Plaintiff opposed the motion and argued, in
an effort to secure a jury trial, that although Delaware law applies as to issues of
corporate governance, California law mandates the right to a jury trial, as determined by
the legal or equitable nature of the claims in the case. The trial court rejected plaintiff’s
argument that its fiduciary duty claims were legal in nature and granted defendants’
motion to amend, setting the matter for a trial to the court without a jury.4
In August 2012, the court denied a motion by plaintiff for leave to file a second
amended complaint.
3. Summary Judgment
Defendants moved for summary judgment (Code Civ. Proc., § 473c)5 on August 3,
2012. Defendants framed the shareholder class action as “no different” from the “rash of
lawsuits” that follow most announcements of sale of a publicly traded company and
claim that the sale is the product of an “ ‘unfair process’ ” at “an ‘unfair price.’ ”
Defendants submitted declarations and exhibits in support of the motion and requested
judicial notice of certain regulatory filings and of stock prices at time points before and
after Intel’s acquisition offer.
4
Plaintiff petitioned for review of the trial court’s order denying a jury trial. This
court summarily denied the petition for writ of mandate on July 12, 2012.
5
Unspecified statutory references are to the Code of Civil Procedure.
13
Plaintiff in response raised no evidentiary objections but purported to dispute
many of defendants’ 185 material facts and raised 153 additional disputed material facts
in support of its opposition. Plaintiff argued that triable issues of material fact precluded
summary judgment, particularly concerning (1) strategic, informational, and timing
disadvantages that McAfee faced in its haste to evaluate an offer that “ ‘surprised’ ” and
“ ‘shocked’ ” the board members (despite McAfee’s collaboration with Intel management
on project Inca to identify and value strategic synergies), (2) DeWalt’s “outright”
rejection of James’s $50-per-share overture, which allegedly caused Intel to “freeze”
discussions at a critical juncture, (3) DeWalt’s alleged concealment of the $50-per-share
overture and the project Inca discussions from the board, and (4) the board’s acceptance
of Morgan Stanley’s fairness analysis despite obvious reliance on “ ‘street’ ” valuations
that undervalued the company because they “had no idea about the billions of dollars of
additional value uncovered during the Project Inca discussions.”
The trial court granted judgment in favor of defendants on November 2, 2012.
The court noted there was no dispute that the McAfee charter contained an exculpatory
provision pursuant to section 102, subdivision (b)(7) of the Delaware General
Corporation Law (8 Del. Code, § 102(b)(7)) shielding the independent directors from
monetary liability for breaches of the duty of care.6 Beginning with the alleged breach of
the duty of loyalty, the trial court found that plaintiff failed to raise a triable dispute as to
the independent directors. The court cited undisputed evidence that the directors were
highly qualified and experienced outside directors who met multiple times throughout the
process and retained and relied upon financial and legal advisors. The court found no
6
The exculpatory provision in McAfee’s Third Amended and Restated Articles of
Incorporation states in relevant part that the directors are “not personally liable . . . for
monetary damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law . . . .”
14
evidence that the board had abandoned its oversight function or that DeWalt dominated
or controlled the independent directors. The court reasoned that Delaware law does not
necessarily prohibit a board from relying on an interested manager to negotiate a merger
and there was no evidence that the transaction was unfair to the corporation or had
betrayed some confidential relationship.
Regarding DeWalt, the court found that DeWalt’s interest in the merger did not
present a disqualifying conflict, particularly because Intel’s interest in retaining McAfee
management was disclosed in the June 11 proposal, and DeWalt’s employment terms
were negotiated after the board accepted the $48 price-per-share offer and were approved
by the compensation committee. The court found no evidence that DeWalt’s failure to
notify McAfee’s board about project Inca and the synergy discussions with Intel was the
result of self-interest or placed McAfee “at a strategic disadvantage.” The court found
that DeWalt’s rejection of James’s overture of a $50-per-share sale price could not be
“reasonably construed as anything but negotiating for an authorized, higher amount, not
an effort to drive McAfee’s expectations lower,” since it was undisputed that DeWalt
actually “sought a higher price in the ‘$52 to $54’ range.” The court thus concluded that
there was no triable issue regarding DeWalt’s alleged manipulation of the disinterested
majority of the board.
Having found no triable issues of material fact related to the fiduciary duty claims,
the court concluded there was no basis for relief for any alleged disclosure violations and
that McAfee and Intel could not be liable for aiding and abetting. The trial court entered
judgment for defendants on February 13, 2013. Plaintiff timely appealed.
II. DISCUSSION
Plaintiff asserts that in deciding the motion for summary judgment, the trial court
disregarded its fundamental task to construe the evidence and draw all reasonable
inferences in favor of the nonmoving party. Plaintiff contends that the court drew
improper inferences in defendants’ favor and granted summary judgment in the face of
15
several triable issues of fact concerning defendants’ conduct and the information supplied
to McAfee shareholders before the merger vote. Defendants respond that plaintiff’s
portrayal of the merger process derives from speculation and guesswork, and is
unsupported by evidence sufficient to create a triable issue of material fact.
A. SUMMARY JUDGMENT AND STANDARD OF REVIEW
A motion for summary judgment provides “a mechanism to cut through the
parties’ pleadings in order to determine whether, despite their allegations, trial is in fact
necessary to resolve their dispute.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal. 4th
826, 843 (Aguilar).) The trial court must grant a motion for summary judgment “if all the
papers submitted show that there is no triable issue as to any material fact and that the
moving party is entitled to a judgment as a matter of law.” (§ 437c, subd. (c); Schachter
v. Citigroup, Inc. (2009) 47 Cal. 4th 610, 618 (Schachter).) To demonstrate the existence
of a triable issue of material fact, the party opposing the motion must present evidence
that “would allow a reasonable trier of fact to find the underlying fact in favor of the
party opposing the motion in accordance with the applicable standard of proof.”
(Aguilar, supra, at p. 850.) In making its determination, “the court may not weigh the
plaintiff’s evidence or inferences against the defendants’ as though it were sitting as the
trier of fact, [but] it must nevertheless determine what any evidence or inference could
show or imply to a reasonable trier of fact.” (Id. at p. 856.) The evidence must be
viewed in the light most favorable to the nonmoving party. (Schachter, supra, at p. 618;
Aguilar, supra, at p. 843.)
On appeal from a summary judgment, we “examine the record de novo, liberally
construing the evidence in support of the party opposing summary judgment and
resolving doubts concerning the evidence in favor of that party.” (Miller v. Department
of Corrections (2005) 36 Cal. 4th 446, 460.) Defendants as the moving party have the
initial burden of showing that one or more elements of the cause of action cannot be
established, justifying judgment in their favor. (§ 437c, subd. (p)(2).) The burden then
16
shifts to plaintiff to demonstrate the existence of a triable issue of one or more material
facts. (Ibid.) “If the evidence is in conflict, the factual issues must be resolved by trial.”
(Binder v. Aetna Life Ins. Co. (1999) 75 Cal. App. 4th 832, 839.)
B. PRINCIPLES OF DELAWARE LAW: FIDUCIARY DUTY, THE BUSINESS
JUDGMENT RULE, ENHANCED SCRUTINY, AND ENTIRE FAIRNESS
A fundamental principle of Delaware law is that the “ultimate responsibility for
managing the business and affairs of a corporation falls on its board of directors.”
(Revlon, Inc. v. MacAndrews & Forbes Holdings (Del. 1986) 506 A.2d 173, 179
(Revlon).) Corporate directors have “an unyielding fiduciary duty to protect the interests
of the corporation and to act in the best interests of its shareholders.” (Cede & Co. v.
Technicolor, Inc. (Del. 1993) 634 A.2d 345, 360 (Cede).) In a proposed merger or
change of control transaction, “the board has an obligation to determine whether the offer
is in the best interests of the corporation and its shareholders.” (Unocal Corp. v. Mesa
Petroleum Co. (Del. 1985) 493 A.2d 946, 954 (Unocal).) Unless the board determines it
is in the corporation’s best interest to avoid a change in control, “obtaining the highest
price for the benefit of the stockholders should [be] the central theme guiding director
action.” (Revlon, supra, at p. 182.)
“When shareholders challenge actions by a board of directors, generally one of
three standards of judicial review is applied: the traditional business judgment rule, an
intermediate standard of enhanced judicial scrutiny, or the entire fairness analysis.”
(Emerald Partners v. Berlin (Del. 2001) 787 A.2d 85, 89 (Emerald Partners).)
Ordinarily, the propriety of director conduct is measured by the business judgment rule.
(Unocal, supra, 493 A.2d at p. 954.) “The business judgment rule is a ‘presumption that
in making a business decision the directors of a corporation acted on an informed basis,
in good faith and in the honest belief that the action taken was in the best interests of the
company.’ ” (Ibid.) It “posits a powerful presumption in favor of actions taken by the
directors in that a decision made by a loyal and informed board will not be overturned by
17
the courts unless it cannot be ‘attributed to any rational business purpose.’ ” (Cede,
supra, 634 A.2d at p. 361.)
In certain circumstances, however, including a sale of control, courts apply
“enhanced scrutiny” to the decisions and actions of the directors to ensure that the
directors’ conduct is “reasonable.” (Paramount Communications v. QVC Network
(Del. 1993) 637 A.2d 34, 42 (Paramount).) “The duty to seek the best available price
applies . . . when a company embarks on a transaction—on its own initiative or in
response to an unsolicited offer—that will result in a change of control.” (Lyondell
Chemical Co. v. Ryan (Del. 2009) 970 A.2d 235, 242 (Lyondell).) The directors’
obligation in this context is “to secure the transaction offering the best value reasonably
available for the stockholders” and to “exercise their fiduciary duties to further that end.”
(Paramount, supra, at p. 44; Revlon, supra, 506 A.2d at p. 182.)
Courts apply “even more exacting scrutiny” when there is evidence of “actual
self-interest” that “affects a majority of the directors approving a transaction . . . .”
(Paramount, supra, 637 A.2d at p. 42, fn. 9.) This is the entire fairness standard, which
is triggered by rebuttal of the presumption of the business judgment rule and which shifts
the burden to the defendant directors to prove the “ ‘entire fairness’ ” of the transaction to
the shareholders.7 (Cede, supra, 634 A.2d at p. 361; Cinerama, Inc. v. Technicolor, Inc.
7
Delaware’s business judgment rule has procedural and substantive applications.
“ ‘ “As a rule of evidence, it creates a ‘presumption that in making a business decision,
the directors of a corporation acted on an informed basis [i.e., with due care], in good
faith and in the honest belief that the action taken was in the best interest of the
company.’ [Citation.] The presumption initially attaches to a director-approved
transaction . . . in the absence of any evidence of ‘fraud, bad faith, or self-dealing in the
usual sense of personal profit or betterment.’ ” ’ ” (Cede, supra, 634 A.2d at p. 360,
quoting Citron v. Fairchild Camera & Instrument (Del. 1989) 569 A.2d 53, 64 (Citron).)
A shareholder plaintiff challenging a board decision has the initial burden to rebut the
presumption with evidence that the directors, in reaching the challenged decision,
breached any one of the fiduciary duties of good faith, loyalty, or due care. (Cede, supra,
at p. 361.) If a plaintiff fails to meet this evidentiary burden, the business judgment rule
(continued)
18
(Del. 1994) 663 A.2d 1134, 1162 (Cinerama) [“Where . . . the presumption of the
business judgment rule has been rebutted, the board of directors’ action is examined
under the entire fairness standard.”].) The concept of entire fairness under Delaware law
has two aspects: fair dealing and fair price. (Mills Acquisition Co. v. Macmillan, Inc.
(Del. 1988) 559 A.2d 1261, 1280 (Mills).) “ ‘Fair dealing’ focuses upon the actual
conduct of corporate fiduciaries in effecting a transaction, such as its initiation, structure,
and negotiation.” (Ibid.) “ ‘Fair price,’ in the context of an auction for corporate control,
mandates that directors commit themselves, inexorably, to obtaining the highest value
reasonably available to the shareholders under all the circumstances.” (Ibid.)
In sum, “[w]hen determining whether corporate fiduciaries have breached their
duties, Delaware corporate law distinguishes between the standard of conduct and the
standard of review.” (Chen v. Howard-Anderson (Del. Ch. 2014) 87 A.3d 648, 666
(Chen).) “The standard of conduct describes what directors are expected to do and is
defined by the content of the duties of loyalty and care. The standard of review is the test
that a court applies when evaluating whether directors have met the standard of conduct.”
(In re Trados Inc. S’holder Litig. (Del. Ch. 2013) 73 A.3d 17, 35-36 (Trados).)
C. ANALYSIS
Our review of the grant of summary judgment in this case is closely bound to the
applicable standard of review of the challenged transaction under Delaware law. (See
Mills, supra, 559 A.2d at p. 1279 [“ ‘[b]ecause the effect of the proper invocation of the
business judgment rule is so powerful and the standard of entire fairness so exacting, the
determination of the appropriate standard of judicial review frequently is
determinative . . . .’ ”].) Plaintiff invokes the entire fairness standard, contending that
attaches as a substantive rule of law to protect the directors and their business decisions.
(Ibid.; Citron, supra, at p. 64.) If the business judgment rule is rebutted, the burden shifts
to the defendant directors to prove the “ ‘entire fairness’ ” of the transaction to the
shareholders. (Cede, supra, at p. 361.)
19
DeWalt’s self-interest and the flawed merger process deprived McAfee shareholders of
“a ‘neutral decision-making body’ ” due to “the manipulation of the disinterested
majority by an interested director.” (Cinerama, supra, 663 A.2d at p. 1170, fn. 25; Mills,
supra, at p. 1279.)
Defendants respond that plaintiff has not satisfied the prerequisites for entire
fairness because there is no evidence that a majority of the directors acted out of
self-interest (Paramount, supra, 637 A.2d at p. 42, fn. 9) or were dominated by a
minority of interested directors (Cinerama, supra, 663 A.2d at p. 1170, fn. 25).
Defendants analyze DeWalt’s and the board of directors’ actions under the presumptive
standard of enhanced scrutiny. Enhanced scrutiny requires a determination only
“whether the directors made a reasonable decision, not a perfect decision.” (Paramount,
supra, at p. 45.)
The parties also dispute the effect of the exculpatory provision in McAfee’s
charter to limit personal liability of any independent directors for breaches of the duty of
care. (See 8 Del. Code, § 102(b)(7).)
We begin by analyzing plaintiff’s claim for entire fairness review and find that the
standard was not met.8 Accordingly, we review defendants’ conduct in the merger
proceedings under the enhanced scrutiny standard of review. We find that there are no
triable issues of material fact related to the breach of fiduciary duty action against the
nine independent directors and affirm the grant of summary judgment in their favor. We
find that triable issues remain related to defendant DeWalt’s apparent nondisclosure of
arguably material information to the board and the shareholders and reverse the grant of
8
Plaintiff does not dispute that defendants met their initial burden under
section 437c, subdivision (p)(2). We therefore do not examine the showing in support of
the summary judgment motion except insofar as it may be relevant to the discussion.
20
summary judgment in his favor. We also reverse the grant of summary judgment in favor
of McAfee and Intel on the aiding and abetting claim.
1. Operative Standard of Review
As summarized above, the operative standard of review “depends initially on
whether the board members (i) were disinterested and independent (the business
judgment rule), (ii) faced potential conflicts of interest because of the decisional
dynamics present in particular recurring and recognizable situations (enhanced scrutiny),
or (iii) confronted actual conflicts of interest such that the directors making the decision
did not comprise a disinterested and independent board majority (entire fairness).”
(Trados, supra, 73 A.3d at p. 36.) Resolution of this threshold issue turns on whether the
evidence, viewed in the light most favorable to plaintiff, supports rebuttal of the
presumption that the directors acted in the best interests of the shareholders—either by
breach of the duty of loyalty or of the duty of care. (Cede, supra, 634 A.2d at p. 371.)
This requires us to examine whether an alleged breach by an individual director, such as
DeWalt, triggers entire fairness review for the actions of the entire board. We also must
consider how the exculpatory provision in the McAfee charter affects our review.
a. Duty of Loyalty
The duty of loyalty under Delaware law “mandates that the best interest of the
corporation and its shareholders takes precedence over any interest possessed by a
director, officer or controlling shareholder and not shared by the stockholders generally.”
(Cede, supra, 634 A.2d at p. 361.) A director is considered independent “only when the
director’s decision is based entirely on the corporate merits of the transaction and is not
influenced by personal or extraneous considerations.” (Id. at p. 362.)
The Delaware Supreme Court in Cede, supra, 634 A.2d at page 362 examined “the
quantum of evidence required to rebut the business judgment rule’s presumption of
director loyalty.” The court clarified that self-interest on the part of a single director does
not necessarily bar application of the business judgment rule to board action. (Id. at
21
p. 363.) Rather, “there must be evidence of disloyalty,” which may be found in such
misconduct as “the motives of entrenchment,” “fraud upon the corporation or the board,”
“abdication of directorial duty,” “or the sale of one’s vote.” (Ibid.) There is no
“bright-line rule for determining when a director’s breach of duty of independence
through self-interest translates into evidence sufficient to rebut the business judgment
presumption accorded board action.” (Id. at p. 364.)
b. Duty of Care
“A director’s duty to exercise an informed business judgment implicates the duty
of care. Director liability for breaching the duty of care ‘is predicated upon concepts of
gross negligence.’ ” (McMullin v. Beran (Del. 2000) 765 A.2d 910, 921, fn. omitted.) It
requires the directors to “ ‘use that amount of care which ordinarily careful and prudent
men would use in similar circumstances,’ and ‘consider all material information
reasonably available’ in making business decisions, and that deficiencies in the directors’
process are actionable only if the directors’ actions are grossly negligent.” (In re Walt
Disney Co. Derivative Litigation (Del. Ch. 2005) 907 A.2d 693, 749, fn. omitted, aff’d by
In re Walt Disney Co. Derivative Litigation (Del. Ch. 2006) 906 A.2d 27 (Walt Disney).)
In the context of a merger or sale, the duty of care “requires a director, before voting on a
proposed plan of merger or sale, to inform himself and his fellow directors of all material
information that is reasonably available to them.” (Cede, supra, 634 A.2d at p. 368.)
“[A] trial court will not find a board to have breached its duty of care unless the directors
individually and the board collectively have failed to inform themselves fully and in a
deliberate manner before voting as a board upon a transaction as significant as a proposed
merger or sale of the company. [Citations.] Only on such a judicial finding will a board
lose the protection of the business judgment rule under the duty of care element and will
a trial court be required to scrutinize the challenged transaction under an entire fairness
standard of review.” (Ibid.)
22
c. Exculpatory Provision under Section 102(b)(7)
We address as a preliminary matter the effect of the exculpatory provision in
McAfee’s charter, adopted pursuant to section 102, subdivision (b)(7) of the Delaware
General Corporations Law (hereafter “section 102(b)(7)”). The purpose of
section 102(b)(7) is to permit shareholders, through the certificate of incorporation, “to
exculpate directors from any personal liability for the payment of monetary damages for
breaches of their duty of care, but not for duty of loyalty violations, good faith violations
and certain other conduct.” (Emerald Partners, supra, 787 A.2d at p. 90; see also
Lyondell, supra, 970 A.2d at pp. 239-240; McMullin v. Beran, supra, 765 A.2d at p. 926.)
There is no dispute that McAfee’s charter during the relevant time period
contained a section 102(b)(7) exculpatory provision. The trial court found that McAfee’s
independent directors could not be held personally liable for breaches of the fiduciary
duty of care, and accordingly analyzed the evidence as it pertained to the directors’
alleged breaches of the duties of loyalty and good faith.
Plaintiff urges on appeal that any consideration of the exculpatory provision and
its impact on defendants’ potential liability is not proper at summary judgment and must
be made after trial on the merits. (See, e.g., In re Emerging Communs., Inc. S’holders
Litig., 2004 Del. Ch. LEXIS 70, at *116, *139 (Emerging Communications)9 [addressing
application of § 102(b)(7) exculpatory provision only after trial finding that “freeze-out
merger of the minority” by majority stockholders failed entire fairness review].)
9
Certain Delaware authority relied on by the parties is unpublished. We note that
although an unpublished California case opinion may not be cited or relied upon (Cal.
Rules of Court, rule 8.1115), citing unpublished opinions from other jurisdictions for
their persuasive value does not violate this rule. (See In re Farm Raised Salmon Cases
(2008) 42 Cal. 4th 1077, 1096, fn. 18 [“Citing unpublished federal opinions does not
violate our rules”]; Lebrilla v. Farmers Group, Inc. (2004) 119 Cal. App. 4th 1070, 1077
[explaining that opinions from other jurisdictions—some which have different
publication criteria than California—can be cited without regard to their publication
status and may be regarded as persuasive].)
23
Defendants respond that Delaware courts routinely apply section 102(b)(7) to enter
judgment for director defendants before trial. (See, e.g., Lyondell, supra, 970 A.2d at
pp. 237-239 [reversing denial of defendants’ motion for summary judgment, because
§ 102(b)(7) exculpatory provision protected directors from personal liability for breaches
of duty of care, and record revealed no triable issues as to alleged breaches of duty of
loyalty in conducting sale of company].)
For present purposes, plaintiff is incorrect. “Depending on the facts of the case,
the standard of review, and the procedural stage of the litigation, a court may be able to
determine that a plaintiff’s claims only involve breaches of the duty of care such that the
court can apply an exculpatory provision to enter judgment in favor of the defendant
directors before making a post-trial finding of a breach of fiduciary duty and determining
the nature of the breach. If a court cannot make the requisite determination as a matter of
law on a pre-trial record, then it becomes necessary to hold a trial and evaluate each
director’s potential liability individually.” (Chen, supra, 87 A.3d at pp. 676-677.)
Plaintiff’s reliance on Emerging Communications is misplaced, because the
transaction in that case (a “ ‘going private’ acquisition of a corporation’s minority stock
by its majority stockholder”) dictated the standard of review for entire fairness.
(Emerging Communications, supra, 2004 LEXIS 70 at *35-36.) As the Delaware
Supreme Court explained in Emerald Partners, transactions that “require judicial review
pursuant to the entire fairness standard ab initio do so because, by definition, the
inherently interested nature of those transactions are inextricably intertwined with issues
of loyalty.” (Emerald Partners, supra, 787 A.2d at p. 93.) In those cases, the
exculpatory effect of a section 102(b)(7) provision may only be decided after the
directors’ potential personal liability has been established based on a finding the
transaction was not entirely fair. (Emerald Partners, supra, at p. 93.) But in cases that
“begin with the presumption of the business judgment rule, ab initio, . . . proper
invocation of a Section 102(b)(7) provision can obviate a trial pursuant to the entire
24
fairness standard, even if the presumption of the business judgment rule is successfully
rebutted by a duty of care violation, since liability for duty of loyalty violations or
violations of good faith are not at issue.” (Id. at p. 92.)
The transaction before us is not presumptively subject to entire fairness review.
Since we proceed from the starting point of the business judgment rule (or enhanced
scrutiny in connection with actions taken when merger negotiations began, see Lyondell,
supra, 970 A.2d at p. 242), invocation of McAfee’s section 102(b)(7) charter provision
“can obviate a trial pursuant to the entire fairness standard, even if the presumption of the
business judgment rule is successfully rebutted by a duty of care violation . . . .”
(Emerald Partners, supra, 787 A.2d at p. 92.) Inasmuch as a breach of the independent
directors’ duty of care cannot serve as a basis for their personal liability in this case, it
cannot serve as a basis for rebutting the presumptions of the business judgment rule.
We conclude that plaintiff’s quest to establish entire fairness as the applicable
standard of review and to defeat summary judgment as to the independent directors
requires a showing of one or more triable issues of material fact pertaining to the
non-exculpated loyalty or good faith claims against those directors. A failure to present
evidence of a triable issue of material fact as to the non-exculpated breach of the
fiduciary duty claims properly results in the affirmance of judgment in their favor. (See,
e.g., Lyondell, supra, 970 A.2d at pp. 237-239; In re S. Peru Copper Corp. S’holder
Derivative Litig. (Del. Ch. 2011) 52 A.3d 761, 785 [dismissing certain director
defendants at summary judgment “because the plaintiff had failed to present evidence
supporting a non-exculpated breach of their fiduciary duty of loyalty . . . .”].)
d. The Record Does Not Support Review for Entire Fairness
Plaintiff argues that DeWalt’s interest in the merger and alleged manipulation of
the independent directors necessitates the application of entire fairness review. Plaintiff
focuses on DeWalt’s alleged concealment of James’s $50-per-share overture and of the
pre-due diligence, project Inca exchanges between McAfee and Intel leading up to the
25
June 11 proposal. Plaintiff contends that the independent directors failed to take steps to
protect against conflicts in the process, especially pertaining to DeWalt after the June 11
proposal stated Intel’s intent to retain McAfee’s management team. Plaintiff relies
primarily on three cases to support this argument: Mills, supra, 559 A.2d 1261;
Bomarko, Inc. v. Intern. Telecharge, Inc. (Del. Ch. 1999) 794 A.2d 1161 (Bomarko); and
Weinberger v. UOP, Inc. (Del. 1983) 457 A.2d 701 (Weinberger).
Mills involved an ongoing “battle for control” of Macmillan, Inc. (Mills, supra,
559 A.2d at p. 1265.) Faced with an unsolicited takeover bid of the company,
Macmillan’s chairman and CEO (Evans) and president and COO (Reilly), pursued a
management-sponsored buyout of Macmillan by an investment firm specializing in
leveraged buyouts (KKR). (Id. at p. 1264.) Macmillan’s board of directors granted an
asset option agreement (known as a “ ‘lockup’ ”) to KKR after it prevailed “as the
purported high bidder” in a stilted “ ‘auction’ for control of Macmillan.” (Ibid.) The
record teemed with examples of fiduciary misconduct. For example, Evans and his team
agreed to endorse the leveraged buyout to Macmillan’s board of directors before KKR
had even disclosed the amount of its bid. (Id. at p. 1273.) During the auction, Evans and
Reilly called a KKR representative and “ ‘tipped’ ” the competing bidder’s offer to KKR
(id. at p. 1275), then concealed that information from Macmillan’s board of directors.
(Id. at pp. 1279-1280.) Throughout the auction process, “KKR was consistently and
deliberately favored” (id. at p. 1278) while the competing bidder was “deliberately
misled” (id. at p. 1281) and met “continuing hostility . . . .” (Id. at p. 1282.)
On appeal, the Delaware Supreme Court emphasized that “judicial reluctance to
assess the merits of a business decision ends in the face of illicit manipulation of a
board’s deliberative processes by self-interested corporate fiduciaries.” (Mills, supra,
559 A.2d at p. 1279.) The court found that “Evans and Reilly, as participants in the
leveraged buyout, had significant self-interest in ensuring the success of a KKR bid” and
“their deliberate concealment of material information from the Macmillan board must
26
necessarily have been motivated by an interest adverse to Macmillan’s shareholders.”
(Ibid.) The court described the management’s actions as “resolutely intended to deliver
the company . . . to their favored bidder, KKR, and thus themselves” (id. at
pp. 1279-1280) and found the board “torpid, if not supine, in its efforts to establish a truly
independent auction . . . .” (Id. at p. 1280.) For example, Macmillan’s “directors wholly
delegated the creation and administration of the auction to an array of Evans’
hand-picked investment advisors.” (Id. at p. 1281.) The court concluded that “divided
loyalties . . . on the part of certain directors, and the absence of any serious oversight by
the allegedly independent directors” mandated review under the entire fairness standard.
(Id. at p. 1265.)
Bomarko involved the merger of International Telecharge, Inc. (ITI), into a
corporation that was wholly-owned by ITI’s chairman and CEO, Ronald Haan.
(Bomarko, supra, 794 A.2d at pp. 1164-1165.) ITI was facing default on its long-term
debt. Haan, who also was a significant creditor and large stockholder of ITI, approached
Bell Atlantic about a possible loan. Bell Atlantic initially proposed a loan that did not
meet ITI’s needs, but later sent Haan a term sheet that more closely reflected ITI’s
request. (Id. at pp. 1168-1169.) Haan did not disclose the term sheet to ITI’s board of
directors or disabuse their understanding that Bell Atlantic likely could not meet ITI’s
needs. (Id. at p. 1169.) Instead, Haan proposed that he might be able to provide
financing or purchase ITI’s assets. (Ibid.) Haan then contacted Bell Atlantic without
informing the board’s special committee and counter-proposed terms that were
“materially inconsistent with ITI’s needs.” (Id. at p. 1170.) The board eventually
approved a merger between ITI and Haan’s corporation, in part based on the belief that
ITI was unable to obtain financing or otherwise avoid bankruptcy. (Id. at p. 1175.)
The Court of Chancery observed that Haan’s illicit counter-proposal “interfered
with whatever opportunity ITI had to obtain financing from Bell Atlantic.” (Bomarko,
supra, 794 A.2d at p. 1170.) The court found it to be evidence of bad faith, because Haan
27
“intended to divert” the financing opportunity “away from ITI at the moment ITI most
needed it” while “affirmatively tr[ying] to conceal” his conduct from the board special
committee, and later from the plaintiffs in the shareholder action. (Id. at p. 1173.) The
court compared Haan’s conduct to the CEO’s “ ‘illicit manipulation’ ” of the board’s
process in Mills (id. at p. 1178) and concluded that the “acts of disloyalty” by Haan
“interfered with the other directors’ efforts to benefit ITI’s shareholders” and required the
court to review the transaction under the “entire fairness” standard. (Id. at p. 1179.)
In Weinberger, acquirer (Signal) owned a majority interest of stock in target
(UOP), and several Signal directors and employees served on UOP’s board of directors.
(Weinberger, supra, 457 A.2d at pp. 703-704.) Two members of Signal’s senior
management, who were also UOP directors, prepared a feasibility study about acquiring
the balance of UOP’s outstanding shares. The study concluded that it “would be a good
investment for Signal . . . at any price up to $24 [per share].” (Id. at p. 705.) After
UOP’s president and CEO (who also was a Signal director) responded favorably to
Signal’s intent to acquire full ownership of UOP at a proposed price range of $20 to $21,
Signal authorized a cash-out merger at $21 per share. (Ibid.) The feasibility study was
not shown to the independent UOP directors or disclosed to UOP’s minority shareholders
before their approval of the merger. (Id. at p. 707.)
The Delaware Supreme Court emphasized that the feasibility study was of
material significance to UOP and its shareholders. (Weinberger, supra, 457 A.2d at
p. 709.) “Since the study was prepared by two UOP directors, using UOP information for
the exclusive benefit of Signal, and nothing whatever was done to disclose it to the
outside UOP directors or the minority shareholders, a question of breach of fiduciary duty
arises. This problem occurs because there were common Signal-UOP directors
participating, at least to some extent, in the UOP board’s decision-making processes
without full disclosure of the conflicts they faced.” (Ibid.) The court further explained
that when directors are on both sides of the transaction, “[g]iven the absence of any
28
attempt to structure this transaction on an arm’s length basis,” the directors had to meet
the burden of establishing entire fairness. (Id. at p. 710.)
Plaintiff likens DeWalt’s conduct to that of the CEOs in Mills and Bomarko and
the conflicted directors in Weinberger. Plaintiff points out that DeWalt never disclosed
James’s inquiry about $50-per-share to the McAfee board or its financial advisors,
depriving them of material information against which to gauge the $48-per-share offer
that came after. Plaintiff also asserts that DeWalt concealed project Inca and the pre-June
2010 merger discussions with Intel from the McAfee board members, produced key
documents associated with project Inca only at the very end of discovery in this case, and
was evasive and “affirmatively lied” in his deposition regarding McAfee’s pre-June 2010
dealings with Intel and the timing of discussions with Intel about keeping McAfee’s
management team in a transition.
Defendants contest the relevance of Mills, Bomarko, and Weinberger to this case.
We agree that the record as it relates to DeWalt’s self-interest, alleged acts of deceit and
concealment, and the efficacy of the board as a neutral decisionmaking body, contains no
semblance of the conflicting interests or obstructive, manipulative conduct that
permeated those cases and mandated review for entire fairness.
First, regarding DeWalt’s self-interest, plaintiff presents DeWalt’s actions as
motivated by a lucrative career built on “pushing the companies he leads into
change-of-control transactions” at “extraordinary financial benefits” to himself. Plaintiff
asserts that DeWalt’s expectation of post-merger employment predated the June 11
proposal by a few months based on indications that Intel would want a McAfee
acquisition to be consistent with its recent acquisition of another company called Wind
River. In support, plaintiff points to deposition testimony in which DeWalt stated that
during discussions Intel “would point to the ways in which they had acquired a previous
firm called Wind River and what they had done with that structure.” Plaintiff argues that
like Haan in Bomarko, supra, 794 A.2d at pages 1173 through 1174, who the court found
29
had “attempted to conceal” (id. at p. 1174) his wrongful actions, DeWalt “affirmatively
lied” in deposition regarding his future employment interest. Although DeWalt
responded “No” after being asked whether his June 10 meeting with James included any
discussion of keeping McAfee’s management on board through an acquisition, he also
testified (only a few minutes earlier, based on the transcript) that in “the June 10th
conversation, the notion of a wholly owned subsidiary, full-functioning business unit
concept was first relayed to me, and . . . I would say the notion of the management team
and the employees being considered as part of the value was—was spoken.” Reasonably
construed in plaintiff’s favor, this discrepancy hardly amounts to an affirmative lie.
DeWalt further testified that remarks about Wind River were “not necessarily in context
with McAfee” and that his June 10 meeting with James was the first time that he received
concrete indication of the proposed merger structure.
Plaintiff also points to notes produced in connection with the deposition of
James’s colleague at Intel, Donald Harbert, as support for plaintiff’s argument that
DeWalt angled early for his employment terms with Intel. The notes appear to indicate
that James described her June 10 meeting with DeWalt to Harbert, who wrote that
McAfee’s top management would need a retention plan and that DeWalt would only
want to stay two years.10 Plaintiff points to DeWalt’s employment agreement with Intel,
with its promised special retention bonuses, acceleration of stock options, and other
valuable equity awards; but it is undisputed that these terms were negotiated well after
the companies’ joint merger announcement. And plaintiff does not dispute that DeWalt
stood to earn over $1.3 million for each additional dollar per share that Intel paid for
McAfee, providing an obvious incentive to negotiate a higher sale price if possible.
10
Harbert was not present for the June 10 meeting between James and DeWalt.
Harbert testified that his personal notes were intended for what he might need to
remember from a discussion, not to make a record.
30
We find that plaintiff has not raised a triable issue of material fact as to DeWalt’s
postmerger employment. It is undisputed that the June 11 proposal received by DeWalt
and the McAfee board indicated Intel’s intent to retain McAfee management. DeWalt
and James separately testified that employee retention agreements were discussed later in
the process, after McAfee’s board had approved the $48-per-share price, and the terms of
DeWalt’s employment with Intel, including his compensation package and bonus, were
discussed even later. Plaintiff does not argue that any aspect of those negotiations were
improper. At most, the evidence viewed in the light most favorable to plaintiff supports
an inference that DeWalt had reason to believe, leading up the June 11 proposal, that he
would be asked to stay on as McAfee’s head in the event of an acquisition by Intel and
that he indicated the extent of interest in such an arrangement (i.e., not more than two
years) during their June 10 meeting. This is insufficient for a showing that DeWalt’s
interest in the transaction diverged from that of McAfee’s shareholders. (See Cede,
supra, 634 A.2d at p. 361 [best interest of the corporation and shareholders must take
precedence over any interest possessed by a director or officer “and not shared by the
stockholders generally”].)
In fact, the Delaware Supreme Court spoke to the issue of actual or assumed
director interest in Cinerama: “ ‘The fact that some interested transactions are permitted
under our corporate law demonstrates that they are not inherently detrimental to a
corporation. As long as a given transaction is fair to the corporation, and no confidential
relationship betrayed, it may not matter that certain corporate officers will profit as the
result of it. . . . The key to upholding an interested transaction is the approval of some
neutral decision-making body.’ ” (Cinerama, supra, 663 A.2d at p. 1170.) The high
court thus approved the Court of Chancery’s reasoning that “ ‘the interest of [the
directors] was disclosed and a majority of the non-interested directors approved the
transaction in good faith,’ ” and that “ ‘the alleged hope of better employment
opportunities’ ” or “assumed interest” of another director was insufficient. (Ibid.)
31
Here, the June 11 proposal dispels any inference that DeWalt concealed his future
employment prospects from the independent directors. Plaintiff’s reference to Krasner v.
Moffett (Del. 2003) 826 A.2d 277, 283, footnote 18 (finding that an “expected . . .
benefit” to directors’ business and consulting relationships was sufficient to state a claim
that the directors suffered a disabling conflict of interest) is unhelpful insofar as it
addresses the sufficiency of breach of fiduciary duty claims at the pleading stage only.
Mills and Bomarko provide apt illustrations of interested corporate fiduciaries. The target
company’s chairman and CEO in Mills orchestrated a management-sponsored buyout of
the company in which the management would receive up to 20 percent ownership in the
newly formed company. (Mills, supra, 559 A.2d at pp. 1264, 1265.) In Bomarko, the
company chairman and CEO steered the company into a merger with his own,
wholly-owned corporation after interfering with the company’s efforts to find alternative
financing and avoid bankruptcy. (Bomarko, supra, 794 A.2d at p. 1181.) The record
before us bears no resemblance.
More comparable are the facts in In re Toys “R” Us, Inc. (Del. Ch. 2005) 877 A.2d
975, 1003, in which the plaintiffs challenged the motives of the CEO of the target
company in a bid for sale due to his expected gain of “over $60 million from the sale”
(ibid.) and his knowledge that the bidder’s initial bid was conditioned on the retention of
key but unidentified members of management. The court rejected this argument,
explaining that the condition for retention of management was removed in later bids, and
the CEO’s equity in the company created “more incentive than almost anyone to make
sure that the board did the best risk-adjusted job it could of getting the best price.” (Id. at
p. 1004.) Similarly here, DeWalt and the independent directors were aware of Intel’s
intent to retain key management at the time that negotiations began following the June 11
proposal, but no meaningful action or discussions related to retention occurred until after
McAfee’s board had accepted the offer at $48 per share.
32
Next, plaintiff asserts that DeWalt hampered the board’s deliberative process by
concealing project Inca and James’s overture asking whether $50 per share would “get
the deal done.”
The record establishes that DeWalt contemplated the possibility of an acquisition
by Intel as early as his first meeting with James and Intel representatives in March 2010,
and brainstorming about potential synergies of an acquisition began in earnest after the
meeting at Intel’s headquarters on April 4, 2010. According to a “McAfee/Intel
Partnership Chronology” that McAfee’s Gerhard Watzinger sent to DeWalt shortly after
McAfee received the June 11 proposal, April 2010 was the “first brainstorming meeting
with Intel about potential synergies of an acquisition,” and in May 2010 there were
“various meetings and calls with Intel regarding pre-due diligence data collection.” The
record reflects detailed exchanges between McAfee and Intel management during this
period. In an e-mail on May 28, Watzinger told DeWalt that “Inca” was sending “[l]ot’s
[sic] of requests for data; i.e. gross margins of businesses, renewal vs. x-sell vs. new
customers, attrition, etc.” The record shows that DeWalt did not update the board
specifically about project Inca or these detailed exchanges during the period leading up to
the June 11 proposal.
On the other hand, the evidence shows that the independent directors expected
DeWalt to engage in discussions with potential partners and acquirers and viewed the
related exchanges of information to be appropriate. Chairman Robel testified that in the
spring of 2010, DeWalt told him that Intel had “expressed a greater interest in McAfee”
and was “looking at additional information,” and that DeWalt had meetings with James
over “some period of weeks.” According to Robel, “it wouldn’t have been unusual” in
that context for DeWalt to have “provided all sorts of analysis around our business, their
business, and the opportunities between the two.” When Robel learned that Intel “was
asking more questions about the business,” he believed it might have been a “fishing
33
expedition” because a combination with Intel was “pretty out of the box and is
subsequently viewed by people as being pretty out of the box.”
The expressions of surprise at Intel’s June 11 proposal appear to be closely tied to
this generally-held view that Intel was an unlikely acquirer. For example, defendant
Pangia testified that DeWalt “kept the board abreast of discussions that . . . evolved
initially from what we thought would be a joint venture to the potential to do something
greater.” According to Pangia, “part of Dave’s job was to determine whether or not there
was an acquirer out there . . . . So Intel was part of those discussions. [¶] . . . I can recall
he said, you know, this is sort of curious. It’s not an obvious fit, but it could have the
potential to turn into something. [¶] So the board had been aware that [Intel] was a
possibility for some period of time in my recollection.”11
Even DeWalt, according to James’s testimony about their June 10th meeting,
“seemed surprised that we actually gave him an offer . . . .” These statements support the
inference that the independent directors had only a high-level understanding of the
exploratory merger discussions between McAfee and Intel management; they do not
support an inference that the independent directors were uninformed or kept in the dark
about those discussions.
Upon receiving the June 11 proposal, the McAfee board retained Morgan Stanley
to serve as McAfee’s financial advisor. Plaintiff contends that neither DeWalt nor
Morgan Stanley provided the board with the appropriate discussion materials or
11
Several other defendants explained their surprise at the June 11 proposal.
Defendant Bass testified that he was “surprised” by the $45-per-share proposal because
he “thought it was a rich offer” and did not think of Intel as a likely buyer. Defendant
O’Leary testified that there were “continual briefings from our CEO about discussions
with Intel” in which “James was involved and some other Intel execs,” though O’Leary
had understood the discussions to be focused on the joint venture. Defendant Darcy did
not recall discussions about an acquisition by Intel before the June 11 proposal and was
surprised because he “didn’t quite view Intel as a potential acquirer of McAfee . . . .”
34
quantitative analysis about the synergies and “billion-dollar” opportunities identified in
the project Inca collaboration. Contrary to this claim, the record reflects discussion of
these topics between McAfee management, Morgan Stanley, and the McAfee board,
though not in direct reference to “billion dollar” or “$1B+” ideas. Each of the eight
“billion dollar” opportunities was outlined in the “Key Synergies” section of McAfee’s
presentation to Intel during due diligence meetings beginning on June 15.12 The minutes
of the McAfee board’s June 17 special meeting that followed the two-day due diligence
session describe DeWalt’s update for the board on McAfee’s due diligence efforts to
support a higher valuation from Intel and Morgan Stanley’s summary of the negotiations
and its assessment of Intel’s offer. DeWalt also discussed a call that he had that same day
with a senior Intel executive, who he informed that “based on the additional synergies
that [McAfee] had presented to [Intel] during the due diligence meetings, [McAfee]
believed a higher offer was warranted.”
In addition, Morgan Stanley’s lead advisor to McAfee testified that he discussed
“the synergy potential for a transaction” with McAfee’s management but did not include
“revenue synergies” in the analysis to the McAfee board because they were “focused on
the stand-alone value of the business” and synergies “are not something that McAfee can
achieve on a stand-alone basis.” When director defendant Carl Bass was questioned
about each of the “billion-dollar” opportunities, he responded as to each that he was
familiar and was not sure if McAfee had prepared financial models, but “would hope”
12
Side-by-side comparison of McAfee’s “key synergies” slides and the document
circulated between Intel and McAfee management in April 2010 shows all eight
categories of “$1B+” opportunities reflected in the due diligence presentation, including
“Embedded device protection,” “Security for mobile/handheld devices,” “Patmos,” and
others. Although plaintiff contends that McAfee’s slides contained no quantification of
value or revenue potential, neither does the document that was circulated in April 2010,
which contains columns for “Technology,” “McAfee Value-Add,” “Description,” and
“Opportunity Mapping” (connecting each technology to one of the eight “$1B+”
categories) but does not quantify values or reference financial data or projections.
35
that Morgan Stanley and McAfee management had not placed a value on the potential
revenues from the opportunities because “it’s a speculative market” and at the time the
merger was under consideration “wasn’t at the point of being substantial enough to value
in that way.”
Plaintiff points to Intel’s substantially higher internal valuation of McAfee at
between $56 and $90 per share when including “financial and strategic” synergies13 as
evidence that Intel unfairly captured the value of the ideas discussed in project Inca.
Once again, we do not find that the evidence above supports this inference because
Intel’s valuation of synergies from a merger was strictly internal and was based on the
concept that strategic synergies were speculative and were not to be “give[n] away . . . in
a deal.” Intel’s financial advisor in the transaction, Jon Woodruff of Goldman Sachs,
explained that materials prepared for Intel’s board of directors separated the estimated
synergy value because “synergy achievement is speculative by nature . . . .” Intel board
member and former chairman, Dr. Jane Shaw, testified that the strategic synergies
estimate “would be heavily discounted by the board” because it is “a fact” that they are
speculative. James testified that “strategic synergies aren’t part of the deal . . . the
financial synergies are the only considerations for the deal.” In response to a question
about Intel’s $56 per share valuation, James explained, “there’s no 56. [¶] Synergies are
for the acquirer. . . . [I]n fact, in our offer at 45, we were already giving them some of the
synergies.”
In sum, the evidence and inferences reasonably drawn therefrom show that
DeWalt provided the McAfee board with broad-brush updates about the discussions with
13
James explained in her deposition Intel’s use of the terms “financial” and
“strategic” synergies. Financial synergies were those that Intel “could directly calculate,”
such as “ability to address markets that Intel was in that McAfee was not, and their ability
to expand their distribution as part of Intel.” Strategic synergies were “more hopeful than
direct calculation” and represented markets that Intel was looking to enter.
36
Intel as they unfolded (prior to the June 11 proposal), which was consistent with the
board’s expectations at the time. The evidence further shows that the financial materials
that Morgan Stanley prepared for the McAfee board once active negotiations had begun
did not provide a value for strategic synergies but instead focused on McAfee’s
standalone value and prospects. This evidence does not add up to present triable issues
concerning DeWalt’s alleged concealment of project Inca and failure to adequately
inform the board about management’s synergy discussions with Intel prior to June 2010.
Unlike the conflicted directors in Weinberger who failed to share the feasibility study
with their fellow directors and applied it “for the exclusive use and benefit” of the
acquirer (Weinberger, supra, 457 A.2d at p. 708), we find no support for the inference
that DeWalt was aware of information that would have justified a higher-value offer from
Intel, yet inexplicably concealed that information from the board.
DeWalt’s failure to disclose James’s $50 overture presents a closer question; but
the same reasoning prevails insofar as it impacts the standard of review. The record
shows that McAfee’s presentations to Intel during the early June due diligence
negotiations led James to surmise that Morgan Stanley had “convinced” McAfee that
they were “worth 55”—a value that James testified her team had “backed into” and
believed to be “very lofty . . . .” Negotiations during the final week of June 2010 left
James “modestly confident” that if Intel was prepared to offer $50 per share, they would
“get a handshake.”14 James discussed Intel’s strategy internally via e-mail with Andy
Bryant, who suggested that James ask DeWalt “if he can deliver 50,” and added “[f]or 50,
we have to deliver some better news from our research the last few weeks.”
14
In an e-mail to Andy Bryant of Intel dated June 30, 2010, James described the
discussions that week with DeWalt, Morgan Stanley, and Wilson Sonsini: “they get that
we weren’t going to get to or near 50 last week—Dave has not been willing to affirm
other than he would work to get his board to say ‘they would do 50’ . . . and we know
some of the board is at 52-55 . . . .”
37
James testified that she spoke with DeWalt over the weekend of July 4th and
asked “will 50 get the deal done” if she were to get authorization for that amount from
Intel’s board, noting “[i]t’s outside our engagement range.” According to James, DeWalt
responded “no, 52 to 54.” James testified that she did not speak with DeWalt for “a
couple weeks after,” having decided to wait until the second quarter results. James
explained that McAfee was “in a falling market, their stock was going down, and we
knew their quarter wasn’t good. So we said: You know what? We see real weaknesses
in their business. And we were concerned that we needed to wait and get more data.”
Several McAfee board members testified that they did not recall hearing about any
such communication from Intel. Defendant O’Leary stated that he would have wanted to
know if that type of conversation had occurred. And as plaintiff emphasizes, the proxy
materials did not inform McAfee’s shareholders that before making the cash offer of
$48-per-share, James had asked DeWalt if a $50-per-share offer would close a deal, if she
could get authorization.
Plaintiff argues that like Haan in Bomarko, DeWalt’s actions “make it impossible
to know what would have happened if he had acted in accordance with his fiduciary
duties” (Bomarko, supra, 794 A.2d at p. 1177) and made full and timely disclosures to
the board and its advisors. Plaintiff asserts that at a minimum, on summary judgment it is
entitled to the inference that McAfee’s board “would not have accepted $48 per share had
it been told that $50 was offered just days earlier.” Plaintiff further asserts that had the
board known about DeWalt’s rejection of “an informal $50 offer,” it would not have
“panicked” when Intel paused negotiations, causing it to “abandon the $50+ per share
price range it had previously determined to be fair and settle for a price . . . in the
‘non-starter’ range.” While plaintiff is entitled to all favorable inferences that can be
reasonably drawn from the evidence, a scenario in which the board would not have
accepted the offer at $48 per share based on James’s overture to DeWalt is highly
38
speculative and generally contradicted by the evidence of what followed James’s
conversation with DeWalt.
While James testified that she recalled not speaking with DeWalt for “a couple
weeks after,” having decided to wait until the second quarter results, the e-mail
communication immediately following the 4th of July weekend showed that James
continued to seek information from DeWalt that could help her justify a higher offer.15
DeWalt’s response stressed an optimistic and confident outlook for the company. He
emphasized that McAfee “ended Q2 with very strong results” and highlighted certain
deals and bookings for the quarter, adding: “Renee, I’m hoping this is exactly the type of
‘good new news’ that might help move things forward on your end. We really feel very
good about our business, and we’re trading at SUCH a low valuation multiple, I hope you
can see how we view things from a fundamental perspective. We have good
momentum, . . . so I just don’t see a lot of risk in front of us.” In a follow-up e-mail
between DeWalt, McAfee’s financial advisors, and chairman Robel, DeWalt explained
that Intel had “floated [the] idea of increasing offer ‘slightly, to keep ball rolling’ ” and
he had “encouraged them to show us a price that was in our ‘expectation range.’ ”
DeWalt also stated that Intel “will most likely wait for next step until after Q2 earnings,”
to which Mike Wyatt of Morgan Stanley responded that he understood from Intel’s
financial advisors at Goldman Sachs that Intel was “(still) ready to rock and roll.” Wyatt
added, “Proposed action would be to assemble a data pack to help them with follow-up.
Not rushed, we can take our time and dress it up. Agree?”
15
James sent an e-mail to DeWalt on the evening of July 5, 2010—apparently just
after the conversation she testified took place that weekend which reads: “Hi, Happy 4th
of July—just checking in as I know you were busy last week with the quarter close.
Hope all turned out well there—any updates you can share? I think we should schedule a
call this week and see if we can get going.”
39
This record does not support an inference that DeWalt was acting other than in
McAfee’s interest by seeking to convince Intel that McAfee’s second quarter results
merited an offer in its “expectation range.” Nor is there evidence from which to infer that
Intel’s board was prepared to authorize a higher offer, or that DeWalt deceived the
independent directors after receipt of the $48-per-share offer by advising that Intel “was
not willing to further increase its offer to acquire the Company.” The internal exchanges
between James and Andy Bryant suggest that while James had considered approaching
Intel’s board for authorization up to $50, Bryant advised her that she needed “better
news” from McAfee in order to do so. James responded that she had “confirmation on
our synergies and a few pieces of good news including a very big pipeline.” Bryant
testified that he did not know if Intel’s board “would have gone to 50.” He explained that
the engagement authorization up to $49 was “[s]ubject to due diligence and other,
whatever was happening in the marketplace . . . .” James testified that $48 was the
highest price that Intel’s board ever authorized for an acquisition of McAfee.
The evidence related to the marketplace outlook and second quarter results further
does not support an inference that an offer higher than $48 per share would have been
forthcoming. Plaintiff points out that despite falling below market expectations,
McAfee’s revenue results still represented the “17th consecutive quarter of double-digit,
year-over-year revenue growth.” This fact must be viewed in the context in which
merger negotiations were taking place. James testified that McAfee’s “stock was going
down” and that around the time of Intel’s June 11 proposal, “[t]he business went off a
cliff,” dropping another $3 by the time McAfee’s board had accepted the second offer.
According to James, McAfee had missed its second quarter and showed “very weak
forward guidance.” James communicated internally to Intel’s board committee that she
had waited for written confirmation of McAfee’s second quarter results, which “were in
line with what we expected,” before making the revised offer. DeWalt described the
results as “mixed” with McAfee having “missed pretty substantially” analyst expectations
40
in a few key categories but having beat expectations in others. Chairman Robel testified
that “it was not a good quarter” and “there was a lot more cloud around the company’s
ability to grow in the future.” And Dr. Shaw testified that Intel’s board at that time was
watching McAfee’s market performance “very closely . . . and it actually wasn’t doing
well.”
Plaintiff argues that the revised offer letter does not indicate that it was Intel’s best
and final offer, and that James communicated internally that the strategy if McAfee were
to ask for more was “to wait them out until sometime after their earnings announcement.”
This is insufficient to support an inference that Intel might have gone higher, or that
DeWalt misled the board by “stoking its fears” about the company’s prospects, because
evidence throughout the record indicates that Intel did not intend to go higher and
communicated this fact to McAfee through several channels. In James’s e-mail to Intel’s
board committee, she confirmed that Goldman Sachs “delivered ‘hard message’ to
Morgan [Stanley] alongside $48.” James testified that she considered the offer at $48 to
be final and “[n]o way” was prepared to ask for more. Jon Woodruff of Goldman Sachs
testified that “when we made our move to 48, we absolutely advised [Intel] to take a very
hard line, make it very clear that we didn’t have a penny more and that we were walking
and moving [in] another direction.” Woodruff explained that he delivered the same
message to his counterpart at Morgan Stanley and that “we were actually planning on
stepping away from the transaction, at least for some period of time, if we didn’t get it
done at 48.” Dr. Shaw testified that $50 was “beyond the range that the board here
approved” and that Intel’s subcommittee on the McAfee acquisition had decided in its
last meeting “that if we communicated the 48 price, it would be made clear that that was
our last and final offer.”
Thus, plaintiff relies on inferences that are not supported by the record. Setting
aside whether DeWalt’s failure to share the details of his conversation with James raises
any triable issues related to his individual fiduciary duties, we find that the evidence falls
41
short of that required to rebut the presumptions of the business judgment rule for actions
taken by the board. Specifically, the assertion that DeWalt’s conduct misled the board
into accepting the $48 offer—which may not have been best and final—is rife with
speculation and contradicted by the evidence showing that $48 was in fact best and final.
In comparison with the ongoing “domination of the allegedly ‘independent’ board by the
financially interested members of management” in Mills, supra, 559 A.2d at page 1266,
there is no evidence that DeWalt exercised improper influence over the other board
members or its deliberations over the $48-per-share offer. We conclude that the fact that
the board was not aware of James’s $50 overture did not compromise its ability to
effectuate its role as “a ‘neutral decision-making body.’ ” (Cinerama, supra, 663 A.2d at
p. 1170, fn. 25.)
2. The Enhanced Scrutiny Analysis
Having concluded that plaintiff did not meet its burden to establish entire fairness
review, we turn to consider whether the trial court erred in finding no triable issues of
material fact as to either the independent directors or DeWalt. As noted above, the duty
of the board of directors in a change of control scenario is “to seek the best available
price.” (Lyondell, supra, 970 A.2d at p. 242; Revlon, supra, 506 A.2d at p. 182.) The
directors’ obligation is “to secure the transaction offering the best value reasonably
available for the stockholders” and to “exercise their fiduciary duties to further that end.”
(Paramount, supra, 637 A.2d at p. 44.) As the Delaware Supreme Court explained in
Paramount, supra, at page 45, “a court applying enhanced judicial scrutiny should be
deciding whether the directors made a reasonable decision, not a perfect decision. If a
board selected one of several reasonable alternatives, a court should not second-guess
that choice even though it might have decided otherwise or subsequent events may have
cast doubt on the board’s determination.”
42
a. Independent Directors
In opposing the motion for summary judgment, plaintiff did not dispute that the
independent directors—who comprised nine of the 10 members of McAfee’s board—
were experienced, outside directors, none of whom joined Intel after the merger. Indeed,
plaintiff on appeal does not appear to contest the independent directors’ independence,
meaning that each director’s decision was “based entirely on the corporate merits of the
transaction and [was] not influenced by personal or extraneous considerations.” (Cede,
supra, 634 A.2d at p. 362.) Nor does plaintiff appear to contest the reasonableness of the
independent directors’ actions or efforts to secure the best available price based on their
knowledge of the circumstances at the time. (Paramount, supra, 637 A.2d at pp. 44-45.)
Rather, plaintiff contends that triable issues of fact exist with respect to the
independent directors’ alleged failure to oversee conflicted fiduciaries—namely, DeWalt.
This argument requires little additional consideration, given our conclusion above that
plaintiff failed to establish a triable issue of fact concerning DeWalt’s fiduciary duty of
loyalty based on post-merger employment and financial interest in the merger. (See ante,
section II.C.1.d.) Plaintiff cites no authority under Delaware law to support its argument
that DeWalt’s interest in the transaction—which was established by the June 11
proposal—required the board to take direct control of the negotiations with Intel or to
form an independent committee. Delaware courts have rejected similar arguments in
cases where the evidence showed the board met its overall supervisory obligations. (See,
e.g., In re MONY Group Inc. Shareholder Lit. (Del. Ch. 2004) 852 A.2d 9, 20 [board
could appropriately rely on CEO who allegedly “ ‘stood to gain excessive payments’ ”
under change in control agreements, where board “actively supervised [the CEO’s]
negotiations” and “demonstrated its independence and control” by rejecting and
modifying aspects of the proposed deal].)
Plaintiff compares the alleged failure of the McAfee board to protect against
DeWalt’s conflicts to the board’s oversight failures in Mills. The comparison is not
43
accurate. In Mills, the board “wholly delegated the creation and administration of the
auction to an array of [CEO] Evans’ hand-picked investment advisors” despite the fact
that management insiders were “among the bidders.” (Mills, supra, 559 A.2d at p. 1281.)
The court described the board as “torpid, if not supine, in its efforts to establish a truly
independent auction” for having placed “the entire process in the hands of Evans, through
his own chosen financial advisors, with little or no board oversight.” (Id. at p. 1280.)
Here, the record is devoid of any similar evidence of board passivity. Plaintiff
does not challenge defendants’ showing that upon receiving the June 11 proposal, the
board, not DeWalt, retained outside legal counsel and financial advisors and negotiated
the terms of Morgan Stanley’s engagement with significant incentives for securing a
higher offer. After determining that Intel’s initial offer was too low, the board directed
DeWalt to communicate to Intel that $45 per share was inadequate. The board met in
formal session nine times over the course of about nine weeks of negotiations for updates
on the process and considered reports from the board’s advisors as well as DeWalt.
During that time, with input from Morgan Stanley, the board considered other potential
acquirers and their likely ability to complete an acquisition and ultimately directed
DeWalt to approach the most likely company suitor, which declined, in order to gauge its
interest.
On this record, we find no support for the alleged, “virtual abandonment” of the
independent directors’ oversight functions “in the face of [DeWalt’s] patent self-interest.”
(Cf. Mills, supra, 559 A.2d at p. 1284, fn. 32.) To the contrary, “the record establishes
that the directors were disinterested and independent; that they were generally aware of
the company’s value and its prospects; and that they considered the offer, under the time
constraints imposed by the buyer, with the assistance of financial and legal advisors.”
(Lyondell, supra, 970 A.2d at p. 237.) In Lyondell, the Delaware Supreme Court found
similar evidence sufficient to entitle the director defendants to the entry of summary
judgment. (Ibid.) Addressing the trial court’s skepticism about whether the board of
44
directors conducted the week of negotiations for the sale of the company in good faith,
the high court emphasized that “there is a vast difference between an inadequate or
flawed effort to carry out fiduciary duties and a conscious disregard for those duties.”
(Id. at p. 243.) This stems from Delaware law’s treatment of conduct not in good faith,
which “encompasses not only an intent to harm but also intentional dereliction of
duty . . . .” (Id. at p. 240.) Examples include a fiduciary’s “ ‘intentional[] fail[ure] to act
in the face of a known duty to act, demonstrating a conscious disregard for his duties.’ ”
(Id. at p. 243, quoting Walt Disney, supra, 906 A.2d at p. 67.)
We conclude that like in Lyondell, plaintiff has not proffered evidence on which a
reasonable trier of fact could conclude that the independent directors intentionally
disregarded their duty to oversee the transaction in order to secure the best price
reasonably available under the circumstances. (Lyondell, supra, 970 A.2d at
pp. 243-244; Paramount, supra, 637 A.2d at pp. 44-45.)
Plaintiff also contends that there are triable issues as to whether the independent
directors acted in bad faith by consciously disregarding their obligation to disclose all
material information in the proxy statement. Plaintiff argues that if the independent
directors were informed of discussions between Intel and McAfee leading up to the
June 11 proposal, then they were required to disclose those discussions in the proxy
statement, and their knowing disregard of that obligation violated their duties of loyalty
and good faith.
Under Delaware law, “the obligation to disclose all material facts fairly when
seeking shareholder action is merely a specific application of the duties of care and
loyalty.” (In re Transkaryotic Therapies, Inc. (Del. Ch. 2008) 954 A.2d 346, 357
(Transkaryotic); accord Malpiede v. Townson (Del. 2001) 780 A.2d 1075, 1086.) As
such, recovery for monetary damages based on disclosure claims may be barred by
application of a section 102(b)(7) exculpatory provision. (Arnold v. Society for Sav.
Bancorp, Inc. (Del. 1994) 650 A.2d 1270, 1287 (Arnold); Transkaryotic, supra, at p. 360
45
[“where a breach of the disclosure duty does not implicate bad faith or self-interest,
both legal and equitable monetary remedies . . . are barred on account of
[section 102(b)(7)]”].) Furthermore, due to the nature of a disclosure violation—i.e.,
depriving shareholders of complete and accurate information in casting their votes, a
breach of the disclosure duty leads to irreparable harm, limiting a court’s ability to
remedy the harm once the merger has closed. (Transkaryotic, supra, at p. 361.)
We find plaintiff’s contention that the failure to disclose the pre-June 2010
discussions and document exchanges between McAfee and Intel was “knowing” or
“intentional” to be wholly conclusory. The Delaware Supreme Court’s decision in
Arnold is instructive. There, the plaintiff sought to prove that alleged disclosure
violations qualified as exceptions to the section 102(b)(7) exculpatory provision by
arguing, in relevant part, that the defendants’ knowing or deliberate failure to make
proper and complete disclosures implicated the duty of loyalty and the proscription
against knowing, intentional violations of the law. (Arnold, supra, 650 A.2d at
pp. 1287-1288.) The court rejected this argument as unsupported by the record, noting
that the individual defendants did not violate the duty of loyalty under the facts of the
case and the record did not support an intentional disclosure violation. (Id. at p. 1288.)
The court added, in dictum, that it found “unpersuasive plaintiff’s contention . . . that
defendants’ intentional decision to disseminate the proxy statement leads ineluctably to a
finding that they deliberately violated their disclosure obligations.” (Ibid., fn. 35.)
So too here, the independent directors did not breach the duty of loyalty under the
facts of the case, and plaintiff fails to offer evidence that any disclosure violation was
knowing or deliberate. Plaintiff relies on the independent directors’ purported awareness
of the evolving discussions between Intel and McAfee prior to June 2010. We find that
under Arnold, the fact that defendants were generally informed about the discussions that
precipitated the June 11 proposal does not in and of itself create a triable issue of fact as
to whether the information was omitted from the proxy materials due to a failure of
46
loyalty or bad faith. Following Arnold, “a violation of the duty of disclosure is not
necessarily a breach of the duty of loyalty.” (Cinerama, supra, 663 A.2d at p. 1163,
fn. 9, citing Arnold, supra, 650 A.2d at pp. 1287-1288; see also Zirn v. VLI Corp.
(Del. 1996) 681 A.2d 1050, 1062 [“A good faith erroneous judgment as to the proper
scope or content of required disclosure implicates the duty of care rather than the duty of
loyalty.”].) As for the failure to act in good faith, it “requires conduct that is qualitatively
different from, and more culpable than, the conduct giving rise to a violation of the
fiduciary duty of care (i.e., gross negligence).” (Stone v. Ritter (Del. 2006) 911 A.2d
362, 369 (Ritter); see also Lyondell, supra, 970 A.2d at p. 243.)
Plaintiff cites Chen, supra, 87 A.3d 648, for the proposition that the knowing
failure to disclose material information in a proxy statement can constitute a
non-exculpated breach of fiduciary duty. Chen is inapposite. The court in that case
rejected the defendants’ invocation of the section 102(b)(7) exculpatory provision with
respect to various disclosure claims, because it could not determine on summary
judgment whether the disclosure violations resulted from a breach of the duty of loyalty
or the duty of care. (Chen, supra, at pp. 691-692.) Here, we find that absent some
evidence supporting its claim of a non-exculpated fiduciary duty, plaintiff has failed to
create a triable issue of material fact regarding the independent directors’ alleged
disclosure violations.
Accordingly, summary judgment is appropriate because any disclosure violation
would implicate only the duty of care and would not lead to the imposition of monetary
damages under McAfee’s section 102(b)(7) exculpatory provision. (See Transkaryotic,
supra, 954 A.2d at pp. 362-363.) Alternatively, as plaintiff acknowledges, the court
“cannot grant monetary or injunctive relief for disclosure violations in connection with a
proxy solicitation in favor of a merger . . . after that merger has been consummated . . .
where there is no evidence of a breach of the duty of loyalty or good faith by the directors
who authorized the disclosures.” (Id. at p. 362.)
47
b. DeWalt
This decision already summarized in detail plaintiff’s contentions and the evidence
demonstrating DeWalt’s allegedly self-interested and deceitful conduct. (See ante,
section ii.C.1.d.) We found that DeWalt’s interest in the transaction “ ‘was disclosed[,]
and a majority of the non-interested directors approved the transaction in good faith.’ ”
(Cinerama, supra, 663 A.2d at p. 1170.) The specific terms of DeWalt’s compensation
and employment agreement with Intel were not known until after the board’s decision to
authorize merger negotiations at the $48-per-share price, and McAfee’s experienced
compensation committee members reviewed DeWalt’s employment agreement with Intel
before the board’s vote to approve the merger agreement. Further, it was undisputed that
DeWalt stood to earn over $1.3 million for each additional dollar per share that Intel paid
for McAfee, though other incentives like retention bonuses and accelerated vesting of
stock were not contingent on the price obtained in a sale.
Next we found that DeWalt provided high-level updates, consistent with the
board’s expectations during the early merger discussions. After Intel unveiled its initial
offer in the June 11 proposal, the board retained experienced transactional and financial
advisors and consulted with those advisors throughout the process. We found no triable
issues concerning DeWalt’s alleged concealment of project Inca or failure to inform the
board or Morgan Stanley about management’s synergy discussions with Intel prior to
June 2010. Finally, we concluded that DeWalt’s rebuff of James’s $50 overture and
apparent failure to disclose it to the board or to McAfee’s financial advisors did not
undermine the board’s role as a neutral decisionmaker and was insufficient to cause the
standard of review to intensify to entire fairness. That determination, however, is not
dispositive of whether DeWalt may be personally liable for a breach of fiduciary duty.
We address that issue here.
Plaintiff contends that DeWalt knowingly concealed James’s overture from the
board and, what is more, continued the deception when a couple of weeks later, Intel
48
revised its offer to $48-per-share and communicated that it would go no higher.
Defendants deny that DeWalt concealed a $50-per-share “offer” from the board, as James
had made it clear that she did not have authorization at that level. Defendants point to
James’s testimony that DeWalt responded “no, 52 to 54” as evidence that DeWalt
handled James’s “fishing expedition” negotiating tactic by appropriately trying to get
more money for McAfee’s stockholders and not by selling them out. They argue that
plaintiff’s inability to explain why DeWalt would have concealed a $50-per-share
opportunity when he personally would have gained $6.5 million over the prior offer at
$45 per share vitiates plaintiff’s claim. (See In re Answers Corp. S’holders Litig., 2014
Del. Ch. LEXIS 17, at *10 [noting on summary judgment that “a plaintiff’s inability to
explain a [defendant’s] motivation to act in bad faith may . . . be relevant in analyzing
bad faith claims”].) The trial court agreed with defendants, finding that “DeWalt’s
refusal cannot be reasonably construed as anything but negotiating for an authorized,
higher amount, not an effort to drive McAfee’s expectations lower.”16
Plaintiff argues that this assessment improperly drew inferences in defendants’
favor related to DeWalt’s motive, even though in analyzing a corporate fiduciary’s
disloyalty or failure to act in good faith, “[i]t makes no difference the reason why the
director intentionally fails to pursue the best interests of the corporation.” (In re Walt
Disney Co. Derivative Litigation, supra, 907 A.2d at p. 754.) Plaintiff contends that
regardless of motive, DeWalt’s failure to report James’s overtures to the board and its
16
The trial court explained that plaintiff’s argument (that DeWalt rejected James’s
offer without discussing it with the board or advisors to cause the board to “abandon the
price range it had determined to be fair and settle for a lower price”) was “difficult to
reconcile with Plaintiff’s theory that DeWalt’s main objective was to facilitate the sale of
McAfee. Moreover, it is undisputed that in refusing James’s $50 offer, DeWalt sought a
higher price in the ‘$52 to $54’ range . . . . Thus, DeWalt’s refusal cannot be reasonably
construed as anything but negotiating for an authorized, higher amount, not an effort to
drive McAfee’s expectations lower.”
49
advisors, and later to McAfee’s shareholders in the proxy statement, represented
conscious disregard for his fiduciary duties. Further, to the extent that motive is relevant,
Plaintiff contends that DeWalt stood to receive more financially from ensuring that a deal
happened, even at a lower price, than if he had risked no deal at all by fighting for a
higher price. Plaintiff supports this claim with an expert report by compensation
consultant Brian Foley, as well as inferential evidence stemming from DeWalt’s
historical success in merger transactions prior to McAfee.
We resolve this debate through the lens of enhanced scrutiny review, recalling that
it is the directors’ burden to prove that they acted reasonably in light of the circumstances
at the time. (Paramount, supra, 637 A.2d at p. 45.) Delaware law treats the obligation to
act in good faith not as “an independent fiduciary duty that stands on the same footing as
the duties of care and loyalty” but rather as a “condition” of the fundamental duty of
loyalty. (Ritter, supra, 911 A.2d at p. 370.) The Delaware Supreme Court in Walt
Disney described the duty to act in good faith as a doctrinal vehicle for courts to address
fiduciary conduct that “does not involve disloyalty (as traditionally defined) but is
qualitatively more culpable than gross negligence,” and therefore “should be proscribed.”
(Walt Disney, supra, 906 A.2d at p. 66.) The definition of bad-faith conduct relevant
here is “ ‘where the fiduciary intentionally fails to act in the face of a known duty to act,
demonstrating a conscious disregard for his duties.’ ” (Id. at p. 67.) Whereas intentional
failure to pursue the best interests of the corporation may not require subversive motive
(see In re Walt Disney Co. Derivative Litigation, supra, 907 A.2d at p. 754), evidence of
motive may be relevant in determining whether a triable issue of fact exists for a bad faith
claim. In particular, when the court employs the enhanced scrutiny standard of review,
“the predicate question of what the board’s true motivation was comes into play.” (In re
Dollar Thrifty S’holder Litig. (Del. Ch. 2010) 14 A.3d 573, 598 (Dollar Thrifty).)
Applying these principles in order to determine whether a triable issue of material
fact exists on the subject of DeWalt’s response to and subsequent nondisclosure of
50
James’s overture, we find that consideration of motive is inevitable. That is, a reasonable
trier of fact could not find that DeWalt “ ‘intentionally act[ed] with a purpose other than
that of advancing the best interests of the corporation’ ” or “ ‘intentionally fail[ed] to act
in the face of a known duty to act, demonstrating a conscious disregard for his duties’ ”
(Walt Disney, supra, 906 A.2d at p. 67) if the evidence simultaneously shows that
DeWalt acted reasonably in pursuit of the board’s aim “to secure the transaction offering
the best value reasonably available for” McAfee’s shareholders. (Paramount, supra, 637
A.2d at p. 44.) Just as the duty of loyalty “is not limited to cases involving a financial or
other cognizable fiduciary conflict of interest,” a director or officer “ ‘cannot act loyally
towards the corporation unless she acts in the good faith belief that her actions are in the
corporation’s best interest.’ ” (Ritter, supra, 911 A.2d at p. 370.)
There are two aspects of DeWalt’s conduct at issue—the response to James’s
overture and the subsequent nondisclosure. We find the fact that DeWalt rebuffed James
by citing a higher, desired offer price insufficient to support an inference that DeWalt
was acting disloyally or in bad faith. We agree with the trial court that DeWalt’s
rejection of James’s negotiation tactic and push for an offer in the $52-54 range cannot be
reasonably construed as anything but negotiating for an authorized, higher amount—
conduct consistent with the duty to seek the “best value reasonably available for the
stockholders.” (Paramount, supra, 637 A.2d at p. 44.) DeWalt’s e-mail correspondence
with James after the July 4th weekend and her testimony recalling their conversations at
several junctures supports this understanding of the record. A contrary interpretation,
inferring a motive to undersell McAfee in order to close a deal quickly, is logically
inconsistent with the evidence that DeWalt actively sought to justify a higher value to
Intel throughout the negotiations.
The court in Chen, supra, 87 A.3d 648, applied this reasoning in granting
summary judgment for several director defendants. The court noted that for enhanced
scrutiny review, the fact that the directors were disinterested and independent was “not
51
dispositive, because ‘[t]he court must take a nuanced and realistic look at the possibility
that personal interests short of pure self-dealing have influenced the board.’ ” (Id. at
p. 685, quoting Dollar Thrifty, supra, 14 A.3d at p. 598.) However, “speculation about
motives [wa]s not enough.” (Chen, supra, at p. 685.) The court found certain evidence
that a director had shared confidential information with a potential acquirer to be “one of
the more troubling aspects of the case” but concluded that the total mix of evidence did
not “support any inference other than an effort” by the director to “maximize the value of
his funds’ holdings, thereby maximizing value for all common stockholders.” (Ibid.)
The court observed that one “cannot reasonably infer” that the directors acted against
their economic interest, nor had the plaintiffs offered “any plausible theory” as to why the
directors would have done so. (Id. at p. 686.)
DeWalt’s failure to disclose the overture to the board and ultimately to the
shareholders, however, does not survive the same analysis. The evidence shows that
DeWalt did not tell the board or its advisors that about two weeks before Intel made its
revised offer at $48 per share, James had probed him about “will 50 get the deal done,” if
she were to get authorization for that amount from Intel’s board.17 Plaintiff, as the
nonmoving party, is entitled to the inference that at the time that James made the
overture, she was not merely “fishing” for information about McAfee’s “start with a 5”
negotiating stance, but was seriously considering a strategy to close a deal with McAfee
that included seeking authorization from Intel’s board. The e-mails between James and
Andy Bryant support this inference.
While there are many plausible explanations for DeWalt not mentioning the
overture to the board and its advisors, there is no direct evidence on this point, and any
17
As plaintiff points out, it also appears from the record that James had spoken
with DeWalt once prior to the conversation over the July 4th weekend about the
possibility of seeking a deal at $50.
52
resulting inferences appear to be conflicting. (Cf. Chen, supra, 87 A.3d at p. 687
[denying grant of summary judgment as to two officer defendants, whose actions during
the sale process “could support a reasonable inference of favoritism . . . consistent with
their personal financial interests rather than the pursuit of maximal value for the
stockholders”].) Defendants, as noted earlier, point to the perverse logic of plaintiff’s
concealment claim, given that a $50-per-share offer would have presented DeWalt with
the opportunity to gain many millions of dollars over the prior offer at $45 per share.
Plaintiff on the other hand purports to show by its compensation expert’s analysis that
having been primed for significant personal financial gains in his last company sale,
DeWalt had the incentive to close a deal regardless of whether it represented the best
possible price for the company and shareholders. Defendants point to evidence that casts
doubt unto plaintiff’s theory, including that McAfee’s independent directors consistently
viewed DeWalt as highly capable and committed to the task of securing the best possible
value for the company. Yet defendant O’Leary also testified that he would have wanted
to know if such a conversation had taken place. Of course, this court does not weigh the
evidence or resolve conflicting inferences. We are unable to conclude on the record
presented that no triable issue of material fact exists as to the basis for DeWalt’s failure to
disclose the $50 overture, and whether that failure constituted a breach of his fiduciary
duty of good faith or loyalty.
Even if the evidence is insufficient to create a triable issue of material fact as to
disloyalty or bad faith, as an officer of the corporation DeWalt is not exculpated from
liability for a breach of the duty of care. (§ 102(b)(7); Chen, supra, 87 A.3d at p. 686.)
Breach of the duty of care in this context requires evidence of a process so deficient that
it constitutes gross negligence. (In re Walt Disney Co. Derivative Litigation, supra, 907
A.2d at p. 749.) Delaware corporate law defines gross negligence “as a ‘ “reckless
indifference to or a deliberate disregard of the whole body of stockholders” or actions
which are “without the bounds of reason.” ’ ” (Id. at p. 750.)
53
Plaintiff contends that the evidence of DeWalt’s conduct “without question” raises
potential due care violations. Yet the trial court did not address the due care aspect of
plaintiff’s claim in its decision granting summary judgment for defendants, and plaintiff
presents no specific analysis to support its claim that DeWalt’s failure to disclose James’s
overture breached this standard of fiduciary conduct. On remand, the trier of fact must
weigh the evidence relevant to the nondisclosure issue as it relates to DeWalt’s alleged
breach of fiduciary duty—be it based on bad faith or on an omission that falls outside the
bounds of reason.18
Plaintiff’s disclosure claim against DeWalt also remains at issue. The “essential
inquiry” in any disclosure claim is whether the omitted information is material. (Gantler
v. Stephens (Del. 2009) 965 A.2d 695, 710.) “An omitted fact is material if there is a
substantial likelihood that a reasonable shareholder would consider it important in
deciding how to vote.” (Arnold, supra, 650 A.2d at p. 1277, emphasis omitted.) It
requires the plaintiff to show “a substantial likelihood that, under all the circumstances,
the omitted fact would have assumed actual significance in the deliberations of the
reasonable shareholder” because, if disclosed, the omitted fact would have “significantly
altered the ‘total mix’ of information made available.” (Ibid., emphasis omitted.)
18
We note that on remand, if the trial court finds it impossible to separate actions
taken by DeWalt in fulfillment of his directorial duties from actions taken in fulfillment
of his duties as CEO, the duty of care claim against DeWalt must be exculpated pursuant
to the section 102(b)(7) provision. (See Arnold, supra, 650 A.2d at p. 1288 [“where a
defendant is a director and officer, only those actions taken solely in the defendant’s
capacity as an officer are outside the purview of Section 102(b)(7)”].) In Arnold, the
Delaware Supreme Court rejected the plaintiff’s contention on cross-motions for
summary judgment that a disclosure violation by the defendant, who was a director and
officer of the corporation, fell outside the scope of protection of the section 102(b)(7)
exculpatory provision, because “plaintiff has failed to highlight any specific actions [the
CEO] undertook as an officer (as distinct from actions as a director) that fall within the
two pertinent exceptions to Section 102(b)(7).” (Arnold, supra, at p. 1288.)
54
Defendants argue that the proxy statement disclosed all material facts concerning
the June 11 proposal and subsequent negotiations, including that DeWalt told James that
the McAfee board “would not be interested in accepting an offer price below $50.00 per
share,” and that James indicated that Intel’s board “would not support an offer price of
$50.00 per share.”19 Defendants also point out that Delaware Law does not require
directors to disclose every detail of negotiations (In re Micromet, Inc., S’holders Litig.,
2002 Del. Ch. LEXIS 41, at *34-35) and recognizes that there always will be additional
details that could have been disclosed in the proxy statement. Indeed, “[s]o long as the
proxy statement, viewed in its entirety, sufficiently discloses and explains the matter to
be voted on, the omission or inclusion of a particular fact is generally left to
management’s business judgment.” (In re 3Com S’holders Litig., 2009 Del. Ch. LEXIS
215, at *4.)
Yet in this case there is no evidence that the omission of James’s overture to
DeWalt from the proxy statement was the product of reasoned business judgment,
because DeWalt never disclosed the interaction to the board or its advisors. This stands
in contrast with circumstances that Delaware courts have found to fall appropriately
within the range of reasonableness required under enhanced scrutiny. For example, in
Dollar Thrifty, the plaintiffs alleged that the Dollar Thrifty board failed to reach out to a
potential suitor (Avis) before finalizing the merger transaction with Hertz, and
specifically alleged that Dollar Thrifty’s CEO lied about his reasons for turning down a
dinner invitation from the Avis CEO even though he had “suspicions” that perhaps the
19
Plaintiff complains that defendants cite to nothing more than the proxy
statement in support of the assertion that Intel’s board would not support an offer at $50
per share. Plaintiff fails to recognize other evidence in the record that supports this
paragraph of the proxy statement, including an e-mail from James to Andy Bryant on
June 30, 2010, in which she confirmed, “they get that we weren’t going to get to or near
50 last week—Dave has not been willing to affirm other than he would work to get his
board to say ‘they would do 50’ . . . and we know some of the board is at 52-55 . . . .”
55
CEO wanted to talk about “a deal.” (Dollar Thrifty, supra, 14 A.3d at p. 606.) In
ultimately rejecting the plaintiff’s theory as highly conspiratorial, the Court of Chancery
noted that the CEO had informed the board and its financial advisors about the dinner
invitation and “had no possible sinister motive” in deciding to forego it. (Ibid.) Here, the
trial court made no finding about whether DeWalt’s apparent nondisclosure was material,
and unlike the CEO in Dollar Thrifty, DeWalt apparently did not inform the board of
James’s inquiry at all. Viewing all evidence in the light most favorable to plaintiff, we
cannot say as a matter of law that shareholders weighing a $48-per-share offer would
have considered it unimportant to the “total mix of information” to know that Intel had
raised the prospect of an offer at $50 per share two weeks earlier—even if that potential
never materialized or proved to be no more than a fishing expedition.
To summarize, we find that plaintiff has raised one or more triable issues of
material fact related to DeWalt’s apparent nondisclosure of arguably material information
about James’s $50-per-share overture. Even if the evidence at the time that Intel made its
revised offer at $48 per share showed that it was Intel’s best and final offer (see ante,
section II.C.2.a), conflicting inferences emerge as to why DeWalt did not mention
James’s probing inquiry two weeks earlier. DeWalt bears the burden under the enhanced
scrutiny standard of review to show that he exercised his fiduciary duties in furtherance
of the obligation “to secure the transaction offering the best value reasonably available
for the stockholders . . . .” (Paramount, supra, 637 A.2d at p. 44.) The trial court’s grant
of summary judgment in favor of DeWalt must be reversed.
3. Aiding and Abetting
Plaintiff’s complaint asserted a single cause of action for breach of fiduciary duties
and aiding and abetting and identified McAfee and Intel each as “an aider and abettor” to
the conduct alleged. A claim for aiding and abetting a breach of fiduciary duty requires
proof of: “(1) the existence of a fiduciary relationship; (2) a breach of a fiduciary duty;
(3) knowing participation in the breach by a defendant who is not a fiduciary; and
56
(4) damages proximately caused by the breach.” (Transkaryotic, supra, 954 A.2d at
p. 370.)
Defendants correctly point out that aiding and abetting liability requires an
underlying breach of duty. (See Manzo v. Rite Aid Corp., 2002 Del. Ch. LEXIS 147, at
*21.) Thus in Transkaryotic, the plaintiffs alleged that the acquiring company, Shire,
“ ‘knowingly assisted’ ” the individual defendants in breaching duties of loyalty and
disclosure. (Transkaryotic, supra, 954 A.2d at p. 370.) The Court of Chancery granted
summary judgment in favor of several of the individual defendants, and accordingly
granted summary judgment for Shire with respect to those defendants. The court
explained, “Shire cannot aid or abet a breach that does not exist.” (Id. at p. 371.) As to
the remaining individual defendant, the court reasoned that it “must assume” disloyalty
for purposes of analyzing the related aiding and abetting claim: “I here consider only
whether Shire knowingly participated in the assumptive breach of duty of loyalty by [the
individual defendant] and, if so, whether that concerted action proximately caused
damage to plaintiffs.” (Ibid.) In that case, the court found that the plaintiffs had
proffered evidence that was adequate to demonstrate a triable issue of material fact as to
Shire’s knowing participation, as well as resultant damages. (Id. at pp. 372-373.)
Here, the sole basis for defendants’ motion on the aiding and abetting claim, and
the basis on which the trial court granted summary judgment in favor of defendants
McAfee and Intel, was the claimed absence of an underlying breach of duty. By relying
entirely on the theory that plaintiffs could not demonstrate a triable issue on any breach
of fiduciary duty claim, defendants have failed to meet their initial burden to show that
one or more elements of the aiding and abetting cause of action cannot be established
(§ 437c, subd. (p)(2)) with respect to an assumed breach by DeWalt. Since we conclude
that triable issues remain as to the fiduciary duty and disclosure claim against DeWalt,
the trial court’s determination that McAfee and Intel cannot be liable for aiding and
abetting must be reversed.
57
D. JURY TRIAL
Plaintiff contends that the trial court improperly denied its right to a jury trial
under the California Constitution. (Cal. Const. art. I, § 16.) According to plaintiff, its
claim for breach of fiduciary duty and aiding and abetting should be characterized as an
action at law rather than in equity because (1) the relief sought is legal (damages),
(2) California law characterizes the relationship between shareholders and the directors
and officers of a corporation as legal in nature, and (3) model jury instructions envision
jury trials on breach of fiduciary duty claims. Defendants respond that the matter is
properly tried to the court without a jury because plaintiff’s breach of fiduciary duty
claims are equitable in nature. Both sides cite California law governing the right to a jury
trial but disagree about whether California or Delaware law should apply in determining
the nature of the action.
Under California law, “ ‘[t]he jury trial is a matter of right in a civil action at law,
but not in equity.’ ” (C & K Engineering Contractors v. Amber Steel Co. (1978) 23
Cal. 3d 1, 8 (C & K Engineering).) In determining whether the action is one triable by a
jury at common law, the court looks to “ ‘the nature of the rights involved and the facts of
the particular case—the gist of the action.’ ” (Wisden v. Superior Court (2004) 124
Cal. App. 4th 750, 755; accord C & K Engineering, supra, at p. 9.) A jury trial must be
granted where the gist of the action is legal; but “if the action is essentially one in equity
and the relief sought ‘depends upon the application of equitable doctrines,’ the parties are
not entitled to a jury trial.” (C & K Engineering, supra, at p. 9.) On appeal we review de
novo whether a party was constitutionally entitled to a jury trial. (Caira v. Offner (2005)
126 Cal. App. 4th 12, 23.) In case of doubt, the issue “should be resolved in favor of
preserving a litigant’s right to trial by jury.” (Byram v. Superior Court (1977) 74
Cal. App. 3d 648, 654; accord Interactive Multimedia Artists, Inc. v. Superior Court
(1998) 62 Cal. App. 4th 1546, 1551 (Interactive Multimedia).)
58
The California Supreme Court reiterated these principles in a decision addressing
in relevant part the right to a jury trial on a cause of action for wrongful termination in
violation of public policy. (Shaw v. Superior Court (2017) 2 Cal.5th 983 (Shaw).) Shaw
summarized the constitutional right to a jury trial in California as follows. “Article I,
section 16 of the California Constitution declares broadly that ‘[t]rial by jury is an
inviolate right and shall be secured to all . . . .’ Notwithstanding the breadth of this
declaration, past California cases make clear ‘that the state constitutional right to a jury
trial “is the right as it existed at common law in 1850, when the [California] Constitution
was first adopted.” ’ ” (Id. at pp. 994-995, fn. omitted.) Thus, “ ‘ “ ‘[i]f the action has to
deal with ordinary common-law rights cognizable in courts of law, it is to that extent an
action at law. In determining whether the action was one triable by a jury at common
law, the court is not bound by the form of the action but rather by the nature of the rights
involved and the facts of the particular case—the gist of the action. A jury trial must be
granted where the gist of the action is legal, where the action is in reality cognizable at
law.’ ” [Citation.] On the other hand, if the action is essentially one in equity and the
relief sought “depends upon the application of equitable doctrines,” the parties are not
entitled to a jury trial. [Citations.] Although we have said that “the legal or equitable
nature of a cause of action ordinarily is determined by the mode of relief to be afforded”
[citation], the prayer for relief in a particular case is not conclusive [citations]. Thus,
“The fact that damages is one of a full range of possible remedies does not guarantee . . .
the right to a jury . . . .” ’ ” (Id. at p. 995.)
As set forth in the Restatement (Second) Conflict of Laws section 122, “A court
usually applies its own local law rules prescribing how litigation shall be conducted even
when it applies the local law rules of another state to resolve other issues in the case.”
(Rest.2d Conf. of Laws, § 122, com. a, p. 350.) This includes the “form of the action”—
(id., § 124) whether a claim is at law or in equity, and the “mode of trial”— (id., § 129)
whether an action is tried to a jury or to a judge. (Accord Interactive Multimedia, supra,
59
62 Cal.App.4th at p. 1551; see also Cobb v. Lawrence (1942) 54 Cal. App. 2d 630, 633
[“the law of the forum determines whether an issue of fact shall be tried by the court or
by a jury”]; 3 Witkin, Cal. Procedure (2008) Actions, § 46.) Stated in terms of substance
and procedure,20 “courts generally enforce the substantive rights created by the laws of
other jurisdictions, [but] the procedural matters are governed by the law of the forum.”
(World Wide Imports, Inc. v. Bartel (1983) 145 Cal. App. 3d 1006, 1012.)
In arguing that Delaware law determines the nature of the action, defendants
misapprehend the reach of the internal affairs doctrine, which pertains to the substantive
law governing the outcome of the litigation—specifically to provide “ ‘the relevant
corporate governance general standard of care’ ” based on the state of a businesses’
incorporation. (State Farm Mutual Automobile Ins. Co. v. Superior Court (2003) 114
Cal. App. 4th 434, 442.) As the court explained, “ ‘The internal affairs doctrine is a
conflict of laws principle which recognizes that only one State should have the authority
to regulate a corporation’s internal affairs—matters peculiar to the relationships among or
between the corporation and its current officers, directors, and shareholders . . . .’ ”
(Ibid.) While Delaware law in this case supplies the “ ‘relevant corporate governance
general standard of care’ ” (ibid.), we find no basis on which to extend the internal affairs
doctrine to matters properly governed by local forum rules, including form of the action
(equitable or legal) and mode of trial (jury or bench).
The question thus narrowed is whether plaintiff’s shareholder class action for
breach of fiduciary duty, brought under Delaware law, is legal or equitable in nature
under California law. Plaintiff emphasizes that the relief sought in this case is legal
because the complaint sought money damages for defendants’ breach of fiduciary duty
and withholding of material information. Specifically, plaintiff sought: (1) “damages to
20
The Restatement has discarded the approach of classifying issues as substantive
or procedural. (Rest.2d Conf. of Laws, § 122, com. b, p. 352.)
60
the class in an amount to be proven at trial, caused by defendants’ breaches of fiduciary
duties in connection with the Acquisition,” (2) rescission of “the Merger Agreement or
any of the terms thereof, and the Acquisition,” and (3) “such other and further equitable
relief as this Court may deem just and proper.”
We note that the prayer for relief, though not conclusive, is weighted toward
equitable remedies. Notably, the pleading for damages is tied to the conduct of McAfee’s
former directors “in connection with the Acquisition,” which according to the complaint
allegations was inherently unfair to the McAfee shareholders due to defendants’ alleged
breaches of fiduciary duty and self-serving conduct. Although “[d]amages are a remedy
at law” (Meister v. Mensinger (2014) 230 Cal. App. 4th 381, 396), the “ ‘ “nature of the
rights involved” ’ ” (C & K Engineering, supra, 23 Cal.3d at p. 9) in a shareholder breach
of fiduciary duty action against the corporate directors is generally viewed as a
determination of rights in equity. “ ‘Where a breach of fiduciary duty occurs, a variety of
equitable remedies are available, including imposition of a constructive trust, rescission,
and restitution, as well as incidental damages.’ ” (Meister v. Mensinger, supra, at
p. 396.)
Interactive Multimedia, supra, 62 Cal.App.4th at page 1556, which concluded that
a shareholder action for breach of fiduciary duty was equitable and the plaintiff was not
entitled to a jury trial, illustrates this point. In that case, a minority shareholder sued the
majority shareholder and two directors after the company merged into a new corporation,
designating to the minority what it alleged was “less than the fair value of its
interest . . . .” (Id. at p. 1549.) The court examined the action, which sought monetary
damages, under both Delaware and California law, and explained in applying California
law that its “gist” was equitable: “The fiduciary duty of a controlling shareholder or
director to a minority shareholder is based on ‘powers in trust’ ”—a power that “ ‘ “ ‘is at
all times subject to the equitable limitation that it may not be exercised for the
aggrandizement, preference, or advantage of the fiduciary . . . .’ ” ’ ” (Id. at p. 1555,
61
quoting Jones v. H.F. Ahmanson & Co. (1969) 1 Cal. 3d 93, 109.) The court observed
that “[t]rust relationships are premised on equitable principles” (Interactive Multimedia,
supra, at p. 1555) and noted that the “ ‘entire fairness’ ” analysis under Delaware law
also requires the application of equitable principles, because the court is “weighing
various considerations in order to reach a just result.” (Id. at p. 1556.)
Plaintiff’s effort to distinguish Interactive Multimedia as a dispute between
minority and majority shareholders, rather than between shareholders and the board of
directors, is unavailing. The fiduciary duty action implicated directors of the former
corporation as well as the majority shareholder, and the court’s ruling applied to both.
(Interactive Multimedia, supra, 62 Cal.App.4th at p. 1555.)
Plaintiff also seeks to refute or limit the principle articulated in Interactive
Multimedia by arguing that the relationship between shareholders and the directors of a
corporation is not one of trust but of agency. Plaintiff relies on the following passage
from Bainbridge v. Stoner (1940) 16 Cal. 2d 423, 428 (Bainbridge): “strictly speaking,
the relationship [between a director of a corporation and its stockholders] is not one of
trust, but of agency . . . .” Plaintiff contends that unlike claims based on “trust,” fiduciary
claims based on an “agency” relationship under California law are legal in nature and
entitle the litigant to a trial before a jury.
We are not persuaded that our high court’s statement in Bainbridge has direct
application here.21 The issue in Bainbridge was whether stockholders of a mining
21
The complete statement in Bainbridge reads: “One who is a director of a
corporation acts in a fiduciary capacity, and the law does not allow him to secure any
personal advantage as against the corporation or its stockholders. [Citations.] However,
strictly speaking, the relationship is not one of trust, but of agency, although it has been
held that a director must comply with the requirements of section 2230 of the Civil Code
relating to trustees. [Citations.] But having no title to the property in his charge, [the
director] was not an express trustee of it as a director or officer of the corporation.”
(Bainbridge, supra, 16 Cal.2d at pp. 427-428.) The court concluded that the director’s
alleged acquisition of title to certain corporate property “in defiance of the rights of the
(continued)
62
company had stated a cause of action to have the company’s president and director
(hereafter “director”) declared a trustee of certain mining claims after he allegedly
acquired title to corporate property and used it for his personal gain. (Bainbridge, supra,
16 Cal.2d at pp. 428-429.) The court held that the director was not an express or
resulting trustee of the property, but a constructive trustee. (Bainbridge, supra, at
pp. 428-429.) The discussion of “trust” versus “agency” in Bainbridge must be
understood in context; Bainbridge did not address whether an action for breach of
fiduciary duty arises from legal or equitable principles. Indeed, Bainbridge appears to
reflect the fact that corporate directors and officers are not “trustees” in the technical
sense. (See Bancroft-Whitney Co. v. Glen (1966) 64 Cal. 2d 327, 345 [“ ‘Corporate
officers and directors are not permitted to use their position of trust and confidence to
further their private interests. While technically not trustees, they stand in a fiduciary
relation to the corporation and its stockholders.’ ”].)
Similarly in In re Cantrell (9th Cir. 2003) 329 F.3d 1119, 1126, the Ninth Circuit
rejected the argument under California law that corporate “officers are trustees of a
statutory trust with respect to corporate assets.” The court addressed Interactive
Multimedia in a footnote by noting that the Court of Appeal had “failed to mention the
California Supreme Court’s holding in Bainbridge” and likely had not “intended to
contradict the state’s highest court without expressly doing so.” (In re Cantrell, supra, at
p. 1126, fn. 4.) While it is true that Interactive Multimedia did not mention Bainbridge, it
did rely on another, more recent California Supreme Court case. Specifically, the
analysis of the fiduciary duty action in Interactive Multimedia came directly from Jones
v. H.F. Ahmanson & Co., supra, 1 Cal.3d at page 109, and its statement about “ ‘powers
corporation and its stockholders” made him a constructive trustee for the corporation and
its stockholders (id. at p. 429)—a theory “adopted by equity as a remedy to compel one to
restore property to which he is not justly entitled, to another.” (Id. at p. 428.)
63
in trust’ ” can be traced to the United States Supreme Court’s decision in Pepper v. Litton
(1939) 308 U.S. 295, 306. That case concerned the equitable powers of the bankruptcy
courts and summarized “certain cardinal principles of equity jurisprudence. A director is
a fiduciary. . . . So is a dominant or controlling stockholder or group of stockholders. . . .
Their powers are powers in trust. . . . Their dealings with the corporation are subjected to
rigorous scrutiny and where any of their contracts or engagements with the corporation is
challenged the burden is on the director or stockholder not only to prove the good faith of
the transaction but also to show its inherent fairness from the viewpoint of the
corporation and those interested therein.” (Ibid.)
Even accepting the relationship between corporate directors and shareholders as an
agency relationship in the circumstances discussed in Bainbridge does not resolve how
this shareholder action for breach of fiduciary duty should be viewed, as between an
action cognizable at law or in equity. (See C & K Engineering, supra, 23 Cal.3d at p. 8
[the constitutional right to a jury trial is “the right as it existed at common law in 1850,
when the Constitution was first adopted, ‘and what that right is, is a purely historical
question, a fact which is to be ascertained like any other social, political or legal fact’ ”].)
We find, for this purpose, that the analysis in Interactive Multimedia is sound.22
22
Furthermore, to the extent that we look to whether “ ‘ “ ‘the action has to deal
with ordinary common-law rights cognizable in courts of law’ ” ’ ” (Shaw, supra, 2
Cal.5th at p. 995), a brief foray into earlier California cases suggests that shareholder
claims against corporate directors (sometimes referred to as “trustees”) or officers were
brought in the courts of equity. In Wright v. Oroville M. Co. (1870) 40 Cal. 20, the court
addressed whether a stockholder could compel the company to refund the amount paid by
him for the redemption of corporate property which the directors had allowed to be sold
and wrongfully neglected to redeem. The court explained that “[t]he trustees and officers
of the corporation are only the agents through whom [the corporation] manages and
conducts its business. The stockholders are the cestui que trust.” (Id. at p. 22.) The
court continued that “the Courts of equity, in dealing with the relations between the
corporations and [its] officers upon the one hand, and the stockholders upon the other, in
the management of the corporate affairs, . . . inquire if the authority has been, in good
(continued)
64
Plaintiff’s other arguments do not alter this assessment. While plaintiff has not
alleged diversion of corporate funds or sought an accounting, the “gist” of plaintiff’s
action is consistent with the court’s summary in Interactive Multimedia of a claim based
on conduct that allegedly violated the “ ‘ “ ‘equitable limitation’ ” ’ ” that the corporate
fiduciary may not exercise power for his own “ ‘ “ ‘aggrandizement, preference, or
advantage . . . .’ ” ’ ” (Interactive Multimedia, supra, 62 Cal.App.4th at p. 1555.) As
discussed, it is the gist or nature of the action that determines whether a jury trial is
available as a matter of right. (C & K Engineering, supra, 23 Cal.3d at pp. 5, 10
[concluding that because the suit for damages for breach of contract was based entirely
upon the equitable doctrine of promissory estoppel, the action was equitable in nature and
neither party was entitled to a jury trial as a matter of right]; accord Van de Kamp v. Bank
of America (1988) 204 Cal. App. 3d 819, 863-865 [damages sought for breach of fiduciary
duty and fraud causes of action did not entitle plaintiffs to jury trial, because assessing
faith, exercised to promote the interest of the stockholders.” (Id. at p. 27; accord Ashton
v. Dashaway Association (1890) 84 Cal. 61, 68.)
That these are equitable principles also appears in a case from 1860, Neall v. Hill
(1860) 16 Cal. 145 (Neall). The plaintiff was a stockholder who alleged “various acts of
fraud and mismanagement” by the corporation and four directors. (Id. at p. 148.) Certain
issues of equity jurisdiction were raised in the appeal, leading the high court to pronounce
that “[t]here is no doubt that in the present case the Court had jurisdiction to compel the
officers of the corporation to account for any breach of trust . . . .” (Id. at p. 150, italics
added.) Citing earlier precedent, the court noted “ ‘that the persons who, from time to
time, exercise the corporate powers, may, in their character of trustees, be accountable in
this Court for a fraudulent breach of trust, and to this plain and ordinary head of equity
the jurisdiction of this Court over corporations ought to be confined.’ ” (Ibid.) The court
found the allegations in Neall entitled the plaintiff to an accounting, but emphasized that
liability for any alleged diminution in the value of the stock “should only be enforced in a
very clear case, and where the loss has been occasioned by gross negligence or willful
misconduct.” (Id. at pp. 150-151.)
These cases suggest that in addressing alleged breaches of duty by corporate
fiduciaries, the courts of equity were not confined to remedies like an accounting but
could compensate for “any loss occasioned by [the directors’] negligence or improper
conduct.” (Neall, supra, 16 Cal. at p. 151.)
65
damages required application of equitable principles]; see also Shaw, supra, 2 Cal.5th at
p. 1000, fn. 16 [statutory provision at issue did not afford a right to a jury trial with
respect to legal remedies, since “under the statute the amount of damages to be awarded
will necessarily depend upon the nature of the equitable remedies that are to be
imposed”].) Nor does the existence of a model jury instruction for breach of fiduciary
duty23 create authority for plaintiff’s right to a jury trial here. (People v. Morales (2001)
25 Cal. 4th 34, 48, fn. 7 [“jury instructions, whether published or not, . . . are not authority
to establish legal propositions or precedent”].)
We conclude, based on the nature of the allegations and relief sought in this case,24
that the trial court properly treated the action as equitable in nature, to be tried by the
court.
III. DISPOSITION
The judgment is affirmed as to defendants Charles Robel, Carl Bass, Thomas
Darcy, Leslie Denend, Jeffrey Miller, Lorrie Norrington, Denis O’Leary, Robert Pangia,
and Anthony Zingale.
The judgment is reversed as to defendants David DeWalt, McAfee, Inc., and Intel
Corporation.
Each side shall bear its own costs on appeal.
23
See Judicial Council of California Civil Jury Instruction Nos. 4100 through
4102. The referenced model instructions’ “Directions for Use” expressly assume that the
plaintiff is bringing a legal cause of action, not an action in equity.
24
We recognize that our conclusion does not foreclose the right to a jury trial in all
or other shareholder actions against corporate fiduciaries, which may invoke different
factual scenarios or allegations that are cognizable at law.
66
Premo, J.
WE CONCUR:
Rushing, P.J.
Walsh, J.*
Central Laborers’ Pension Fund v. McAfee, Inc. et al.
H039508
*
Judge of the Santa Clara County Superior Court assigned by the Chief Justice
pursuant to article VI, section 6 of the California Constitution.
Trial Court: Santa Clara County Superior Court
Superior Court Nos. CV180413, CV180420,
CV180597, CV180928
Trial Judge: Hon. James P. Kleinberg
Counsel for Plaintiff/Appellant: Robbins Geller Rudman & Dowd
Central Laborers’ Pension Fund Rick Atwood, Jr.
Randall J. Baron
Maxwell R. Huffman
Counsel for Defendants/Respondents: Gibson, Dunn & Crutcher
McAfee, Inc. Paul J. Collins
Intel Corporation Mark A. Perry
Wayne W. Smith
Thomas G. Hungar
Linda D. Lam
Casey J. McCracken
Counsel for Defendants/Respondents: Wilson Sonsini
David DeWalt Rodney G. Strickland
Thomas E. Darcy Boris Feldman
Denis J. O’Leary
Robert W. Pangia
Carl Bass
Jeffrey A. Miller
Anthony Zingale
Leslie G. Denend
Lorrie M. Norrington
Charles J. Robel
Central Laborers’ Pension Fund v. McAfee, Inc. et al.
H039508