Singh v. Attenborough , 137 A.3d 151 ( 2016 )

IN THE SUPREME COURT OF THE STATE OF DELAWARE
RAVINGER SINGH and DAVID PILL, §
§
Plaintiffs Below-Appellants, § No. 645, 2015
§
v. § Court Below: Court of Chancery
§ of the State of Delaware
NEALE ATTENBOROUGH, §
YUVAL BRAVERMAN, TERRY § C.A. No. 9388-VCM
BURMAN, DAVID F. DYER, §
KENNETH B. GILMAN, THEO §
KILLION, JOHN B. LOWE, JR., §
JOSHUA OLSHANSKY, BETH M. §
PRITCHARD, SIGNET JEWELERS §
LIMITED, and MERRILL, LYNCH, §
PIERCE, FENNER & SMITH, §
§
Defendants Below-Appellees. §
Submitted: May 4, 2016
Decided: May 6, 2016
Before STRINE, Chief Justice; HOLLAND, VALIHURA, and VAUGHN,
Justices; and STOKES, Judge,* constituting the Court en banc.
ORDER
This 6th day of May 2016, having considered this matter on the briefs filed
by the parties and after oral argument:
(1) We affirm the judgment of the Court of Chancery solely on the basis
of its decision on reargument of October 29, 2015, finding that a fully informed,
uncoerced vote of the disinterested stockholders invoked the business judgment
*
Sitting by designation under Del. Const. art. IV, § 12.
rule standard of review.1 But, we note that the reargument opinion‘s decision to
consider post-closing whether the plaintiffs stated a claim for the breach of the
duty of care after invoking the business judgment rule was erroneous. Absent a
stockholder vote and absent an exculpatory charter provision, the damages liability
standard for an independent director or other disinterested fiduciary for breach of
the duty of care is gross negligence, even if the transaction was a change-of-control
transaction.2 Therefore, employing this same standard after an informed,
uncoerced vote of the disinterested stockholders would give no
standard-of-review-shifting effect to the vote. When the business judgment rule
standard of review is invoked because of a vote, dismissal is typically the result.3
1
In re Zale Corp. Stockholders Litig., 2015 WL 6551418 (Del. Ch. Oct. 29, 2015); see also
Corwin v. KKR Fin. Holdings LLC, 125 A.3d 304, 308–12 (Del. 2015) (affirming the Court of
Chancery‘s finding that a fully informed, uncoerced vote of the disinterested stockholders
invoked the business judgment rule standard of review).
2
See, e.g., McMillan v. Intercargo Corp., 768 A.2d 492, 505 n.56 (Del. Ch. 2000) (explaining, in
a case involving a post-closing damages claim attacking a change-of-control transaction, that
―[i]n the absence of the exculpatory charter provision, the plaintiffs would still have been
required to plead facts supporting an inference of gross negligence in order to state a damages
claim‖).
3
See In re Cornerstone Therapeutics Inc, Stockholder Litig., 115 A.3d 1173, 1175–76 (Del.
2015) (―A plaintiff seeking only monetary damages must plead non-exculpated claims against a
director who is protected by an exculpatory charter provision to survive a motion to dismiss,
regardless of the underlying standard of review for the board‘s conduct—be it Revlon, Unocal,
the entire fairness standard, or the business judgment rule.‖ (citations omitted)); Marciano v.
Nakash, 535 A.2d 400, 405 (Del. 1987) (―[A]pproval by fully-informed disinterested . . .
stockholders . . ., permits invocation of the business judgment rule and limits judicial review to
issues of gift or waste with the burden of proof upon the party attacking the transaction.‖);
Harbor Fin. Partners v. Huizenga, 751 A.2d 879, 881–82 (Del. Ch. 1999) (―The affirmative
stockholder vote on the Merger was informed and uncoerced, and disinterested shares constituted
the overwhelming proportion of the Republic electorate. As a result, the business judgment rule
standard of review is invoked and the Merger may only be attacked as wasteful. As a matter of
logic and sound policy, one might think that a fair vote of disinterested stockholders in support
2
That is because the vestigial waste exception has long had little real-world
relevance,4 because it has been understood that stockholders would be unlikely to
approve a transaction that is wasteful. Certainly, there is no rational argument that
waste occurred here.
(2) Finally, we distance ourselves from the Court of Chancery‘s original
decision of October 1, 2015, in terms of its handling of the claims against the
board‘s financial advisor.5 We are skeptical that the supposed instance of knowing
wrongdoing—the late disclosure of a business pitch that was then considered by
the board, determined to be immaterial, and fully disclosed in the proxy—produced
a rational basis to infer scienter.6 Furthermore, to the extent the Court of Chancery
of the transaction would dispose of the case altogether because a waste claim must be supported
by facts demonstrating that ‗no person of ordinary sound business judgment‘ could consider the
merger fair to Republic and because many disinterested and presumably rational Republic
stockholders voted for the Merger.‖ (quoting Saxe v. Brady, 184 A.2d 602, 610 (Del. Ch.
1962))).
4
See Huizenga, 751 A.2d at 901 (―If fully informed, uncoerced, independent stockholders have
approved the transaction, they have . . . made the decision that the transaction is ‗a fair
exchange.‘ As such, it is difficult to see the utility of allowing litigation to proceed in which the
plaintiffs are permitted discovery and a possible trial, at great expense to the corporate
defendants, in order to prove to the court that the transaction was so devoid of merit that each
and every one of the voters comprising the majority must be disregarded as too hopelessly
misguided to be considered a ‗person of ordinary sound business judgment.‘ In this day and age
in which investors also have access to an abundance of information about corporate transactions
from sources other than boards of directors, it seems presumptuous and paternalistic to assume
that the court knows better in a particular instance than a fully informed corporate electorate with
real money riding on the corporation‘s performance.‖ (quoting Michelson v. Duncan, 407 A.2d
211, 224 (Del. 1979))); Lewis v. Vogelstein, 699 A.2d 327, 336 (Del. Ch. 1997) (―Courts are
ill-fitted to attempt to weigh the ‗adequacy‘ of consideration under the waste standard or, ex post,
to judge appropriate degrees of business risk.‖).
5
In re Zale Corp. Stockholders Litig., 2015 WL 5853693 (Del. Ch. Oct. 1, 2015), opinion
amended on reargument, 2015 WL 6551418 (Del. Ch. Oct. 29, 2015).
6
See RBC Capital Mkts, LLC v. Jervis, 129 A.3d 816, 862 (Del. 2015).
3
purported to hold that an advisor can only be held liable if it aids and abets a
non-exculpated breach of fiduciary duty, that was erroneous. Delaware has
provided advisors with a high degree of insulation from liability by employing a
defendant-friendly standard that requires plaintiffs to prove scienter and awards
advisors an effective immunity from due-care liability. As held in RBC Capital
Markets, LLC v. Jervis, however, an advisor whose bad-faith actions cause its
board clients to breach their situational fiduciary duties (e.g., the duties Revlon
imposes in a change-of-control transaction) is liable for aiding and abetting.7 The
advisor is not absolved from liability simply because its clients‘ actions were taken
in good-faith reliance on misleading and incomplete advice tainted by the advisor‘s
own knowing disloyalty.8 To grant immunity to an advisor because its own clients
were duped by it would be unprincipled and would allow corporate advisors a level
of unaccountability afforded to no other professionals in our society. In fact, most
professionals face liability under a standard involving mere negligence, not the
second highest state of scienter—knowledge—in the model penal code.9 Nothing
in this record comes close to approaching the sort of behavior at issue in RBC
7
See id. at 865 (finding, in the context of a change-of-control transaction, that ―[t]he claim for
aiding and abetting was premised on [the financial advisor]‘s ‗fraud on the Board,‘ and that RBC
aided and abetted the Board‘s breach of duty where, for [the financial advisor]‘s own motives, it
‗intentionally duped‘ the directors into breaching their duty of care. The record evidence amply
supports the trial court‘s conclusion that [the financial advisor] purposely misled the Board so as
to proximately cause the Board to breach its duty of care.‖ (quoting Goodwin v. Live Entm’t,
Inc., 1999 WL 64265, at *28 (Del. Ch. Jan. 25, 1999), aff’d, 741 A.2d 16 (Del. 1999))).
8
See id. at 861–66.
9
See MODEL PENAL CODE § 2.02 (AM. LAW INST., 1980).
4
Capital Markets; nonetheless, we distance ourselves from the Court of Chancery‘s
earlier memorandum opinion in this case. Having correctly decided, however, that
the stockholder vote was fully informed and voluntary, the Court of Chancery
properly dismissed the plaintiffs‘ claims against all parties.
NOW, THEREFORE, IT IS ORDERED that the October 29, 2015 judgment
of the Court of Chancery is AFFIRMED.
BY THE COURT:
/s/ Leo E. Strine, Jr.
Chief Justice
5