Brief Fact Summary. A corporation announced its plans to significantly support a museum named after the corporation’s chairman of the board. The stockholders (P) sued, alleging improper gift, waste of assets, and breach of the chairman’s duty of loyalty.
Synopsis of Rule of Law. Stockholder litigation can be resolved by settlement even when the settlement provides minimal awards to the stockholders.
Rather, the Court must look to the facts and circumstances upon which the claim is based, and the possible defenses thereto, and must then exercise its own business judgment and determine the overall reasonableness of the settlement.View Full Point of Law
Issue. Can stockholder litigation be resolved by settlement even when the settlement provides minimal awards to the stockholders?
Held. (Hartnett, V. Chan) Yes. Stockholder litigation can be resolved by settlement even when the settlement provides minimal awards to the stockholders. Delaware law limits judicial review of proposed settlements in stockholder litigation. 6 factors determine the reasonableness of a proposed settlement: (1) the strength of the plaintiff’s position, (2) how difficult judicial enforcement of the plaintiff’s claims will be, (3) how collectable any award will be, (4) how onerous litigation will be for the parties, (5) size of settlement vs. size of possible judgment, and (6) opinions of the parties. Here, it is unlikely Sullivan (P) will prevail. In Delaware, business judgment rule can create cover for a corporate board’s decisions from their stockholder’s challenges. A stockholder can overcome this by proving either that the directors entered a transaction for personal gain, were not independent, were grossly negligent of information important to the transaction or that the decision was completely irrational to sound business judgment. Here, the stockholders (P) have not proven any of the exceptions and the board’s contributions are presumed valid. With the weakness of the Stockholder’s (P) case, the proposed settlement offers reasonable consideration, even if it was speculative. Occidental (D) may even enjoy goodwill from the contributions. The settlement, though barely acceptable is adequate compared to the strength of the Stockholder’s (P) position. Settlement approved.
Discussion. It is safe to assume that heavily funding an art museum is greatly, â€œUltra Viresâ€ for a company funded for petroleum-related reasons. Showing how weak â€œUltra Viresâ€ doctrine has become, Sullivan also offers glimpses into the benefits of incorporating under Delaware Law. Under Aronson v. Lewis 473 A.2d 805 (1984), overturning presumption is very difficult for stockholder plaintiffs.