Brief Fact Summary. Plaintiffs, Alden Smith and John Gosselin, brought a class action suit against Defendant corporation, Trans Union, and its directors, after the Board approved a merger proposal submitted by the CEO of Trans Union, fellow Defendant Jerome Van Gorkom.
Synopsis of Rule of Law. Under the business judgment rule, a business judgment is presumed to be an informed judgment, but the judgment will not be shielded under the rule if the decision was unadvised.
Issue. The issue is whether the business judgment by the Board to approve the merger was an informed decision.
Held. The Delaware Supreme Court held the business judgment to be gross negligence, which is the standard for determining whether the judgment was informed. The Board has a duty to give an informed decision on an important decision such as a merger and can not escape the responsibility by claiming that the shareholders also approved the merger. The directors are protected if they relied in good faith on reports submitted by officers, but there was no report that would qualify as a report under the statute. The directors can not rely upon the share price as it contrasted with the market value. And because the Board did not disclose a lack of valuation information to the shareholders, the Board breached their fiduciary duty to disclose all germane facts.
Dissent. The dissent believed that the majority mischaracterized the ability of the directors to act soundly on the information provided at the meeting wherein the merger vote took place. The credentials of the directors demonstrated that they gave an intelligent business judgment that should be shielded by the business judgment rule.
Discussion. The court noted that a director’s duty to exercise an informed business judgment is a duty of care rather than a duty of loyalty. Therefore, the motive of the director can be irrelevant, so there is no need to prove fraud, conflict of interests or dishonesty.