Brief Fact Summary. Sullivan and other stockholders, (Plaintiffs), brought suit against Occidental Petroleum Corporation, (Occidental) and Armand Hammer, (Hammer), alleging waste of corporate assets and breach of the duty of loyalty. The parties have submitted a settlement agreement for the court’s review.
Synopsis of Rule of Law. 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 interest of the company. The presumption can only be overturned if a plaintiff can show that a majority of the directors expected to derive personal financial benefit from the transaction, hat they lacked independence, that they were grossly negligent in failing to inform themselves, or that the decision of the Board was so irrational that it could not have been the reasonable exercise of the business judgment of the Board.
Issue. Whether the proposed settlement is fair and reasonable in light of the factual circumstances of the case.
Held. Yes. The benefit to the stockholders of Occidental is sufficient to support the settlement and adequate when compared to the weakness of Plaintiffs’ claims.
Discussion. The Court’s role in reviewing the settlement is to decide whether the proposed settlement is fair and reasonable in light of the factual and legal circumstances of the case. The court must consider the benefit to the class and whether the benefit is reasonable when compared to the range of potential recovery. The potential for ultimate success on the merits is very poor. The plaintiffs have not shown any facts that demonstrate that the directors have any self-interest but rather, the record shows that the directors and the Special Committee gave due consideration to the transaction. The court must therefore review the claims of Plaintiffs against the presumption that the acts of the directors are valid. The test of whether a corporation may make a charitable gift is reasonableness. The gift to the museum is within the range of reasonableness. The consideration to be received by the class is speculative. However, it seems clear that Occidental will receive good will from th
e gift and will be able to utilize the adjacent Museum in the promotion of its business purposes.