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Smith v. Van Gorkom

Citation. Smith v. Van Gorkom, 488 A.2d 858, 46 A.L.R.4th 821, Fed. Sec. L. Rep. (CCH) P91,921 (Del. Jan. 29, 1985)
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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.


Trans Union had large investment tax credits (ITCs) coupled with accelerated depreciation deductions with no offsetting taxable income. Their short term solution was to acquire companies that would offset the ITCs, but the Chief Financial Officer, Donald Romans, suggested that Trans Union should undergo a leveraged buyout to an entity that could offset the ITCs. The suggestion came without any substantial research, but Romans thought that a $50-60 share price (on stock currently valued at a high of $39.

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