DirectorsIndependent Evaluators, Not Pawns

On September 13, 1980, Jerome Van Gorkom, as chairman and chief executive officer of Trans Union, Inc., a holding company in the railcar leasing business, arranged a meeting with Jay Pritzker, a well-known takeover specialist and social acquaintance, to determine his interest in acquiring Trans Union. On Thursday, September 18, Pritzker made an offer of $55 per share (a price suggested by Van Gorkom), with a decision to be made by the board no later than Sunday, September 21. On Friday, Van Gorkom called a special meeting of the board of directors for noon the following day; no agenda was announced. At the directors' meeting, Van Gorkom made a 20-minute oral analysis of the merger transaction, showed that the company was having difficulty generating sufficient income, and discussed his meeting with Pritzker and the reasons for the meeting. Copies of the proposed merger agreement were delivered too late to be studied before or during the meeting. No consultants or investment advisers were called upon to support the merger price of $55 per share. The merger was approved at the end of the two-hour meeting. Certain shareholders brought a class-action suit against the directors, contending that the board's decision was not the product of informed business judgment. The directors replied that their good-faith decision was shielded by the business judgment rule. From a decision for the directors, the shareholders appealed.

JUDICIAL OPINION

HORSEY, J.... Under Delaware law, the business judgment rule is the offspring of the fundamental principle, codified in 8 Del. C. 141(a), that the business and affairs of a Delaware corporation are managed by or under its board of directors. In carrying out their managerial roles, directors are

charged with an unyielding fiduciary duty to the corporation and its shareholders. The business judgment rule exists to protect and promote the full and free exercise of the managerial power granted to Delaware directors. The rule itself "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 interests of the company." [Aronson v Lewis, Del. Supr., 473 A2d 805, 812]. Thus, the party attacking a board decision as uninformed must rebut the presumption that its business judgment was an informed one.

The determination of whether a business judgment is an informed one turns on whether the directors have informed themselves "prior to making a business decision, of all material information reasonably available to them."...

A director's duty to exercise an informed business judgment is in the nature of a duty of care, as distinguished from a duty of loyalty....

The standard of care applicable to a director's duty of care has also been recently restated by this Court. In Aronson, supra, we stated:

While the Delaware cases use a variety of terms to describe the applicable standard of care, our analysis satisfies us that under the business judgment rule director liability is predicated upon concepts of gross negligence.

473 A.2d at 812.

We again confirm that view. We think the concept of gross negligence is also the proper standard for determining whether a business judgment reached by a board of directors was an informed one.

In the specific context of a proposed merger of domestic corporations, a director has a duty under 8 Del. C. 251(b), along with his fellow directors, to act in an informed and deliberate manner in determining whether to approve an agreement of merger before submitting the proposal to the

stockholders. Certainly in the merger context, a director may not abdicate that duty by leaving to the shareholders alone the decision to approve or disapprove the agreement....

It is against those standards that the conduct of the directors of Trans Union must be tested ... regarding their exercise of an informed business judgment in voting to approve the Pritzker merger proposal.

... The issue of whether the directors reached an informed decision to "sell" the Company on September 20, 1980, must be determined only upon the basis of the information then reasonably available to the directors and relevant to their decision to accept the Pritzker merger proposal....

On the record before us, we must conclude that the Board of Directors did not reach an informed business judgment on September 20, 1980, in voting to "sell" the Company for $55 per share pursuant to the Pritzker cash-out merger proposal. Our reasons, in summary, are as follows:

The directors (1) did not adequately inform themselves as to Van Gorkom's role in forcing the "sale" of the Company and in establishing the per share purchase price; (2) were uninformed as to the intrinsic value of the Company; and (3) given these circumstances, at a minimum, were grossly negligent in approving the "sale" of the Company upon two hours' consideration, without prior notice, and without the exigency of a crisis or emergency.

As has been noted, the Board based its September 20 decision to approve the cash-out merger primarily on Van Gorkom's representations. None of the directors, other than Van Gorkom and Chelberg, had any prior knowledge that the purpose of the meeting was to propose a cash-out merger of Trans Union. No members of Senior Management were present, other than Chelberg, Romans and Peterson; and the latter two had only learned of the proposed sale an hour earlier. Both general counsel Moore and former general counsel Browder attended the meeting, but were equally uninformed as to the purpose of the meeting and the documents to be acted upon.

Without any documents before them concerning the proposed transaction, the members of the Board were required to rely entirely upon Van Gorkom's 20-minute oral presentation of the proposal. No written summary of the terms of the merger was presented; the directors were given no documentation to support the adequacy of $55 price per share for sale of the Company; and the Board had before it nothing more than Van Gorkom's statement of his understanding of the substance of an agreement which he admittedly had never read, nor which any member of the Board had ever seen....

We hold, therefore, that the Trial Court committed reversible error in applying the business judgment rule in favor of the director defendants in this case.

On remand, the Court of Chancery shall conduct an evidentiary hearing to determine the fair value of the shares represented by the plaintiffs' class, based on the intrinsic value of Trans Union on September 20, 1980.... Thereafter, an award of damages may be entered to the extent that the fair value of Trans Union exceeds $55 per share.

Judgment reversed and action remanded

QUESTIONS

Did the court hold that the business judgment rule shielded the directors from personal liability in this case?

According to China's Company law, who of the following persons could be eligible for appointment as a director, supervisor or senior manager of a company? A. A person who has been convicted crime of corruption B. A physical disabled person who has full civil capacity C. A former director of a company which has been declared bankrupt where he was personally responsible for the bankruptcy D. A person who has significant unpaid debts. 8. Which of the following FIE forms is not a legal person? A. CJV B.EJV soon mug rancor C. Branch office D.IHC how of viilids and beat vilsing aved of bermilos ed or ontolyons set . 9. According to China's company law, a company may not purchase its own shares in which of the following circumstances! A. to reduce the registered capital B. to merge with another company that holds its shares C. to reward the staff of the company with shares of D. to escape some tax Page 2 7 pages in total(a) An abuse cure is a legal right accessible to mistreated investors. It enables the investors to get an activity against the organization which they own offers when the direct of the organization has an impact that is harsh, unreasonably biased, or unjustifiably dismisses the interests of an investor. It was acquainted accordingly with, which had held that where an organization's activities were approved by a dominant part of the investors, the courts won't by and large meddle. Organization law truly depends on the guideline of greater part rule. Board and investor choices of organizations are generally controlled by a straightforward greater part vote. While this idea of lion's share rule is essential to organization law, it contains an innate danger of misuse. This danger was exacerbated by the standard in Foss v Harbottle. 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The principle troubles fixated on the impact of confirmation of the purportedly severe lead by the regular gathering of investors. On the off chance that compelling, the implied approval could deny the organization all in all, and henceforth minority investors, any privilege of activity against the chiefs. There were likewise issues brought about by the exacting models that should be set up under the steady gaze of a court may give relief. (b) Any agreement or other exchange implying to be gone into by an organization preceding its arrangement or by any individual for the organization before its development, might be sanctioned by the com-pany after its arrangement; and immediately the organization will get limited by and qualified for the advantage." nocobb. blackboard.com Home - Northem Elites Community College - Luminis Platform 60 QUESTION Take Test: Micro Chipter i Questions - Spring 2014.. 1. A Cul In Spearmint Spending, A Oncronus In Ine. 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