Opinion ID: 1497598
Heading Depth: 1
Heading Rank: 7

Heading: van gorkom remand distinguished

Text: This Court's instructions on remand in Cede II were not identical to those in Smith v. Van Gorkom, Del.Supr., 488 A.2d 858 (1985). In Cede II, this Court held that the directors' breach of the duty of care had rebutted the presumption of the business judgment rule. Cede II, 634 A.2d at 371. However, in Cede II, this Court did not decide unresolved issues concerning Cinerama's allegations that the directors had violated the duty of loyalty. Id. at 366. As to Cinerama's disclosure claims, this Court affirmed the Court of Chancery's rejection of Cinerama's contentions. Id. at 373. Nevertheless, this Court raised additional questions, sua sponte, for the Court of Chancery to address on remand regarding whether the Technicolor board had violated its duty of disclosure, an obligation that has been characterized as a derivative of the duties of care and loyalty. Id.; see Zirn v. VLI Corp., Del.Supr., 621 A.2d 773 (1993); see also Arnold v. Society for Savings Bancorp, Inc., Del.Supr., 650 A.2d 1270 (1994). This Court remanded those issues for the Court of Chancery to address in the first instance, as part of its entire fairness analysis. In Van Gorkom, this Court concluded that the board of directors' failure to inform itself before recommending a merger to the stockholders constituted a breach of the fiduciary duty of care and rebutted the presumptive protection of the business judgment rule. Smith v. Van Gorkom, 488 A.2d at 893. In Van Gorkom, this Court also concluded that the directors had violated the duty of disclosure. This Court then held that the directors were liable for damages, since the record after trial reflected that the compound breaches of the duties of care and disclosure could not withstand an entire fairness analysis. [18] Id.; accord In re Tri-Star Pictures, Inc. Litig., Del.Supr. 634 A.2d 319 (1993). Consequently, because this Court had decided the substantive entire fairness issue adversely to the board in Van Gorkom, the only issue to remand was the amount of damages the Court of Chancery should assess in accordance with Weinberger. Whereas in Van Gorkom liability was decided before remand, in this case, a condition precedent to a finding of liability was an adverse determination regarding entire fairness after remand. This explains this Court's discussion in Cede II of Barnes v. Andrews, 298 F. 614, 616-18 (S.D.N.Y.1924). Cede II, 634 A.2d at 370-71. This Court rejected the proof of injury requirement in Barnes because: To inject a requirement of proof of injury into the [business judgment] rule's formulation for burden shifting purposes is to lose sight of the underlying purpose of the rule. Burden shifting does not create per se liability on the part of the directors; rather, it is a procedure by which Delaware courts of equity determine under what standard of review director liability is to be judged. To require proof of injury as a component of the proof necessary to rebut the business judgment presumption would be to convert the burden shifting process from a threshold determination of the appropriate standard of review to a dispositive adjudication on the merits. Id. at 371. Consequently, in Cede II this Court held that injury or damages becomes a proper focus only after a transaction is determined not to be entirely fair. Id. At that point, the measure of damages for any breach of fiduciary duty, under an entire fairness standard of review, is not necessarily limited to the difference between the price offered and the `true' value as determined under the appraisal proceedings. Under Weinberger, the [Court of Chancery] `may fashion any form of equitable and monetary relief as may be appropriate, including rescissory damages.' Id. (emphasis added) (citation omitted). Thus, this Court concluded that the tort principles of Barnes have no place in a business judgment rule standard of review analysis. Id. at 370. [19]