Opinion ID: 389315
Heading Depth: 2
Heading Rank: 2

Heading: The Breach of Fiduciary Duty.

Text: 122
123 The plaintiffs contend that they have presented sufficient evidence to go to the jury on the existence of the secret policy, both circumstantially, from the history of prior rebuffs, and directly, from the testimony of two Field's directors. 124 On the resistance to prior approaches, we have established above that evaluation and response to such approaches is within the scope of the directors' duties. The plaintiffs have presented no evidence of self-dealing, fraud, overreaching or other bad conduct sufficient to give rise to any reasonable inference that impermissible motives predominated in the board's consideration of the approaches. The desire to build value within the company, and the belief that such value might be diminished by a given offer is a rational business purpose. The record reveals that appropriate consideration was given to each individual approach made to Marshall Field & Company. 8 The plaintiffs have failed to introduce evidence supporting a reasonable inference that any of the rejections of these approaches were made in bad faith. Therefore the presumption of good faith afforded by the business judgment rule applies, and the plaintiffs cannot survive the motion for directed verdict. 125 Having failed to establish the presence of an improper motive in any one of the defendants' responses to acquisition approaches, the plaintiffs seek to establish from the series of rejections the illogical inference that this reflects an invidious policy of independence regardless of benefit to the shareholders. All that the plaintiffs' evidence in this regard establishes is that Field's directors evaluated the merits of each approach made, and determined to implement their decisions as to each of the approaches by following the advice of counsel on how to respond to unwanted acquisition approaches. 126 The mere fact that two of the ten directors felt that the word independence reflected the board policy of trying to build value within the company rather than putting it up for sale, does not reveal an impermissible motive to reject all acquisition attempts regardless of merit. Furthermore, there is testimony by both directors who used the word independent that neither meant by it resistance at all costs, or against the best interests of the shareholders. We therefore affirm the district court's holding that the plaintiffs failed to raise a jury question on the issue of the alleged policy of independence. 127 The plaintiffs also contend that failure to reveal the prior rebuffs or the policy of independence amounted to a breach of fiduciary duty. None of the prior attempts ever rose to the level of a definite offer or merger proposal. Directors are under no duty to reveal every approach made by a would-be acquiror or merger partner. See Missouri Portland Cement Co. v. H. K. Porter Co., 535 F.2d 388, 398 (8th Cir. 1976); Berman v. Gerber Products, 454 F.Supp. 1310, 1318 (W.D.Mich.1978); Elgin National Industries, Inc. v. Chemetron Corp., 299 F.Supp. 367, 371 (D.Del.1969). Thus, there was no breach of fiduciary duty in the failure to disclose prior takeover attempts. Neither can there be liability for a failure to disclose the policy of resistance. Because we have found that it is not reasonable to infer that such a policy existed, there can be no liability for failure to disclose it. Vaughn v. Teledyne, 628 F.2d 1214, 1221 (9th Cir. 1980). 128
129 The plaintiffs also contend that the defensive acquisitions of the five Liberty House stores and the Galleria were imprudent, and designed to make Field's less attractive as an acquisition, as well as to exacerbate any antitrust problems created by the CHH merger. It is precisely this sort of Monday-morning-quarterbacking that the business judgment rule was intended to prevent. Again, the plaintiffs have brought forth no evidence of bad faith, overreaching, self-dealing or any other fraud necessary to shift the burden of justifying the transactions to the defendants. On the contrary, there was uncontroverted evidence that such expansion was reasonable and natural. Thus even if the desire to fend off CHH was among the motives of the board in entering the transactions, because the plaintiffs have failed to establish that such a motive was the sole or primary purpose, as has been required by Delaware law since the leading case of Cheff v. Mathes, 41 Del.Ch. 494, 199 A.2d 548 (1964), the mere allegation, or even some proof, that a given transaction was made on unfavorable terms does not meet the fairly stringent burden the business judgment rules imposes on plaintiffs. 9 130
131 The plaintiffs also contend that the bringing of the antitrust suit against CHH was a breach of the directors' fiduciary duty. Because it is the duty of the directors to file an antitrust suit when in their business judgment a proposed combination would be illegal or otherwise detrimental to the corporation, see Chemetron Corp. v. Crane Co., 1977-2 Trade Cas. P 61,717 at 72,933 (N.D.Ill.1977); Gulf & Western Industries, Inc. v. Great A & P Tea Co., 476 F.2d 687, 698 (2d Cir. 1973), their decision to file an antitrust suit is also within the scope of the business judgment rule. There was substantial evidence before the court that the defendants were fairly and reasonably exercising their business judgment to protect the corporation against the perceived damage an illegal merger could cause, see Copperweld Corp. v. Imetal, 403 F.Supp. 579, 607 (W.D.Pa.1975) (no doubt that (divestiture) would have a debilitating effect on the acquired company ). 132 Not only were the directors acting in good faith reliance on the advice of experienced and knowledgeable antitrust counsel, which in itself satisfies the requirements of the business judgment rule, Spirt v. Bechtel, 232 F.2d 241, 247 (2d Cir. 1956); Voege v. Magnavox Co., 439 F.Supp. 935, 942 (D.Del.1977), but one member of the board was an experienced antitrust lawyer with a background of experience to evaluate the soundness of the legal claims. See Abramson v. Nytronics, Inc., 312 F.Supp. 519, 531-32 (S.D.N.Y.1970) (Boards of directors are deliberately chosen from the ranks of businessmen, bankers, and lawyers because of their expertise in evaluating the merits of precisely this sort of proposal.). The plaintiffs have introduced no evidence that the suit was brought in bad faith, but merely cite it as an example of the defendants' desire to perpetuate their control. However, because the bringing of the suit clearly served the rational business purpose of protecting Field's from the damage forced divestiture would cause, it is protected by the business judgment rule. Field's decision to resolve the antitrust question through litigation in federal court rather than some other method or in some other forum is a matter for the discretion of the directors when it is exercised within the scope of the rule. 133 Because we find insufficient evidence on which a jury could base a rational verdict that the defendants breached any fiduciary duty, neither can any claim of concealment of bad faith activity give rise to a jury question. We therefore affirm the district court's ruling on the state law claims of breach of fiduciary duty. 134