Opinion ID: 2308640
Heading Depth: 1
Heading Rank: 21

Heading: director and board duty of care

Text: Independent of our rulings under section IV, we find the Chancellor's restatement of the duty of care requirement of the rule and a shareholder plaintiff's burden of proof for rebuttal thereof, in the context of a good faith, arms-length sale of the company, to be erroneous as a matter of law. We adopt the court's presumed findings that the defendant directors were grossly negligent in failing to reach an informed decision when they approved the agreement of merger, and to have thereby breached their duty of care. Those findings are fully supported by the record. The formulation and application of the duty of care element of the rule, as applied to a third-party transaction, is explicated in Van Gorkom. Applying Van Gorkom to the trial court's presumed findings of director and board gross negligence, we find the defendant directors, as a board, to have breached their duty of care by reaching an uninformed decision on October 29, 1982, to approve the sale of the company to MAF for a per-share sale price of $23. We hold that the plan of merger approved by the defendant directors on October 29, 1982, must, on remand, be reviewed for its entire fairness, applying Weinberger. 457 A.2d at 711. We think it patently clear that the question presented is not one of first impression, as the court below appears to have assumed. Applying controlling precedent of this Court, we hold that the record evidence establishes that Cinerama met its burden of proof for overcoming the rule's presumption of board duty of care in approving the sale of the company to MAF. The Chancellor's restatement of the rule  to require Cinerama to prove a proximate cause relationship between the Technicolor board's presumed breach of its duty of care and the shareholder's resultant loss  is contrary to well-established Delaware precedent, irreconcilable with Van Gorkom, and contrary to the tenets of Unocal and Revlon, Inc. v. MacAndrews & Forbes Holdings, Del.Supr., 506 A.2d 173 (1986). More importantly, we think the court's restatement of the rule would lead to most unfortunate results, detrimental to goals of heightened and enlightened standards for corporate governance of Delaware corporations. We also find the court to have committed error under Weinberger in apparently capping Cinerama's recoverable loss under an entire fairness standard of review at the fair value of a share of Technicolor stock on the date of approval of the merger. Under Weinberger 's entire fairness standard of review, a party may have a legally cognizable injury regardless of whether the tender offer and cash-out price is greater than the stock's fair value as determined for statutory appraisal purposes. See Weinberger, 457 A.2d at 714; Rabkin v. Philip A. Hunt Chemical Corp., Del.Supr., 498 A.2d 1099, 1104 (1985) (appraisal not exclusive remedy).