Opinion ID: 2291974
Heading Depth: 2
Heading Rank: 2

Heading: Claim of Fraud In or Arising From a Merger

Text: Kramer alternatively seeks to establish the existence of an individual claim of waste by attacking the terms of the merger. Kramer alleges that defendants Newman and Scott diverted to themselves and others moneys rightfully belonging to the Class, resulting in unfair treatment of the Class. [7] Plaintiff's argument is premised upon Cede & Co. v. Technicolor, Inc., Del.Ch., C.A. No. 7129, Allen, C. (Jan. 13, 1987) ( Cede Ch. ) [available on WESTLAW, 1987 WL 4768], rev'd in part on other grounds, Del.Supr., 542 A.2d 1182 (1988) ( Cede Supr. ). In Cede Ch., the Court of Chancery held that cashed-out shareholders who do not seek appraisal are, after the effectuation of the merger, certainly not stockholders, yet clearly such persons have standing to litigate claims of breach of duty arising from the merger. Cede Ch., slip. op. at 11-12 (citing Rabkin v. Philip A. Hunt Chem. Co., Del.Supr., 498 A.2d 1099 (1985); Rosenblatt v. Getty Oil Co., Del.Supr., 493 A.2d 929 (1985); Weinberger v. UOP Inc., Del.Supr., 457 A.2d 701 (1983); Lynch v. Vickers, Del.Supr., 429 A.2d 497 (1981)). Cede Ch., and the cases cited therein, are distinguishable. In contrast to the instant case, the cited decisions concerned direct attacks on transactions involving corporate restructuring. As recognized by this Court in Cede Supr., direct attacks against a given corporate transaction (attacks involving fair dealing or fair price) give complaining shareholders standing to pursue individual actions even after they are cashed-out through the effectuation of a merger. Specifically, this Court stated that [n]o one would assert that a former owner suing for loss of property through deception or fraud has lost standing to right the wrong that arguably caused the owner to relinquish ownership or possession of the property. Cede Supr., 542 A.2d at 1188. In this case, the focus of Kramer's attack is upon waste through allegedly excessive payments to Newman, Scott, (and unnamed others) incurred prior to the Danaher merger. Newman and Scott's alleged breaches of duty do not implicate the fairness of the merger's terms. Plaintiff does not directly challenge the merger as resulting from a breach of fiduciary duty. See, e.g., Penn Mart Realty Co. v. Penelman, Del.Ch., C.A. No. 8349, Hartnett, V.C. (Apr. 15, 1987); Rosen v. Navarre, Del.Ch., C.A. No. 7098, Hartnett, V.C. (Oct. 29, 1985). Having not directly attacked the merger, Kramer's claim of diversion of funds and excessive payments clearly does not rise to an attack on the merger itself sufficient for his suit to survive the merger. Kramer's position is tantamount to saying that, in the context of a cash-out merger, whenever a shareholder asserts a claim against management for breach of fiduciary duty based upon waste or other acts causing a monetary loss to the corporation, the shareholder's claim should also be construed: (i) as asserting a special injury to the shareholder, as distinct from the corporation; and (ii) as amounting to a direct attack on the terms of the merger, thus giving the shareholder standing to continue, or bring forward, a suit after merger. Such a position is contrary to well-established principles of Delaware law and cannot be accepted by this Court.