Opinion ID: 2315915
Heading Depth: 1
Heading Rank: 4

Heading: Adequacy of the Settlement

Text: In examining the Settlement, the Court of Chancery applied the analysis set forth by this Court in Rome and its progeny. First, the Court of Chancery evaluated not only the nature of the shareholder plaintiffs' claims but also the possible defenses to those claims. In weighing the validity of the claims and the benefits provided by the Settlement, it was neither necessary nor desirable for the Court of Chancery to try the case or to definitively decide the merits of any of the issues. [27] Nottingham Partners v. Dana 564 A.2d at 1102; Polk v. Good, 507 A.2d at 536; Rome v. Archer, 197 A.2d at 53. Nevertheless, the Objectors were permitted to take discovery for the purpose of developing a record to support their contentions. After carefully evaluating the parties' respective legal positions, the Court of Chancery opined that the [shareholder plaintiffs'] potential for ultimate success on the merits [in the Sullivan action] is, realistically, very poor. [28] Second, in accordance with the procedures set forth in Rome, after considering the legal and factual circumstances of the case sub judice, the Court of Chancery examined the value of the Settlement. The proponents of the Settlement argued that the monetary value of having the Museum building called the Occidental Petroleum Cultural Center Building was approximately ten million dollars. The Court of Chancery noted that, in support of their valuation arguments, the proponents also argued that the Settlement: (1) reinforced and assured Occidental's identification with and meaningful participation in the affairs of the Museum; (2) reinforced and protected the charitable nature and consequences of Occidental's gifts by securing the prompt delivery and irrevocable transfer of the Art Collection to the Museum; (3) imposed meaningful controls upon the total construction costs that Occidental will pay, which had already forced the reduction of the construction budget by $19.4 million; (4) placed meaningful restrictions upon Occidental's future charitable donations to Hammer affiliated entities and avoided increases in posthumous payments to the Foundation or any other designated recipient after Dr. Hammer's death; (5) restored to Occidental an equitable portion of any appreciation of the properties in the event the Museum exercised its option and disposed of the properties or transferred its option for value; and (6) guaranteed that the Art Collection would continue to be located in the Los Angeles area and remain available for the enjoyment of the American public rather than dissipated into private collections or sold abroad. The Court of Chancery characterized the proponents' efforts to quantify the monetary value of most of the Settlement benefits as speculative. The Court of Chancery also viewed the estimate that naming the building for Occidental would have a ten million dollar value to Occidental with a good deal of skepticism. Nevertheless, the Court of Chancery found that Occidental would, in fact, receive an economic benefit in the form of good will from the charitable donation to the Museum proposal. It also found that Occidental would derive an economic benefit from being able to utilize the Museum, adjacent to its corporate headquarters, in the promotion of its business. Finally, the Court of Chancery applied its own independent business judgment in deciding whether the Settlement was fair and reasonable. In doing so, the Court of Chancery was called upon to function in its special role as the so-called third party to the Settlement. Barkan v. Amsted Industries Inc., 567 A.2d at 1283-84; Nottingham Partners v. Dana, 564 A.2d at 1102 (quoting Rome v. Archer, 197 A.2d at 53-54). This required it to balance the policy preference for settlement against the need to insure that the interests of the shareholders, as a class, had been fairly represented. Barkan v. Amsted Industries, Inc., 567 A.2d at 1283 (citing Rome v. Archer, 197 A.2d at 53). In discharging its special role in the case sub judice, the Court of Chancery properly evaluated the value of the Settlement in the context of the strength of the claims which were being compromised. Nottingham Partners v. Dana, 564 A.2d at 1103. As this Court stated in Barkan v. Amsted Industries, Inc., 567 A.2d at 1285: The strength of claims raised in a class action lawsuit helps to determine whether the consideration received for their settlement is adequate and whether dismissal with prejudice is appropriate. Thus, if the [Court of Chancery] were to find that the plaintiff class was being asked to sacrifice a facially credible claim for a small consideration, he would be justified in rejecting a settlement as unfair. Conversely, where the [Court of Chancery] finds that the plaintiff's potential challenges have little chance of success, he has good reason to approve the proposed settlement. The Court of Chancery found that the benefit [of the Settlement] to the stockholders of Occidental is sufficient to support the Settlement and is adequate, if only barely so, when compared to the weakness of the plaintiffs' claims. The Court of Chancery concluded that although the Settlement is meager, it is adequate considering all the facts and circumstances. [W]hen the Court of Chancery reviews the fairness of a settlement, it must evaluate all of the circumstances of the settlement by using its own business judgment. Barkan v. Amsted Industries, Inc., 567 A.2d at 1284. The Court of Chancery's broad special role contrasts sharply with this Court's own limited one. Because the Court of Chancery's decision constitutes an exercise of discretion, this Court reviews the record simply to determine whether that discretion has been abused. Polk v. Good, 507 A.2d at 536. We do not exercise our own business judgment in an effort to evaluate independently the intrinsic fairness of the settlement. Barkan v. Amsted Industries, Inc., 567 A.2d at 1284. Because the Court of Chancery is in the best position to evaluate the factors that support a settlement, we will not second-guess its business judgment upon appeal. Id. Rather, if the findings and conclusions of the Court of Chancery `are supported by the record and are the product of an orderly and logical deductive process, they will be accepted' and the decision will be affirmed. Id. (quoting Levitt v. Bouvier, 287 A.2d at 673). The Court of Chancery's decision to approve the Settlement in the Sullivan action is supported by the record and is the product of an orderly and logical deductive process.