Opinion ID: 1541285
Heading Depth: 1
Heading Rank: 5

Heading: Disclosures Concerning the Resignation of Howard Buffet

Text: Plaintiff contends that the ADM Board breached its fiduciary duty by failing to disclose the facts surrounding former director Howard Buffet's resignation. The complaint averred, in conclusory terms, that Mr. Buffet resigned because he refused to participate in Dwayne Andreas's plan to stonewall ADM stockholders, the media and Wall Street and did not believe the information he was receiving from ADM officials about the government's probe and related litigation. The trial court concluded that: (1) this information was not material; (2) even assuming arguendo that the information was material, pursuant to the rule relieving directors from the obligation to engage in self-flagellation, the ADM directors were not required to disclose the reasons for Buffet's resignation; and (3) any effort by a Delaware court to force disclosure of this information would conflict with federal proxy rules. It is well established that directors of Delaware corporations are under a fiduciary duty to disclose fully and fairly all material information within the board's control when it seeks shareholder action. [30] An omitted fact is material if there is a substantial likelihood that a reasonable stockholder would consider it important in deciding how to vote. [31] To prevail on a claim of material omission, therefore, a plaintiff must demonstrate a substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable stockholder. There must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable stockholder as having significantly altered the total mix of information made available. [32] The directors' duty of disclosure does not oblige them to characterize their conduct in such a way as to admit wrongdoing. As this Court held in Stroud, a board is not required to engage in `self-flagellation' and draw legal conclusions implicating itself in a breach of fiduciary duty from surrounding facts and circumstances prior to a formal adjudication of the matter. [33] Thus, even where material facts must be disclosed, negative inferences or characterizations of misconduct or breach of fiduciary duty need not be articulated. [34] Plaintiff contends that it is material that ADM Board member Buffet allegedly tendered his resignation in response to the perceived wrongdoing of other Board members, and, if true, that is a fact that a reasonable ADM stockholder would want to know in deciding how to vote. Plaintiff contends that disclosure of Mr. Buffet's alleged views does not amount to self-flagellation because all that needed to be disclosed were the objective facts surrounding his resignation and the reasons he advanced for tendering that resignation. Plaintiff argues that the Board was free to state its disagreement with the allegations made by Mr. Buffet. Moreover, plaintiff claims that all that ADM was required to disclose was Mr. Buffet's opinion and belief that the Board was engaged in misconduct, which the Board would have been free to comment upon in the Proxy Statement. This argument presents a novel disclosure theory. To be sure, it might be better practice for directors of a public corporation to be more candid and forthcoming in their communications to stockholders when presenting a slate for election to the board. It is a leap of logic, however, for this Court, applying a form of common law of corporate disclosure, to fashion a rule that attempts to draw  in a liability context  a bright line of disclosure for directorial elections. How much information must be imparted to the stockholders concerning positions previously taken by directors who have been dropped from the management slate? [35] When can it be said that omitted information about a former director's disagreement with management rises to the level of a substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of a reasonable shareholder? [36] What is plaintiff's theory of causation and economic damage to him and other stockholders? The complaint before us does not state a well-pleaded claim that the nondisclosure of the background of Mr. Buffet's omission from the management slate was material or actionable.