Opinion ID: 1497598
Heading Depth: 1
Heading Rank: 20

Heading: Approval By Directors

Text: The Court of Chancery properly took into consideration its previous factual finding that the predominant majority of the board was, in approving the MAF proposal, motivated in good faith to achieve a transaction that was the best available transaction for the benefit of the Technicolor shareholders. Cinerama, 663 A.2d at 1138. That finding was not contested in the prior appeal. Cede II, 634 A.2d at 359. It is now the law of the case. The Court of Chancery acknowledged that the Technicolor board relied heavily upon the advice of Kamerman, the CEO. The Court of Chancery also recognized that the directors may not blindly rely upon a strong CEO without risk. Cinerama, 663 A.2d at 1141. [28] It then noted that the board of directors also relied upon reports by Goldman Sachs and Debevoise & Plimpton, two firms the Court of Chancery described as highly regarded in the financial community. In addition, the Court of Chancery found the Technicolor board's reliance upon experienced counsel to evidence good faith and the overall fairness of the process. Id. at 1142. [T]he directors were placed in a position at the October 29 board meeting in which highly competent, indeed, expert legal counsel advised them that they could exercise a good faith business judgment. The testimony of that attorney is clear and I accepted his honesty as a witness completely. Id. at 1141. The Court of Chancery ultimately found the fact that [t]he directors were acting, and their advisors were guiding them, according to the duties known to them in 1982 was a relevant but not dominant consideration in determining fairness. Id. at 1141. We agree that the Court of Chancery could properly consider the Technicolor directors' reliance on special legal counsel as a factor supporting fair dealing in an entire fairness analysis. [29] According to the Court of Chancery, it also weighed the process of board consideration and approval ... in determining entire fairness. The degree of procedural due care a board of directors exercises has been recognized as a continuing component of an entire fairness analysis. See Rosenblatt v. Getty Oil Co., 493 A.2d at 939. Even after evidence of a breach of the duty of due care has rebutted the procedural presumption of the business judgment rule, the degree of care that the board actually exercised remains relevant, not because it entitles the board's decision to deference, but rather because, in determining the directors' liability if the substantive entire fairness standard is not satisfied, the Court of Chancery must identify the deficiency in the board's actual conduct in discharging one or more of its fiduciary duties. Mills Acquisition Co. v. Macmillan, Inc., Del.Supr., 559 A.2d 1261, 1280 (1989); see also Smith v. Van Gorkom, Del.Supr., 488 A.2d 858 (1985). The Court of Chancery properly considered that the Technicolor board's now undisputed lack of care in making a market check was a flaw in its approval process. [30] However, the Court of Chancery also considered that the Technicolor board: had carefully focused on whether the MAF bid offered the best price available in a sale of the company; had considered whether to shop the company and the risks that course would entail; possessed a substantial amount of prior knowledge pertinent to the decision to sell; and relied on the reports of Kamerman, Goldman Sachs and its outside legal counsel. Under these circumstances, in light of the board's good faith and the arm's-length negotiations, the Court of Chancery determined the decision to approve the MAF proposal without making a market check, while clearly deficient, did not preclude a finding of entire fairness. Cinerama, 663 A.2d at 1144-45; see also Barkan v. Amsted Indus., Inc., Del. Supr., 567 A.2d 1279, 1287 (1989); [31] accord Shamrock Holdings, Inc. v. Polaroid Corp., Del.Ch. 559 A.2d 257, 271 (1989). In its initial personal liability decision, the Court of Chancery found, after trial, that the majority of Technicolor directors were motivated in the transaction, appropriately, to promote the best interests of the shareholders. On remand, the Court of Chancery again concluded that neither the board nor its deliberations were dominated or manipulated by a person with a material conflicting interest or otherwise lacked independence. Cinerama, 663 A.2d at 1139. The Court of Chancery found: the record contained no persuasive evidence that any of the directors were, in fact, materially influenced in their negotiations by any self-interest they may have had, id. at 1149; only one director, Sullivan, had a material conflict; and, no director dominated the process. The Court of Chancery concluded that the record reflected that the Technicolor board 's approval was untainted by conflicts. Cf. In re Tri-Star Pictures, Inc. Litig., Del.Supr., 634 A.2d 319 (1993); Rales v. Blasband, Del.Supr., 634 A.2d 927 (1993).