Opinion ID: 1497598
Heading Depth: 1
Heading Rank: 6

Heading: purpose of remand

Text: Several of the contentions Cinerama raises in this appeal relate to the manner in which the Court of Chancery proceeded upon remand. According to Cinerama, the Court of Chancery disregarded this Court's mandate and the law of the case. Therefore, it is appropriate to begin this opinion by setting forth why this matter was remanded to the Court of Chancery and what further action was contemplated by this Court. In Cede II, this Court reiterated that a shareholder plaintiff challenging a board decision has the initial burden of rebutting the presumption of the business judgment rule. Cede II, 634 A.2d at 361. This Court held that to rebut the presumption, a shareholder plaintiff assumes the burden of providing evidence that the board of directors, in reaching its challenged decision, breached any one of its triad of fiduciary duties: good faith, loyalty, or due care. Id. The issues presented on appeal in Cede II related to two of those fiduciary obligations: the duty of care and the duty of loyalty. Id. at 359. [12] In Cede II, this Court held that the record evidence establishes that Cinerama met its burden of proof for overcoming the [business judgment] rule's presumption of board duty of care in approving the sale of [Technicolor] to MAF. Id. at 367. [13] This Court then specifically stated that, as a rule of evidence, [b]urden shifting does not create per se liability on the part of the directors.... Id. at 371. Accordingly, this Court remanded the case to the Court of Chancery with directions to apply the entire fairness standard of review to the challenged transaction. Id. With regard to the duty of loyalty, this Court stated that the following issues would require resolution on remand: (1) the precise standard of proof required under the second part of the materiality standard ...; (2) the legitimacy of such a standard under Delaware law and the relevance of section 144(a); (3) the effect of the unanimity requirement in Technicolor's charter on the duty of loyalty standard controlling this case; and (4) the consequence of an affirmance of the decision below finding no breach of the duty of disclosure on the question of director self-interest. Id. at 366. In this appeal, Cinerama argues that under established principles of Delaware law, because a majority of the board bears the taint of self-interest or lack of independence, the director defendants lost the business judgment rule presumption of loyalty so that they were obligated to establish the entire fairness of the transaction even if they had not breached their duty of care. That specific argument is, of course, academic because this Court did hold that the Technicolor board of directors had lost that presumptive protection of the business judgment rule by breaching its duty of care and was, therefore, already required to demonstrate the entire fairness of the transaction. Id. at 361. From a procedural perspective, the breach of any one of the board's fiduciary duties is enough to shift the burden of proof to the board to demonstrate entire fairness. Id. Why were the loyalty issues remanded if their procedural relevance had become moot as a consequence of this Court's holding that the business judgment rule's presumption had been rebutted by a violation of the duty of care? In a given case, the Court of Chancery can, but is not required to, find that independent and adequate alternative breaches of fiduciary duty have rebutted the presumptive protection of the business judgment rule and, thus, mandate an entire fairness analysis. Nevertheless, or irrespective of the particular breach or breaches of fiduciary duty that constituted the basis for shifting the procedural burden of proof to the board, each of the fiduciary duties retains independent substantive significance in an entire fairness analysis. [14] Evidence regarding the manner in which the board otherwise discharged all three of its primary fiduciary duties has probative substantive significance throughout an entire fairness analysis, [15] and by necessity must permeate the analysis, for two reasons. First, since the evidence that defeated the procedural presumption of the business judgment rule does not establish liability per se, a substantive finding of entire fairness is only possible after examining and balancing the nature of the duty or duties the board breached vis-a-vis the manner in which the board properly discharged its other fiduciary duties. Second, the determination that a board has failed to demonstrate entire fairness will be the basis for a finding of substantive liability. The Court of Chancery must identify the breach or breaches of fiduciary duty upon which that liability will be predicated in the ratio decidendi of its determination that entire fairness has not been established. [16] Accordingly, this Court remanded the issues of loyalty to the Court of Chancery, even though the found breach of the duty of care had already procedurally mandated an entire fairness examination. See Cede II, 634 A.2d at 371; accord In re Tri-Star Pictures Inc. Litig., 634 A.2d at 333. The purpose for remanding Cinerama's breach of loyalty contentions in this case was for the Court of Chancery to examine those issues within the substantive context of the fair dealing component of its entire fairness analysis. A determination that the Technicolor directors had breached the duty of loyalty in dealing with the shareholders might well have prevented a finding of entire fairness. [17]