Opinion ID: 1959481
Heading Depth: 1
Heading Rank: 9

Heading: Improper Delegation Allegations

Text: According to McMullin, the Chemical Directors violated their fiduciary duties of care and loyalty to the minority shareholders by the initial decision to delegate the management of the sale process to a conflicted majority shareholder and by the subsequent uninformed decision to recommend approval of the third-party sale of Lyondell. The Amended Complaint charges ARCO with a conflict of interest in negotiating the sale of Chemical because ARCO insisted upon a cash only transaction. McMullin alleges that the Chemical Directors either disregarded the best interests of the minority shareholders or subordinated them to ARCO's immediate cash needs. The defendants rely upon the decision of the Court of Chancery in Unimation [65] as support for their proposition that the Chemical Directors breached no fiduciary duty, whether of due care or loyalty, by allowing [controlling shareholder's] representatives to speak for the minority in the negotiations. We agree that the Chemical Board could properly rely on the majority shareholder to conduct preliminary negotiations. The Chemical Board, however, had an ultimate statutory duty and fiduciary responsibility to make an informed and independent decision on whether to recommend approval of the third-party Transaction with Lyondell to the minority shareholders. [66] Fulfilling that obligation directly affected the minority shareholders' decision about whether to refrain from tendering their shares to Lyondell and pursuing an appraisal action during the second step of the Transaction. The procedural posture in this appeal involves a motion to dismiss McMullin's Amended Complaint. In Unimation, the Court of Chancery reviewed a full trial record and concluded that the board satisfied its obligation to act independently and fully inform itself of the actions taken by the majority shareholder in negotiating a sale of the entire company: Unimation's Directors were fully informed and knowledgeable of the eight-month market search for potential buyers and of Unimation's business, prospects, and value. Those directors discussed the potential Westinghouse merger almost daily between the execution of the merger agreement and the board meeting at which the agreement was approved. Moreover, the Unimation director's meeting was preceded by an extensive meeting of the same persons, sitting as the Condec board, at which Drexel discussed the basis of its opinion that the merger was financially fair to Condec and the Unimation majority. In those circumstances, the fact that the formal Unimation directors' meeting was short is of no moment, because for months Unimation's directors had been kept fully apprised of all relevant facts on an ongoing basis, and they had already considered those facts before their formal meeting was convened. [67] The issue of whether the directors reached an informed decision to sell Chemical on June 18, 1998 must be determined upon the basis of the information then reasonably available to the directors and relevant to their decision to recommend approval of the Lyondell merger proposal to the shareholders. [68] In contrast to the board of director's conduct in Unimation, the Amended Complaint filed by McMullin alleges that ARCO unilaterally initiated, structured and negotiated the Transaction to sell all of Chemical. [69] The Amended Complaint contends that as of June 18, the Chemical Board had made no determination of Chemical's entire value as a going concern before making its expedited decision to recommend approval of ARCO's proposed third-party Transaction with Lyondell. One can reasonably infer from the Amended Complaint that Chemical's minority shareholders might have received more than $57.75 cash in an appraisal proceeding, if the Chemical Directors had fulfilled their fiduciary duties to ascertain whether the proposed sale to Lyondell maximized value for all shareholders. When all of the facts are presented, the Court of Chancery may conclude that the Chemical Directors acted like the directors in Unimation  independently and on a fully informed basis. At this stage of the proceedings, however, the Chemical Directors must file an answer to the well-pled allegations to the contrary in McMullin's Amended Complaint.