Emerald Partners v. Berlin

Full title: EMERALD PARTNERS, a New Jersey limited partnership, Plaintiff, v. RONALD…

Court: Court of Chancery of Delaware, In And For New Castle County

Date published: Feb 23, 2001

Civil Action No. 9700 (Del. Ch. Feb. 23, 2001)

Opinion

Civil Action No. 9700.

Date Submitted: July 19, 2000.

Dated Issued: February 7, 2001. Date Revised: February 23, 2001.

Gregory V. Varallo, C. Malcolm Cochran, IV, Daniel A. Dreisbach, Lisa A. Schmidt and Dominick T. Gattuso, Esquires, of RICHARDS, LAYTON FINGER, Wilmington, Delaware; Attorneys for Plaintiff Emerald Partners and the Certified Class.

P. Clarkson Collins, Jr., Lewis H. Lazarus, Joseph C. Schoell and Michael A. Weidinger, Esquires, of MORRIS, JAMES, HITCHENS WILLIAMS LLP, Wilmington, Delaware; Attorneys for Defendants.

OPINION

JACOBS, VICE CHANCELLOR.

This action challenges an August 15, 1988 merger between May Petroleum ("May") and thirteen corporations (the "Hall Corporations") owned by Craig Hall ("Hall"), who was May's Chairman, Chief Executive Officer, and its controlling stockholder.¹ The plaintiff, Emerald Partners, which was a shareholder of May, originally brought this action both derivatively and as a class action, but its claims are now asserted only on behalf of a class consisting of May's stockholders² at the time of the merger. At this stage the only remaining defendants are four of May's five directors at the time of the merger, the fifth director (Hall) having been dismissed as a defendant as a result of his 1992 bankruptcy.

1 At the time the merger was proposed, Hall owned 52.4% of May common stock. Before the record date for the merger and before the May shareholders voted on it in March, 1988, Hall had reduced his stock interest to 25% by transferring shares to independent irrevocable trusts created for the benefit of his children.

2 The class includes all May shareholders except the defendants, Hall, and their families and trusts.

Since its inception in early 1988, this lawsuit has generated a multitude of judicial opinions, including two appeals to the Delaware Supreme Court.³ After eleven years, this action was tried on its merits from December 1 through December 29, 1999. The claim presently sub judice is that the plaintiff class is entitled to an award of money damages against the defendant-directors for approving a merger that was unfair to the minority stockholders, in terms of both the price and the process by which the transaction was initiated, negotiated, and approved.⁴ The defendants contend that they have demonstrated the fairness of the merger and, in addition, should prevail on their several affirmative defenses.

3 On March 18, 1988, this Court preliminarily enjoined the merger. Emerald Partners v. Berlin, Del. Ch., C.A. No. 9700, Hartnett, V.C. (Mar. 18, 1988). That injunction was reversed on appeal on August 15, 1988, Berlin v. Emerald Partners, Del. Supr., 552 A.2d 482 (1989), and the merger was consummated that same day. Thereafter, this Court issued a series of opinions and orders: (1) denying defendants' motion to disqualify Emerald Partners as class representative but granting their motion to disqualify plaintiffs law firm in the derivative aspect of the suit, Emerald Partners v. Berlin, Del. Ch., 564 A.2d 670 (1989); (2) granting plaintiffs motion for class certification, Emerald Partners v. Berlin, Del. Ch., C.A. No. 9700, Hartnett, V.C. (Nov. 15, 1991); (3) granting defendants' motion to dismiss (derivative) Count I for failure to plead facts sufficient to excuse a Rule 23.1 demand, but holding that demand was excused as to (derivative) Count III, Emerald Partners v. Berlin, Del. Ch., C.A. No. 9700, Hartnett, V.C. (Dec. 23, 1993); (4) denying a discretionary award of interim attorneys' fees to plaintiff and indicating the likely extinguishment of the derivative corporate waste claims of Count III, Emerald Partners v. Berlin, Del. Ch., C.A. No. 9700, Hartnett, V.C. (Feb. 4, 1994); (5) granting plaintiffs motion to compel the defendants to produce handwritten notes without redactions, Emerald Partners v. Berlin, Del. Ch., C.A. No. 9700, Hartnett, V.C. (Mar. 30, 1994); and (6) granting summary judgment in favor of the corporate and individual defendants, Emerald Partners v. Berlin, Del. Ch., C.A. 9700, Steele, V.C. (Sept. 22, 1995), which was later reversed on appeal, Emerald Partners v. Berlin, Del. Supr., 726 A.2d 1215 (1999); and (7) granting judgment and awarding damages to defendants resulting from being wrongfully enjoined from consummating the merger in 1988, Emerald Partners v. Berlin, Del. Ch., 712 A.2d 1006 (1997) and id., C.A. No. 9700, Steele V.C. (Aug. 3, 1998), aff'd, Emerald Partners v. Berlin, Del. Supr., 726 A.2d 1215 (1999).

4 The plaintiff also advances, as a separate argument, a claim that the defendant directors breached their fiduciary duties by improperly delegating to the board's investment banker their duty to set the merger terms.

This is the post-trial decision of the Court on the merits of the claims and defenses. For the reasons discussed below, the Court concludes that the defendants are entitled to judgment in their favor on all claims.

I. THE FACTS ⁵

5 Except where noted, many of the material facts are undisputed. Where there are disputes, however, the facts are as found herein.

A. The Parties

1. Emerald Partners

The plaintiff, Emerald Partners, is a New Jersey limited partnership managed by Paul Koether and his wife, Natalie Koether, Esquire. At the time of the merger, Emerald Partners owned at least 315,720 shares of May common stock.⁶

6 The record shows that Emerald Partners owned 315,270 shares as of January 5, 1988 (DX 69), although Paul Koether represented that he and his clients owned 505,700 shares as of that date. The defendants accuse Emerald Partners of misrepresenting their shareholdings and other material facts to May and its shareholders, and contend that Emerald's claim is barred by laches and unclean hands. The defendants further contend that Emerald was reputed to be a corporate greenmailer, a contention this Court accepted at an earlier stage of these proceedings. Emerald Partners v. Berlin, Del. Ch., C.A. No. 9700, Hartnett, V.C., Mem. Op. at 9-10 (Mar. 18, 1988).

2. May and Its Directors

May was a Delaware corporation based in Dallas, Texas. Initially, May was engaged in oil and gas exploration, and later was in the business of acquiring oil and gas properties, companies and other types of investments. May became a publicly held company in 1972, and at the time of the merger it had issued and outstanding 14,655,660 shares of common stock held by more than 2,000 shareholders. May's common shares were traded on the over-the-counter market and reported on the NASDAQ.

At the time of the merger, May had a five member board of directors, namely, Mr. Hall, Ronald P. Berlin ("Berlin"), David L. Florence ("Florence"), Rex A. Sebastian ("Sebastian"), and Theodore H. Strauss ("Strauss"). Except for Mr. Hall, those directors are the defendants in this action. Mr. Berlin had been employed by the Hall Corporations for over ten years and served as President in 1987 and 1988. Messrs. Florence, Sebastian, and Strauss, who comprised the majority of May's board, were not affiliated with and were financially independent of Mr. Hall and his corporations. These three directors were all successful businessmen of independent means, were many years older than Mr. Hall, and had no business, professional, financial or significant personal relationship with him.⁷ Because of the significance of their role in approving the merger, the background of the three "non-affiliated" directors is briefly discussed.

7 Neither Mr. Florence nor Mr. Sebastian knew Mr. Hall before Mr. Hall first invested in May in 1995. Before Strauss joined May's board in 1986, he had been acquainted with Hall, but they were not personally or socially close friends.

Mr. Florence co-founded May together with his business partner, John May, thirty-two years before the merger. Mr. Florence served on May's board from and after its initial public offering in 1972 until early 1994. At the time of the merger, Mr. Florence owned about 30,000 shares of May in his own name. He also was a fiduciary for trusts that held 50,000 shares of May common stock for the benefit of his own children, and also for the benefit of the widow and the surviving daughter of Mr. May, who died in an airplane crash. Besides serving as a director of May, Mr. Florence served on the board of First Republic Bank, then one of the largest banks in Texas, and had also been the Chairman and sole owner of a private company, Dallas Communications Corporation. Mr. Florence had a broad range of investment experience, including in real estate in the Southwest.

Mr. Sebastian became a director of May in 1980, five years before Mr. Hall became an investor in the company. At the time of the merger, Mr. Sebastian had retired from Dresser Industries after nineteen years of service as a senior executive with control over operations producing more than $1 billion in annual revenue. At the time of the merger, Mr. Sebastian held 11,050 shares of May stock. Like Mr. Florence, Mr. Sebastian had considerable experience as a director, having served as a director of two publicly traded companies and of Texas Commerce Bank in Dallas. As a bank director and a personal investor, Mr. Sebastian was familiar with the needs and cycles of the real estate business.

Mr. Strauss became a May director in 1986, bringing to the board an extensive business background spanning four decades, which included founding a substantial packaging business and one of Dallas' most prominent banks. Mr. Strauss was a former Chairman of First City Bank in Dallas, Chairman of Strauss Broadcasting, Inc., and a board member of several other corporations. At the time of the merger, Mr. Strauss's wife, Annette, was Mayor of Dallas⁸ and Mr. Strauss was an investment banker in the Dallas office of Bear Stearns, which was later engaged in connection with the merger. Mr. Strauss did not share in the profits of Bear Stearns, and, thus, received no compensation or profit from Bear Stearns that was directly attributable to any transaction involving May. On the date of the merger, Mr. Strauss owned 10,000 shares of May common stock.

8 Mrs. Strauss is now deceased.

B. May Before The Merger And Mr. Hall's Involvement

Before 1986, May's activities were substantially devoted to oil and gas exploration. In order to raise capital for its oil and gas investments, May sold interests in public partnerships. Beginning in 1983, it became difficult for May to raise capital in this manner because of changes in the tax laws, May's track record, and generally depressed oil and gas prices. Between 1983 and 1987, May lost about $80 million. In 1985, Mr. Hall began investing in May with the goal of cashing out May's remaining stockholders. Mr. Hall abandoned that plan after he learned of substantial problems with May's two most significant oil wells. Instead, he invested additional capital, eventually obtaining a controlling stock interest. In January 1986, Mr. Hall became May's Chief Executive Officer.

By the end of 1985, Mr. Hall had invested nearly $24 million in May, which was then perilously close to bankruptcy and under a mountain of debt. From then until the merger, May's management continued to search for an investment strategy to extricate the company from its financial straits. Because of a significant decrease in the price of crude oil and natural gas during 1986 and, because of pressure from its lenders, May changed its operational focus from oil and gas exploration to optimization of the production and revenues from its existing oil and gas properties, and reduction of debt and general administrative overhead. May's other new strategy was to acquire oil and gas properties, companies, or other types of investments, but it could not find attractive oil and gas acquisitions at reasonable prices. Accordingly, in 1987, May's board again changed the company's focus, this time exiting the oil and gas business and seeking to move into a more viable field of endeavor.

To implement this strategy, May sold substantially all of its oil and gas assets to a third party, Quinoco Petroleum, Inc. ("Quinoco"), during the summer of 1987 for $41.4 million, which included $3.2 million of obligations assumed by Quinoco. Bear Stearns acted as investment banker to May in this transaction.

After the sale to Quinoco, May had approximately $38 million in cash and potential tax advantages in the form of $54 million of net operating losses ("NOLs") and $8 million in capital loss carry forwards. To use the NOLs, May needed substantial operating income, but after selling its assets to Quinoco it had no such source. Accordingly, May's board explored opportunities to develop a new operating income-producing business, and it hired experts to search for and evaluate such opportunities.

During the third quarter of 1987, while it was exploring potential opportunities, May invested a substantial portion of the sale proceeds in securities of publicly traded companies. In addition, May invested $8 million to purchase a 40% interest in a Texas limited partnership known as HSSM#7 Limited Partnership ("HSSM#7"), which was formed for the purpose of investing indirectly in investment funds controlled by Paul Bilzerian ("Bilzerian"), whom Mr. Hall then perceived as a successful investor. The remaining 60% of the equity of HSSM#7 was owned by Hall Capital Corporation, which was also HSSM#7's general partner and was wholly owned by Mr. Hall.

HSSM#7 was a limited partner (and, thus, a passive minority investor) in Suncoast Partners, Ltd. ("Suncoast"), a Florida limited partnership that in turn was a limited partner in Bilzerian Partners L.P. I and Bilzerian L.P. Series A, both investment partnerships controlled by Bilzerian. Under the Suncoast partnership agreement, Bilzerian and entities controlled by him had no obligation to pursue any particular strategy or to provide any return to HSSM#7, except that Mr. Hall negotiated an annual "put" right for HSSM#7. That "put" right entitled HSSM#7, during March of each continuing partnership year, to require Mr. Bilzerian to purchase HSSM#7's share of Suncoast at the market value of HSSM#7's capital account as of December 31 of the prior year.

As of October 10, 1987, May had not identified a suitable operating business to acquire. That was problematic because, without an income-generating business, May could not use its NOLs. Moreover, because of the October, 1987 stock market decline, May had experienced unrealized losses in its investment portfolio that by December 30, 1987 would aggregate approximately $12.5 million. Under these circumstances, Mr. Hall proposed a merger of May and the Hall Corporations, owned by Mr. Hall, at a meeting of May's board of directors held on October 30, 1987.

C. The Hall Corporations

The Hall Corporations grew out of a real estate business founded by Mr. Hall in 1968. The Corporations were primarily real estate service companies that maintained no direct ownership of real estate. During their twenty-year pre-merger history, the Hall Corporations were engaged in diversified real estate activities, principally organizing and managing various investment programs, and providing advisory services and other financial and investment services and products. The Hall Corporations invested in real estate subject to mortgage loans through investment programs that were typically structured as limited partnerships. The general partner of those partnerships was either Mr. Hall or an entity controlled by him. As of December 30, 1987, the Hall Corporations partnerships were invested in multi-family housing and commercial space. They managed approximately 275 rental and commercial developments that were located throughout the country, but concentrated primarily in the Midwest, Southeast, and Southwest. Those partnerships provided the Hall Corporations with significant and diverse sources of fee revenue both at the offering stage and over the life of the partnerships.⁹

9 In a sponsored limited partnership, the Hall Corporations typically received reimbursement for the costs of the offering, acquisition fees as a percentage of the purchase price of the asset, management fees based on a percentage of revenue, financing and refinancing fees, disposition fees on disposition of a property, and partnership distributions.

At the end of 1985, the Southwest real estate market was rapidly collapsing. In the opinion of the Hall Corporations' management, the collapse was due to excessive new construction, fueled in part by low interest rates and favorable tax benefits that depressed rental revenue and increased vacancies. To save the partnerships they had sponsored, the Hall Corporations undertook a massive restructuring of debt, successfully working out over $1 billion in non-recourse partnership debt for various properties, essentially on a loan-by-loan basis. As restructured, that debt required the repayment of interest at rates between 8% and 10% with extended maturities of generally ten years.¹⁰ After the restructuring and as of December 30, 1987, the Hall Corporations owned about $25 million of outstanding debt to banks, an outstanding debt of approximately $27 million to Mr. Hall, and other debt totaling approximately $19 million.

10 In addition, in 1986 and 1987, the Hall Corporations raised more than $30 million from existing investors to help defer any losses generated by the affiliated partnerships.

Although the restructuring did not completely extricate the Hall Corporations from the problems existing in the real estate market, it did enable those companies to stabilize their (and the partnerships') financial health and position them to take advantage of opportunities presented by the down-cycle, to carry out their business plan to acquire additional real estate properties at favorable prices.

D. The Merger Proposal

At the October 10, 1987 May board of directors meeting, Mr. Hall proposed that the May board consider a merger of May and the Hall Corporations. Mr. Hall told the board that the current real estate market had created a "unique market opportunity with respect to taking control of real estate assets by becoming 'substitute' general partner for real estate syndicators in dire financial straits." Mr. Hall added, however, that while it would be beneficial for May to get into this segment of the real estate business, it would also present a conflict with the Hall Corporations, which were better positioned to take advantage of that opportunity. Mr. Hall added that the Hall Corporations were planning a $50 million subordinated debenture offering to raise funds to enable them to take control of distressed real estate assets. The Hall Corporations investment banker, Bear Stearns, had, however, advised Mr. Hall that "it would do the deal, but is not sure that they can sell it because of the bond market. Therefore, it might make sense to consider the merger of the Hall companies into May Petroleum."¹¹

11 PX 24 at 2.

The reasons for the merger proposal are further detailed in Mr. Hall's February 16, 1988 letter to May stockholders that accompanied the Proxy Statement and the Notice of the stockholders meeting to consider the merger. Mr. Hall's letter pertinently stated:

The proposal to merge arose out of complementary strengths and needs of the two organizations. Because of the current unfavorable conditions of oil and gas exploration relative to the significant inherent risks, May has been actively seeking to diversify its traditional business base of oil and gas activities. May has available capital, but has met difficulty in finding appropriate growth oriented business opportunities. The Hall Corporations have been pursuing a growth strategy and have identified many opportunities in the current shake-out that has been occurring in the real estate markets. However, these opportunities require substantial liquidity for investment and . . . as of September 30, 1987, approximately $74.5 million . . . or seventy two percent (72%) of the Hall Corporations' assets are comprised of receivables from partnerships which are relatively illiquid. Of this net amount, approximately $53 million or seventy one percent (71%) of such net receivables are from 95 partnerships currently experiencing working capital deficits, defaulted loans, or bankruptcy . . . [and which] constitute seventy one percent (71%) of the 134 partnerships from which the Hall Corporations have receivables. While the Hall Corporations generally are profitable . . . the addition of May's capital, and access in the future to capital as a public company, will provide the needed liquidity to carry out the plans for growth opportunities. . . .¹²

12 DX 108 (Hall 2/16/88 Ltr. To May Stockholders) at 1. This statement of the reasons for the merger proposal is consistent with what Mr. Hall told the May board at the October 10, 1987 meeting, except that the Proxy Statement does not disclose the failed effort to raise $50 million for the Hall Corporations in a subordinated debenture offering.

In other words, the Hall Corporations already had in place a fully-developed plan to expand their business base by acquiring additional income-producing assets, but they lacked sufficient liquid capital to carry out that plan. May, on the other hand, had ample liquid assets (and NOL carry forwards), but had not identified any satisfactory business in which to invest those assets. Mr. Hall viewed a merger of these two enterprises as the solution to both problems.

Because Mr. Hall controlled both enterprises and because Mr. Berlin worked for Mr. Hall, the decision whether or not May would pursue Hall's merger proposal would be made by the three non-affiliated directors who constituted a majority of the board, Messrs. Sebastian, Florence, and Strauss. Those three directors concluded that while the proposal should be explored, they needed more information about the Hall Corporations before any definitive merger decision could be made. Those three directors decided to negotiate, and ultimately to approve and recommend, a merger with the Hall Corporations. That negotiation and decision-making process occurred between October 10 and November 30, 1987, the date the May board approved the formal Merger Agreement. Because the decision-making process employed during the six-week period leading up to the executed Merger Agreement is an important focal point of the plaintiffs attack on the merger, that process is next discussed.

E. The Process Leading To The Merger Agreement

At the end of the next meeting of the May board on October 24, 1987, Mr. Hall submitted a written memorandum proposing a merger at a price range between $85 and $105 million in May common stock, valued at the market price on the day the parties reached an agreement in principle. Although Mr. Hall "believe[d] that the transaction as proposed is fair to shareholders," and that he was "open to any reasonable modifications to insure that this is an equitable transaction to the outside shareholders. . . ." Mr. Hall further stated that he would:

. . . abstain from voting, as will Ron Berlin, who is the President of the Hall Real Estate Group. Ron and I will absent ourselves from discussions as to outside counsel, investment bankers, and any other issues regarding the merger leaving the balance of the Board as a committee to act on this proposal.¹³

13 PX 5.

Despite his professed sensitivity to the need for procedural safeguards in negotiating what clearly would be a "conflict" transaction, Mr. Hall did not scrupulously observe the procedures to which he had committed to adhere. Nor from the standpoint of the non-affiliated directors was the process a model of procedural perfection either. Thus, despite contrary representations, Messrs. Hall and Berlin attended some of the board meetings where the proposed merger was discussed. On occasion they also conferred with Bear Stearns, the financial advisor retained for May. The non-affiliated directors also fell short of procedural nirvana, as they evidently did not insist that Mr. Hall absent himself at all times from the deliberating process. They also failed to have themselves constituted as a "special committee" by formal board resolution. Nonetheless, and despite these procedural lapses, the credible evidence shows that Messrs. Florence, Sebastian, and Strauss at all times did act as if they were a formally created "special committee," and that on the advice of their financial and legal advisors they negotiated the merger terms in a good faith, arm's length, and adversarial manner.

1. Preliminary Steps: The Retention Of Legal And Financial Advisors

At the October 24, 1987 board meeting, Mr. Hall submitted to the May board a detailed analysis of his merger proposal, including pro forma financial statements and an overview of the proposed post-merger business plan.¹⁴ The non-affiliated directors considered these submitted materials. They also retained two firms to serve as their legal and financial advisors in their evaluation of the proposed transaction.¹⁵ For their legal counsel, the non-affiliated directors selected the Dallas law firm of Shank, Irwin, Conant, Lipshy, and Casterline ("Shank Irwin"). Having never previously represented Mr. Hall or his entities, that firm clearly was independent, as was the Wilmington law firm of Prickett, Jones, Elliott, Kristol Schnee ("Prickett Jones"), which was retained as Delaware counsel.¹⁶

14 DX 27.

15 Messrs. Hall and Berlin were both present during the discussion of engaging legal and financial advisors.

16 The plaintiff challenges the independence of Shank Irwin and Prickett Jones on the basis that they acted in a "dual role" as counsel to both the non-affiliated directors and the company. But there is no evidence that either firm acted as counsel to Mr. Hall or the Hall Corporations in this transaction. Shank Irwin was chosen because its lead partners were well known to the non-affiliated directors, and Shank Irwin had recommended the Prickett Jones firm. Ivan Irwin, a senior partner of Shank Irwin who was involved in representing the non-affiliated directors, had been an acquaintance of Mr. Florence for many years; and T. MacCullough Strother, the lead Shank Irwin attorney on the matter, was known to and respected by Mr. Sebastian, and had never previously met Mr. Hall.

After considering several capable investment banking firms, the non-affiliated directors selected Bear Stearns as the financial advisors best suited for this transaction, even though it had previously done work for the Hall Corporations. Neither Mr. Strauss, who was a non-equity partner in Bear Stearns, nor Mr. Hall voted on the selection of that firm. Mr. Berlin, however, did. Mr. Sebastian testified that Bear Stearns was thought to be the most suitable candidate because it had performed well when it advised May's directors on two other 1987 transactions, and had conducted due diligence on the Hall Corporations for the then-contemplated debenture offering. Therefore, the non-affiliated directors concluded that Bear Stearns could evaluate the proposed merger more expeditiously and thoroughly than the other investment banking firms that were considered.¹⁷

17 The plaintiff argues that those same past retentions created significant conflicts of interest, for which reason Bear Stearns should not have been retained. The non-affiliated directors, however, were mindful of this issue. They satisfied themselves that despite its past involvements with Mr. Hall, Bear Stearns would have no conflict in connection with this particular representation because it would be "looking out for the May public shareholders." Tr. at 1114. Challenging this, the plaintiff points to the Bear Stearns engagement letter as showing that Bear Stearns had been retained "to advise the Company as to the appropriate exchange ratio . . ., and for the purpose of rendering an opinion to the Company as to the fairness, from a financial point of view, of the Merger." PX 33 (emphasis added). I find no inconsistency: these facts are reconciled on the basis that Bear Stearns would be the financial advisor to (and their fee would be paid by) May, but in this particular transaction (i) the three non-affiliated directors would be acting on behalf of "the company," and (ii) because Mr. Hall owned over 52% of the company's stock, by process of elimination Bear Stearns' services and advice would necessarily be for the benefit of the 47% minority public shareholders.

2. The Merger Negotiations

As earlier noted, at the end of the October 24, 1987 board meeting, Mr. Hall submitted to May's directors his formal proposal to merge May and the Hall Corporations in exchange for "$85 to $105 million of value of [May] common stock" valued at its market price. In a later meeting with Amy Youngquist and Julie Silcock of Bear Stearns, Mr. Sebastian was told that Bear Stearns would value May on the basis of an asset value approach, and that it would value the Hall Corporations on a going concern value approach. Mr. Sebastian concurred, and then advised Mr. Hall that May would be valued on a net asset basis — not at market value as Mr. Hall had proposed.¹⁸

18 Tr. at 113-14.

Sometime after the October 24 board meeting, Mr. Hall furnished the non-affiliated directors with a valuation analysis prepared by Donald Braun, the Hall Corporations' Treasurer. Based upon comparisons to potentially comparable companies and upon analyses of comparable transactions, Mr. Braun had concluded that the value of the Hall Corporations was $105 million. At the next May board meeting on November 7, 1987, Ms. Youngquist and Ms. Silcock discussed their assignment and their valuation approaches. Mr. Sebastian urged Bear Stearns to be critical of the assumptions used in the Hall Corporations' projected cash flows, particularly those relating to the Corporations' ability to increase rental rates, occupancies and obtain additional managed properties.¹⁹ Mr. Strother, the Shank Irwin partner who was lead counsel for the non-affiliated directors, attended that meeting to discuss his concerns about the potential deal, and then met with his clients after the full board meeting.

19 DX 38; Tr. at 115-16. Those cautionary instructions were consistent with Mr. Sebastian's directions to Ms. Youngquist throughout the process. Tr. at 1116.

During the next seventeen days, Bear Stearns performed a financial analysis of both companies and arrived at a transaction price to recommend to the May board. At a meeting of the full board held on November 24, 1987, Mses. Youngquist and Silcock presented Bear Stearns' valuations of the Hall Corporations and May, based on extensive due diligence undertaken by Bear Stearns that included a review and analysis of the Hall Corporations' prospects.²⁰ They also presented Bear Stearns' recommendation that as the consideration for acquiring the Hall Corporations, May would (i) issue to Mr. Hall 28.9 million shares of May common stock; and (ii) pay Mr. Hall 35% of the disposition commissions that otherwise would have been earned by the Hall Corporations.²¹ Based on the then-prevailing trading prices of May stock ($1.25 to $1.50 per share), Bear Stearns' recommended exchange ratio was worth approximately $36 million to $43 million in market value of May common stock — far less than Mr. Hall's proposal to receive $85 to $105 million in market value. Bear Stearns developed this recommendation by conservatively valuing the Hall Corporations at $65 million, and by valuing May on a net asset value basis at $2.20 to $2.25 per share.

20 DX 50; DX 51.

21 Bear Stearns was recommending that May and Mr. Hall split certain asset disposition commissions — typically 5% of the sale price — that the Hall Corporations expected to derive from future dispositions of real estate owned by the Hall limited partnerships. The Hall Corporations were entitled to receive such commissions with respect to property worth as much as $3 billion, and viewed those fees as a substantial part of the Hall Corporations' value. Bear Stearns refused to give these future commissions any value in the exchange ratio, but instead recommended that May be allocated 65% of this potential income stream. The minutes of the November 24 meeting reflect that Mr. Hall disagreed with Bear Stearns' proposal to give no ($0) value to the future disposition fees. He also disagreed with its recommendation to split those fees 65%/35%, and requested that the subject remain an "open issue" for further discussion with the non-affiliated directors. DX 53 at 3293-94.

After a lengthy discussion, Bear Stearns' representatives left the meeting. The non-affiliated directors then told Mr. Hall that 28.9 million shares was the maximum number of shares that May would issue in connection with any proposed merger with the Hall Corporations. They also told Mr. Hall that if the transaction got any worse on the "Hall side," Mr. Hall would "eat the loss."²²

22 Tr. at 140-41; DX 54 at 2134. It is undisputed that this adversarial exchange took place at the November 24th meeting, but in an apparent effort to blunt its legal significance, the plaintiff emphasizes that Mr. Hall had received copies of Bear Stearns' valuation materials in advance of that meeting, whereas the non-affiliated directors had not. The plaintiff further points out that (i) Mr. Strother, the non-affiliated directors' counsel, never advised the defendants to ask (nor did Mr. Strother ask) Mr. Hall or his advisers to leave during Bear Stearns' presentation, and also that (ii) Mr. Strother briefed his clients on the status of the merger agreement with Mr. Hall and his lawyer in the room. These instances of "process" laxity did occur and should not have. Nonetheless, I am unable to conclude that they compromised the non-affiliated directors' ability to consider and negotiate the merger terms on an arms' length basis, or to represent the interests of the public minority shareholders with appropriate vigor. And, although the plaintiff attempts to portray the non-affiliated directors as never having met with their financial advisor outside the presence of Mr. Hall (thus suggesting that they were Mr. Hall's manipulated puppets), that effort ignores the evidence that throughout the process of considering the merger, Mr. Sebastian was continually in communication with Ms. Youngquist about Bear Stearns' progress (Tr. 1114-15), and that Sebastian, Florence, and Strauss often conferred informally.

After the November 24, 1987 board meeting concluded, Messrs. Sebastian and Strauss met separately with their counsel, Mr. Strother, to discuss further counterproposals they intended to negotiate. As a result of that meeting, Mr. Strother telephoned Mr. Hall and negotiated certain concessions, all favorable to the May minority stockholders.

Specifically, the non-affiliated directors: (1) rejected Mr. Hall's proposal to evenly split future disposition fees and adhered to the 65%/35% split recommended by Bear Stearns; (2) required Mr. Hall to reduce the interest rate on loans payable to him from the Hall Corporations from 14% to 10%; (3) required Mr. Hall immediately to repay a loan he had obtained from May and demanded that he apply certain personal income from exercising syndication puts to the repayment of certain of his outstanding debts to the Hall Corporations; (4) rejected Mr. Hall's proposal that he earn additional May shares on his receipt of payment from prospective property dispositions (a proposal that would have added "back-end" consideration to the exchange ratio); and (5) demanded that Mr. Hall (i) reduce the amount of debt immediately payable to him by the Hall Corporations; and (ii) spread that debt over an extended period, thus ensuring that the combined entity would have sufficient cash balances and reserves to carry out its business strategy. Thereafter, the non-affiliated directors and their counsel negotiated other favorable concessions.²³

23 Specifically, they negotiated a fair proration of merger expenses, rejected Mr. Hall's request for a break-up fee if the merger did not go through, and required Mr. Hall personally to guaranty the representations and warranties to be made by the Hall Corporations. The non-affiliated directors also proposed that the Hall Corporations be valued at less than $65 million, a proposal that Mr. Hall rejected.

After Mses. Youngquist and Silcock recommended valuations of May and the Hall Corporations that would give Mr. Hall 28.9 million May shares in the merger, the Bear Stearns valuation committee met to consider that recommendation. The valuation committee overruled the recommendation, having determined that both the May and Hall valuations were too high. The valuation committee ascribed a $59 million value to the Hall Corporations and a $2.18 per share value to May, leading to a reduction of the purchase price for the Hall Corporations from 28.9 million May shares to 27 million May shares. Based on May's then-market price, 27 million shares represented $28.6 million in market value, as contrasted with the $85 to $105 million in market value Mr. Hall was initially demanding.

The negotiations concluded — and the final transaction terms were struck — at the May board meeting held on November 30, 1987. At that meeting, the non-affiliated directors endorsed the Bear Stearns valuation committee's proposed adjustment, and insisted that Mr. Hall accept the reduction. Mr. Hall agreed, but in exchange negotiated an "out" from the deal if the number of shares to be issued by May was reduced below 27 million.²⁴ Consistent with their previously expressed expectation that Bear Stearns would review the exchange ratio at the time of the May stockholders meeting, Bear Stearns' representatives assured the board that Bear Stearns would review the transaction both at the time a proxy statement was issued and at the time of the shareholder vote.

24 The plaintiff does not dispute these facts, but again strives to blunt their legal significance by pointing out that the non-affiliated directors did not learn of Bear Stearns' downward adjustment in the recommended purchase price until the November 30th directors' meeting, and that those directors learned that information from Mr. Hall, not from their banker, Bear Stearns. The plaintiff adds that those directors did not learn this directly from Bear Stearns until they telephoned that firm at the meeting after Mr. Hall told them of the revised purchase price. The plaintiff criticizes Mr. Strother for failing to address this "failure of process" with Bear Stearns, and also for failing to ask Messrs. Hall and Berlin and Mr. Hall's counsel to leave the November 30th board meeting. If, in fact, those procedural lapses occurred, they should not have. Assuming without deciding that they did occur, the issue is whether the lapses evidence disloyalty or other breach of fiduciary duty owed by the non-affiliated directors to the May public stockholders. As discussed in Part III, infra, of this Opinion, I conclude that they do not.

At the November 30th meeting, the directors further reviewed and discussed the Merger Agreement which reflected the revised purchase price and the other terms previously discussed.²⁵ The directors approved the Merger Agreement which, in its final form, required that the Hall Corporations and Mr. Hall personally reaffirm all representations and warranties at the time of closing. The Merger Agreement also provided that if the merger were not effected before September 30, 1988, either party could terminate the transaction. The merger was also conditioned upon Bear Stearns not withdrawing its fairness opinion.

25 By that point the non-affiliated directors had previously reviewed and discussed drafts of the Merger Agreement with their counsel.

Shortly after the November 30, 1987 board meeting, May issued a press release publicly disclosing the execution of the Merger Agreement.

3. Post-Merger Agreement Events Leading Up To The May Shareholders Meeting

(a) Events Relating To Article Fourteenth

Following the announcement of the proposed merger, Mr. Hall took steps, with the approval of the non-affiliated directors, to avoid the effect of Article Fourteenth of May's Certificate of Incorporation. Article Fourteenth required that for May to be a party to certain business combinations, the proposed combination must be approved by a 66-2/3% supermajority vote at a meeting at which an 80% quorum was present. This supermajority requirement was applicable to any merger between May and an acquiring entity owning over 30% of May stock. Because Mr. Hall owned or controlled approximately 52% of May's stock, the supermajority provisions of Article Fourteenth would apply to the merger.

It is undisputed that Mr. Hall wanted to avoid having Article Fourteenth apply to the merger and that the non-affiliated directors concurred in that desire. The plaintiff argues that the defendants' and Mr. Hall's real motivation was to strip the minority stockholders of their veto power. The defendants dispute that. They argue that the directors' motivation was to prevent Emerald Partners from blocking the transaction to further its objective of "greenmail" by using that "veto" leverage to force May to repurchase Emerald Partners' May stock at an above-market premium. Given the emphasis the parties have devoted to this subject, it is addressed at this point.

From the outset of the negotiations, Mr. Hall and the non-affiliated directors were concerned that a minority stockholder group's ability to veto the merger under Article Fourteenth could pose a serious obstacle. That problem was flagged in Mr. Hall's October 14, 1987 memorandum to the May board, and it was a significant topic of discussion at the November 7 and November 24, 1987 board meetings. At the November 30, 1987 board meeting, the directors (including Messrs. Sebastian and Strauss) adopted a resolution to put the elimination of Article Fourteenth to a vote of the May stockholders. Ultimately that is what occurred.

As earlier noted, Emerald is controlled by Paul Koether and his wife, Natalie Koether, Esquire. After the merger was announced, Mr. Koether increased Emerald's (and his other clients') holdings in May. On December 10, 1987, Mr. Koether met with Mr. Hall in Dallas, at Koether's request. Mr. Koether told Mr. Hall that he represented interests that owned 450,000 shares of May stock. Koether also told Hall that he and his wife made money by selling their stock positions back to the issuing companies at a significant profit, and proposed that he and Hall become partners in these types of "greenmail" ventures. Mr. Hall declined the invitation, and asked Mr. Koether if he would sell Emerald's May stock holdings to May. Koether responded that Emerald would sell back its May stock for $1.80 per share before January 1, 1988, and for $2.24 per share thereafter.²⁶ Mr. Hall rejected that offer, whereupon Mr. Koether told Mr. Hall that if Emerald's May shares were not repurchased, he would purchase additional May stock. Mr. Koether also suggested that the Article Fourteenth supermajority provision would either make it possible for him to block, or make it difficult for Hall to complete, the proposed merger.

26 At that time May had a nominal market value of about $1 per share.

Concerned about what they regarded as a tangible, credible threat by Mr. Koether, the May directors discussed ways to avoid the supermajority requirement. Mr. Hall considered donating a substantial portion of his stock to charity, but he and the other May directors were advised that such a charitable contribution would result in May losing its valuable NOLs. Later, the directors were advised that Mr. Hall could transfer a significant proportion of his May stock to an irrevocable trust for his children, with independent trustees, and a smaller percentage of the stock to charity, without risking the loss of the NOLs. Mr. Hall decided to pursue that latter course of action, and at the January 28, 1988 meeting of the May board, the directors approved Mr. Hall's proposal.

The following day, Mr. Hall transferred shares amounting to 27% of May's outstanding common stock to an independent irrevocable trust for the benefit of his children, vesting the co-trustees with independent power to vote or dispose of the shares owned by the trust (the "Hall Trust"). The net effect of this "drop down" transfer was to reduce Mr. Hall's personal ownership of May stock from 52% to 25% before the record date and before the stockholder vote on the merger. Based upon an opinion of counsel, the May board concluded that as a result of the "drop down" transfer, the Article Fourteenth supermajority provision would not apply at the special meeting of stockholders called to vote on the merger proposal. The February 16, 1988 Proxy Statement disseminated to May's stockholders disclosed the "drop down" transfer, the resulting reduction in Mr. Hall's percentage stockholdings in May, and that as a consequence, only a simple majority shareholder vote would be needed to approve the merger.

At the March 11, 1988 May stockholders meeting, the shareholders voted to approve both the Merger Agreement and a proposed amendment to the Certificate of Incorporation eliminating Article Fourteenth. Of the 14,655,660 shares entitled to vote as of the record date, 11,834,661 shares (or 80.7%) were represented at the meeting. of the total shares entitled to vote, 9,934,172 shares (or 67.8%) were cast in favor of the merger agreement, and 11,151,902 (or 76%) were voted to eliminate Article Fourteenth.

Shortly thereafter, Emerald Partners filed this action to enjoin the merger. On March 18, 1988, this Court preliminarily enjoined the consummation of the merger, on the grounds that (1) despite the "drop down" transfer of shares to the Hall Trust, the Article Fourteenth supermajority requirements were applicable; and (2) at the May stockholders meeting those requirements were not satisfied, because an 80% quorum was not present nor did the measure receive the requisite supermajority vote.

Six months later, the Delaware Supreme Court reversed the preliminary injunction by an oral ruling announced on August 15, 1988, and by a written Opinion issued on January 12, 1989. The Supreme Court ruled, inter alia, that as a matter of law the Article Fourteenth supermajority requirements did not apply to the merger, and that in any event the Article Fourteenth quorum and supermajority vote requirements had been satisfied. The Court also rejected the argument (which plaintiff again advances here) that the transfer of stock to the Hall Trust was an improper effort by corporate fiduciaries to deny the minority stockholders' rights, and constituted a "wrongful subversion of corporate democracy."²⁷

27 Berlin v. Emerald Partners, Del. Supr., 552 A.2d 482, 490, 495 (1989). The Supreme Court ruled that there was ". . . no evidence in the record to suggest any agreement, or arrangement or understanding, between the co-trustees and Hall or the Hall corporations with respect to voting on the proposed merger, and there is no legal basis to assume that the co-trustees would act contrary to their fiduciary duties." 552 A.2d at 490 (emphasis in original, citation omitted). Presumably that is why, despite its emphasis on this subject in the factual portion of its brief, the plaintiff advances no contention that the directors' approval of the Hall "drop down" transfer, and their recommendation that Article Fourteenth be eliminated, were independent acts of fiduciary wrongdoing. Instead, these facts are cited as evidence that the non-affiliated directors were not independent of Hall and became deliberately indifferent to the interests of the May minority stockholders. See Pl. Posttrial Ans. Br. at 13-16, 37-38, 39 ("Hall obsessed about the Koethers and what he perceived as hubris on their part. . . . He infected the directors with that obsession. . . . Together they steadfastly determined to beat the Koethers by forcing the merger through at any cost"), and
This technique of pejoratively emphasizing "facts" that are either not tied, or are tied only by innuendo, to a claim of wrongdoing, is repeated various times in the plaintiffs brief. For example, the plaintiff criticizes the defendant-directors for "rubber stamping" the decision to disseminate the Proxy Statement on the last day that the September 30, 1987 May financial statements could be used, rather than insist upon more current financial information. Id. at 16. Yet, although the plaintiff advances Proxy disclosure violation claims, it does not contend that the use of the September 30, 1987 financials violated any disclosure duty. Similarly, the plaintiff emphasizes the fact that the non-affiliated directors agreed to allow May to loan the Hall Corporations $5 million during the period that the merger was enjoined, even though the financial condition of the Hall Corporations was "rapidly deteriorating." Id. at 16-17. In fact, as the record shows, the loan was made because the injunction-created six month delay in consummating the merger had caused an unanticipated cash flow problem for the Hall Corporations, for which the loan was a short term solution. Again, no claim is made that the loan itself constituted a breach of fiduciary duty. If the import of the loan is to suggest that the non-affiliated directors preferred Mr. Hall's interests over those of the minority stockholders, that suggested linkage nowhere appears as an explicit argument in the plaintiffs brief.

(b) The Proxy Statement and The Merger Vote

Between the execution of the Merger Agreement and the stockholder vote on March 11, 1987, the non-affiliated directors remained actively involved in the merger process, including taking steps in preparation to approve the Proxy Statement to be sent to May shareholders. At May's board meetings, the non-affiliated directors, performing due diligence, obtained updates on the status of the Hall Corporations. On February 13, 1988, the May board met and approved the Proxy Statement, drafts of which had been reviewed by counsel for the non-affiliated directors, by Bear Stearns and its counsel, and by Arthur Andersen Co. ("Arthur Andersen"), the long-time auditor for both May and the Hall Corporations.²⁸ Before voting, the board again reviewed the advisability of the merger, and rejected the option of liquidating May's assets because (among other things) a liquidation would have wasted May's loss carry-forwards. The board also reaffirmed that the real estate market was in a downturn that offered substantial opportunities to the merged company, and assured itself that the Hall Corporations had dealt competently with the problems created by that difficult market.

28 The final Proxy Statement, which as issued contained sixty-eight pages of text and forty pages of financial disclosures, had been revised several times in response to comments by the United States Securities and Exchange Commission ("SEC") on earlier drafts. The Proxy Statement disclosed in detail the potential risks of the merger, the financial situation of the Hall Corporations, and May's investment in HSSM #7. Further facts relating to these disclosures are discussed in Part III of this Opinion.

As earlier noted, the Proxy Statement recommending that May shareholders approve the merger was issued on February 16, 1988, and the shareholders meeting was held on March 11, 1998. Of the 10.5 million shares that were voted, 94.5% supported the merger. If the shares controlled by Mr. Hall and the Hall Trusts are not considered, the merger would have been approved by nearly 80% of the voted shares.

(c) Events After The Merger Vote

(1) The May Directors' Post-Injunction Monitoring of The Hall Corporations

As earlier noted, after the shareholders approved the merger this Court preliminarily enjoined its consummation. That injunction remained in effect until it was reversed on appeal on August 15, 1988. During that interval, the business of both May and the Hall Corporations was in limbo. The non-affiliated directors continued, nonetheless, to monitor the operations and financial condition of the Hall Corporations as part of their ongoing assessment of the desirability of proceeding with the merger if the injunction were vacated.

On March 26, 1988, the May board of directors met to consider the company's options in light of the injunction. Mr. Hall proposed that May hire Hall Corporations' personnel to integrate May into the real estate business. He also sought assurances that May would reimburse Hall Corporations for expenses and lost opportunities if the merger were abandoned by May. Thereafter, Messrs. Hall and Berlin excused themselves, and the non-affiliated directors met separately to consider these matters. After deliberating for approximately four hours, those directors decided to authorize an appeal from the preliminary injunction, to defer any decision regarding hiring the Hall Corporations' personnel, and to reject Mr. Hall's proposal that May pay the Hall Corporations' costs if the merger were abandoned.

From the Hall Corporations' perspective, the injunction against the merger blocked a source of needed liquidity that would have enabled the Hall Corporations to take advantage of growth opportunities that had become available as a result of the depressed real estate market.²⁹ Several times during the summer of 1988, Mr. Hall inquired of May's directors about the possibility of May loaning the Hall Corporations money to alleviate those ongoing liquidity problems. Finally, in June, 1988 Mr. Hall made a formal loan request to the non-affiliated directors.

29 One such opportunity was to acquire a real estate firm known as the Freeman Companies during the spring of 1988. Although Mr. Hall offered the opportunity to May, May's board required more time and information to consider this significant potential acquisition, and as a result the deal was lost. Mr. Hall also presented to the board an opportunity to invest in a hotel property, but the board declined to involve May in financing this project.

After extensive separate discussions about the business merits of the loan and after receiving the advice of counsel, those directors determined that the merger remained in the best interests of May and its public stockholders. They therefore agreed to make available to the Hall Corporations a $5 million line of credit, one portion of which would fund working capital and another portion would fund acquisitions. Because of the risks involved, particularly the risk that the merger might not occur, the loan terms were highly protective of May and more stringent than the terms which Mr. Hall had proposed. Thus, the directors required that Mr. Hall personally guarantee the loan and that it be subject to repayment on demand. Any advances on the extension of credit would be subject to separate approval by the non-affiliated directors and would bear interest at 2% above prime, with interest increasing at 1% per quarter thereafter. The loan would be fully collateralized and payable within two years. The non-affiliated directors also satisfied themselves that Mr. Hall had sufficient assets to fund his guaranty should that become necessary.³⁰

(2) Events Relating To May's Investment In HSSM#7

30 DX 159; Tr. at 244-52.

As earlier noted, Bear Stearns valued May's investment in HSSM#7 at cost. That valuation was disclosed to May shareholders in the February 16, 1988 Proxy Statement. The plaintiff claims that investment was undervalued and that its value had increased significantly between March and July 1988. For this reason, among others, the plaintiff contends that the Proxy Statement was misleading and that the merger exchange ratio was unfair to May, because by the time the merger was consummated in August 1988, May's value was increasing and the Hall Corporations' value was decreasing. Because HSSM#7's value is controverted and the basis for one of plaintiff's claims, and because certain post-injunction events are said to have impacted that value, those events are discussed at this point.

As earlier noted, May was a limited partner in HSSM#7, which in turn was a limited partner in Suncoast. May's investment in HSSM#7 was illiquid, and its right to exit that investment consisted essentially of HSSM#7's annual March contract right to "put" its investment in Suncoast to Mr. Bilzerian personally, for the market value of HSSM#7's capital account as of December, 31 of the previous year. In arriving at the merger exchange ratio, Bear Stearns had no basis to value May's investment in HSSM#7 other than at May's $8 million cost. The plaintiff contends that this valuation was improperly low, because the entire investment had increased in value as a result of Bilzerian's attempted takeover of Singer Company using Suncoast and other affiliated Bilzerian partnerships as the takeover vehicle. Moreover, plaintiff claims, an agreement had been reached for Bilzerian to buy out HSSM#7's interest for $60 to $80 million.

The evidence persuades me, and I find, that no facts existing at the time of Bear Stearns' valuation of May's HSSM#7 investment, or at the time the merger was consummated, would have compelled a higher-than-cost valuation of the HSSM#7 investment. In January, 1988, Mr. Hall had shown to May's board a statement by Mr. Bilzerian that an investment banker had claimed HSSM#7 might reach a value as high as $110 million. Bear Stearns and the May board regarded these claims as sheer speculation. No evidence of record shows otherwise, or that Bear Stearns erred in selecting May's $8 million investment cost as the only reliable value at the time.

Moreover, contrary to the plaintiff's claim, no agreement had been reached as of August 15, 1988 for Bilzerian to buy out HSSM#7's interest in Suncoast under the "put" right. Indeed, on August 12, 1988, only three days before the merger closed, Mr. Hall wrote Mr. Bilzerian a letter stating that Hall "need[ed] to get into a negotiation" for the repurchase of HSSM#7.³¹ Mr. Hall made efforts to negotiate an agreement with Mr. Bilzerian during the summer of 1988, but they were unsuccessful. Although Mr. Hall pressed for, and later received, assurances from Bilzerian that HSSM#7 would be bought out, those assurances were never reduced to writing. Moreover, by that point Bilzerian was plagued by far-reaching SEC and grand jury investigations, which gave the May board ample basis to conclude that those assurances were worthless — a conclusion validated by later events.³²

(3) The Directors' Decision Not To Obtain A New Fairness Opinion

31 Tr. 918-19; DX 186.

32 Bilzerian failed to honor his "assurances" (PX 141 at 9-10), and ultimately HSSM#7 was forced to exercise his contractual "put" option in March 1989, which Bilzerian also failed to honor. HSSM#7 then sued Bilzerian in federal court in Texas, where a jury found, on July 31, 1990, that Bilzerian had fraudulently induced HSSM#7 to make the Suncoast investment. DX 207 at 1-2. The Court found HSSM#7's interest in Suncoast had no ascertainable market value and granted rescission to HSSM#7, awarding the return of its $20,400,000 investment, plus interest. DX 209 at 2-3. May's share of that judgment for rescission (which it has been unable to collect) would have been $8.16 million — the amount of May's investment in HSSM#7.

On February 16, 1988, Bear Stearns issued its opinion that the terms of the merger were fair from a financial point of view to May's stockholders other than Mr. Hall, his family, and the Hall Trusts. Bear Stearns updated its opinion through March 11, 1988, the date of the shareholder vote. Bear Stearns did not, however, nor did the May board of directors require it to, further update its fairness opinion through the closing date of August 15, 1988. After discussing with their counsel whether a new fairness opinion was required or warranted, the non-affiliated directors concluded that it was not, based upon their assessment of the relative financial condition of the two companies at the time and upon their judgment that the merger remained in the best interests of May and its public stockholders.

The plaintiff does not challenge Bear Stearns' conclusion that the merger was financially fair to May's public stockholders on the date it was approved by the stockholders. It faults the non-affiliated directors for not requiring and obtaining a new fairness opinion as of the August 15, 1988 consummation date, arguing that the opinion was required both contractually and as a matter of fiduciary duty. Because this issue is heavily controverted, the facts relating to it are next discussed.

The plaintiff claims that a critical term of the contractual agreement under which Bear Stearns was retained, was that Bear Stearns' fairness opinion would be updated "at closing." While certain documents do indicate that, the evidence shows that everyone involved assumed that the "closing" would occur on the same day as the shareholder vote.³³ No one had in mind the scenario that actually occurred — a post-shareholder vote injunction that delayed the merger for six months. Commenting on the November 30, 1987 minutes which suggest that Bear Stearns would update its fairness opinion at the time of the merger's "consummation," Gilbert Matthews (the Bear Stearns lead partner on the transaction) explained:

33 Tr. at 718, see also Tr. at 134-35 and DX 50 at § VII (Bear Stearns notes stating that updates would be performed in March).

I believe that is an inaccurate quotation of what we told them. As our practice is, we review it up to the time of the shareholder vote.

There clearly may have been an assumption at that time that the consummation of the merger would be contemporaneous with the shareholder vote immediately following it, but that is not what we would have told them because that is not our practice, and that reflects an error on [the part of] whoever recorded the minutes.

* * *

Our engagement does not call for us to reaffirm this at a later date. The merger agreement didn't call for a subsequent affirmation, to my knowledge, and we were not engaged to do so.³⁴

34 Matthews Dep., Vol. II at 178-79. Ms. Youngquist similarly testified that Bear Stearns' practice was to update to the time of the vote, and that is what Bear Stearns would have communicated to the Board. Tr. at 1132.

Alternatively, plaintiff argues, the record shows that in July 1988, Bear Stearns contacted May and insisted that May was required to have Bear Stearns give a new fairness opinion. The principal evidentiary support upon which plaintiff relies for this assertion is PX 123, the handwritten notes of Jean S. Baggett, who was May's Executive Vice President, Chief Operating and Financial Officer, and Secretary. Those notes, however, were not admitted for the purpose of showing substantively that Bear Stearns took the position that an updated fairness opinion would be required.³⁵ Even had the notes been admitted for that purpose, I find the contrary testimony of Mr. Matthews and Ms. Youngquist — that Bear Stearns would not have given such advice — to be more persuasive.³⁶

35 Tr. at 2322.

36 When shown Ms. Baggett's notes, Mr. Matthews testified:

. . . This doesn't sound right because it is not for us to say whether or not an opinion is required. . . . That is a legal issue. We are not lawyers. We are not going to advise the company as to what they need or do not need. . . . If they want it, we would tell them what we would charge them for it. We are not going to tell them whether they need it or not. So again that doesn't make a lot of sense. . . .

Matthews Dep., Vol II at 191-92. Ms. Youngquist, whose testimony is in accord with that of Mr. Matthews, had no recollection of the alleged conversation in which she supposedly told Ms. Baggett that a new opinion was required. She also made it clear that Bear Stearns would not have advised May that a new opinion was required:

A. . . . I don't advise clients as to whether or not they should get a fairness opinion.

Q. Why don't you?

A. I think, for one thing, there is a perceived conflict of interest when you say on the one hand you need an opinion and on the other hand it is going to cost you something.

* * *

Q. Did Bear Stearns ever request that it be permitted to update its work in connection with this merger?

A. No.
Tr. at 1138-39.

Although no updated fairness opinion was required as a contractual matter, the May directors did, in fact, consider whether they should obtain a new fairness opinion from Bear Stearns since four months had elapsed from the time of the stockholder vote. At the July 23, 1988 board meeting, counsel for the non-affiliated directors advised them that if the board concluded that there had been no material adverse change in the transaction, they were not required to obtain a new fairness opinion.³⁷ Those directors next determined that no material adverse change had occurred and that the merger remained in the best interests of May's public stockholders.

37 That advice was supported by the trial testimony of John H. Small, Esquire, who had acted as Delaware counsel for the non-affiliated directors, and who had conferred with the Shank Irwin attorneys for several months. Tr. at 1490-91 ("It was my view that they did not have to [obtain an updated fairness opinion] if they did not feel in their business judgment [that] it was necessary to do so. If they felt [that] they had enough current information for them to make the business decision, it was not necessary as a matter of Delaware law. . . .").

The plaintiff argues that the defendant directors had no factual basis to reach that conclusion, because the evidence plainly shows that the directors knew at that time that the Hall Corporations were failing and that May's financial position was improving. The basis for plaintiffs argument that May's financial position was improving rests entirely upon its contention that the value of May's investment in HSSM#7 had vastly increased — a contention I have rejected. Accordingly, the remaining fact issue is whether, as of August 15, 1988, the directors knew that the Hall Corporations were failing. I conclude that the record does not support that contention either.

(4) The Directors' Judgment That The Hall Corporations Had Not Experienced A Material Adverse Financial Change

To assess the May directors' judgment that the Hall Corporations had not experienced a material adverse financial change between the date of Bear Stearns' fairness opinion and the August 15, 1988 merger date, it became necessary to describe the changes that occurred during that period.³⁸ Viewed in the aggregate, those changes were a "mixed bag": some were adverse and some were favorable. The question is whether the adverse changes outweighed the favorable changes, such that the only reasonable conclusion the May board could have drawn was that the net changes in the Hall Corporations' financial condition and business were material and adverse. I am unable to conclude from the evidence of record that that was the case.

38 The circumstances that plaintiff claims represented material adverse changes are detailed on pages 23-25 of the Plaintiffs Posttrial Answering Brief. Some of these circumstances, however, were not "changes." Rather, they were facts known by the May board and Bear Stearns at the time of the shareholder vote, e.g., the fact that substantially all of the Hall Corporations' operating revenue were derived from affiliated real estate limited partnerships; the fact that the Hall Corporations needed and intended to expand their base of business; and the fact that a substantial portion of the Hall Corporations' net receivables were owed by corporations experiencing working capital deficits.

Unquestionably, there were some adverse changes. According to the Hall Corporations' Form 8K dated October 18, 1988: (a) during the December 31, 1987-June 30, 1988 period, the Hall Corporations' current liabilities increased by $5 million, and total liabilities also increased by $1.8 million; (b) total revenues for the first six months of 1988 were $16.124 million, as contrasted with $19.397 million for the first six months of 1987; (c) total operating expenses had increased from $6.47 million for the first six months of 1987 to $15.2 million for the first six months of 1988; (d) net income for the first six months of 1988 had declined to $912,000, compared to $12.97 million for the first six months of 1987; and (e) the number of limited partnerships in insolvency or bankruptcy had increased from 13 as of December 31, 1987 to 25 as of June 30, 1988.³⁹

39 DX 201 at 5, 6, 15. The plaintiff underscores, as another adverse development, the fact that the Hall Corporations were substantially behind their 1988 acquisition goals. Although that was the fact, the 1988 acquisition goals were made on the assumption that May and the Hall Corporations would already have merged, thereby affording the Hall Corporations the liquidity they needed to make those acquisitions. That assumption was negated by the preliminary injunction of six months' duration until its reversal on August 15, 1988.
Another adverse development underscored by the plaintiff is that by July 23, 1988, approximately $24 million of loans guaranteed by the Hall Corporations were in default. That ignores the fact that the Hall Corporations were only contingently liable, and that the loans in question were investor note loans that were highly collectible even if they fell into default. The experience rate in collecting investor note receivables was over 90 percent. Tr. at 1567-68.

These developments, while adverse, were tempered by other considerations known to the May directors. First, bankruptcy and insolvency were commonplace tools in real estate workouts that the Hall Corporations had historically used to their advantage. Second, the current status of loan workouts led the Hall Corporations' management to report to May in July 1988, that the number of foreclosures during the second half of 1988 would be substantially less than during the first half. Lastly, the decline in revenue would be offset somewhat by a $2 million projected reduction in overhead expense for 1988.⁴⁰

40 DX 180 at 4887-88; DX 201 at 6.

Moreover, and importantly, during this same period, several favorable developments had occurred. For the first six months of 1988, management fees had increased to $8.51 million, up from approximately $7.9 million for the first six months of 1987. During that same period, stockholders' equity (book value) had increased from $108.3 million to $111.1 million. Moreover, the quality of income-producing assets had improved. Specifically, the number of limited partnerships that were not experiencing working capital deficits had increased from 146 to 164, whereas the number of limited partnerships that were experiencing working capital deficits had declined from 68 to 55.⁴¹ In addition, despite the aforementioned adverse changes, as of June 25, 1988, year-to-date property management revenue at the partnership level was only marginally below the budgeted projection.⁴²

41 DX 201 at 15.

42 DX 180 at 4915.

Thus, while some post-stockholder meeting developments were adverse to the Hall Corporations from a financial standpoint, other developments were favorable and the developments, taken as a whole, do not compel the plaintiffs stridently-argued conclusion that the Hall Corporations were "failing." Nor, when viewed as a whole, did those developments inexorably require the conclusion that the Hall Corporations had experienced material adverse developments such that an updated fairness opinion was required. The situation was not black and white so much as gray and murky. For that reason, the May board could have decided the updated-fairness opinion issue either way. In these circumstances, the May board decided not to obtain an updated fairness opinion.

(d) Reversal of The Injunction And Consummation of The Merger

As earlier noted, on August 15, 1988, the Supreme Court, by oral ruling, vacated the preliminary injunction. Later that same day, the May directors held a meeting at the Wilmington offices of Prickett Jones, and after deliberation and consultation with counsel, they determined to close the merger that day.

At that meeting the board specifically discussed the issue of whether a new fairness opinion was needed. John H. Small, Esquire, the board's lead Delaware counsel, advised the directors present⁴³ that the decision was for the board to make in the exercise of its business judgment. Mr. Small also advised the board that if a court later determined that the transaction unfairly resulted in May issuing an excessive number of shares to Mr. Hall, the remedy would be to cancel a portion of the shares or for Mr. Hall to disgorge the excess portion of his May stock. Before giving this advice, Mr. Small had reviewed the minutes of the November 24 and November 30, 1987 meetings, and consulted with Shank Irwin, his co-counsel throughout the summer of 1988. As a result, by the August 15, 1988 board meeting, Mr. Small was satisfied that he had been informed of all relevant developments.

43 Mr. Strauss was not present at the August 15 meeting, but supported the decision to go forward with the merger.

Based on that advice and upon their judgment that no material adverse developments had occurred, the non-affiliated directors concluded that the merger remained in the best interests of May and its public stockholders, and voted to proceed with the merger, which was consummated that same day.⁴⁴

44 DX 188.

III. THE PARTIES' CONTENTIONS AND THE ISSUES PRESENTED

As earlier noted, Mr. Small advised the non-affiliated directors that if the merger were later found invalid, the fair remedy would be either to cancel the excess shares, or to require disgorgement of a portion of the May shares Mr. Hall had received. As matters turned out, the accomplishment of that remedy (assuming that plaintiff was found entitled to one) became impossible, because in Mr. Hall's personal bankruptcy proceeding, Emerald Partners stipulated to a permanent injunction barring assertion of the class claims against Mr. Hall.⁴⁵ The result was the dismissal from this action of Mr. Hall — the only defendant who personally benefited in the merger — and the continued prosecution of this lawsuit as an action for damages against the remaining May directors — who received no special benefit.

The plaintiff contends that this result is legally justified because by approving the merger, the defendant-directors breached their statutory and fiduciary duties in several respects.

First, the plaintiff claims that the defendant-directors breached their statutory duty to set the merger exchange ratio by impermissibly delegating their duty to set that ratio to Bear Stearns. As a consequence, they argue, the merger was rendered invalid.

Second, the plaintiff contends that because the merger was an interested transaction between May and its majority stockholder in which no directors adequately represented the interests of May's public (minority) shareholders, the defendants have the burden to demonstrate that the merger was entirely fair to May's public stockholders. The defendants have not carried that burden, plaintiff argues, because they have failed to establish that the merger was fair in terms of either the process or the price.

Third, the plaintiff contends that the merger was the product of unfair dealing because the defendants did not replicate a vigorous, arm's length bargaining process. Specifically, plaintiff argues that: (1) the May board failed to appoint a special committee of independent directors to negotiate the merger; (2) the non-affiliated directors were not independent of Mr. Hall and failed to act in the interest of the minority stockholders; (3) the merger was initiated, structured, and timed by Mr. Hall to benefit himself; (4) there were no meaningful negotiations; (5) the merger was not approved by a fully-informed independent director vote; and (6) the Proxy Statement was materially false and misleading, which precluded the merger being approved by a fully-informed shareholder vote.

Fourth, the plaintiff claims that the merger price was unfair. Based upon the valuation and testimony of the plaintiff's trial expert, it argues that the Hall Corporations had been grossly overvalued in the merger by $17 million, accounting for roughly 29% of Bear Stearns' $59 million valuation of those companies.⁴⁶ According to plaintiff, that overvaluation represented an overpayment to Mr. Hall of between 10 and 11 million shares, which represented a $4,116,362 to $4,674,512 dilution of the value of the stock owned by the shareholder class.

46 $59 million less $42 million = $17 million, which represents approximately 29% of $59 million ($17MM ÷ $59MM = 28.8%).

The remedy to which the plaintiff claims entitlement, as a consequence of the above claimed wrongdoing, is an award of damages against the director-defendants of not less than $4,674,512, plus pre-judgment and post-judgment interest calculated from August 15, 1988, until the date of judgment.

The defendants vigorously resist these claims. They contend that the May directors did not delegate their duty to formulate the terms of the merger, and that although the appropriate standard of review is entire fairness, the evidence presented at trial shifts to the plaintiff the burden of establishing that the merger was unfair. The burden shifts, defendants argue, because (1) May's non-affiliated directors separately negotiated and approved the merger; (2) the Proxy Statement fully and adequately disclosed the process by which the merger was negotiated and approved by a disinterested and independent board and approved by a fully informed stockholder vote; and (3) the merger's substantive terms were fair. The defendants argue that the plaintiff failed to carry its burden of showing that the merger was unfair, but even if that burden shifts to the defendants it has been discharged because (1) the evidence establishes that the merger was entirely fair to May and its stockholders; and (2) in all events the plaintiff has failed to establish any proper measure of damages.

In addition to the foregoing arguments, the defendants advance several affirmative defenses. The primary defense is that the defendants have established their entitlement to the protection of the exculpation provision found in May's Certificate of Incorporation that tracks 8 Del.C. § 102(b)(7) of the Delaware General Corporation Law. In addition, the defendants urge that (1) defendant Berlin is entitled to dismissal because he abstained from the May board's deliberations and approval of the merger; and (2) that the plaintiff's claims are barred by laches and unclean hands.

In the analysis that next follows, I address some of these contentions, but not all, because it is unnecessary to do so. In Section III.A, infra, of this Opinion, I consider the affirmative defenses and conclude that (1) defendant Berlin is entitled to judgment because he played no legally significant role in negotiating or approving the merger's terms; and (2) the remaining director defendants are entitled to judgment on the basis that they are exculpated from liability by virtue of the exculpatory provision contained in May's Certificate of Incorporation. I specifically conclude that none of the exceptions to that exculpation provision apply, because (a) the non-affiliated directors violated no duty imposed by statute; (b) those directors did not violate any duty of loyalty; and (c) their decisions were made in good faith. Because these conclusions require the dismissal of all money damages claims against the defendants, it is unnecessary to address the plaintiff's claim that the merger fails the test of entire fairness.

III. ANALYSIS

As discussed below, the Court finds that the plaintiff's money damages claims cannot succeed because the defendants have carried their burden of showing that their affirmative defenses bar those claims. For that reason, the plaintiff's claims are evaluated within the analytical framework of those affirmative defenses, rather than independently as standalone claims. Accordingly, Section III. A of this Opinion addresses the affirmative defense raised by defendant Berlin; and Sections III. B (1), (2), and (3) address the affirmative defenses applicable to the non-affiliated director-defendants Sebastian, Florence, and Strauss. Those latter Sections also discuss why the various exceptions to May's exculpatory Certificate provision do not apply.

A. Mr. Berlin's Affirmative Defense Based On His Nonparticipation In The May Board's Decision-Making Process

The defendants' first affirmative defense is that whatever the merger's substantive merits or demerits may be, Mr. Berlin cannot be held liable because he did not participate in any significant way in the Board's decision making process. In support of that defense, defendants rely upon Citron v. E.I. duPont de Nemours Co.⁴⁷ where this Court held, in the context of a parent-subsidiary merger, that where the directors of the subsidiary who were affiliated with the parent company absented themselves from the decision-making process, and played no role in or influenced the deliberations and decisions of the subsidiary's non-affiliated directors, there was no basis to impose liability upon those directors.

47 Del. Ch., 584 A.2d 490, 494, 499 (1990).

The plaintiff does not dispute that principle or the pertinent facts upon which the defendants rely. Those facts show that Mr. Berlin was absent from the key November 24, 1987 meeting when Bear Stearns' representatives presented their initial valuation and exchange ratio recommendation. He also was not present when the non-affiliated directors and their counsel negotiated separately with Mr. Hall. And, Mr. Berlin abstained from participating in (i) the discussion and vote concerning the approval of the merger on November 30, 1987; (ii) the drop-down in Mr. Hall's share ownership percentage; (iii) the filing of the preliminary Proxy Statement with the SEC; (iv) the board's deliberations concerning a credit facility for the Hall Corporations; (v) the board's discussion of the company's options after the issuance of the preliminary injunction; and (vi) the board's reaffirmance of the merger on August 15, 1988.

The plaintiff's sole response is that Mr. Berlin was promoted to President and CEO of the post-merger combined entity, and therefore received a personal benefit from the merger which precludes him from claiming the protections of May's exculpatory charter provision. Even if that argument had merit,⁴⁸ it is irrelevant and nonresponsive to Mr. Berlin's affirmative defense, which is independent of and unrelated to that Certificate provision. In short, the plaintiff, by not responding to the affirmative defense, effectively has conceded Mr. Berlin's position.

48 Even if Mr. Berlin's continued employment after the merger is viewed as a benefit, there is no persuasive evidence that the benefit was "improper." As President of the merged entity, Mr. Berlin kept the job, at essentially the same salary and responsibilities, that he had as President of the Hall Corporations. There is no evidence that Mr. Berlin received any increased compensation attributable to the merger, or any stock interest in the combined company separate and apart from that received by May's other stockholders. Finally, the terms of the merger were approved by a majority of disinterested directors, without Mr. Berlin's participation.

Because I find Mr. Berlin's affirmative defense to be meritorious, judgment will be entered dismissing the claims against him.

B. The Non-Affiliated Directors' Affirmative Defense Based On Article Fifteenth of May's Certificate of Incorporation

The affirmative defense relied upon by the defendants other than Mr. Berlin ( i.e., the non-affiliated directors) rests upon the exculpatory provision of Article Fifteenth of May's Certificate of Incorporation which was adopted on November 26, 1986. Article Fifteenth pertinently provided:

A director (or an advisory director) of this Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. . . .

In its Opinion reversing this Court's earlier grant of summary judgment, the Supreme Court set forth, for this Court's guidance on remand, the following principles governing the application of this affirmative defense:

Defendants seeking exculpation under such a provision will normally bear the burden of establishing each of its elements. Here, the Court of Chancery incorrectly ruled that Emerald Partners was required to establish at trial that the individual defendants acted in bad faith or in breach of their duty of loyalty. To the contrary, the burden of demonstrating good faith, however slight it may be in given circumstances, is upon the party seeking the protection of the statute. Nonetheless, where the factual basis for a claim solely implicates a violation of the duty of care, . . . the protections of such a charter provision may properly be invoked and applied.⁴⁹

49 Emerald Partners v. Berlin, Del. Supr., 726 A.2d 1215, 1223-24 (1999) (italics in original, citations omitted).

The defendants contend that the trial record establishes that they have met that burden of proof. Specifically, the defendants contend they have shown that there is no legal or factual basis for plaintiff's claim that the non-affiliated directors acted in knowing violation of law, disloyally, or in bad faith. Moreover, the non-affiliated director defendants contend that if any violation is established by the record facts, it was at most a violation of the duty of care which, under Article Fifteenth, is exculpated. The plaintiff hotly disputes these contentions.

To adjudicate this affirmative defense, it is essential to identify precisely what issues must be decided. It is undisputed, and the plaintiff concedes, that the non-affiliated directors had no adverse personal interest in the merger, and that they received no benefit from that transaction other than as shareholders of May. Nor does the plaintiff claim that the non-affiliated directors, because of material financial or personal relationships, were disabled from acting independently of Mr. Hall or in May's and its public stockholders' best interests. Equally, there is no basis to assert that Messrs. Florence, Sebastian and Strauss were under Mr. Hall's control, as all three were independent, successful businessmen long before they met Mr. Hall, and none were in any way beholden to him.⁵⁰ Rather, the plaintiff's anti-exculpation position rests on three arguments. The first is that by delegating to Bear Stearns their duty to set the merger exchange ratio, the defendants acted in "knowing violation of law." The second is that the non-affiliated directors breached their duty of loyalty to May's minority stockholders. The third is that those defendants did not satisfy their burden of proving that they acted in good faith. These arguments frame the Article Fifteenth-related issues to be decided.

50 Control over individual directors is established by facts demonstrating that 'through personal or other relationships the directors are beholden to the controlling person."' Odyssey Partners, L.P. v. Fleming Companies, Inc., Del. Ch., 735 A.2d 386, 407 (1999), quoting Aronson v. Lewis, Del. Supr., 473 A.2d 805, 815 (1984).

1. The "Improper Delegation" Argument

The plaintiff's "lead" claim is that the non-affiliated directors abdicated to Bear Stearns their statutory duty to fix the merger exchange ratio. If that claim is valid, it would constitute a violation of law, and if the violation were "knowing," then the defendants would not be exculpated from money damages liability.

The short answer is that the claim that the non-affiliated directors improperly delegated their duties amounts to an assertion without supporting evidence. The record establishes that the board delegated to Bear Stearns the task of recommending — not deciding — an exchange ratio, which is what Bear Stearns did. Its first recommendation was for Mr. Hall to receive 28.9 million May shares, an amount later reduced to 27 million shares. Bear Stearns did not "set" the exchange ratio, nor did the board delegate to Bear Stearns its power to decide whether or not to accept the ratio Bear Stearns had recommended. The evidence simply shows that the board hired Bear Stearns to perform this expert task, and that the board relied upon the firm to perform it, reserving to itself the ultimate decision whether or not to accept Bear Stearns' recommendation. In this respect, the non-affiliated directors' conduct and their relationship with Bear Stearns was commonplace and unremarkable for a transaction of this kind.

Even with the burden of proof resting on the defendants, the plaintiff has failed to adduce any evidence of any "delegation," let alone "improper" delegation, of the board's decision making authority. Accordingly, the plaintiff has failed to prove its claim, and the "knowing violation of law" exception to Article Fifteenth is inapplicable.

2. The "Duty of Loyalty" Argument

The plaintiff's next claim is that the non-affiliated directors breached their duty of loyalty. If that claim is valid, it also would except those directors from the exculpatory coverage of Article Fifteenth. I conclude, for the reasons next discussed, that the defendants have carried their burden of proving that their conduct did not violate any duty of loyalty owed to May and its minority stockholders.

The plaintiff's duty of loyalty argument rests upon Strassburger v. Earley.⁵¹ There, corporate directors were found to have breached their fiduciary duty to the corporation's minority stockholders by causing the corporation to repurchase 83% of its outstanding shares from its two largest shareholders, under circumstances that benefited no one except the selling stockholders and the corporation's president. In Strassburger, two of the four directors who approved the repurchases were held liable for rescissory damages. Even though the two directors were not unjustly enriched, had not obtained a special benefit, and had not acted in bad faith or with intent to harm the minority shareholders, the Court held that they had violated their duty of loyalty because, as senior officers of the 74.4% selling stockholder, they had "subordinate[d] the minority's interests to the conflicting interest of their employer" (the selling stockholder) in exiting its investment.⁵² They did that not out of any specific intent to cause harm, but because of "indifference to their duty to protect the interests of the corporation and its minority shareholders."⁵³

51 Del. Ch., 752 A.2d 557 (2000).

52 Id. at 581.

53 Id.

The plaintiff contends that the three non-affiliated directors were similarly "indifferent" to the interests of May's minority stockholders when they approved the merger.⁵⁴ The plaintiff's duty of loyalty argument, which embraces one short paragraph of its 75-page posttrial brief, proceeds as follows:

54 The plaintiff also argues, inconsistently, that the non-affiliated directors' conduct was "intentional." Pl. Posttrial Ans. Br. at 54. Conduct claimed to amount to "indifference" to duty cannot at the same time involve an "intentional" disregard of that duty. The fact that plaintiffs "intentional violation" argument consists of a six sentence conclusory paragraph, indicates that it is a "throwaway," and that the plaintiffs true position rests on its "indifference-to-duty" contention. For that reason, the "intentional misconduct" argument is not further discussed.

Although only Berlin and Hall received a personal benefit from the merger, all of the defendants preferred Hall's interests over those of the May minority stockholders. There simply is no other explanation for why these directors would allow Hall to force this merger through without complying with the protective provisions of Article 14th; why they would turn their backs on Bear Stearns in July of 1988; why they would choose to accept Hall's representations about the financial health of his companies when the objective data of which they were aware showed that he was dead wrong; or why they would rush to close when they had been told that May was about to return a 100% profit on its largest asset, just days after closing. Rather than allow Bear to complete its work, defendants ignored all of this information and voted to consummate the merger. Significantly, the defendants knew that Bear Stearns had always intended to update the opinion prior to consummation of the merger. As in Strassburger, here the defendants' "sin was not one of venality, but, rather, of indifference to their duty to protect the interests of the corporation and its minority shareholders.⁵⁵

55 Pl. Posttrial Ans. Br. at 52 (citation omitted).

The argument is misconceived, both legally and factually. Factually, there is no persuasive evidence that the non-affiliated directors were "indifferent to their duty" to protect the interests of May and its minority stockholders, or that they sacrificed the interests of the minority stockholders to those of Mr. Hall. Nor is there a credible basis to claim that there is "simply no other explanation" for the defendants' conduct. Legally the argument is incorrect because the concerns that led the Court in Strassburger to find that the directors were indifferent to their fiduciary duty are totally absent here.

In Strassburger, the corporation had sold most of its valuable real estate assets, yet soon thereafter was caused to repurchase 83% of its own stock at a time when the company had been experiencing a serious cash shortage and, because of a poor operating performance, was "nearly destitute."⁵⁶ The only solution to the financial crisis was for the corporation to sell its remaining significant assets, which ultimately it did.

56 752 A.2d at 561-62.

May, like the corporation in Strassburger, had also sold its productive assets, but there the similarity between the two cases ends. Unlike the company in Strassburger, May was not destitute, and May's directors (unlike their Strassburger counterparts) had decided to use May's liquid assets to enter into an entirely new business. The problem was that no worthwhile business opportunities had surfaced. Only after May's board had explored (without satisfactory results) several different alternatives did it ultimately determine the best business solution was for May to enter into the real estate management and service business by merging with the Hall Corporations.

In Strassburger, by contrast, the directors decided to invest the corporation's funds in an asset that would still leave the company with no operating business. The directors used most of the proceeds of the asset sale to repurchase the controlling stock interest held by the two largest stockholders. The result was to confer absolute control upon the company's president, without his paying any consideration.⁵⁷ The Court found that in these circumstances, the repurchases benefited only the selling stockholders and the president, but were detrimental to the interests of the minority stockholders because the minority was left worse off than before the repurchase.⁵⁸

57 In Strassburger, after the corporation's largest stockholder informed the board that it intended to sell its 74.4% interest, the president viewed that development as a threat to his livelihood and to his investment in the company — an investment representing over 65% of his net worth. By having the corporation repurchase the control block and thereby reduce its outstanding voting shares by 83%, the directors enlarged the president's ownership interest from 6.9% to 55%, i.e., to a position of invulnerable control, all at the corporation's expense. The Strassburger Court commented that using the corporations s funds for that purpose "[i]n those straitened circumstances . . . would strike any prudent businessman striving to serve the interests of all shareholders as an extravagance." 752 A.2d at 574.

58 The reasons, as the Strassburger Court stated, were that:

The corporation in which the minority stockholders were investors would have sold its only productive asset and would end up with $5 million in cash, a substantial portion of which would be subject to creditors' and dividend claims. Moreover, the likelihood that those shareholders would have an opportunity to liquidate their investment would be markedly lessened, because [the corporation's] new majority stockholder had strong financial incentives to remain in his control position and not put the Company up for sale.

752 A.2d at 577, n. 51.

Those were the circumstances that persuaded the Strassburger Court that two of the corporation's four directors, who were senior officers of the largest (74.4%) selling stockholder, had violated their duty of loyalty to the minority shareholders by acceding to the wishes of the (self-interested) president to approve the stock repurchases. A critical factual underpinning of that finding was that the two directors in Strassburger had dual — and conflicting — loyalties. As fiduciaries for the minority stockholders, their duty was to reject any transaction that imposed significant financial risk upon the minority and offered no offsetting or greater potential "upside" benefit. As (well-paid) senior employees of the selling majority stockholder, their loyalty was to their employer, whose interest was to sell its controlling interest without regard to the effect of the sale on the minority. Thus, in approving this particular transaction, the two directors had subordinated the interests of the minority to the interests of their employer, by reason of "indifference to their duty to protect the interests of the corporation and its minority stockholders."⁵⁹

59 Id.

The foregoing also exposes the fallacy of the plaintiff's argument that "there simply is no explanation" other than that defendants Florence, Sebastian, and Strauss were similarly indifferent to the interests of May's minority stockholders. The non-affiliated directors here, unlike the directors in Strassburger, had no such conflicting relationship, and thus, had no motive to subordinate the minority's interests to those of Mr. Hall. Moreover, the merger would provide May with an ongoing business that promised to benefit all May stockholders, whereas the repurchase transactions in Strassburger would have left the corporation with no ongoing business and would have benefited only the selling stockholders and the corporation's president.

Apart from the absence of any motive, there is no evidence that the non-affiliated directors in fact regarded their duties indifferently or that they in fact preferred Mr. Hall's interests over those of May's minority stockholders. Nor (contrary to plaintiff's argument) did they display indifference to duty by deciding (i) to approve Mr. Hall's "drop down" in share ownership to avoid triggering the supermajority vote requirement; (ii) to accept Mr. Hall's representations about the financial state of his companies and that there was no material adverse change; and (iii) to close the merger without obtaining an updated fairness opinion from Bear Stearns.

As previously found, ( see Section I, supra) the directors had valid reason to allow Mr. Hall to reduce his share ownership to avoid the supermajority voting requirement. They honestly believed that the merger was in the best interests of May and its stockholders and that the supermajority requirement created an unacceptable risk that Emerald Partners, for self-interested reasons unrelated to the corporate welfare, could defeat the transaction.

It is also incorrect to assert (as plaintiff has) that the non-affiliated directors blindly accepted Mr. Hall's false representations that there had been no material adverse change, when the "objective data of which [the directors] were aware" showed that Mr. Hall was "dead wrong."⁶⁰ On the contrary, the financial facts as of the August 15, 1988 closing were by no means as black and white as plaintiff portrays them. Some financial indicators showed that the Hall Corporations' performance had worsened, but others showed that during that same period their financial position had improved. Nothing of record, in particular no accountant or other expert testimony, was adduced to show that there was only one way that a reasonable, well-motivated director could view the objective data. What the record does show is that "objective data," taken as a whole, depicted a gray area requiring a business "judgment call" that could go either way. There is no persuasive evidence that the non-affiliated directors made that call other than with the best interests of the minority shareholders in mind.

60 Pl. Ans. Posttrial Br., at 52.

Nor is there merit to the argument that the defendants' decision not to obtain an updated fairness opinion from Bear Stearns evidenced indifference to their fiduciary duty. Before deciding to proceed with the merger, the non-affiliated directors specifically considered whether or not to obtain an updated opinion. They asked for, and received, advice from their counsel on that issue. They were told that that question (like the decision as to whether a material adverse change had occurred) was a business judgment call for the directors to make. The non-affiliated directors made the judgment that the delay and expense of obtaining an updated opinion, in circumstances where (they had concluded) no material adverse changes had occurred since the original Bear Stearns opinion, outweighed whatever benefits an updated opinion would afford.⁶¹ That judgment was one on which reasonable persons could differ. When viewed with perfect hindsight, the decision may have been mistaken, but there is no evidence that it was improperly motivated.

61 See Solash v. Telex Corp., Del. Ch., C.A. Nos. 9518, 9525, 9528, Allen, C., Mem. Op. at 21-22 (Jan. 19, 1988) ("Whether the benefit of additional information is worth the cost — in terms of delay and in terms of alternate uses of time and money — is always a question that may legitimately be addressed by persons charged with decision-making responsibility").

To conclude by stating merely that plaintiff's argument is unpersuasive would unfairly and half-heartedly portray the efforts made by the non-affiliated directors on behalf of the minority shareholders. The plaintiff focuses solely upon those directors' decisions that were favorable to Mr. Hall's interests, while ignoring decisions by those same directors that were adverse to Mr. Hall's interests and that affirmatively furthered the interests of the minority stockholders.

The merger negotiations underscore the point. The non-affiliated directors, assisted by Bear Stearns, rejected Mr. Hall's initial proposal for an exchange ratio that would have given him May common shares representing up to $105 million of value. The directors counter-proposed a ratio that would give Mr. Hall stock representing $36 million of value. Later that counter-proposal was revised — from 28.9 million shares to 27 million shares, representing a downward dollar adjustment from $36 million to $28.6 million. Although the non-affiliated directors agreed with Mr. Hall that the merger promised to benefit all May stockholders from a business standpoint, those directors acted steadfastly to assure that May's minority would not pay any more than the lowest price, or agree to any nonmonetary terms but the most favorable, that could realistically be negotiated.

The directors also negotiated other concessions favorable to the minority. Before the final deal was struck, the directors, aided by their counsel, Mr. Strother, rejected Mr. Hall's proposal to equally split disposition fees, and they required him to reduce the interest rate on loans payable to him by the Hall Corporations. After the merger was enjoined, the non-affiliated directors rejected Mr. Hall's proposal that May reimburse the Hall Corporations for expenses and lost opportunities if May abandoned the merger.

The record evidence satisfies me that the non-affiliated director-defendants have met their burden to show that their conduct did not constitute a breach of their duty of loyalty. If the directors breached any duty — and by this observation I do not intend to suggest that they did — at most it would have been their duty of care,⁶² which in these circumstances would be exculpated by Article Fifteenth.

62 See Zirn v. VLI Corp., Del. Supr., 681 A.2d 1050, 1061-62 (1996) (exculpating directors from money damages claim for approving materially misleading proxy materials, on the ground that the "directors lacked any pecuniary motive to mislead the . . . stockholders intentionally and no other plausible motive for deceiving the stockholders has been advanced. A good faith erroneous judgment as to the proper scope or content of required disclosure implicates the duty of care rather than the duty of loyalty."); see also, Solash v. Telex Corp., Del. Ch., C.A. Nos. 9518, 9525, 9528, Allen, C., Mem. Op. at 19 (Jan. 19, 1988) (absent any "adverse financial or personal interest such as an alleged entrenchment motivation or effect," the attack on the directors' approval of challenged transaction "unquestionably implicates not the directors' duty of loyalty but the duty of care.").
Even if ( arguendo) the non-affiliated directors' decisions can be faulted, given the exacting gross negligence standard for finding a breach of the duty of care, the plaintiff would have to establish a far more egregious departure from the standard of care than the record shows here. See Aronson v. Lewis, Del. Supr., 473 A.2d 805 (1984). The record evidence, including the testimony of the non-affiliated directors, whose demeanor I had the opportunity to observe and assess, falls far short of persuasively showing that the challenged decisions, however mistaken they might be viewed in retrospect, can fairly be described as "grossly negligent."

For these reasons, I conclude that the "duty of loyalty" exception to the Article Fifteenth exculpatory provision is not applicable.

C. The "Bad Faith" Argument

The plaintiff's final anti-exculpation argument is that the non-affiliated directors' breached their "duty of good faith,"⁶³ and did not carry their burden of showing otherwise. The argument, which appears in a single conclusory paragraph in Emerald Partners' post-trial brief, is that defendants' conduct was "sufficiently lacking in rational business basis as to lack good faith.⁶⁴ In the plaintiff's own words, the non-affiliated directors:

63 Although corporate directors are unquestionably obligated to act in good faith, doctrinally that obligation does not exist separate and apart from the fiduciary duty of loyalty. Rather, it is a subset or "subsidiary requirement" that is subsumed within the duty of loyalty, as distinguished from being a compartmentally distinct fiduciary duty of equal dignity with the two bedrock fiduciary duties of loyalty and due care. In Re Gaylord Container Corporation Shareholders Litig., Del. Ch., 753 A.2d 462, 475, n. 41 (2000); In re ML/EQ Real Estate Partnership Litig., Del. Ch., Consol. C.A. No. 15741, Strine, V.C., Mem. Op. at 7, n. 2 and n. 9, n. 20 (Dec. 20, 1999). But, because Article Fifteenth and 8 Del. C. § 102(b)(7) appear to depict "breach[es] of the director's duty of loyalty" and "acts or omissions not in good faith" as separate categories of conduct that are not exculpated, the plaintiffs "good faith" argument is discussed separately from the "duty of loyalty" argument in this Opinion.

64 Unitirin, Inc. v. American General Corp., Del. Supr., 651 A.2d 1361 (1995).

failed to appoint a special committee to negotiate the merger, . . . failed to retain independent financial and legal advisors, met infrequently, and were content to rely on May's legal and financial advisers, typically receiving information only after crucial issues had already been resolved. The [directors] also intentionally delegated their duty to negotiate the merger and set the exchange ratio to Bear Stearns. . . . In short, at each stage of the process the defendants were intentionally, or, at a minimum "recklessly indifferent" to the interests of the minority. . . . Defendants also blatantly ignored material deficiencies in the information disclosed in the Proxy including the descriptions of what they had done just weeks earlier. . . . Finally, defendants have not even attempted to demonstrate good faith in connection with their decision to close the merger without allowing Bear Stearns to complete its assignment. Particularly given what they knew about [the Hall Corporations'] declining financial condition, the defendants cannot overcome the sheer recklessness of their conduct. . . . Knowing that Bear demanded a "last look" before closing, defendants chose to rush to a closing without calling Bear back in to finish its work. Certainly, defendants would not be entitled to claim "good faith" in relying on a half finished fairness opinion — particularly when they were on notice of financial failings.⁶⁵

65 Pl. Posttrial Ans. Brief, at 53-54 (emphasis in original, citations omitted). This argument relies upon Brehm v. Eisner, Del. Supr., 746 A.2d 244, 264 (2000) (observing that "[i]rrationality . . . may tend to show that the decision is not made in good faith").

This argument has two fatal infirmities. The first is that, even if the nonaffiliated directors had, in fact, committed the above-described acts, there is no evidence that their conduct was "lacking in rational business basis," or that the directors behaved with "intentional or reckless indifference"⁶⁶ to the interests of May's minority stockholders. The second is that the plaintiff's "bad faith" argument is predicated upon mischaracterizations of what the directors in fact did.

66 The source of the plaintiff's reference to "reckless indifference" is Muschel v. Western Union Corp., Del. Ch., 310 A.2d 904, 908 (1973). To the extent that plaintiff seeks to argue that "reckless indifference" is a standard or test of bad faith, Muschel is at best equivocal authority because that term appears to have been used there in contrast to bad faith. Holding that "[m]ere inadequacy of price will not reveal fraud," the Muschel court went on to say that "[t]he disparity must be so gross as to lead the Court to conclude that it was not due to an honest error of judgment, but rather to bad faith or reckless indifference to the rights of others interested." 310 A.2d at 908 (emphasis added). The use of the disjunctive "or" to separate "bad faith" and "reckless indifference" suggests that the court was using "reckless indifference" as a synonym for "gross negligence." But, assuming that bad faith can be established by a showing of "reckless indifference," even with the burden of proof resting on the defendants, I conclude that that showing was not made here.

In my earlier analysis of the plaintiff's claim that the non-affiliated directors breached their duty of loyalty, I rejected the argument that those directors were "indifferent" to their duty to protect May and its minority stockholders. If those defendants were not "indifferent," it follows that they could not have been indifferent either "recklessly," or "intentionally," or afflicted by any other pejorative state of mind. But, in addition to and apart from this elementary application of logic, the evidence taken as a whole and my assessment of the demeanor of the three non-affiliated directors as witnesses at the trial satisfies me that the decisions these directors made, whether right or wrong from a business standpoint, were arrived at advisedly, after deliberation, and with a conscious concern for their impact upon the minority stockholders' welfare.

Accordingly, the "bad faith" argument reduces to the assertion that the nonaffiliated directors' behavior was so lacking in business rationality that the only conclusion one can reach is that the defendants were acting in bad faith. To assert that, however, is merely to argue in a different form that the challenged decisions fell outside the boundary of conduct that is protected by the business judgment rule. Thus, it is "black letter" doctrine that business decisions made by disinterested, independent, and duly careful directors will be respected unless they "cannot be attributed to any rational business purpose."⁶⁷ In this case, no credible evidence supports the argument that the challenged decisions lacked a rational business purpose.

67 Unitrin, Inc., 651 A.2d at 1373.

The actions that Messrs. Sebastian, Florence and Strauss did — and did not — take when they negotiated the merger, approved the Proxy Statement, monitored the status of the constituent corporations during the injunction period, and decided to close the merger without obtaining an updated fairness opinion, are a matter of undisputed fact. That plaintiff may disagree with the business rationale for those decisions does not establish that they lacked such a rationale. Clearly the decisions had a rational business purpose. The non-affiliated directors' decision to support a business combination with the Hall Corporations amounted to a judgment that, given the alternatives, this was the best use of May's (then essentially liquid) assets. The agreed-to merger terms were the result of the directors' business judgment that those terms were the most favorable that could be negotiated from the minority stockholders' point of view. The directors' purpose in deciding to allow Mr. Hall to "drop-down" his percentage stock interest was to counteract Emerald's threat to use the supermajority provision as a weapon to frustrate the most promising business opportunity May had thus far encountered. Finally, and as earlier found, after the reversal of the injunction on appeal, the directors' decision to close the merger without obtaining a supplemental fairness opinion was also — as the directors' counsel advised — an honest business judgment.

Finally, besides lacking credible factual support, the "bad faith" argument rests upon a mischaracterization of the directors' conduct and essentially rehashes factual assertions that, with one exception, the Court has previously rejected.⁶⁸ The exception is the plaintiff's contention that the defendants' bad faith may be inferred from the fact that the defendants "blatantly ignored material deficiencies in the information disclosed in the Proxy [Statement] including the descriptions of what they had done just weeks earlier."⁶⁹ This argument, like the others, is misconceived. The defendants did not "blatantly ignore" material informational deficiencies because there were no such deficiencies.

68 The plaintiff argues that the full board failed to constitute Messrs. Sebastian, Florence, and Strauss as a special committee. The board did fail to do that in the formal sense ( i.e., by failing to adopt a formal resolution to that effect), but the plaintiff ignores the fact that at all relevant times those three directors acted de facto in an independent negotiating committee capacity. That is, at all times, Messrs. Sebastian, Florence and Strauss were regarded as an independent negotiating committee by all the relevant "players," and they filly discharged that role. Moreover, the plaintiff's assertions that the directors failed to retain "independent" financial and legal advisors and "intentionally delegated" to those advisors their authority to set the exchange ratio and to make other decisions are factually incorrect. As previously found, Bear Stearns and Shank Irwin were independent, acted independently, and at no time did the non-affiliated directors delegate their decision making power to those advisors. of a similar piece is the plaintiff's oft-repeated claim (also rejected as factually unsupported) that the defendants chose to "rush to a closing" without calling Bear Stearns in to finish its work, even though the directors knew that the Hall Corporations were failing.

69 Pl. Posttrial Ans. Br. at 53.

The plaintiff contends that the Proxy Statement was materially false and/or misleading in four separate respects. The plaintiff first challenges the disclosure that "the terms of the Merger, including the exchange ratio, . . . were the result of arm's-length negotiations between representatives of the Hall Corporations and the Non-Affiliated Directors."⁷⁰ Plaintiff claims this disclosure was false because Bear Stearns, not the directors, negotiated the merger terms. The claim fails for lack of a valid premise, as this Court has found that the non-affiliated directors negotiated staunchly in favor of May's minority stockholders. That the directors were assisted by Bear Stearns does not alter that fact or otherwise render the Proxy disclosure misleading. Indeed, the Proxy Statement accurately discloses that the exchange ratio was based upon the advice of Bear Stearns.⁷¹

70 DX 108 at 9.

71 The Proxy Statement discloses that "May retained Bear Stearns to advise it as to the appropriate exchange ratio and to render an opinion to May as to the fairness, from a financial point of view, of the Merger." DX 108 at 24 (emphasis added).

The second Proxy disclosure that the plaintiff claims was materially misleading is the statement that the "Non-Affiliated Directors authorized the retention of a financial advisor and special counsel. . . ."⁷² This statement is claimed to be misleading because Bear Stearns and Shank Irwin were engaged at a meeting of the full board, and because Mr. Berlin voted on the engagement of those advisors at that meeting. Plaintiff fails to explain how that disclosure was misleading or material. The fact that the advisors were selected at a meeting of the full board is disclosed in the preceding sentence on that same page. And, the fact that Mr. Berlin voted to support the non-affiliated directors' choices is immaterial, absent evidence that he influenced the non-affiliated directors' choices. Mr. Berlin made no effort to exert any such influence,⁷³ and the plaintiff does not contend otherwise.

72 DX 108 at 23.

73 Tr. at 1693-99.

The plaintiff next challenges, as materially misleading, the Proxy Statement disclosure that "[i]n connection with the Merger, the Non-Affiliated Directors have frequently held separate deliberations and have relied extensively on the advice of its independent legal counsel."⁷⁴ Although the plaintiff cavils with the term "frequent," the evidence establishes that this disclosure was accurate. The non-affiliated directors did meet separately with their counsel to deliberate concerning the merger at least four times after Shank Irwin was retained and before the Proxy Statement was mailed.⁷⁵ Those directors also had informal communications with each other and with counsel concerning Mr. Hall's initial proposal and, later, concerning drafts of the Merger Agreement.⁷⁶ Besides being factually correct, the disclosure is further supported by a detailed account of the board's deliberations on page 23 of the Proxy Statement.

74 DX 108 at 10, 24.

75 Tr. at 565; DX 54; DX 55; Sebastian Dep., Vol. III at 36-38.

76 Tr. 71, 100-10, 569.

The plaintiff's final disclosure claim is that the Proxy Statement contained material misstatements and omissions about the HSSM #7 investment. In essence, the plaintiff argues that the value of that investment, which in dollar terms represented one-fifth of May's assets, was worth far more than its disclosed $8 million at-cost valuation. The reason, plaintiff contends, is that the board knew that Singer Corporation was the acquisition target of the Bilzerian Partnerships, the assets of those partnerships (including Suncoast, in which HSSM #7 was a limited partner) were invested in the Singer acquisition, and Mr. Bilzerian had projected a substantial increase in May's $8 million investment.

This argument labors under several difficulties. First, the board relied upon independent legal and financial advice about how the investment should be valued and disclosed in the Proxy Statement. Second, the source of the additional disclosures that plaintiff contends should be made was May's 1987 Form 10-K that had been filed six weeks after the Proxy Statement was first disseminated, and three weeks after the February 16, 1988 shareholder vote. Those post-vote Form 10-K disclosures were made not to correct informational deficiencies in the Proxy Statement, but to correct what the board believed were "wildly speculative" inaccuracies in an article written by a friend of the Koethers about the alleged value of HSSM #7.⁷⁷ Third, there is no evidence disproving the reasonableness of the board's belief that Bilzerian's projections of increased value were speculative and unreliable. Indeed, the subsequent history vindicates that conclusion. In short, there were no materially misleading omissions in the Proxy Statement concerning May's HSSM #7 investment.

77 DX 117; Tr. at 220-23, 424.

For these reasons, I conclude that the directorial decisions that are the subject of challenge in this lawsuit were made in good faith.

* * *

In summary, the non-affiliated director-defendants have carried their burden of establishing that Article Fifteenth of May's Certificate of Incorporation governs the plaintiff's money damage claims in this lawsuit, and that none of Article Fifteenth's exceptions are applicable to the conduct that underlies those claims. Because the only relief that the plaintiff seeks is money damages, those defendants are exculpated from liability on all of the plaintiff's claims.⁷⁸

78 Given this disposition, the Court does not reach or address the defendants' remaining affirmative defenses of laches and unclean hands. Nor does the Court address the plaintiff's argument that the defendants have not shown that the merger was entirely fair. To do so would unduly protract this already lengthy Opinion to no useful purpose. For even if it were established that the merger was not entirely fair, Article Fifteenth would exculpate these particular defendants from liability because they have established that their conduct was in good faith and violated no statutory duty or fiduciary duty of loyalty. Nor would a finding that the merger was not entirely fair change that result, because Cede Co. v. Technicolor Inc,, Del. Supr., 634 A.2d 345 (1993), establishes that entire fairness review can be triggered by a violation of the duty of care. That is, it cannot be argued that the Court, having found that the directors are exculpated, must nonetheless undertake an entire fairness analysis in order to negate a claim that the defendants breached their duty of loyalty. In addition to not being legally mandated, that exercise would require the Court to re-evaluate, under the entire fairness framework, the arguments it has already analyzed under the rubric of Section 102(b)(7) and Article Fifteenth of May's Certificate of Incorporation. Had Mr. Hall remained a defendant in the case, the result would be different because, as the only interested party who benefited from the merger, Mr. Hall could not claim the protections of Article Fifteenth and therefore would be potentially subject to a damages award. But the plaintiff has dismissed its claims against Mr. Hall, and cannot obtain damages relief against the remaining defendants who received no benefit from the merger, even if it were found not to be entirely fair.

IV. CONCLUSION

For the foregoing reasons, judgment will be entered against the plaintiff and in favor of the defendants on all of the plaintiff's claims, with costs to be borne by the plaintiff. Counsel shall confer and submit a form of order implementing the rulings contained herein.