Gantler v. Stephens
Supreme Court of Delaware
965 A.2d 695 (2009)
First Nile Financial's board explored a sale in 2004, but chairman and CEO William Stephens (defendant) failed to disclose competing bidders' due diligence requests to the rest of the board, causing one bidder to withdraw and another to lower its offer; the board ultimately rejected the remaining offer and pursued a privatization plan instead, which required shareholder approval and which the board's own proxy statement admitted created conflicts of interest since directors could structure it to their own benefit. Dissident shareholders (plaintiffs) sued derivatively, alleging that Stephens and two other directors -- one whose heating and cooling company, and another whose law firm, both did business with First Nile and stood to lose that business in a sale -- rejected the merger offer for improper personal reasons; the trial court dismissed based on the business judgment rule and the shareholder ratification vote, and the shareholders appealed.
Whether a derivative complaint alleging that a board majority rejected a merger offer for personal financial reasons beyond mere self-entrenchment adequately states a claim that the directors acted disloyally, and whether an unrelated required shareholder vote ratifies that earlier board decision.