Kahn v. Sullivan

Occidental Petroleum Corporation's board considered a proposal to fund an art museum named after its CEO and chairman, Armand Hammer, and had two major law firms and its own accountants evaluate the idea before creating a special committee of eight independent, disinterested outside directors to review it. That committee, after consulting the law firms and accountants, unanimously approved the museum gift as beneficial to Occidental, and the board submitted it to shareholders in a proxy statement. Two shareholder suits challenged the gift's validity; before trial, the Kahn plaintiffs sought to enjoin a proposed settlement of the related Sullivan action, but the Court of Chancery denied that injunction. The Sullivan parties then submitted their settlement to the Chancery Court, which found it 'reasonable under all of the circumstances' and approved it over some shareholders' objections. The Kahn plaintiffs appealed.