Buttonwood Tree Value Partners L.P. v. R.L. Polk & Co., Inc.
CA 9250-VCG
Del. Ch.Jul 24, 2017Background
- R.L. Polk & Co. (Polk) was ~90.5% owned/controlled by the Polk family; ~9% of shares were publicly held. In March–May 2011 Polk ran a $810-per-share self-tender offer for up to 37,037 shares. Plaintiffs (minority holders) tendered and sold shares in reliance on the Offer to Purchase.
- The Polk family members on the board (Stephen Polk, Nancy Polk, Katherine Polk Osborne) participated in structuring the transaction; plaintiffs allege the family acted as a control block that stood on both sides of the self-tender.
- SRR (financial advisor) prepared a fairness opinion recommending $810 was fair; SRR had previously done valuation work for a Polk-family-controlled holding company that explored a short‑form freeze‑out merger. Plaintiffs allege SRR’s pre‑engagement work was rolled into Polk’s bill.
- Within about two years after the self-tender, Polk declared large special dividends (including $240 per share) and sold to IHS in June 2013 for $2,675 per share (≈3× the self‑tender price).
- Plaintiffs filed a class action alleging breaches of fiduciary duty by the Polk family/control group and other directors, and aiding-and-abetting claims against SRR and the law firm Honigman; defendants moved to dismiss.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Polk family constituted a controlling stockholder such that "entire fairness" review applies to the 2011 self‑tender | Polk family collectively owned >90% and exercised control; they engineered a self‑tender that preserved their control and set the price through an advisor who worked for family members | Family defendants contended there was no controlling group acting to the detriment of minorities; normal board process governed the self‑tender | Court: reasonably conceivable at pleading stage that the Polk family was a control group; entire fairness standard applies as to those defendants |
| Whether the independent (non‑family) directors breached fiduciary duties / acted in bad faith | Plaintiffs: independent directors rubber‑stamped the self‑tender, knowingly omitted material disclosures, and furthered the family’s scheme | NP directors argued lack of particularized allegations showing lack of independence, personal interest, or bad faith knowledge required to overcome exculpatory charter clause | Court: allegations insufficient to plead non‑exculpated (loyalty/bad faith) claims against independent directors; claims against NP directors dismissed |
| Whether SRR and Honigman can be liable for aiding and abetting breaches of fiduciary duty | Plaintiffs: advisers knowingly participated and provided substantial assistance (recycled valuation, hid Holding Co. bill, reviewed disclosures) | Advisers: no pleaded facts showing they knowingly participated in a fiduciary breach or provided substantial assistance; passive awareness is insufficient | Court: aiding‑and‑abetting claims against SRR and Honigman dismissed for failure to plead knowing participation and substantial assistance |
| Pleading sufficiency at Rule 12(b)(6) stage — can plaintiffs survive dismissal on the core fiduciary‑duty claim? | Plaintiffs relied on unusual timeline (self‑tender then dividends and 3× sale) and alleged conflicts to plead control and unfairness | Defendants argued pleadings were conclusory and failed to show disloyalty/scienter as to non‑family directors and advisers | Court: Allowed claim to proceed against Polk family/control group (burden shifted to them to prove entire fairness); dismissed claims against NP directors, SRR, and Honigman |
Key Cases Cited
- Kahn v. M & F Worldwide Corp., 88 A.3d 635 (Del. 2014) (entire fairness standard applies to transactions involving controlling stockholders)
- Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Holdings LLC, 27 A.3d 531 (Del. 2011) (Delaware motion‑to‑dismiss pleading standards are minimal)
- Savor, Inc. v. FMR Corp., 812 A.2d 894 (Del. 2002) (pleading rules: accept well‑pleaded facts and draw inferences for non‑movant)
- In re Cornerstone Therapeutics Inc. Stockholder Litig., 115 A.3d 1173 (Del. 2015) (directors protected by exculpatory charter clauses require pleading of non‑exculpated loyalty/bad‑faith claims)
- Malpiede v. Townson, 780 A.2d 1075 (Del. 2001) (elements of aiding‑and‑abetting require knowing participation and substantial assistance)
- RBC Capital Markets, LLC v. Jervis, 129 A.3d 816 (Del. 2015) (example where adviser’s fraud on the board supported aiding‑and‑abetting liability)