Central Laborers' Pension Fund v. McAfee, Inc., H039508

Background

McAfee (Delaware corp.) negotiated and agreed to be acquired by Intel for $48/share; proxy disclosed negotiations but omitted certain pre-June discussions ("Project Inca") and an alleged Intel inquiry whether $50 would "get the deal done." Shareholders approved the deal; class action followed alleging unfair process, nondisclosure, and breaches by CEO David DeWalt and nine outside directors.
Plaintiff alleged DeWalt secretly steered negotiations for personal gain, withheld material information from the board (including Intel’s $50 overture and Project Inca synergies), and that the board and advisors rubber-stamped a $48 price and omitted material facts in the proxy.
Trial court applied Delaware law, granted summary judgment for all defendants (finding no triable issues as to the nine independent directors or DeWalt), and rejected plaintiff’s request for a jury trial.
On appeal, the court applied Delaware fiduciary-law standards (business judgment rule, enhanced scrutiny, entire fairness) and considered the effect of McAfee’s charter §102(b)(7) exculpatory clause limiting monetary liability for duty-of-care breaches.
Appellate court affirmed summary judgment for the nine independent outside directors (no non‑exculpated loyalty/good‑faith claim shown) but reversed as to DeWalt and the corporate defendants (triable issues remain about DeWalt’s nondisclosure of Intel’s $50 overture and aiding-and-abetting liability for McAfee and Intel).
The court also held the matter was properly tried to the court (equitable action) under California forum rules; no jury right.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Standard of review (business judgment vs. entire fairness)	DeWalt’s alleged concealment and self-interest rebut the business judgment presumption and require entire fairness	No evidence majority of board was interested or dominated; at most enhanced scrutiny applies	Entire fairness not triggered; enhanced scrutiny applies to board conduct
Liability of independent outside directors	Directors failed to protect process, relied on flawed fairness opinion, omitted material facts from proxy	Directors were independent, retained advisors, repeatedly met, and acted reasonably; §102(b)(7) exculpates care claims	Summary judgment affirmed for nine independent directors (no triable non‑exculpated loyalty/good‑faith claims)
Liability of CEO David DeWalt (disclosure and fiduciary duties)	DeWalt concealed Intel’s $50 overture and Project Inca; motive and nondisclosure create triable issues of loyalty/bad faith or grossly negligent process	DeWalt negotiated for a higher price (52–54), disclosed management retention intent in June 11 proposal, and acted to maximize value—no evidence of domination or deceit	Summary judgment reversed as to DeWalt; triable issues exist about his nondisclosure of the $50 overture (disclosure, good faith, care)
Aiding and abetting (McAfee, Intel)	Corporations knowingly participated in and benefited from any fiduciary breach; liable if DeWalt breached	No underlying breach proved, so no aiding-and-abetting liability	Reversed as to McAfee and Intel because triable issues remain as to DeWalt’s breach; aiding-and-abetting claim survives

Key Cases Cited

Revlon, Inc. v. MacAndrews & Forbes Holdings, 506 A.2d 173 (Del. 1986) (board’s duty to obtain the best price when change of control occurs)
Cede & Co. v. Technicolor, Inc., 634 A.2d 345 (Del. 1993) (business judgment presumption and how to rebut it)
Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985) (board duties when responding to takeover threats)
Mills Acquisition Co. v. Macmillan, Inc., 559 A.2d 1261 (Del. 1989) (entire fairness required where management manipulated the auction)
Bomarko, Inc. v. International Telecharge, Inc., 794 A.2d 1161 (Del. Ch. 1999) (CEO’s concealment and interference with opportunities triggers entire fairness)
Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983) (conflicted directors and need to disclose material studies to outsiders)
Paramount Communications Inc. v. QVC Network, Inc., 637 A.2d 34 (Del. 1993) (enhanced scrutiny standard and directors’ obligation to be reasonable)
Lyondell Chemical Co. v. Ryan, 970 A.2d 235 (Del. 2009) (application of §102(b)(7) and summary judgment where no non‑exculpated loyalty breach shown)
In re Walt Disney Co. Derivative Litigation, 907 A.2d 693 (Del. Ch. 2005) (definition of bad faith and gross‑negligence standard for duty of care)
Emerald Partners v. Berlin, 787 A.2d 85 (Del. 2001) (standards for review: business judgment, enhanced scrutiny, entire fairness)
Transkaryotic Therapies, Inc., 954 A.2d 346 (Del. Ch. 2008) (elements of aiding-and-abetting a fiduciary breach; relation to underlying breach)
Chen v. Howard-Anderson, 87 A.3d 648 (Del. Ch. 2014) (when §102(b)(7) can be applied at summary judgment and assessing disclosure claims)