235 A.3d 702
Del.2020Background:
- Towers Watson and Willis agreed a 2015 "merger of equals" under which Willis shareholders would own ~50.1% and Towers shareholders would receive a special dividend (initially $4.87). The announced terms priced Towers below its unaffected trading price and drew investor criticism.
- ValueAct (a large Willis investor) and its CIO Jeffrey Ubben privately presented Towers CEO John Haley a September 2015 compensation proposal promising a large post‑merger equity opportunity (allegedly up to ~5x his prior compensation); Haley did not disclose that proposal to the Towers Board.
- Following negative market and proxy‑advisor reaction, Haley renegotiated the deal to raise the special dividend to $10 to secure Towers shareholder approval; the merger closed in January 2016 and Haley became CEO of the combined company with a rich equity package.
- Consolidated shareholder suits alleged Haley breached his duty of loyalty by failing to disclose the ValueAct proposal (creating a material conflict), and that ValueAct/Ubben aided and abetted the breach.
- The Court of Chancery dismissed for failure to plead a material nondisclosure that would rebut the business judgment rule; the Delaware Supreme Court reversed and remanded, holding the complaint plausibly pleaded Haley’s nondisclosure was material to the Board and ordering the lower court to reconsider aiding‑and‑abetting claims.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Haley’s failure to disclose ValueAct’s compensation Proposal to the Towers Board was a material nondisclosure that rebuts the business judgment rule | The Proposal materially deepened Haley’s self‑interest (potentially ~5x pay) during a period of vote uncertainty; the Board would have considered that information significant | The Board already knew Haley could get higher pay post‑merger and Haley kept the Board generally apprised; the Proposal was nonbinding and speculative | Reversed: complaint plausibly alleged the Proposal materially altered Haley’s conflict, that he failed to disclose it, and a reasonable director would have regarded it significant |
| Whether plaintiffs pleaded Haley was materially self‑interested in a way that tainted the Board process | Haley subjectively believed the Proposal was attainable and thus had incentive to secure only the minimum dividend needed to win approval | Haley’s future employment and higher pay were already disclosed; the Proposal was just a nonbinding pitch | Reversed: accepting allegations, the court found plausible that Haley’s interest was materially intensified by the Proposal |
| Whether the business judgment rule was "cleansing" under Corwin (i.e., whether a fully informed, uncoerced vote would invoke business judgment) | Plaintiffs argued the nondisclosure prevented a fully informed vote; Corwin only applies if the vote was fully informed | Defendants argued Corwin applies and insulates the deal | Not decided on appeal—the majority found the omission was plausibly material, so Corwin cleansing was unnecessary to resolve and left to the lower court if relevant on remand |
| Whether ValueAct and Ubben can be liable for aiding and abetting Haley’s breach | ValueAct/Ubben knowingly induced/participated in Haley’s undisclosed conflict and helped secure votes and compensation outcomes | No predicate fiduciary breach was adequately pleaded; without it aiding‑and‑abetting fails | Remanded: because the Haley claim survives, the Court of Chancery must reconsider aiding‑and‑abetting elements in the first instance |
Key Cases Cited:
- Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983) (directors/officers must not withhold material conflict information from fellow directors; nondisclosure can taint a transaction).
- Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156 (Del. 1995) (to rebut business judgment rule for a single director, plaintiff must show material self‑interest, nondisclosure to the board, and that a reasonable director would deem it significant).
- Corwin v. KKR Fin. Holdings LLC, 125 A.3d 304 (Del. 2015) (a fully informed, uncoerced vote by disinterested stockholders invokes the business judgment rule).
- Guth v. Loft, 5 A.2d 503 (Del. 1939) (fiduciary duty of undivided loyalty prohibits conflicts between duty and self‑interest).
- Brehm v. Eisner, 746 A.2d 244 (Del. 2000) (distinguishes materiality standards for board disclosure versus stockholder disclosure; directors owe an "unremitting obligation" of candor to fellow directors).
- Mills Acq. Co. v. Macmillan, Inc., 559 A.2d 1261 (Del. 1989) (failure by insiders to disclose/act candidly can require application of entire fairness review).
- Cede & Co. v. Technicolor, Inc., 634 A.2d 345 (Del. 1993) (describes business judgment rule presumption and circumstances that rebut it).