In re Morton's Restaurant Group, Inc. Shareholders Litigation
2013 Del. Ch. LEXIS 188
| Del. Ch. | 2013Background
- Morton’s Restaurant Group (Morton’s) was a public company on the NYSE; Castle Harlan held 27.7% of Morton’s with two on the board; a total of ten directors included one insider and seven independent directors; after a nine-month market-check process Morton’s agreed to merge with Fertitta Morton’s Restaurants, Inc. and Fertitta Morton’s Acquisition, Inc. (Landry’s) on December 15, 2011 at $6.90 per share with equal treatment for all stockholders; the complaint asserts Castle Harlan acted in its own interest to push a quick sale despite a broad market check and an arm’s-length process; the court grants the motion to dismiss the complaint with prejudice, finding no viable non-exculpated breach of fiduciary duty and no convincing showing of conflicts or bad faith.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is there a non-exculpated breach of fiduciary duty? | Plaintiffs argue Revlon/entire fairness apply due to controlling holder. | Defendants contend exculpation under 8 Del. C. §102(b)(7) precludes damages absent loyal or good-faith breach. | No non-exculpated breach pled; dismissal affirmed. |
| Was Castle Harlan a controlling stockholder creating a conflict? | Castle Harlan’s 27.7% stake and board presence implies domination. | Minority stake insufficient to establish control; independence of other directors preserved. | Castle Harlan not shown to be controlling; no conflict inferred. |
| Did the board's financing arrangement with Jefferies for Fertitta’s bid show bad faith? | Financing by Jefferies signals improper leverage to lower price. | Board weighed pros/cons, implemented safeguards (recusal, fee reduction, additional advisor). | No plausible inference of bad faith from financing arrangement. |
| Did the differences between Jefferies’ and KeyBanc’s analyses imply improper collusion? | Discrepant valuations suggest manipulation to justify a low price. | Different inputs naturally yield different outcomes; disclosure was adequate. | Disclosures adequate; no non-exculpated claim based on analyses. |
Key Cases Cited
- Revlon, Inc. v. MacAndrews & Forbes Hldgs., Inc., 506 A.2d 173 (Del. 1986) (enhanced scrutiny in sale of control; duty to obtain best price)
- Kahn v. Lynch Communications Systems, 638 A.2d 1110 (Del. 1994) (minority not a controller unless actual control shown)
- Malpiede v. Townson, 780 A.2d 1075 (Del. 2001) (exculpatory provision; need non-exculpated claim to survive)
- In re Synthes, Inc. S’holder Litig., 50 A.3d 1022 (Del.Ch. 2012) (controlling stockholders’ duty to maximize value; market check context)
- Unitrin, Inc. v. American General Corp., 651 A.2d 1361 (Del. 1995) (large shareholders’ incentives align with minority; pro rata treatment safe harbor)
- Citron v. Fairchild Camera & Instrument Corp., 569 A.2d 53 (Del. 1989) (independence and loyalty considerations when dealing with large stockholders)