Scheidt v. DRS Technologies, Inc.
36 A.3d 1082
| N.J. Super. Ct. App. Div. | 2012Background
- Scheidt, a DRS Technologies shareholder, sued the company, the Board, and its General Counsel for alleged self-dealing in a Finmeccanica merger.
- The merger with Finmeccanica was approved by shareholders and regulators and closed in October 2008.
- Plaintiff asserted breaches of loyalty, diligence, candor, and good faith, and aiding-and-abetting theories.
- Key factual timeline: June 2007 discussions with Finmeccanica, NDA in January 2008, Board authorization in February 2008, and detailed negotiation culminating in a May 2008 merger agreement.
- DRS’s charter included a § 102(b)(7) exculpatory clause shielding directors from monetary liability for duty of care breaches; the complaint alleged wrongdoing under loyalty/good-faith for the sale of control.
- The trial court dismissed the amended complaint under Rule 4:6-2(e); the appellate court affirmed, applying Delaware law and Revlon enhanced scrutiny.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 102(b)(7) exculpates duty-of-care claims. | Scheidt contends officers’ conduct violated care duties. | DRS directors are shielded from care-duty liability by exculpatory clause. | Yes; § 102(b)(7) bars duty-of-care claims against directors. |
| Whether the Board violated loyalty/good-faith duties in a sale of control. | Board acted in self-interest, failed to maximize value, and misled shareholders. | Board acted within permissible business judgment under enhanced scrutiny. | Plaintiff failed to plead non-conclusory facts showing breach. |
| Whether the proxy disclosures were materially incomplete or misleading. | Proxy omitted bases for best-value determination and failed to disclose alternative negotiations. | Proxy disclosed competing proposals and reasoning; no material omissions. | No material omissions; disclosures adequate. |
| Whether Newman and Dunn as officers have independent Revlon duties and liability. | Officers’ independent duties could breach even with § 102(b)(7) protection. | Officers lacked independent authority; no breach pleaded. | No independent officer-duty breach pleaded; exculpation applies to officers as applicable. |
| Whether DRS or individuals can be liable for aiding and abetting. | Non-fiduciary participation aided fiduciary breach. | Lack of knowing participation by non-fiduciaries; no aiding-and-abetting liability. | Aiding-and-abetting claims fail; DRS not liable. |
Key Cases Cited
- Paramount Communications Inc. v. QVC Network, Inc., 637 A.2d 34 (Del.1994) (enhanced scrutiny in sale of control; duty to seek best value)
- Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del.1986) (sale of control imposes modified duties on directors)
- Malpiede v. Townson, 780 A.2d 1075 (Del.2001) (clarifies Revlon; remains with enhanced scrutiny but not a blueprint)
- Lyondell Chem. Co. v. Ryan, 970 A.2d 235 (Del.2009) (good-faith and loyalty standards; limits on perfection)
- Aronson v. Lewis, 473 A.2d 805 (Del.1984) (need for factual support of control/dominance allegations)
- Brehm v. Eisner, 906 A.2d 27 (Del.2006) (loyalty/good faith and entrenchment principles in fiduciary duties)
- Krim v. ProNet, Inc., 744 A.2d 523 (Del.Ch.1999) (director downtime versus disloyalty; independence considerations)
- In re Walt Disney Co. Derivative Litig., 907 A.2d 693 (Del.Ch.2005) (loyalty duties; conflict-of-interest considerations in consideration of merger)
- Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156 (Del.1995) (disclosure obligation tied to merger decisions)
- Stroud v. Grace, 606 A.2d 75 (Del.1992) (fiduciary duty to disclose material information)
- Arnold v. Soc’y for Sav. Bancorp, 650 A.2d 1270 (Del.1994) (fiduciary disclosure duties and related standards)