In re Wheelabrator Technolgies, Inc. Shareholders Litigation
663 A.2d 1194 (Del. Ch. 1995)



PROCEDURE: Defendants, target corporation and its directors, filed a motion for summary judgment under Del. Ch. Ct. R. 56(e) in a class action brought by plaintiffs, shareholders in a target corporation (class), challenging the merger of the target corporation into an acquiring corporation, and alleging breach of fiduciary obligation to disclose to the class material information concerning the merger.

FACTS: Waste Management, Inc. bought 22 percent of Wheelabrator Technologies, Inc. (D) (WTI) and elected four of its own directors to serve on WTI's (D) board, which consisted of eleven directors. In 1990, WTI (D) and Waste Management negotiated a merger agreement pursuant to which Waste Management would acquire another thirty-three percent of WTI's (D) stock, and WTI (D) shareholders would receive .574 WTI (D) shares and .469 Waste Management shares for each WTI (D) share they held. WTI's board held a special meeting to consider the agreement. The Waste Management designees did not attend the meeting. The directors reviewed copies of the agreement and heard from WTI's investment bankers and attorneys, who indicated the transaction was fair. The seven directors present unanimously approved the merger agreement. The Waste Management directors then joined the meeting, and the full board unanimously approved the agreement. At a special shareholder meeting, the majority of WTI shareholders also approved the agreement. The shareholders brought an action against WTI , alleging breach of fiduciary obligations to disclose material information concerning the merger and breach of duties of loyalty and due care. The defendants moved for summary judgment.


ISSUE: Does a fully informed disinterested shareholder approval pursuant to section 144(a)(2) invoke the business judgment rule thus limiting judicial review to issues of gift or waste with the burden of proof upon the attacking party?


RULE: Transactions, between corporation and its directors, or between corporation and entity in which corporation's directors are also directors or have financial interest, will not be voidable if transaction is approved in good faith by majority of disinterested stockholders; approval by fully informed, disinterested shareholders pursuant to statute invokes business judgment rule and limits judicial review to issues of gift or waste with burden of proof upon party attacking transaction.


HOLDING: The court held that: 1) the class failed to adduce evidence sufficient to defeat summary judgment on the duty of disclosure claim, as proxy statements in a vote to approve the merger were consistent with relevant facts; 2) the fully-informed shareholder vote approving the merger operated to extinguish the class' duty of care claims, but not its duty of loyalty claim; and 3) the business judgment standard of review, with the class having the burden of proof, rather than the entire fairness standard, applied to the class' claim against the directors that alleged their recommendation of the merger violated the duty of loyalty. The court granted in part summary judgment in favor of the target corporation and its directors on the claim of a breach of fiduciary obligation to disclose, and on the claim of a breach of duty of care. The court denied in part the target corporation's motion for summary judgment on the class' breach of duty of loyalty claim.