Oliver v. Boston University, et al. (Del. Ch. Dec. 8, 2006), read opinion here See prior decision in this case summarized on this blog here for Oliver v. Boston University, 2006 WL 1064169 (Del. Ch. Apr. 14, 2006). 

The instant case involved a Motion for Reargument pursuant to Chancery Court Rule 59(f) of the above-cited 105-page long post-trial opinion which awarded actual and nominal damages to a plaintiff class of minority common stockholders of  a company called Seragen.  At issue in the trial was the allocation of the merger proceeds. The court determined (after 105-pages of analysis) that the allocation process was not fair to the minority shareholders. 

The court concluded that BU breached the duty of loyalty.  The court found that BU stood on both sides of the transaction, thus, it bore the burden of demonstrating the entire fairness (fair dealing and fair price) of the allocation.  The court held that BU failed to demonstrate fair dealing because the allocation process was carried out “with almost flippant disregard for the interests of the minority shareholders.”  For example, the court noted:  (i) there was no independent committee formed; (ii) there were no independent legal or financial advisors retained to assess the fairness of the allocation of the proceeds; and (iii) the president of BU testified that he did not think that the minority shareholders needed separate representation for their interests. 

Importantly, the court observed that it was

“not unmindful of a theme underlying the BU Defendants’ position:  in the colloquial, that “no good deed goes unpunished.”  But for the support of the BU Defendants, Seragen, it could plausibly (and, most likely, accurately) be argued, would have failed well before the merger . . . could have been accomplished.  That event, of course, would have deprived the Seragen minority stockholders of any recoupment of their investment.  The difficulty with the “no good deed goes unpunished” perception and with the BU Defendants’ Motion for Reargument is that the court necessarily must focus, for these purposes, on the process by which the merger proceeds were allocated.  No formula or preexisting models exist for ascertaining, in this context, an after-the-fact “fair” allocation.  The actual allocation was, in fact, established as a result of negotiation among certain constituencies within the Seragen community . . .  The shortcoming of the negotiation process was simple:  no one negotiated on behalf of the minority common stockholders; everyone involved in the negotiation effort was conflicted (i.e., interested or beholden to someone who was interested).  Thus, the Seragen fiduciaries failed to put in place any process to protect to any extent the interests of the minority common stockholders.  With that, there was a fundamental failure of fair process, as a result of the breach of fiduciary duty, in the allocation process, and that had an impact on the merger consideration reaching the minority common stockholders.”

The court acknowledged that the measure of damages was only a “approximation of what was ‘negotiated away’ because of the absence of entire fairness,” but the court in essence explained that any lack of precision in the remedy was the risk that the Defendants took because they were the ones who controlled the process by which the merger proceeds were allocated.


Waiver of Argument.  The court refused to address an argument raised for the first time after trial in the Motion for Reargument regarding the offset based on a partial settlement reached before trial but not finalized or approved by the court until several months after trial.  Thus, that argument was waived.  [As an aside I would add that, as recently explained in the Chancery Court decision of SS&C Technologies, summarized on this blog here, this is another example of the need to seek immediate court approval for settlements in derivative cases.]