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directors-has been characterized as a matter of first impression for this Court.FN35 In the past, we have implied that
officers of Delaware corporations, like directors,*709 owe fiduciary duties of care and loyalty, and that the fiduciary
duties of officers are the same as those of directors.FN36 We now explicitly so hold.FN37 The only question presented
FN36. That officers and directors of Delaware corporations have identical fiduciary duties has long been an
articulated principle of Delaware law. See, e.g., Guth v. Loft, Inc., 5 A.2d 503, 510 (Del.1939) (discussing
the duty of loyalty applicable to officers and directors); Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 361
(Del.1993) (same).
FN37. That does not mean, however, that the consequences of a fiduciary breach by directors or officers,
interest in acquiring First Niles. The alleged facts that make it reasonable to infer that Stephens violated his duty of
loyalty as a director, also establish his violation of that same duty as an officer. It also is reasonably inferable that
Safarek aided and abetted Stephens' separate loyalty breach. Safarek, as First Niles' Vice President and Treasurer,
depended upon Stephen's continued good will to retain his job and the benefits that it generated. Because Safarek
was in no position to act independently of Stephens, it may be inferred that by assisting Stephens to “sabotage” the
competitive bid for First Niles. Those facts support a reasonable inference that Safarek and Stephens attempted to
sabotage the Cortland and First Place due diligence process. On a motion to dismiss, the Court of Chancery was not
free to disregard that reasonable inference, or to discount it by weighing it against other, perhaps contrary, infer-
ences that might also be drawn. By dismissing Count I as applied to Stephens and Safarek as officers of First Niles,
the trial court erred.
they did not alter the “total mix” of information available to shareholders. FN39 Plaintiffs appeal only from certain of
those materiality rulings. With respect to the Sales Process, the plaintiffs claim that the complaint adequately alleges
that the defendants failed to disclose: (i) the circumstances of Cortland's withdrawal and (ii) insufficient *710 delib-
FN41. The Vice Chancellor found that claim immaterial at Gantler, 2008 WL 401124, at *22.
We conclude that the Proxy disclosures concerning the Board's deliberations about the First Place bid were material-
ly misleading. Because we reverse the dismissal of Count II on that basis, we do not reach the plaintiffs' remaining
disclosure claims.
here is whether the alleged omission or misrepresentation is material. The burden of establishing materiality rests
with the plaintiff, who must demonstrate “a substantial likelihood that the disclosure of the omitted fact would have
been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made availa-
ble.” FN44
FN42. Stroud v. Grace, 606 A.2d 75, 84 (Del.1992); In re Staples, Inc., S'holders Litig., 792 A.2d 934,
An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consid-
er it important in deciding how to vote.... It does not require proof of a substantial likelihood that disclo-
sure of the omitted fact would have caused a reasonable investor to change his vote. What the standard
does contemplate is a showing of a substantial likelihood that, under all the circumstances, the omitted
fact would have assumed actual significance in the deliberations of the reasonable shareholder. Put an-
the merits of that transaction.
FN48. State of Wisc. Inv. Bd. v. Bartlett, 2000 WL 238026, at *8 (Del.Ch. February 24, 2000); see also
consider on a motion to dismiss. That is, the defendants' argument requires considering facts not before the court,
which on a motion to dismiss is inappropriate.
On this basis, the dismissal of Count II must be reversed. We therefore do not address or decide the remaining
claimed disclosure violations.
rights). The Court of Chancery determined that the relevant Board for analytical purposes was the June 2006 Board
that voted to effect the Reclassification, because at any earlier time the Board could have decided to abandon the
transaction.FN49 The Vice Chancellor then concluded that the complaint sufficiently alleged that a majority of the
directors that approved the Reclassification Proposal lacked independence.FN50 Despite having so concluded, the
court dismissed the claim on the ground that a disinterested majority of the shareholders had “ratified” the Reclassi-
the Reclassification.” Id. at *13. The plaintiffs do not appeal that dismissal of Safarek.
The plaintiffs claim that this ratification ruling is erroneous as a matter of law. They argue that because the Proxy
disclosures were materially misleading, no fully informed shareholder vote took place. The plaintiffs also urge that
in determining the number of unaffiliated shares that were voted, the Court of Chancery took improper judicial no-
vote could not also operate to “ratify” the challenged conduct of the interested directors. Second, the adjudicated
cognizable claim that the Reclassification Proxy contained a material misrepresentation, eliminates an essential
predicate for applying the doctrine, namely, that the shareholder vote was fully informed.
© 2009 Thomson Reuters. No Claim to Orig. US Gov. Works.
A. The Doctrine of Shareholder Ratification
Under current Delaware case law, the scope and effect of the common law doctrine of shareholder ratification is
unclear, making it difficult to apply that doctrine in a coherent manner. As the Court of Chancery has noted in
*713In re Wheelabrator Technologies, Inc., Shareholders Litigation:
[The doctrine of ratification] might be thought to lack coherence because the decisions addressing the effect of
shareholder “ratification” have fragmented that subject into three distinct compartments, ... In its “classic” ...
form, shareholder ratification describes the situation where shareholders approve board action that, legally speak-
ing, could be accomplished without any shareholder approval.... “[C]lassic” ratification involves the voluntary ad-
holder vote is legally required for the transaction to attain legal existence.FN52
FN52. 663 A.2d 1194, 1202 and n. 4 (Del.Ch.1995) (citations omitted). See also Solomon v. Armstrong,
747 A.2d 1098, 1114-15 (Del.Ch.1999), aff'd, 746 A.2d 277 (Table) (Del.2000) (“The legal effect of share-
holder ratification, as it relates to alleged breaches of the duty of loyalty, may be one of the most tortured
areas of Delaware law. A different rule exists for every permutation of facts that fall under the broad um-
holders are specifically asked to approve.FN53 With one exception, the “cleansing” effect of such a ratifying share-
holder vote is to subject the challenged director action to business judgment review, as opposed to “extinguishing”
the claim altogether (i.e., obviating all judicial review of the challenged action).FN54
FN53. We previously so held in In re Santa Fe Pac. Corp. S'holder Litig., 669 A.2d 59, 68 (Del.1995),
which involved a claim that by adopting defensive measures to block an unsolicited takeover bid, the direc-
directors lacked the authority to take action that was later ratified. Nothing herein should be read as altering
the well-established principle that void acts such as fraud, gift, waste and ultra vires acts cannot be ratified
by a less than unanimous shareholder vote. See Michelson v. Duncan, 407 A.2d 211, 219 (Del.1979)
(“[W]here a claim of gift or waste of assets, fraud or [u]ltra vires is asserted that a less than unanimous
shareholder ratification is not a full defense.”); see also Harbor Fin. Partners v. Huizenga, 751 A.2d 879,
© 2009 Thomson Reuters. No Claim to Orig. US Gov. Works.
965 A.2d 695
END OF DOCUMENT
those materiality rulings. With respect to the Sales Process, the plaintiffs claim that the complaint adequately alleges
that the defendants failed to disclose: (i) the circumstances of Cortland's withdrawal and (ii) insufficient *710 delib-
FN41. The Vice Chancellor found that claim immaterial at Gantler, 2008 WL 401124, at *22.
We conclude that the Proxy disclosures concerning the Board's deliberations about the First Place bid were material-
ly misleading. Because we reverse the dismissal of Count II on that basis, we do not reach the plaintiffs' remaining
disclosure claims.
here is whether the alleged omission or misrepresentation is material. The burden of establishing materiality rests
with the plaintiff, who must demonstrate “a substantial likelihood that the disclosure of the omitted fact would have
been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made availa-
ble.” FN44
FN42. Stroud v. Grace, 606 A.2d 75, 84 (Del.1992); In re Staples, Inc., S'holders Litig., 792 A.2d 934,
An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consid-
er it important in deciding how to vote.... It does not require proof of a substantial likelihood that disclo-
sure of the omitted fact would have caused a reasonable investor to change his vote. What the standard
does contemplate is a showing of a substantial likelihood that, under all the circumstances, the omitted
fact would have assumed actual significance in the deliberations of the reasonable shareholder. Put an-
the merits of that transaction.
FN48. State of Wisc. Inv. Bd. v. Bartlett, 2000 WL 238026, at *8 (Del.Ch. February 24, 2000); see also
consider on a motion to dismiss. That is, the defendants' argument requires considering facts not before the court,
which on a motion to dismiss is inappropriate.
On this basis, the dismissal of Count II must be reversed. We therefore do not address or decide the remaining
claimed disclosure violations.
rights). The Court of Chancery determined that the relevant Board for analytical purposes was the June 2006 Board
that voted to effect the Reclassification, because at any earlier time the Board could have decided to abandon the
transaction.FN49 The Vice Chancellor then concluded that the complaint sufficiently alleged that a majority of the
directors that approved the Reclassification Proposal lacked independence.FN50 Despite having so concluded, the
court dismissed the claim on the ground that a disinterested majority of the shareholders had “ratified” the Reclassi-
the Reclassification.” Id. at *13. The plaintiffs do not appeal that dismissal of Safarek.
The plaintiffs claim that this ratification ruling is erroneous as a matter of law. They argue that because the Proxy
disclosures were materially misleading, no fully informed shareholder vote took place. The plaintiffs also urge that
in determining the number of unaffiliated shares that were voted, the Court of Chancery took improper judicial no-
vote could not also operate to “ratify” the challenged conduct of the interested directors. Second, the adjudicated
cognizable claim that the Reclassification Proxy contained a material misrepresentation, eliminates an essential
predicate for applying the doctrine, namely, that the shareholder vote was fully informed.
© 2009 Thomson Reuters. No Claim to Orig. US Gov. Works.
A. The Doctrine of Shareholder Ratification
Under current Delaware case law, the scope and effect of the common law doctrine of shareholder ratification is
unclear, making it difficult to apply that doctrine in a coherent manner. As the Court of Chancery has noted in
*713In re Wheelabrator Technologies, Inc., Shareholders Litigation:
[The doctrine of ratification] might be thought to lack coherence because the decisions addressing the effect of
shareholder “ratification” have fragmented that subject into three distinct compartments, ... In its “classic” ...
form, shareholder ratification describes the situation where shareholders approve board action that, legally speak-
ing, could be accomplished without any shareholder approval.... “[C]lassic” ratification involves the voluntary ad-
holder vote is legally required for the transaction to attain legal existence.FN52
FN52. 663 A.2d 1194, 1202 and n. 4 (Del.Ch.1995) (citations omitted). See also Solomon v. Armstrong,
747 A.2d 1098, 1114-15 (Del.Ch.1999), aff'd, 746 A.2d 277 (Table) (Del.2000) (“The legal effect of share-
holder ratification, as it relates to alleged breaches of the duty of loyalty, may be one of the most tortured
areas of Delaware law. A different rule exists for every permutation of facts that fall under the broad um-
holders are specifically asked to approve.FN53 With one exception, the “cleansing” effect of such a ratifying share-
holder vote is to subject the challenged director action to business judgment review, as opposed to “extinguishing”
the claim altogether (i.e., obviating all judicial review of the challenged action).FN54
FN53. We previously so held in In re Santa Fe Pac. Corp. S'holder Litig., 669 A.2d 59, 68 (Del.1995),
which involved a claim that by adopting defensive measures to block an unsolicited takeover bid, the direc-
directors lacked the authority to take action that was later ratified. Nothing herein should be read as altering
the well-established principle that void acts such as fraud, gift, waste and ultra vires acts cannot be ratified
by a less than unanimous shareholder vote. See Michelson v. Duncan, 407 A.2d 211, 219 (Del.1979)
(“[W]here a claim of gift or waste of assets, fraud or [u]ltra vires is asserted that a less than unanimous
shareholder ratification is not a full defense.”); see also Harbor Fin. Partners v. Huizenga, 751 A.2d 879,
© 2009 Thomson Reuters. No Claim to Orig. US Gov. Works.
965 A.2d 695
END OF DOCUMENT
