Houseman v. Sagerman, No. 8897-VCG (Del. Ch. Apr. 16, 2014)

This case involved a suit brought by two shareholders of Universata, Inc., a Delaware corporation.  In 2009, the Plaintiffs sold their business to Universata for approximately $9 million, to be paid over a seven-year period.  When Universata began having difficulty making the payments, it transferred 525,000 shares of its common stock to the Plaintiffs in exchange for a portion of its debt.  In 2011, Universata’s board of directors (the “Board”) approved a merger in which its shareholders were to receive a total of approximately $1.19 per share.  Although the Board hired an investment bank to assist with due diligence, it decided against obtaining a formal fairness opinion.  After the merger closed, the Plaintiffs refused to tender their shares and filed suit in the Court of Chancery alleging, inter alia, that the Board had breached its fiduciary duty of loyalty.

In dismissing the Plaintiffs’ claim, the court reiterated the standard necessary to find a breach of the duty of good faith, stating: “a breach of the duty of good faith may be implicated either by a board’s utter failure to attempt to satisfy its fiduciary duties, . . . or by its ‘intentionally act[ing] with a purpose other than that of advancing the best interests of the corporation,’ for example by acting out of greed, hatred, lust, envy, revenge, shame, pride, or some other ‘human motivation.’”  The court found that although the sales process was not perfect, the Board “did [not] utterly fail to undertake any action to obtain the best price for stockholders.”  The court reasoned that the Board consulted legal counsel, contemplated, and rejected based on cost, obtaining a fairness opinion, hired an investment bank to assist in shopping the company, and considered bids from multiple bidders.  Accordingly, the facts alleged fell short of demonstrating bad faith.