Document: Chen, et al. v. Robert Howard-Anderson, et al., C.A. No. 5878-VCL (Del. Ch. Apr. 08, 2014)
The dispute in this case arose from a 2011 merger between Occam Networks, Inc. (“Occam”) and Calix, Inc. (“Calix”), in which all Occam shareholders received a nearly equal split of cash and Calix stock for their common shares. After the merger closed, Plaintiffs brought suit claiming that the Occam Board of Directors and certain managers had breached their fiduciary duties by acting unreasonably during the sale process.
In addressing the Defendant’s Motion for Summary Judgment, the Court of Chancery reaffirmed that (1) enhanced scrutiny (the Revlon standard) was the applicable standard of review when a merger resulted in a change of control, and (2) such a change of control arises when the consideration being paid out in a merger is approximately 50% cash and 50% stock. The court also found that the fact that a transaction has closed does not cause the standard of review to “relax from enhanced scrutiny to the business judgment rule.”
In applying enhanced scrutiny to the Occam merger, the court stressed the significant role director motive plays in determining the merger’s validity, reiterating that the Revlon standard functions as a way for a reviewing court to “‘smoke out mere pretextual justifications for improperly motivated decisions.’” The court went on to find that, although Occam directors had acted unreasonably during the sale process, all but one of those directors acted in a good faith and with the proper motive of obtaining the highest value for Occam’s shareholders. Accordingly, those directors violated only their duty of care, and were protected by the corporation’s exculpatory provision pursuant to 8 Del. C. 102(b)(7). But, because 8 Del. C. 102(b)(7) does not provide exculpation for corporate officers, officer-defendants were not insulated and thus not awarded summary judgment.