Cinerama, Inc. v. Technicolor, Inc.
| Decision Date | 23 May 1995 |
| Docket Number | No. 2,1995,2,1995 |
| Parties | Fed. Sec. L. Rep. P 98,812 CINERAMA, INC., a New York corporation, Plaintiff Below, Appellant, v. TECHNICOLOR, INC., a Delaware corporation, Morton Kamerman, Arthur N. Ryan, Fred R. Sullivan, Guy M. Bjorkman, George Lewis, Jonathan T. Isham, MacAndrews & Forbes Group, Incorporated, a Delaware corporation, Macanfor Corporation, a Delaware corporation, and Ronald O. Perelman, Defendants Below, Appellees. . Submitted: |
| Court | United States State Supreme Court of Delaware |
Robert K. Payson, Peter J. Walsh, Jr. and Arthur L. Dent of Potter, Anderson & Corroon, Wilmington, and Gary J. Greenberg (argued), New York City, for appellant Cinerama, Inc.
Rodman Ward, Jr., Thomas J. Allingham, II (argued), David J. Margules, Robert M. Omrod and R. Michael Lindsey of Skadden, Arps, Slate, Meagher & Flom, Wilmington, for appellees MacAndrews & Forbes Group, Inc., Macanfor Corp. and Ronald O. Perelman.
Stephen E. Herrmann, of Richards, Layton & Finger, Wilmington, for appellees Technicolor, Inc., Morton Kamerman, Arthur N. Ryan, Fred R. Sullivan, Guy M. Bjorkman, George Lewis and Jonathan T. Isham.
Before HOLLAND, J., RIDGELY, President Judge, 1 and HORSEY, Justice, Retired. 2
Today's opinion completes a trilogy of decisions by this Court. The case involves claims by the plaintiff-appellant, Cinerama, Inc. ("Cinerama"), against the directors of Technicolor, Inc. ("Technicolor") and others. The issues presented relate to the sale of Cinerama did not tender its stock in the first stage of the MAF acquisition, which commenced on November 4, 1982. Cinerama dissented from the second stage merger, which was completed on January 24, 1983. After dissenting, Cinerama petitioned the Court of Chancery in March 1983 for an appraisal of its shares pursuant to 8 Del.C. § 262. During pretrial discovery in the appraisal proceedings, certain deposition testimony caused Cinerama to believe that the directors of Technicolor had failed to comply with their fiduciary duties in connection with the sale of the company.
Technicolor to MacAndrews & Forbes Group, Inc. ("MAF") in a two-stage tender offer/merger transaction for $23 per share in cash. Cinerama was at all times the owner of 201,200 shares of the common stock of Technicolor, representing 4.405 percent of the total shares outstanding.
In January 1986, Cinerama filed a personal liability action in the Court of Chancery against Technicolor, seven of the nine members of the Technicolor board of directors at the time of the merger, MAF, Macanfor and Ronald O. Perelman ("Perelman"). Perelman was MAF's board chairman and controlling shareholder. Cinerama's personal liability action alleged fraud, breach of fiduciary duty and unfair dealing. It included a claim for rescissory damages and other relief. 3
The defendants in the personal liability action filed a motion to dismiss on the ground that Cinerama had no standing to pursue such a claim after petitioning for an appraisal of its shares. The Court of Chancery denied the motion, but ruled that after discovery was completed, Cinerama would have to elect which cause of action it intended to pursue. See Cede & Co. v. Technicolor, Inc., Del.Ch., C.A. Nos. 7128, 8358, 1987 WL 4768 (Jan. 13, 1987). 4 Cinerama filed an interlocutory appeal to this Court. Cede & Co. v. Technicolor, Inc., Del.Supr., 542 A.2d 1182 (1988) ("Cede I ").
In Cede I, this Court held that the Court of Chancery had erred, as a matter of law, in requiring Cinerama to make an election of remedies before trial. We held that Cinerama was entitled to pursue concurrently, through trial, its appraisal action and its personal liability action. This Court then remanded the case to the Court of Chancery for a trial of those consolidated actions. Id. at 1192.
Following further discovery and an extended trial, the Court of Chancery announced its decision in the appraisal action first. In its "appraisal opinion" dated October 19, 1990, the Court of Chancery found the fair value of the dissenting shareholders' Technicolor stock to be $21.60 per share as of the date of the merger, January 24, 1983. Cede & Co. v. Technicolor, Inc., Del.Ch., C.A. No. 7129, 1990 WL 161084 (Oct. 19, 1990).
In June 1991, the Court of Chancery issued its "personal liability opinion," in which it found persuasive evidence that the defendant Technicolor directors had breached their fiduciary duties. Cinerama v. Technicolor, Inc., Del.Ch., C.A. No. 8358, 1991 WL 111134 (June 24, 1991). 5 Nevertheless, the Court of Chancery entered judgment for the defendants in the personal liability action. According to the Court of Chancery, even if the defendant directors had not exercised due care in approving the merger, Cinerama had failed to prove that it had been damaged. 6 Id. In reaching that conclusion, the Cinerama appealed from the judgments entered in both the appraisal action and the personal liability action. Cede & Co. v. Technicolor, Inc., Del.Supr., 634 A.2d 345 (1993), on reargument, 636 A.2d 956 (1994) ("Cede II "). In the personal liability action, this Court affirmed in part, reversed in part, and remanded to the Court of Chancery for an application of the entire fairness standard to the challenged transaction, and to resolve certain additional issues relating to the duty of loyalty. Because of our determination in the personal liability action, this Court did not decide Cinerama's appeal in the appraisal action.
Court of Chancery relied upon its valuation in its earlier appraisal opinion.
On remand, the Court of Chancery concluded that the defendants had met their burden of showing entire fairness, resolved the additional loyalty issues posited by this Court in Cede II, and entered judgment for the defendants. Cinerama, Inc. v. Technicolor, Inc., Del.Ch., C.A. No. 8358 (Oct. 6, 1994, revised Oct. 12, 1994, revised Oct. 18, 1994), reprinted in 20 Del.J.Corp.L. 277, 663 A.2d 1134 (1995) (hereinafter Cinerama, 663 A.2d 1134). Cinerama filed a notice of appeal on January 4, 1995. In this second post-trial appeal, Cinerama alleges that: (1) the Court of Chancery's failure to follow the rulings of this Court in Cede I and Cede II violated the mandate rule, as well as the law of the case doctrine; (2) the Court of Chancery erred in relitigating the duty of care issues; (3) the Court of Chancery improperly imposed upon Cinerama the burden of proving entire fairness; (4) the director defendants failed to carry their burden of proving that the plan of merger was entirely fair; (5) the Court of Chancery improperly refused to accept this Court's rejection of its reasonable person standard for determining the materiality of director conflicts and, under an appropriate test, a majority of the director defendants was burdened by material conflicts or otherwise lacked independence; (6) alternatively, the domination of the negotiation and consideration of the merger agreement by directors burdened by material conflicts was sufficient to establish a breach of the duty of loyalty; (7) alternatively, the failure of interested directors to disclose fully all material conflicts was sufficient to establish a breach of the duty of loyalty; (8) alternatively, director Fred R. Sullivan's ("Sullivan") bad faith disloyalty was of such material significance that his conduct alone was sufficient to establish a breach of the duty of loyalty; (9) the Court of Chancery failed to consider the purpose and intent of Article Tenth of the Technicolor charter; (10) the defendants violated the duty of disclosure by failing to inform the shareholders of director Arthur N. Ryan's ("Ryan") material self-interest; (11) the MAF defendants were liable to Cinerama as aiders and abetters of the director defendants' breaches of fiduciary duty; (12) the Court of Chancery erred, as a matter of law, in holding that rescissory damages were not available; and (13) the Court of Chancery should have found all of the defendants jointly and severally liable to pay rescissory damages to Cinerama of $32.8 million as of October 7, 1988, with interest, as well as to reimburse Cinerama for counsel fees and expert witness costs.
This Court has concluded the Court of Chancery's decision that the Technicolor sale was entirely fair to the shareholders and its judgment in favor of the defendants should be affirmed. Consequently, the questions framed by issues (12) and (13) above, and the Court of Chancery's discussion and determinations regarding damages, are not relevant in this appeal. Accordingly, this Court will neither address nor decide any of the damage issues raised on appeal.
In the following opinion this Court: first, reviews certain general principles relating to the procedural and substantive aspects of the business judgment rule and the substantive entire fairness standard; second, reviews the purpose of the remand in Cede II and distinguishes the remand in this case from that in Smith v. Van Gorkom, Del.Supr., 488 A.2d 858 (1985); third, addresses the Court of
Chancery's resolutions of the loyalty issues this Court remanded for consideration in Cede II; fourth, examines the Court of Chancery's conclusions concerning the substantive entire fairness of the sale of Technicolor to MAF according to the precepts articulated in Weinberger v. UOP, Inc., Del.Supr., 457 A.2d 701 (1983) and its progeny; and finally, affirms the Court of Chancery's judgment in favor of the defendants, pursuant to this Court's controlling and deferential standard of appellate review.
The facts of this case are recited at length in this Court's opinion following the first post-trial appeal. Cede II, 634 A.2d at 351-58. After our decision in Cede II, the parties stipulated to submit the remanded issues to the Court of Chancery without presenting any additional...
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