C.A. No. 3750-VCL (Del. Ch. Jan. 22, 2009) (Lamb, V.C.)
In this case, Vice Chancellor Lamb approved a settlement effecting changes to a merger agreement between the Wm. Wrigley Jr. Company and Mars, Inc. The merger announcement triggered several lawsuits alleging various breaches of fiduciary duty by the Mars board of directors, including 1) breach of the directors’ duty to secure the best available price; 2) a claim that the merger agreement contained improper lock-up provisions such as a $690 million termination fee; and 3) a claim that the proxy materials the board prepared for the stockholders were false and misleading. After the lawsuits were consolidated into a single class action suit and plaintiffs’ financial expert concluded that the merger price was fair, the plaintiffs focused on achieving a settlement creating changes to the lock-up provisions (a reduction in the termination fee by 10% and shortening the “tail” period for payment of the fee) and enhanced disclosures contained in the proxy materials. The Court was asked to approve the settlement as well as address timely objections to the settlement, challenging, among other things, the lack of an opt-out provision in the proposed class structure. The objectors argued that the Due Process Clause of the Fourteenth Amendment to the United States Constitution prohibited the certification of a non-opt-out class. Vice Chancellor Lamb found that argument was based on a misunderstanding of well-settled U.S. Supreme Court precedent, which was limited only to those class actions concerning claims for monetary judgments. The Vice Chancellor stated that since nearly all of the remedies sought were equitable in nature, including demands for injunctive relief and additional disclosures, the case fell within the reach of Court of Chancery Rules 23(b)(1) and (b)(2), which apply to class actions for class-wide injunctive or declaratory relief. In further support for his conclusion, the Vice Chancellor cited a previous Court of Chancery decision, allowing a “properly administered” class action without affording opt-out rights to be used to bind all absent shareholder/plaintiffs to a final judgment in an action seeking either equitable or monetary damages so long as there is notice and an opportunity to be heard. The Court found that the requirement of notice and an opportunity to be heard was satisfied in this case, and as such, the Court held that the U.S. Supreme Court and Delaware precedent did not prevent certification of the non-opt-out clause at issue. The Court ultimately overruled the objections because “traditional notions of fair play and substantial justice” were satisfied by giving notice and an opportunity to be heard when the class action was used as a mechanism to bind all absent stockholders to a final judgment in such an action. In so doing, the Vice Chancellor also agreed to certify the action as a class action and to approve the settlement as proposed.
The full opinion is available here.