Harbor Finance Partners v. Huizenga
751 A.2d 879 (Del.Ch. 1999)
The directors of a corporation
called Republic solicited a proxy statement to shareholders in order to get approval to acquire a corporation
called AutoNation. The shareholders approved.
The directors just also just
happened to own a substantial amount of stock in AutoNation and made a
lot of money from the acquisition.
Shareholders brought a derivative
lawsuit against the directors for breach
of fiduciary duty.
The directors argued that
since the acquisition had been approved by shareholders, it could not
have been unfair.
The shareholders argued that
the proxy solicitation was
materially misleading, and so the vote shouldn't immunize the directors.
The Trial Court found for the
directors and dismissed the claim.
The Trial Court found that
the vote on the acquisition was informed and uncoerced and the
disinterested shares voted overwhelming for the acquisition.
The Court noted that under
the current law, the shareholders could still potentially prevail by
showing that the acquisition was such a bad deal that it constituted corporate
Corporate waste can be defined as "an exchange of
corporate assets for consideration so small as to lie beyond the range
at which a reasonable person might be willing to trade.
However, the Court looked at
the facts and found that the acquisition was not such a bad deal that it
rose to the level of corporate waste.
The Court reasoned that the
law should be reexamined to decide if there was even a need for the corporate
waste "safety valve."
In the Court's opinion, the
fact that there was a fully informed, uncoerced vote of disinterested
shareholders would seem to be strong evidence that there was a
"fair exchange" so how could it possibly rise to the level of corporate