Tuesday, February 26, 2013

Tooley v. Donaldson, Lufkin & Jenrette, Inc. case brief

Tooley v. Donaldson, Lufkin & Jenrette, Inc. case brief summary
845 A.2d 1031

-Plaintiff, minority shareholders sued defendant corporation and its officer and directors (all referred to as corporation).
-The claimed that they suffered financial and time value damages by the corporation allegedly delaying the closing of the corporation's merger for 22 days.
-A Delaware Court of Chancery granted the motion to dismiss the action with prejudice by the corporation.
-The shareholders appealed.
-The corporation's motion to dismiss was granted on the sole ground that the claims were, at most, claims of the corporation that were being asserted derivatively.  They were not individual direct claims of the stockholders, therefore, they had standing to bring the suit after they tendered their shares in connection with the merger.

The highest court redefined the test to determine whether a claim was a "direct" shareholder or a "derivative" claim and expressly rejected
(1) a shareholder "special injury" test to determine if a claim was the shareholders' direct claim, and (2) that a claim was derivative if it affected all shareholders the same.

-The proper test was the Grimes, Kramer, and Parnes analysis--the nature of the wrong and to whom relief was to go.
-A direct shareholder claim included a duty, breach of that duty, and direct injury to the shareholder (independent of injury to the corporation).
-The shareholders alleged a direct injury, but, since the merger agreement gave the acquiring corporation, a condition precedent, the right to extend the merger date by the 22 days, which it exercised, they did not state a ripe claim against the corporation upon which relief could be granted.

OUTCOME: The highest court had:
(1) redefined a test to determine whether or not the shareholders' claim was a direct or a derivative claim,
(2) found they didn't state a derivative claim,
(3) found they did not state a ripe direct claim upon which relief could be granted, however that issue was not argued, and finally
(4) the court affirmed the dismissal.  The court, however, reversed the judgment and remanded for the trial court to dismiss the case without prejudice--with leave to replead.
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