January 31, 2011
In re John Q. Hammons Hotels: Delaware Chancery Rules In Favor Of Controlling Stockholder After Trial
Here is news from Richards Layton & Finger culled from this memo (posted in our “Minority Holders” Practice Area):
Following trial in In re John Q. Hammons Hotels Inc. Shareholder Litigation, the Delaware Court of Chancery ruled in favor of defendants, finding that the merger price was fair value, that controlling stockholder John Q. Hammons did not breach his fiduciary duties, and that the third-party acquirers did not aid and abet a (nonexistent) fiduciary duty breach.
In the Court’s summary judgment opinion in this case, the Court applied the entire fairness standard of review to the merger, which involved the third-party purchase of a corporation with a controlling stockholder who received consideration that was different from the minority. Because the transaction was approved by an independent and disinterested special committee, plaintiffs bore the burden at trial of proving the transaction was unfair. In its post-trial opinion, the Court noted that defendants “may actually have been entitled to business judgment rule protection,” but it analyzed the transaction under the entire fairness standard and found the process and the price to be fair.
The Court found that Mr. Hammons did not breach any fiduciary duties, particularly as he took less per-share consideration than the minority stockholders received. Finally, because no fiduciary duties had been breached, the Court rejected the claim against the acquirers for aiding and abetting.