LASTER, Vice Chancellor.
In September 2010, Occam Networks, Inc. ("Occam" or the "Company") announced an agreement and plan of merger with Calix, Inc. (the "Merger Agreement"). The Merger Agreement called for Calix to acquire Occam through a merger in which each share of Occam common stock would be converted into the right to receive 0.2925 shares of Calix common stock and $3.83 in cash (the "Merger"). The Merger closed in February 2011. The plaintiffs contend that the defendants breached their fiduciary duties by (i) making decisions during Occam's sale process that fell outside the range of reasonableness and (ii) issuing a proxy statement for Occam's stockholder vote on the Merger (the "Proxy Statement") that contained materially misleading disclosures and material omissions.
After discovery, the defendants moved for summary judgment. The defendants ask the court to rule as a matter of law that they did not breach their fiduciary duties. Alternatively, the defendants who were Occam directors contend that the evidence at most could support a breach of the duty of care, for which a provision in Occam's certificate of incorporation exculpates them from liability (the "Exculpatory Provision").
As to the sale process claims, the director defendants' motion for summary judgment is granted. When the evidence is analyzed for purposes of Rule 56, with enhanced scrutiny as the standard of review, the record supports an inference that certain decisions fell outside the range of reasonableness. Nevertheless, the plaintiffs failed to develop sufficient evidence to support an inference that the directors acted with an improper motive. The Exculpatory Provision therefore insulates the director defendants from liability. The remaining defendants were officers who cannot invoke the Exculpatory Provision.
As to the disclosure claims, the motion for summary judgment is denied. When the evidence is analyzed for purposes of Rule 56, the record supports an inference that the Proxy Statement contained materially misleading disclosures and material omissions. The director defendants again invoke the Exculpatory Provision, but the record supports an inference that the defendants knew about the disclosure problems before approving the Proxy Statement. In addition, the defendants engaged in questionable conduct during discovery sufficient to support an inference that they sought to conceal evidence about potential disclosure issues until after the Merger closed. At this stage of the case, the defendants' conduct reinforces the inference of scienter. Summary judgment on the disclosure claims is therefore denied. A trial is both necessary and desirable to inquire into and develop the facts more thoroughly before seeking to apply the law.
The record for the defendants' summary judgment motion fills many binders, and the parties have submitted what are effectively post-trial briefs replete with extensive evidentiary citations. Each side weaves a tale out of the evidence and draws its own inferences from the documents and testimony. On a motion for summary judgment, the court cannot weigh the evidence, decide among competing inferences, or make factual findings. For purposes of this decision, Rule 56 requires that the evidence be construed in favor of the non-movant plaintiffs. What follows is therefore predominately the plaintiffs' side of the story.
Before the Merger, Occam was a publicly traded Delaware corporation based in Santa Barbara, California. Its stock traded on NASDAQ under the symbol OCNW. Occam developed, marketed, and supported products for the broadband access market.
Defendants Robert Howard-Anderson, Steven Krausz, Robert Abbott, Robert Bylin, Thomas Pardun, Brian Strom, and Albert Moyer constituted Occam's board of directors (the "Board"). Howard-Anderson also served as Occam's President and CEO. The other six directors were facially independent and disinterested outsiders. Two directors—Krausz and Abbott—were affiliated with investment funds that together held approximately 25% of Occam's common stock. Krausz, who had served as an Occam director since 1997 and as Chairman of the Board since 2002, was a general partner at U.S. Venture Partners ("USVP"). Together with its affiliates, USVP beneficially owned 15% of Occam's common stock. Abbott, who had served as an Occam director since 2002, was a general partner at Norwest Venture Partners ("Norwest"). Together with its affiliates, Norwest beneficially owned nearly 10% of Occam's common stock.
Another key player at Occam was defendant Jeanne Seeley, who had served as Occam's CFO since May 2008. Seeley was intimately involved in the process leading to the Merger. She was the person "running the deal" for Occam. Seeley Tr. at 181.
Analysts in the early 21st century divided the North American market for broadband access equipment into three tiers based on the size of the telecom companies who were the target customers. Occam primarily sold equipment to the Tier 3 segment, where the customers consisted of small rural service providers, many of whom relied on government subsidies. Occam had approximately 20-30% of the Tier 3 market at the time of the Merger. Occam had barely penetrated the Tier 2 segment, which consisted of larger service providers, and had no presence in the Tier 1 segment, which consisted of the largest service providers.
Calix is a Delaware corporation based in Petaluma, California. Calix did not go public until March 2010, after which its stock traded on the New York Stock Exchange under the symbol CALX. Like Occam, Calix manufactured broadband access equipment. Calix had approximately 30-40% of the Tier 3 segment. Unlike Occam, Calix had a significant presence in the Tier 2 segment.
Adtran, Inc. is a Delaware corporation based in Huntsville, Alabama. Like Occam and Calix, Adtran manufactured broadband access equipment. Adtran primarily operated in the Tier 1 and Tier 2 segments.
In January 2008, Occam won its first Tier 2 customer, FairPoint Communications, Inc. Occam took the business from Adtran, FairPoint's incumbent supplier. The win demonstrated Occam's ability to successfully compete against larger access equipment suppliers, like Calix and Adtran.
Occam also was circling TDS Telecom ("TDS"), another important Tier 2 customer. TDS historically used Calix as its exclusive supplier, but TDS had become dissatisfied with Calix and decided to become a two-supplier company. Going forward,
In early 2009, Krausz had several calls with Carl Russo, Calix's CEO, about a potential transaction between Occam and Calix. On March 13, Krausz reported to the Board on his activities. According to the minutes,
Defs.' Mot. Ex. 27. At a follow-up meeting on March 20, "the Board determined that formal discussions with [Calix] were not appropriate at this time but encouraged management to continue an informal dialogue to the extent possible." Defs.' Mot. Ex. 28. After the Board meeting, Krausz contacted Russo and explained Occam's position.
In April 2009, Occam retained Jefferies & Company, Inc. for advice on strategic alternatives. The Board believed that Occam needed to increase the scale of its business to compete. Options to increase scale included organic growth, acquisitions, or a combination with another company. On April 22, Jefferies gave the Board a presentation on market dynamics, the valuation environment, and potential alternatives.
During the summer of 2009, Occam continued working with Jefferies to evaluate a range of strategic alternatives. Krausz remained in contact with Russo and sought to keep Calix interested in a potential combination.
On July 31, 2009, Adtran's CFO called Howard-Anderson to discuss a potential combination and to invite Howard-Anderson to visit Adtran's corporate headquarters in Huntsville, Alabama. After the call, Adtran sent Occam a non-disclosure agreement. Occam never signed it, and Howard-Anderson did not take Adtran up on the invitation to visit Huntsville.
In August 2009, Jefferies reached out to Keymile International GmbH, a private European manufacturer of broadband access systems, to explore a potential acquisition. Later that month, on August 25, the Board met and discussed the Company's alternatives. On August 31, Krausz sent an email to the Board saying that he planned to call Russo as soon as Occam was able to settle a class action lawsuit stemming from an accounting restatement in 2007.
On September 1, 2009, Krausz told Howard-Anderson that he had spoken with the CEO of Zhone Technologies. Occam had identified Zhone as a potential transaction partner. Krausz reported that Zhone was "open to talking," and he suggested Howard-Anderson meet with Zhone. Defs.' Mot. Ex. 29. Zhone, however, wanted to be the acquirer. Occam saw this as a
On September 10, 2009, Occam issued a press release announcing that it had entered into a memorandum of understanding to settle the stockholder class action. Krausz promptly reached out to Russo by email, stating: "Give me a call when you have a chance. We have resolved the issues discussed before and [it's] probably time to talk if it is still of interest." Pls.' Opp'n Ex. 12. Russo apparently was still interested because, on September 21, Russo and Krausz spoke about a potential transaction.
On October 6, 2009, Howard-Anderson and Seeley met with the CFO of Keymile in Geneva, Switzerland. They scheduled a meeting for December 9 to further discuss a possible deal.
On October 15, 2009, Russo proposed to Krausz that Calix buy USVP's and Norwest's stakes in Occam. At the time, Calix was getting ready for its IPO, so Calix could not discuss a merger. But Calix was interested in a transaction with Occam, and Russo saw the purchase as "a leg up on acquiring Occam" after the IPO. Pls.' Opp'n Ex. 14. The purchase did not occur.
On November 13, 2009, Howard-Anderson asked Adtran whether it was still interested in pursuing an acquisition. Adtran again suggested an in-person meeting in Huntsville. This time Howard-Anderson agreed, and a meeting was scheduled for December.
On November 18, 2009, the Board met to evaluate Occam's alternatives. Jefferies reviewed six potential acquisition candidates, including Keymile, and the Board authorized management to make contact with them. Meanwhile, on November 21, Calix filed its preliminary registration statement for its IPO.
In early December, Howard-Anderson and other Occam representatives met in Europe with Keymile's management. In mid-December, Howard-Anderson met with Adtran representatives in Huntsville. During the visit, Adtran and Occam executed a non-disclosure agreement. James Matthews, Adtran's CFO, testified that Adtran "would have had a meeting earlier than [December] if Occam had ... an earlier interest for lack of a better term." Matthews Tr. at 164.
In an email on January 3, 2010, Howard-Anderson followed up with Adtran to get their thoughts on next steps. Howard-Anderson told Adtran that there was a short "window of opportunity to pursue something together" and that as January progressed, Occam would pursue other strategic alternatives. Defs.' Mot. Ex. 31. Adtran's CFO responded that Adtran was "continuing to review the opportunity" and had "scheduled an internal meeting for early next week to contemplate further steps." Id.
On January 29, 2010, the Board met again. Howard-Anderson and Seeley reported on discussions with Keymile. Jefferies provided an updated analysis of a Keymile acquisition. The Board instructed management to continue discussions with potential transaction partners.
On February 17, 2010, Occam entered into a superseding non-disclosure agreement with Adtran. Two days later, senior executives of Adtran and Occam met in Denver, Colorado. Occam made a 68-page presentation about its products and finances. Adtran's executives told Occam that they would "internalize" the information and get back to Occam the following week. Defs.' Mot. Ex. 34 at OCNX0002344.
In early March 2010, Adtran's CFO called Howard-Anderson to get further information for use in modeling Occam's revenue. Seeley had a call with the Adtran representatives, provided the requested information, and told the Adtran representatives that Occam was engaged in "ongoing, time sensitive, strategic plan efforts and that [Occam was] in a parallel process." Defs.' Mot. Ex. 35. Seeley then reported to the Board that "Adtran know[s] the next step is theirs and that it needs to be purposeful." Id. After that, Howard-Anderson received a voicemail from Adtran's CEO on March 16 saying that Adtran needed more time to finish "crunching their numbers." Defs.' Mot. Ex. 36. Howard-Anderson told the Board that Adtran's "[t]iming [was] starting to arouse [his] suspicions." Id. On March 24, Howard-Anderson and Adtran's CFO spoke again, but no offer was forthcoming.
On March 26, 2010, Howard-Anderson and Seeley had another call with Adtran's representatives. Adtran wanted even more information to help it model Occam's revenue. This time, Howard-Anderson and Seeley told Adtran to use publicly available projections. The Adtran representatives explained that because Adtran had little penetration in the Tier 3 segment, it needed information to understand the effect of a federal broadband stimulus program on Occam. The Occam representatives declined to provide anything beyond what was publicly available.
On April 21, 2010, Howard-Anderson followed up with Adtran. Adtran said it was "still actively interested in pursuing Occam" but cautioned that it was pursuing other alternatives. Defs.' Mot. Ex. 37. Adtran told Howard-Anderson that it had engaged a consultant, but that it had not hired an investment banker. Howard-Anderson told Adtran that Occam was "full-steam ahead on [its] strategic initiatives." Id. The next day, he reported to the Board on these discussions.
In early April 2010, Seeley asked Russ Sharer, the Vice President of Marketing, to create a set of revenue projections for Occam for 2010, 2011, and 2012. Sharer was one of Occam's longest-tenured employees, and his responsibilities included "produc[ing] models regarding revenue, revenue assumptions, [and] the market." Seeley Tr. at 58. He "knew the market very well." Id. At the time, only two public analysts followed Occam: George Notter of Jefferies and Tim Petrycki of Jesup & Lamont, Inc. Neither analyst had published an estimate of Occam's 2012 revenue.
On April 30, 2010, Sharer sent Seeley a final version of his spreadsheet (the "April Projections"). To develop the April Projections, Sharer used a top-down methodology, and he forecasted revenue of $115.6 million, $177.9 million, and $193.5 million for 2010, 2011, and 2012, respectively. Sharer's forecast also projected a small
The April Projections substantially exceeded the estimates that Adtran derived for Occam based on publicly available information. Adtran modeled Occam's revenue at $110.7 million for 2011 and $105.2 million for 2012. Adtran later increased its estimates to $130.6 million for 2011 and $124.1 million for 2012. At this stage of the proceedings, it is reasonable to infer that if Howard-Anderson and Seeley had provided Adtran with the April Projections once they were created rather than referring Adtran only to publicly available information, then Adtran would have valued Occam more highly and been a more ardent suitor.
In contrast to its cool reaction to Adtran, Occam had warmer interactions with other potential strategic partners. In early May 2010, Seeley discussed valuation with Keymile, and Krausz reconnected with Russo about a potential transaction with Calix. Calix had its completed IPO in March, selling 6.33 million shares at $13 per share in an offering underwritten by Jefferies, Goldman Sachs, and Morgan Stanley. Afterwards, Krausz emailed Howard-Anderson to report on his "nice chat" with Russo and Russo's "interest[] in having coffee." Pls.' Opp'n Ex. 27. Krausz asked if the meeting should wait until after the next Board meeting. Howard-Anderson suggested having the conversation beforehand.
On May 13, 2010, Krausz and Russo met and discussed a potential transaction between Occam and Calix. On May 19, both Krausz and Howard-Anderson met with Russo and discussed a potential transaction. On May 24, Howard-Anderson and Russo met again. Three days later, Occam entered into a non-disclosure agreement with Calix. The next day, Calix sent Occam an initial term sheet contemplating a stock-for-stock merger that valued Occam at $155.6 million, or $7.02 per share. Calix asked for an exclusive negotiation period of approximately 30 days.
An internal Calix presentation dated May 28, 2010, suggests that Calix was willing to pay significantly more for Occam. The presentation derived a valuation range of $9.19 to $12.87 per share and observed that "anything less than $9.00 represents a good value." Pls.' Opp'n Ex. 33 at CALIX001267. The presentation also observed that "[a]nything under $9 per share is very accretive." Id. at CALIX001269. In addition, the presentation suggests that Calix had inside information about Occam. The presentation stated that "[t]here is clearly a schism in [Occam's] board" and that Occam's "[g]rowth strategy has proved ineffective." Id. It explained that "USVP and [Norwest] are the only investor/board members" and "[t]hey want to ride a different stock." Id. The presentation declared that Calix would "exploit this schism by subtly playing to the 25% shareholder(s) on the board." Id.
At this procedural stage, it is reasonable to infer that Krausz provided Russo with the information that appeared in the Calix management presentation. In the weeks before the presentation, Krausz had communicated several times with Russo, as he had throughout Occam's sale process. At the time of the presentation, Krausz had recently polled the Occam directors on their thoughts about Occam's strategic options,
On May 30, 2010, the Board met to discuss Calix's initial term sheet and the status of discussions with Keymile. The Board authorized Seeley to deliver a proposed term sheet to Keymile and directed management to give Calix comments on its proposal. The Board instructed management to continue discussions with Calix, Keymile, and Adtran.
On June 1, 2010, Occam proposed to acquire Keymile for $80 million. On June 4, Howard-Anderson and Russo spoke about the Calix bid. Howard-Anderson made a point of raising management's change-in-control severance agreements and confirming that they would be honored. On June 10, in response to feedback from Occam, Calix submitted a revised term sheet that increased the total purchase price to $156 million, or $7.04 per share, to be paid in a mix of cash and stock. The Board met that same day and reviewed the Calix offer, the status of negotiations with Keymile, and the status of discussions with Adtran.
In May 2010, having created the April Projections, Sharer sent them to Seeley. Seeley in turn forwarded them to Imelda Farrell, Occam's Director of Financial Planning and Analysis, who reported to Seeley. Seeley wrote that she and Howard-Anderson had reviewed the model and wanted Farrell to use the April Projections "to model out the rest of the P & L and cash flow." Defs.' Mot. Ex. 89. It is reasonable to infer at this stage of the proceedings that Howard-Anderson and Seeley regarded the April Projections as reasonable given that they did not ask for any changes and told Farrell to use them for further modeling.
As requested, Farrell used the April Projections to develop a revenue model for Occam. In June 2010, Farrell finished revising the model. The revised version lowered the revenue forecasts for 2010 from $115.6 million to $100.2 million, for 2011 from $177.9 million to $165.8 million, and for 2012 from $193.5 million to $182.3 for 2012 (the "June Projections"). Pls.' Opp'n Ex. 34; Seeley Tr. at 72. On June 8, she sent the model to Seeley.
The June projection of $165.8 million in revenue for 2011 was substantially higher than the estimates of the two public analysts who followed Occam. Notter, the analyst from Jefferies, projected Occam's 2011 revenue at $113.7 million. Petrycki, the analyst from Jesup & Lamont, projected Occam's 2011 revenue at $140.7 million. Neither had published a revenue projection for 2012.
Likewise, the June Projections of $165.8 million in revenue for 2011 and $182.3 million in 2012 were materially higher than Adtran's internal projections for Occam of $110.7 million in 2011 and $105.2 million in 2012. They also materially exceeded higher projections for Occam that Adtran later would create of $130.6 million for 2011 and $124.1 million for 2012. As with the April Projections, it is reasonable to infer that if Adtran had received the June Projections, then Adtran would have valued Occam more highly and been a more persistent suitor.
Also during this period, Jefferies touched base with Adtran. The lead banker at Jefferies described Adtran's CEO as "very interested" and remarked that Adtran believed that it had reached a "common understanding on price" with Occam. Pls.' Opp'n Ex. 38.
On June 23, 2010, Calix submitted a revised term sheet increasing the aggregate merger consideration to $171.1 million, or $7.72 per share. That same day, Keymile expressed interest in being acquired by Occam, subject to some changes in the terms. Defs.' Mot. Ex. 51. Adtran confirmed its interest in buying Occam, and on June 24, Adtran sent a letter of intent proposing an all-cash offer at a 30-35% premium to Occam's trading price. Defs.' Mot. Ex. 52. Using the midpoint of the range, this equated to an offer of $8.60 per share, representing a premium of approximately 11% over Calix's bid. Adtran asked for an exclusive negotiating period that would extend through mid-July. Id.
On June 24, 2010, the Board met to consider the various alternatives available to Occam. The Board identified three principal alternatives: a cash-and-stock merger with Calix, a cash sale to Adtran, or remaining independent with a potential acquisition of Keymile. Jefferies provided a presentation that addressed the Calix and Adtran alternatives. Although the bid from Adtran was nominally higher, Jefferies described the two offers as equivalent for "illustrative purposes." Defs.' Mot. Ex. 44 at OCNX0003203. In his deposition, Krausz could not recall if the Board ever knew that Adtran's bid was 11% higher. Krausz Tr. at 71-75.
For purposes of its financial analysis, Jefferies used a revenue estimate of $113.7 million for 2011, which was the lower of the two revenue forecasts by public analysts. Jefferies used a figure of $98.8 million for 2010. The April Projections forecasted revenue of $115.6 million for 2010, $177.9 million for 2011, and $193.5 million for 2012. The June Projections forecasted revenue of $100.2 million for 2010, $165.8 million for 2011, and $182.3 million for 2012. It is reasonable to infer at this stage of the proceedings that if Jefferies had used management's internal projections, the sale alternatives would have been less attractive and the standalone alternative more attractive.
The Board directed management to continue pursuing all three alternatives. On June 25, 2010, Seeley reported to the Board that Adtran planned to send a revised proposal by June 30 and that Calix asked to make a presentation to the Board on either June 30 or July 1.
On June 30, 2010, the Board met again to discuss the three alternatives. Seeley reported that the day before, Adtran had told Jefferies it was "still very much moving forward" and understood that Occam needed an offer by June 30 or July 1, the earlier the better. Pls.' Opp'n Ex. 46. Russo then joined the meeting and made a presentation about Calix and its proposal. After the meeting, the Board instructed Howard-Anderson and Jefferies to give Adtran a 24-hour deadline to make a bid.
The Board also instructed Jefferies to conduct a 24-hour "market check." On July 1, 2010, the Thursday before the July 4th weekend, Jefferies sent emails to the following seven potential buyers: ADC, Alcatel-Lucent, Ciena, Cisco, Huawei, Ericsson, and Juniper. None of the emails mentioned Occam by name. Each email imposed a 24-hour deadline for a response.
Despite the ambiguity of the emails, five of the seven potential buyers stated that they were interested, but that the time frame was too short for a response. One of the larger potential acquirers responded that it might be interested, but it was "starting a full week shut-down" for the July 4th holiday. The potential acquirer asked Jefferies to reach out again after the holiday if the company was in a position to have a discussion. The sixth candidate stated that they were in the midst of an internal evaluation. The seventh did not respond in time. Also on July 1, Adtran told Jefferies that it would not move forward with a revised bid for Occam within the 24-hour time frame Occam had provided.
At 6:33 p.m. on July 1, 2010, after sending out the "market check" emails, a banker from Jefferies sent an email to Seeley about projections for 2011 and 2012. He stated, "We are updating our analysis, and we wanted . . . to see if there were longer-term projections for [Occam] available. George Notter [the Jefferies analyst] only provides estimates through CY11, so we went ahead and projected CY12 and CY13. Let us know if these look reasonable." Pls.' Opp'n Ex. 52 at J1795. Jefferies had been advising Occam on its strategic alternatives for months, including on its negotiations with potential acquirers, yet Jefferies had never before obtained internal management projections from Occam.
The Jefferies analysis used $113.7 million as its revenue projection for 2011 and $130.7 million for 2012. Seeley responded by sending Petrycki's analyst report and stating, "Top line growth for 2011 looks light given stimulus. You might want to look at the attached and apply a growth rate on a higher 2011 base." Pls.' Opp'n Ex. 53. She did not give Jefferies the June Projections.
On July 2, 2010, the Jefferies banker replied to Seeley's July 1 email stating, "Attached are updated projections. If possible tomorrow morning, let us know if these look reasonable. One of the board members had requested additional analysis on 2012 for [Calix] and [Occam], so we are expanding the forecast for [Occam] ([Calix] has equity research through 2012)." Pls.' Opp'n Ex. 54 at J001774. The attached projections forecasted $140.7 million in revenue for 2011 and $180.8 million in revenue for 2012. Id. at J1777. Seeley responded that those "[l]ook[ed] reasonable." Pls.' Opp'n Ex. 55. She did not provide the June Projections. Nevertheless, the Jefferies 2012 revenue figure came close to the June Projections forecast of $182.3 million in 2012.
Later on July 2, the Board met. Jefferies reported that Adtran had "[d]eclined to pursue on [the] suggested timetable." Defs.' Mot. Ex. 57 at OCNX0000769. Jefferies also reported on the results of the
Jefferies then presented an updated analysis of the Calix and Keymile alternatives. The presentation included valuation metrics that used new projections of $109.5 million in revenue for 2010, $140.7 million for 2011, and $180.8 million for 2012. These forecasts exceeded by a considerable margin the projections provided to the Board on June 24, with an increase of 11% for 2010 and an increase of 24% for 2011. There is no indication that anyone explored the differences with the Board or addressed how the higher revenue figures could affect the analysis of strategic alternatives.
The Board authorized management to respond to Calix, and on July 4, 2010, Occam sent Calix a revised term sheet. Occam did not counter on price and made no changes to Calix's aggregate offer of $171.1 million. Occam did propose that the price per share assume that that all vested management equity awards would be exercised and paid out in the deal. On July 13, Calix sent back a revised term sheet and exclusivity agreement. The only changes were to the proposed terms of the exclusivity.
The Board met the next day to consider Calix's revised proposal. The Board directed management to enter into the exclusivity agreement based on the term sheet. Russo emailed his board, saying, "I am very happy with the outcome . . . I believe it is a very key deal for us and at a very attractive price." Pls.' Opp'n Ex. 61.
By July 2010, Occam had made considerable headway with TDS, a potential Tier 2 customer, including a "verbal" win to supply equipment to TDS's Union, New Hampshire property. Pls.' Opp'n Ex. 31 at OCNX0013811. In the jargon of the trade, this was a "First Office Application," which refers to the phase when actual revenue generating traffic begins running over an equipment provider's network. It is usually the last stage before mass deployment. By early August 2010, TDS and Occam were contemplating a wide range of new opportunities, actively discussing plans for deployment, and negotiating pricing.
On August 11, 2010, the Board met again. By this time, the Board and management realized that Occam's third quarter results were tracking considerably ahead of expectations. On August 6, the exclusivity agreement expired when Calix failed to reconfirm its intention to proceed with the transaction at the price in the term sheet. This gave the Board an opportunity to contact other bidders or use that threat to re-open negotiations with Calix. Without contacting Adtran or any other potential partners, and without using the improved results to revisit the question of price, the Board authorized management to extend the exclusivity period. The Board also approved amendments to indemnification agreements between Occam and Krausz and Abbott, the two venture capital directors on the Board. The amendments provided that any indemnification obligations owed by Occam to those two directors would take priority over any indemnification obligations owed to the directors by their venture capital firms.
In mid-August 2010, Calix asked for Occam's management projections for Morgan Stanley to use in its fairness analysis. Seeley asked Jefferies why Morgan Stanley could not use the two public analyst projections. A Jefferies banker responded:
Pls.' Opp'n Ex. 65. Shortly after receiving this response, Seeley emailed Farrell to ask her to "go over/refresh the forecast we have for 2010-2012, as well as the assumptions. I would like to review early Monday morning." Defs.' Mot. Ex. 93 at OCNX0023563.
On Sunday, August 15, 2010, Farrell asked Sharer to revisit Occam's projections. Sharer reduced Occam's market share estimates for 2011 and 2012, which sharply reduced the revenue forecasts for those years. For 2011, he cut Occam's share of the Tier 2 and Tier 3 market from 19% to 15% and Occam's share of the international market from 6.5% to 1.75%. For 2012, he cut Occam's share of the Tier 2 and 3 market from 20% to 16%, the international market from 10% to 2.5%. Farrell used the revised figures to update her own spreadsheet and sent the results to Seeley. Seeley forwarded the numbers to Howard-Anderson.
Between August 17 and 19, Seeley had Farrell continue revising the projections. On August 19, 2010, after receiving approval from Seeley, Farrell sent Jefferies a set of projections that forecast revenue of $99.0 million for 2010, $142.9 million for 2011, and $155.1 million for 2012 (the "August Projections"). The June Projections had forecast revenue of $100.2 million for 2010, $165.8 million for 2011, and $182.3 million for 2012.
As August progressed, Occam's third quarter results continued to track ahead of estimates. To account for the improvements, Occam increased its third quarter revenue forecast from $26.4 million to $27.8 million, and the fourth quarter revenue forecast from $27.7 million to $28.2 million. Farrell sent Seeley an updated version of the August Projections that accounted for the increases and made adjustments to the expense and margin structure for the balance of 2010, 2011, and 2012.
Farrell then sent Jefferies a revised spreadsheet that included updated projections only for 2010 and 2011 (the "Revised August Projections"). According to Farrell, Seeley instructed her to delete the 2012 projections. For purposes of summary judgment, this testimony must be taken as true.
On August 23, 2010, TDS informed Occam that TDS had been awarded government stimulus funds and invited Occam to bid on a long list of broadband stimulus projects. Only vendors on TDS's "short list" were invited to bid on the projects. Pls.' Opp'n Ex. 82. This was a huge achievement for Occam. Management devoted five slides in its August 26 Board presentation to describing the burgeoning TDS relationship.
None of the Occam projections were ever revised to incorporate the successful relationship with TDS. Sharer confirmed in an email dated August 24, 2010, that his estimates did not incorporate "a significant win in Tier 2 with major ($10M per year) impact during the period." Pls.' Opp'n Ex. 82a at OCNX023612. Sharer excluded the revenue because he assumed that Calix would acquire Occam and that TDS then would choose a different firm as its second supplier.
On September 15, 2010, the Board met again to consider whether to approve the deal with Calix. Jefferies opined that the transaction between Occam and Calix was "fair, from a financial point of view" to Occam's stockholders. Defs.' Mot. Ex. 77. The fairness opinion stated that Jefferies had reviewed "certain information furnished to [it] by the Company's management, including financial forecasts for calendar years 2010 and 2011 only, having been advised by management of the Company that it did not prepare any financial forecasts beyond such period, and analyses, relating to the business, operations and prospects of the Company." Defs.' Mot. Ex. 1 at B-1 (emphasis added).
There is no explanation in the record for the italicized language, which is contrary to the evidence. The April Projections, June Projections, and August Projections all included financial forecasts for 2012. Jefferies was provided with the August Projections, which included financial forecasts for 2012. Howard-Anderson reviewed the April Projections and the June Projections. Seeley reviewed all three sets of projections.
The Merger Agreement called for Occam stockholders to receive $3.83 in cash and 0.2925 shares of Calix common stock. At the time of approval, based on the trading price of Calix's shares, the aggregate value of the consideration was $7.75 per share, representing an approximately 60% premium over Occam's trading price. The transaction implied an equity value for Occam of $171 million. The Merger Agreement contained a no-shop clause with a fiduciary out, a four-day match right, and a termination fee of $5.2 million representing approximately 3% of the equity value. The Board resolved unanimously to approve the Merger and recommend it to the Company's stockholders.
On September 16, 2010, Occam and Calix announced the Merger. Plaintiffs holding approximately 19% of Occam's common stock filed suit on October 6. On January 24, 2011, the court issued a preliminary injunction blocking the parties from proceeding with the stockholder vote on the Merger until corrective disclosures were made. On February 7, Occam made the required disclosures.
Occam's stockholders approved the Merger on February 22, 2011. Out of 21,551,376 issued and outstanding shares, 13.7 million (64%) voted in favor. Of these shares, approximately 5.7 million were obligated to vote in favor pursuant to a support agreement. Of the 15.8 million nonobligated shares, nearly 8 million (50.5%) voted in favor.
On January 6, 2012, this court certified a non-opt out class comprising all of the unaffiliated shares and appointed plaintiffs Herbert Chen and Derek Sheeler as class representatives. During fact discovery, the parties took over 20 depositions and
After fact discovery closed, the defendants moved for summary judgment. In support of their motion, the defendants attempted to rely on post-closing events, including Calix's post-closing performance, to show that the Board correctly decided to take the Calix bid rather than try to build greater value as a stand-alone company. Fiduciary decisions are not judged by hindsight. The defendants' actions must stand or fall based on what they knew and did at the time.
Under Court of Chancery Rule 56, summary judgment "shall be rendered forthwith" if "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Ct. Ch. R. 56(c). The moving party bears the initial burden of demonstrating that, even with the evidence construed in the light most favorable to the non-moving party, there are no genuine issues of material fact. Brown v. Ocean Drilling & Exploration Co., 403 A.2d 1114, 1115 (Del. 1979). If the moving party meets this burden, then to avoid summary judgment the non-moving party must "adduce some evidence of a dispute of material fact." Metcap Sec. LLC v. Pearl Senior Care, Inc., 2009 WL 513756, at *3 (Del.Ch. Feb. 27, 2009), aff'd, 977 A.2d 899 (Del.2009) (TABLE); accord Brzoska v. Olson, 668 A.2d 1355, 1364 (Del.1995).
On an application for summary judgment, "the court must view the evidence in the light most favorable to the non-moving party." Merrill v. Crothall-American, Inc., 606 A.2d 96, 99 (Del.1992). "Any application for such a judgment must be denied if there is any reasonable hypothesis by which the opposing party may recover, or if there is a dispute as to a material fact or the inferences to be drawn therefrom." Vanaman v. Milford Mem'l Hosp., Inc., 272 A.2d 718, 720 (Del.1970).
Cont'l Oil Co. v. Pauley Petroleum, Inc., 251 A.2d 824, 826 (Del.1969). "The test is not whether the judge considering summary judgment is skeptical that [the nonmovant] will ultimately prevail." Cerberus Int'l, Ltd. v. Apollo Mgmt., L.P., 794 A.2d 1141, 1150 (Del.2002). "If the matter depends to any material extent upon a determination of credibility, summary judgment is inappropriate." Id. When a party's state of mind is at issue, a credibility determination is "often central to the case." Johnson v. Shapiro, 2002 WL 31438477, at *4 (Del.Ch. Oct. 18, 2002). "In such cases, the court should evaluate the demeanor of the witnesses whose states of mind are at issue during examination at trial." Id.
"There is no `right' to a summary judgment." Telxon Corp. v. Meyerson, 802 A.2d 257, 262 (Del.2002). When confronted with a Rule 56 motion, the court may, in its discretion, deny summary judgment if it decides upon a preliminary examination of the facts presented that it is desirable to inquire into and develop the facts more thoroughly at trial in order to clarify the law or its application.
The defendants ask the court to determine as a matter of law that they did not breach their fiduciary duties by deciding to sell Occam to Calix. In the alternative, the director defendants contend that they at most breached their duty of care and are therefore protected by the Exculpatory Provision. Summary judgment based on the Exculpatory Provision is granted in favor of Krausz, Abbott, Pardun, Moyer, Bylin, and Strom.
When determining whether corporate fiduciaries have breached their duties, Delaware corporate law distinguishes between the standard of conduct and the standard of review.
"Delaware has three tiers of review for evaluating director decision-making: the business judgment rule, enhanced scrutiny, and entire fairness." Reis v. Hazelett Strip-Casting Corp., 28 A.3d 442, 457 (Del.Ch.2011). Which standard of review applies will depend initially on whether the board members
In each manifestation, the standard of review is more forgiving of directors and more onerous for stockholder plaintiffs than the standard of conduct. The numerous policy justifications for this divergence largely parallel the well-understood rationales for the business judgment rule.
In this case, the Board approved a merger in which each publicly held share of Occam common stock would be converted into the right to receive $3.83 in cash plus 0.2925 shares of Calix common stock. On September 15, 2010, when the directors approved the Merger, the relative value of the two components was approximately 49.6% cash and 50.4% stock. At the preliminary injunction stage, this court applied enhanced scrutiny, citing the divergent interests created in an M & A scenario by the final period problem. See Dkt. 70 at 86. See generally J. Travis Laster, Revlon is a Standard of Review: Why It's True and What It Means, 19 Fordham J. Corp. & Fin. L. 5, 8-18 (2013) [hereinafter Standard of Review]. The court denied the application for a preliminary injunction because of a lack of irreparable harm and after balancing the equities. Dkt. 70 at 85. A subsequent Court of Chancery decision held that this transactional structure triggers enhanced scrutiny. See In re Smurfit-Stone Container Corp. S'holder Litig., 2011 WL 2028076, at *12-16 (Del.Ch. May 20, 2011).
The fact that the transaction has closed does not cause the standard of review to relax from enhanced scrutiny to
Rather than the fact of closing, what could affect the standard of review for a sale process challenge (at least in my view) would be a fully informed, non-coerced stockholder vote.
The plaintiffs want the standard of review to escalate. They say the evidence they obtained in discovery after the preliminary injunction phase should cause the
Howard-Anderson was interested in the Merger. He personally received more than $840,500 in benefits from the Merger that were not shared with the stockholders generally, including $272,803 in cash severance and other benefits from a Change of Control Severance Agreement. The Board acted to increase the amounts due under his severance agreement on September 16, 2010, the same day the Merger Agreement was executed. It can be inferred at this procedural stage that the benefits were material to him. See, e.g., In re Primedia Inc. Deriv. Litig., 910 A.2d 248, 261 n. 45 (Del.Ch.2006) (noting that compensation from employment is generally material); In re Student Loan Corp. Deriv. Litig., 2002 WL 75479, at *3 n. 3 (Del.Ch. Jan. 8, 2002) (same).
Krausz, Abbott, Pardun, and Moyer were disinterested and independent with respect to the Merger. The plaintiffs correctly observe that as a general partner of USVP, Krausz faced the dual fiduciary problem identified in Weinberger v. UOP, Inc., 457 A.2d 701, 710 (Del.1983). There, the Delaware Supreme Court held that there was "no dilution" of the duty of loyalty when a director "holds dual or multiple" fiduciary obligations and "no `safe harbor' for such divided loyalties in Delaware." Id. If the interests of the beneficiaries to whom the dual fiduciary owes duties diverge, the fiduciary faces an inherent conflict of interest.
In this case, the nature of USVP's investment did not cause its interests to diverge from those of the undifferentiated equity and did not create any conflict for Krausz. USVP owned approximately 15% of the outstanding common stock. "Delaware law presumes that investors act to maximize the value of their own investments." Katell v. Morgan Stanley Gp., Inc., 1995 WL 376952, at *12 (Del.Ch. June 15, 1995). When directors or their affiliates own "material" amounts of common stock, it aligns their interests with other stockholders by giving them a "motivation
In an effort to show that USVP had a divergent interest, the plaintiffs note that virtually all of USVP's holdings were owned by a fund scheduled to terminate on December 31, 2009. By the time of the Merger, the fund had been extended for more than a year. The plaintiffs say that, on a motion for summary judgment, the court must infer that USVP and Krausz had an incentive to sell Occam in the near term to a cooperative acquirer like Calix so they could wind down the fund.
Delaware cases recognize that liquidity is one "benefit that may lead directors to breach their fiduciary duties," and stockholder directors may be found to have breached their duty of loyalty if a "desire to gain liquidity . . . caused them to manipulate the sales process" and subordinate the best interests of the corporation and the stockholders as a whole.
The plaintiffs advanced a similar case against Abbott, who was a general partner at Norwest. As with USVP and Krausz, the nature and structure of Norwest's ownership position in this case did not cause its interests to diverge from the common stock and did not create any conflict for Abbott. Norwest owned nearly 10% of Occam's common stock. The Norwest funds did not have a wind-down issue: They were not scheduled to terminate until 2017.
As to Pardun, the plaintiffs argue that he is not independent of USVP. The plaintiffs contend that he relied on USVP for directorships, serving not only as a director of Occam but also on the boards of MaxLinear, Inc. and MegaPath, Inc., where USVP was also a major stockholder and Krausz a director. They also point out that Pardun owned a "sidecar" investment in one of USVP's funds, where he had a carried interest. The defendants have pointed to contrary evidence that supports Pardun's independence, but assuming for the sake of analysis that Pardun could have felt some sense of obligation to Krausz and USVP such that a negative inference could be drawn for purposes of a motion for summary judgment, Pardun's lack of independence would not create a conflict. As previously explained, the interests of Krausz and USVP were aligned with those of the common stockholders. The fact that Pardun became a director of Calix following the Merger, standing alone, did not make him interested in the transaction. See Orman, 794 A.2d at 28-29.
As to Moyer, the plaintiffs observe only that he served with Pardun on the boards of MaxLinear and CalAmp Corp. and that Pardun was once a director of Western Digital Corp., where Moyer had been CFO. These connections are insufficient to give rise to a dispute of material fact about Moyer's disinterestedness and independence.
As the foregoing analysis shows, the plaintiffs have not called into question the disinterestedness and independence of a sufficient number of directors to cause the standard of review to intensify to entire fairness. Enhanced scrutiny remains the governing standard of review.
Tailored to the M & A context, enhanced scrutiny requires that the defendant fiduciaries show that they "act[ed] reasonably to seek the transaction offering the best value reasonably available to the stockholders," which could be remaining independent and not engaging in any transaction at all. Paramount Commc'ns
As these formulations demonstrate, the metric for measuring fiduciary duties under the enhanced scrutiny test is reasonableness. In re Toys "R" Us, Inc. S'holder Litig., 877 A.2d 975, 1000 (Del.Ch. 2005) ("[In Revlon,] the Supreme Court held that courts would subject directors subject to Revlon . . . to a heightened standard of reasonableness review, rather than the laxer standard of rationality review applicable under the business judgment rule."). As Chief Justice Strine explained while serving as a Vice Chancellor,
In re Netsmart Techs., Inc. S'holder Litig., 924 A.2d 171, 192 (Del.Ch.2007) (footnote omitted); accord Dollar Thrifty, 14 A.3d at 598 (noting that when applying enhanced scrutiny, "the court seeks to assure itself that the board acted reasonably, in the sense of taking a logical and reasoned approach for the purpose of advancing a proper objective").
The objective reasonableness standard does not, however, permit a reviewing court to freely substitute its own judgment for the directors':
QVC, 637 A.2d at 45; accord Dollar Thrifty, 14 A.3d at 595-96 ("[A]t bottom Revlon is a test of reasonableness; directors are generally free to select the path to value maximization, so long as they choose a reasonable route to get there.").
The plaintiffs contend that the defendants' actions during the sale process fell outside the range of reasonableness, and they focus particularly on (i) the Board's ultimatum to Adtran to make an offer within 24-hours and (ii) the Board's reliance on Jefferies's 24-hour, July 4th holiday weekend "market check." In essence, the plaintiffs contend that the defendants acted unreasonably by favoring Calix and failing to develop or pursue other alternatives that could have generated higher value for the stockholders.
When evaluated as a whole, the record supports a reasonable inference that the Board favored Calix at the expense of generating greater value through a competitive bidding process or by remaining a stand-alone company and pursuing acquisitions. This is not the only inference that can be drawn, nor even necessarily the strongest inference, but it is a reasonable inference to which the plaintiffs are entitled at this procedural stage.
Support for this inference comes from the contrast between Occam's interactions with Calix versus its interactions with Adtran. Krausz initiated contact with Calix, and he continued to interact regularly with Russo throughout the sale process. Krausz and Howard-Anderson responded promptly to inquiries by Calix, quickly signed a non-disclosure agreement, barely negotiated over Calix's term sheet, agreed to exclusivity, and passively extended the exclusivity on each of the three occasions when it expired. Occam acted much differently towards Adtran. In July 2009, Adtran's CFO called Howard-Anderson to discuss strategic alternatives, invited Howard-Anderson to visit Huntsville, and sent Occam a non-disclosure agreement. Occam did not execute the non-disclosure agreement until five months later, and Howard-Anderson did not visit Huntsville until December 2009. In February 2010, Occam's executives met with Adtran's executives, but the evidence supports an inference that Howard-Anderson and his team were not receptive to a transaction. Despite perceiving that Occam was not looking to sell, Adtran was considering an all-cash offer as early as late February 2010. There is also evidence that Adtran's CFO believed Adtran had reached a "common understanding on price" with Howard-Anderson. It is reasonable to infer at this stage of the proceeding that Adtran discussed valuation ranges with Occam that met Occam's pricing expectations.
During June 2010, Occam engaged in discussions with both Calix and Adtran. The discussions between Occam and Calix involved senior executives for both sides, including Howard-Anderson and Seeley. It was Jefferies who touched base with Adtran. Nevertheless, on June 24, Adtran sent a letter of intent proposing a range for an all-cash offer of $8.60 per share, a premium of approximately 11% over the Calix bid. When the Adtran and Calix
Occam also did not vigorously pursue other logical bidders. As early as June 2009, Jefferies recommended that Occam commence a competitive process and began identifying potential candidates for a strategic partnership. While Occam met with some of these potential candidates in the second half of 2009, it did not aggressively pursue any of those opportunities. A June 2010 Jefferies presentation identifies ADC, Alcatel-Lucent, Cisco, Huawei, and Ericsson as additional first-tier candidates. Occam only reached out to those bidders through the July 4th market check.
The 24-hour July 4th market check fell outside the range of reasonableness. On July 1, 2010, the Thursday before the July 4th weekend, Jefferies sent emails to seven other potential buyers. None mentioned Occam by name. Each imposed a 24-hour deadline for a response. Five of the seven parties nevertheless got back to Jefferies and expressed interest, but stated that the time frame was too short for a meaningful response. Occam and Jefferies did not follow up with any of the potential bidders.
The evidence also supports a reasonable inference that it was unreasonable for Occam to give Adtran a 24-hour ultimatum to make a bid when there was no need for such a short deadline. Adtran's CFO described it as a "24 hour gun to our head." Not surprisingly, Adtran did not bid.
Viewed as a whole, the record supports an inference that it fell outside the range of reasonableness for the Board to rely on Jefferies's 24-hour, July 4th market check and, under the circumstances then existing, to deliver an ultimatum to Adtran to make an offer within 24 hours. It is worth stressing that there is competing evidence that supports the reasonableness of the Board's decisions, and the court has not made any finding adverse to the defendants. At this stage of the case, however, the court is not permitted to resolve evidentiary conflicts or choose among competing inferences. Rule 56 requires that the court resolve evidentiary conflicts in favor of the non-movant plaintiffs and grant the plaintiffs all reasonable inferences.
Section 102(b)(7) of the DGCL authorizes Delaware corporations to include provisions in their certificate of incorporation exculpating directors from liability:
Defs.' Mot. Ex. 100, art. VIII.
An exculpatory provision shields the directors from personal liability for monetary damages for a breach of fiduciary duty, except liability for the four categories listed in Section 102(b)(7). "The totality of these limitations or exceptions . . . is to . . . eliminate . . . director liability only for `duty of care' violations. With respect to other culpable directorial actions, the conventional liability of directors for wrongful conduct remains intact." 1 David A. Drexler et al., Delaware Corporation Law and Practice, § 6.02[7] at 6-18 (2013). An exculpatory provision therefore "will not place challenged conduct beyond judicial review." Id. at 6-19.
For an exculpatory provision to apply, the court must find that "the factual basis for [the] claim solely implicates a violation of the duty of care." Emerald P'rs v. Berlin (Emerald I), 726 A.2d 1215, 1224 (Del.1999); accord Emerald P'rs v. Berlin (Emerald II), 787 A.2d 85, 98 (Del. 2001) (holding that defendant directors can obtain exculpation only if they prove that their breach of duty was "exclusively attributable to a violation of the duty of care"). In a case where the standard of review places the burden of proof on the defendant fiduciaries, the burden of making this showing "falls upon the director." In re Emerging Commc'ns, Inc. S'holders Litig., 2004 WL 1305745, at *40 (Del.Ch. June 4, 2004); accord Gesoff v. IIC Indus., Inc., 902 A.2d 1130, 1164 (Del.Ch.2006).
Depending on the facts of the case, the standard of review, and the procedural stage of the litigation, a court may be able to determine that a plaintiff's claims only involve breaches of the duty of care such that the court can apply an exculpatory provision to enter judgment in favor of the defendant directors before making a post-trial finding of a breach of fiduciary duty and determining the nature of the breach.
Despite agreeing for purposes of the motion for summary judgment that enhanced scrutiny provides the operative standard of review, the director defendants briefed the application of the Exculpatory Provision to the sale process as if the case were governed by the business judgment rule. They framed the loyalty inquiry in terms of whether the directors were nominally disinterested and independent, and they addressed only one means by which a director could fail to act in good faith: by "knowingly and completely fail[ing] to undertake their responsibilities." Defs.' Mot. Br. at 29 (quoting Lyondell, 970 A.2d at 243-44). The operative standard of review for this case, however, is enhanced scrutiny, an intermediate standard that applies in situations where "there is a basis for concern that directors without a pure self-dealing motive might be influenced by considerations other than the best interests of the corporation and other stockholders." Dollar Thrifty, 14 A.3d at 599 n. 181. The loyalty issue in this case is whether the directors allowed interests other than obtaining the best value reasonably available for Occam's stockholders to influence their decisions during the sale process, given that they made decisions falling outside of the range of reasonableness.
Claims that are subject to enhanced scrutiny "do not admit of easy categorization as duties of care or loyalty." Santa Fe, 669 A.2d at 67. "Enhanced scrutiny applies to specific, recurring, and readily identifiable situations involving potential conflicts of interest where the realities of the decisionmaking context can subtly undermine the decisions of even independent and disinterested directors."
The Delaware Supreme Court created the intermediate standard of review in its iconic Unocal decision, which declined to apply either the business judgment rule or the entire fairness test to actions taken by directors to resist a hostile takeover.
One year later, in Revlon, the Delaware Supreme Court held that its then-new intermediate standard would apply to the sale of a corporation for cash. Revlon, Inc. v. MacAndrews & Forbes Hldgs., Inc., 506 A.2d 173, 180-82 (Del.1986). Just as the Unocal decision focused on the potential conflicts created by a hostile bid, the Revlon case focused on the potential conflicts created by a sale. As Chief Justice Strine explained while serving as Chancellor, "the potential sale of a corporation has enormous implications for corporate managers and advisors, and a range of human motivations, including but by no means limited to greed, can inspire fiduciaries and their advisors to be less than faithful." El Paso, 41 A.3d at 439.
The metric of reasonableness employed in the intermediate standard of review enables a reviewing court to "smoke out mere pretextual justifications for improperly motivated decisions." Dollar Thrifty, 14 A.3d at 598-99.
Mercier v. Inter-Tel (Del.), Inc., 929 A.2d 786, 807 (Del.Ch.2007) (footnotes omitted); see, e.g., Phillips v. Insituform of N. Am., Inc., 1987 WL 16285, at *5-6, *11 (Del.Ch. Aug. 27, 1987) (Allen, C.) (applying enhanced scrutiny, finding that a board's proffered justifications for its actions were a pretext, and holding that the plaintiffs had demonstrated a likelihood of success in showing that the board breached its fiduciary duties). "[T]he reasonableness standard requires the court to consider for itself whether the board is truly well motivated (i.e., is it acting for the proper ends?) before ultimately determining whether its means were themselves a reasonable way of advancing those ends." Dollar Thrifty, 14 A.3d at 599-600.
Because this is a case where enhanced scrutiny applies, and because the directors took actions that fell outside the range of reasonableness, the plaintiffs contend that this court can draw an inference of bad faith. The director defendants vehemently reject this view, arguing that under the Delaware Supreme Court's decision in Lyondell, summary judgment must be granted in their favor unless the plaintiffs can show that the directors "utterly failed to attempt to obtain the best sale price." 970 A.2d at 244. The Lyondell decision of course would be dispositive to the extent the plaintiffs in this case made the same legal argument that the Lyondell plaintiffs made, namely that the directors consciously disregarded known obligations imposed by Revlon. See In re MFW S'holders Litig., 67 A.3d 496, 520 (Del.Ch.2013) ("There is no question that, if the Supreme Court has clearly spoken on a question of law necessary to deciding a case before it, this court must follow its answer."), aff'd sub nom. Kahn v. M & F Worldwide Corp., 2014 WL 996270 (Del. Mar. 14, 2014). But the plaintiffs here have made a different argument. They say that certain directors had interests that diverged from those of the common stockholders, that other directors faced the types of situational conflicts inherent in an enhanced scrutiny setting, and that there is evidence that the directors gave into those conflicts by steering Occam into a deal with Calix through a course of actions falling outside the range of reasonableness. Based on this combination, they argue that the court can draw the inference that the directors acted for reasons unrelated to the pursuit of the highest value reasonably available. Lyondell does not speak to this theory.
In Lyondell, the Delaware Supreme Court relied on a Section 102(b)(7) provision to grant summary judgment in favor of the defendant directors against breach of fiduciary duty challenges to a transaction governed by enhanced scrutiny. 970 A.2d at 244. The plaintiffs argued to the Court of Chancery that Section 102(b)(7) did not apply because the defendant directors failed to act "in the face of a known duty to act, thereby demonstrating a conscious disregard for their responsibilities." Ryan v. Lyondell Chem. Co., 2008 WL 2923427, at *19 (Del.Ch. July 29, 2008) (quoting Stone ex rel. AmSouth Bancorporation v. Ritter, 911 A.2d 362, 370 (Del. 2006)), rev'd, 970 A.2d 235 (Del.2009). The Lyondell plaintiffs thus "attempted to apply the Caremark standard for lack of good faith to the context of a control transaction." La. Mun. Police Emps.' Ret. Sys. v. Fertitta, 2009 WL 2263406, at *8 (Del. Ch. July 28, 2009) (footnote omitted).
Id. The trial court therefore denied the motion for summary judgment based on the exculpatory provision. Id.
The Lyondell plaintiffs' argument about a "known set of duties" and "known fiduciary obligations in a sale scenario" reprised an early misunderstanding of Revlon. As Chancellor Allen explained in the Equity-Linked decision,
Equity-Linked Investors, L.P. v. Adams, 705 A.2d 1040, 1054 (Del. Ch. 1997). The Lyondell plaintiffs took this view one step further by arguing not only that Revlon established specific conduct obligations for directors, but also that directors acted in bad faith if they consciously disregarded those known obligations.
The Delaware Supreme Court, however, had repeatedly rejected this view of Revlon.
On appeal in Lyondell, and consistent with these precedents, the Delaware Supreme Court decisively rejected the contention that Revlon imposed specific conduct obligations, knowable by and known to directors, such that a board would act in bad faith by consciously disregarding them. The high court held that the Court of Chancery erred by reading "Revlon and its progeny as creating a set of requirements that must be satisfied during the sale process." Lyondell, 970 A.2d at 241. In reversing the trial court, the Delaware Supreme Court held to the contrary: "No court can tell directors exactly how to accomplish [the goal of obtaining the best value reasonably available] because they will be facing a unique combination of circumstances, many of which will be outside their control." Id. at 242.
The Delaware Supreme Court then restated the theory of bad faith at issue in the case, namely that "bad faith will be found if a `fiduciary intentionally fails to act in the face of a known duty to act, demonstrating a conscious disregard for his duties.'" Id. (quoting In re Walt Disney Co. Deriv. Litig., 906 A.2d 27, 67 (Del. 2006)). The Delaware Supreme Court ruled out this theory because the necessary predicate—known duties—did not exist:
Id. at 243 (footnote omitted). The Delaware Supreme Court also addressed what it would mean for directors to "consciously disregard" a known duty, assuming one existed. The Delaware Supreme Court stated:
In this case, the defendants seek to apply the "utterly failed to attempt" language broadly as if it established a new standard that supplanted all the other means by which a plaintiff can attempt to show bad faith. The Lyondell decision, however, only addressed the theory of consciously disregarding known duties, which was the premise that the plaintiffs advanced and that the trial court accepted. The Lyondell court recognized that there were other theories of bad faith. Quoting at length from its decision in Disney, the Delaware Supreme Court in Lyondell court described the concept of bad faith as follows:
Lyondell, 970 A.2d at 240 (quoting Disney, 906 A.2d at 64-66). The Lyondell court stressed that "[t]he Disney decision expressly disavowed any attempt to provide a comprehensive or exclusive definition of `bad faith.'" Id. This aspect of the Lyondell decision precludes any suggestion that the Delaware Supreme Court thought that the conscious disregard of known duties was the only type of bad faith.
The source of the "utter failure to attempt" likewise reflects the Delaware Supreme Court's focus on the "conscious disregard" strand of bad faith. The Lyondell decision reveals that the high court drew this standard from Stone and Caremark, which address what a plaintiff must plead and later prove to show that directors failed to act in good faith by exercising oversight of the corporation's compliance with its legal and regulatory obligations. Id. Citing Stone's adoption of the Caremark test, the Lyondell court stated:
Id. (quoting In re Caremark Int'l Inc. Deriv. Litig., 698 A.2d 959, 971 (Del.Ch. 1996)). This passage indicates that the Lyondell court used the "utter failure to
In this case, the plaintiffs do not contend that the Occam directors consciously disregarded known duties. They instead invoke a different line of Delaware precedent, which holds that "[a] failure to act in good faith may be shown, for instance, where the fiduciary intentionally acts with a purpose other than that of advancing the best interests of the corporation."
The "utterly failed to attempt" standard does not govern the question of whether the evidence supports a permissible inference that the directors acted with a purpose other than that of advancing the best interests of the corporation. See Fertitta, 2009 WL 2263406, at *8. Nor would such a standard fit well with Delaware's established standards of review. "`Utterly failed' is a linguistically extreme formulation." Bradley R. Aronstam & David E. Ross, Retracing Delaware's Corporate Roots Through Recent Decisions: Corporate Foundations Remain Stable While Judicial Standards of Review Continue to Evolve, 12 Del. L.Rev. 1, 13 n.73 (2010).
Id. Yet under the business judgment rule, Delaware's most director-friendly test, a plaintiff can plead (and later prove) bad faith by showing that a decision lacked any rationally conceivable basis, which permits a court to infer an improper motive and a breach of the duty of loyalty.
The defendants therefore cannot obtain summary judgment in their favor simply by observing that they did not utterly fail to attempt to fulfill their fiduciary duties. The plaintiffs can defeat summary judgment by citing evidence which, when evaluated under the Rule 56 standard, supports an inference that the directors made decisions that fell outside the range of reasonableness for reasons other than pursuit of the best value reasonably available, which could be no transaction at all.
The factual record does not contain evidence sufficient to create a dispute of material fact about the outside directors' good faith pursuit of the best value reasonably available. Although they made decisions which, for purposes of summary judgment, can be regarded as falling outside the range of reasonableness, the factual record will not support a reasonable inference that any of the outside directors were motivated by a non-stockholder-related influence. Krausz, Abbott, Pardun, Moyer, Bylin, and Strom have demonstrated that they exclusively breached their duty of care, and the Exculpatory Provision bars any monetary damages award for such a breach.
This decision already has discussed the fact that all of the directors other than Howard-Anderson were disinterested and independent. For enhanced scrutiny, however, that fact alone is not dispositive, because "[t]he court must take a nuanced and realistic look at the possibility that personal interests short of pure self-dealing have influenced the board." Dollar Thrifty, 14 A.3d at 598. At the summary judgment stage, speculation about motives is not enough. "[A] plaintiff's inability to explain a Board's motivation to act in bad faith may ... be relevant in analyzing bad faith claims." Answers II, 2014 WL 463163, at *10.
Applying these standards, the evidence does not support a reasonable inference that the disinterested and independent directors acted for an improper motive. The strongest evidence of some type of personal interest comes from Krausz's focus on Russo throughout the sale process, his sharing of information with Russo about internal Occam boardroom dynamics, and Russo's understanding that Krausz and Abbott wanted "to ride a different stock." Pls.' Opp'n Ex. 33 at CALIX001269. For obvious reasons, the inference that Krausz provided confidential information about Occam boardroom dynamics to the CEO of a competitor and potential acquirer presents one of the more troubling aspects of the case.
Nevertheless, after discovery, the evidence about Krausz's behavior does not support any inference other than an effort to achieve a transaction that he believed would maximize the value of his funds' holdings, thereby maximizing value for all common stockholders. One can reasonably
The plaintiffs also have not cited any evidence that would call into question the motives of Pardun, Moyer, Bylin, or Strom, other than Pardun's ostensible affiliation with Krausz and their participation in the Board's decision-making process. Because the evidence does not support a reasonable inference that Krausz acted for an improper purpose, the purported affiliation with Krausz does not taint Pardun. As for the Board's decision making, although for purposes of summary judgment this decision has drawn the inference that certain decisions could be found at trial to fall outside the range of reasonableness, it is not possible to infer that the directors acted for any improper purpose. Here again, the plaintiffs have not been able to offer any plausible non-stockholder-directed motive. Assuming their decisions ultimately were found at trial to fall outside the range of reasonableness, the director defendants would be entitled to exculpation. Summary judgment is therefore entered in their favor on the sale process claim.
This analysis has focused on the outside directors. As previously noted, Howard-Anderson was interested in the Merger in the traditional sense because he personally received financial benefits from the Merger that were not shared with the stockholders. The Exculpatory Provision does not protect him.
Howard-Anderson played a role in the sale process not only as a director, but also as the Company's CEO. Seeley was not a director. She served only in an officer capacity as the Company's CFO. Section 102(b)(7) does not authorize exculpation for officers. 8 Del. C. § 102(b)(7) (authorizing "a provision eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director"); Gantler, 965 A.2d at 709 n. 37 ("Although legislatively possible, there currently is no statutory provision authorizing comparable exculpation of corporate officers."). Because the plaintiffs have assembled evidence sufficient to support claims against Howard-Anderson and Seeley in their capacity as officers, the Exculpatory Provision does not protect them.
In Gantler, the Delaware Supreme Court held that plaintiffs had stated claims for breach of the duty of loyalty against two senior officers of First Niles Financial, Inc.: Stephens, the CEO who was also a director, and Safarek, the Vice President and Treasurer. 965 A.2d at 709. The complaint alleged that after the board of directors of First Niles decided to explore strategic alternatives, the officers breached their duty of loyalty by manipulating the process to sabotage the alternatives they did not personally favor, including by delaying the provision of due diligence information to potential bidders. Id. As to Stephens, the Supreme Court held that "[t]he alleged facts that make it reasonable to infer that Stephens violated his duty of loyalty as a director, also establish his violation of that same duty as an officer." Id. At to Safarek, who was solely an officer, the Supreme Court held that the complaint both stated a claim against Safarek for breach of duty as an officer and for
Here, as in Gantler, the plaintiffs have cited evidence regarding actions that Howard-Anderson and Seeley took as officers that could support a reasonable inference of favoritism towards Calix consistent with their personal financial interests rather than the pursuit of maximal value for the stockholders. These actions include Howard-Anderson's delayed follow-up with Adtran in 2009 and their joint participation in due diligence presentations with Adtran during which the Occam representatives appear to have given Adtran the impression that Occam was not interested in a transaction. By contrast, Howard-Anderson responded quickly and supportively to Calix, an acquirer that was willing to confirm that it would honor management's change in control agreements and monetize all equity awards. At trial, the court will be able to weigh the evidence and determine what inferences to draw. At this stage, the non-movant plaintiffs are entitled to have inferences drawn in their favor.
The Exculpatory Provision does not protect Seeley because she only acted as an officer. Likewise, the Exculpatory Provision does not protect Howard-Anderson when acting in his officer capacity. See Arnold, 650 A.2d at 1288. Summary judgment based on the Exculpatory Provision is not available to these defendants.
The defendants seek a determination as a matter of law that the disclosures in the Proxy Statement were accurate and the allegedly omitted information was either disclosed or immaterial. Summary judgment on this claim is denied.
When directors submit to the stockholders a transaction that requires stockholder approval, such as a merger, "[t]he directors of a Delaware corporation are required to disclose fully and fairly all material information within the board's control." Malone v. Brincat, 722 A.2d 5, 12 (Del.1998). A fact is material "if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote." Rosenblatt v. Getty Oil Co., 493 A.2d 929, 944 (Del.1985) (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976)). The inquiry does not require "a substantial likelihood that [the] disclosure ... would have caused the reasonable investor to change his vote." Id. (same). Rather, the question is whether there is "a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the `total mix' of information made available." Id. (same). "Whether disclosures are adequate is a mixed question of law and fact." Zirn v. VLI Corp., 621 A.2d 773, 777 (Del. 1993).
The plaintiffs contend that the defendants should have disclosed revenue projections for 2012 in the Proxy Statement. The defendants argue that the 2012 projections were immaterial because they were unreliable and speculative, making it unnecessary to disclose them in the Proxy Statement.
"In the context of a cash-out merger, reliable management projections of the company's future prospects are of obvious materiality to the electorate." PNB Hldg., 2006 WL 2403999, at *15. "After all, the key issue for the stockholders is whether accepting the merger price is a good deal in comparison with remaining a shareholder and receiving the future
Id. at *16 (footnotes omitted). "The word reliable is critical." Id. "Delaware law does not require disclosure of inherently unreliable or speculative information which would tend to confuse stockholders or inundate them with an overload of information." Arnold, 650 A.2d at 1280; accord In re Micromet, Inc. S'holders Litig., 2012 WL 681785, at *13 (Del.Ch. Feb. 29, 2012) (finding that projections were not required to be disclosed since they were not relied upon in the fairness opinion and "were intended by management solely as an internal tool"). "When management projections are made in the ordinary course of business, they are generally deemed reliable." Cede & Co. v. Technicolor, Inc., 2003 WL 23700218, at *7 (Del.Ch. July 9, 2004), aff'd in part, rev'd in part, 884 A.2d 26 (Del.2005).
The defendants contend that the revenue projections for 2012 were unreliable and highly speculative. In support of this position, they cite evidence regarding Occam's standard forecasting practice: (i) Occam disclosed revenue and earnings guidance only for the next fiscal quarter and did not provide annual guidance and (ii) management only prepared an annual operating plan, which was approved by the Board, and projections for the upcoming four quarters. They argue that the April Projections were intended as an aggressive forecast, they were not designed to form the basis for financial planning, and had the April Projections been intended for planning purposes, Sharer would have "been more conservative." Sharer Tr. at 168-69. They argue that the June Projections and August Projections were simply updates to the aggressive April Projections and suffer from the same flaws. Finally, they cite testimony that management did not have confidence in the 2012 projections, that management "would not have advised Jefferies to use 2012 [financial projections] for their fairness [opinion,]" see Seeley Tr. at 275, and that the 2012 projections were not presented to, reviewed by, or approved by the Board or shared with Calix and its bankers, see Defs.' Mot. Ex. 95; Seeley Tr. at 287-88.
The plaintiffs cite countervailing evidence that the revenue projections for 2012 were reliable and not speculative. The plaintiffs' evidence suggests that the April Projections, June Projections, and August Projections were carefully created and vetted by management and that the June Projections were adjusted for "reasonableness." The plaintiffs also point out that Jefferies relied on 2010 and 2011 projections that were created side-by-side with the 2012 projections and that Jefferies was, in fact, provided projections for 2012, but later told to disregard them. In
At this procedural stage, the court is not permitted to weigh the conflicting evidence to determine the reliability of the 2012 projections. Viewing the facts in favor of the plaintiffs, the court cannot determine as a matter of law that the 2012 projections were unreliable and, thus, immaterial. Summary judgment is denied as to this disclosure claim.
The plaintiffs next take issue with the Proxy Statement's description of management's projections for 2011 and contend that the description is inaccurate and misleading. "In addition to the traditional duty to disclose all facts material to the proffered transaction, directors are under a fiduciary obligation to avoid misleading partial disclosures." Zirn v. VLI Corp., 681 A.2d 1050, 1056 (Del. 1996). "Once defendants travel down the road of partial disclosure[,] they have an obligation to provide the stockholders with an accurate, full, and fair characterization of those historic events." Id. (internal quotation marks omitted). Additional disclosure may be required if "the omission of a related fact renders the partially disclosed information materially misleading." Id. at 1057. "When a document ventures into certain subjects, it must do so in a manner that is materially complete and unbiased by the omission of material facts." In re Pure Res., Inc., S'holders Litig., 808 A.2d 421, 448 (Del.Ch.2002). Even if the additional information independently would fall short of the traditional materiality standard, it must be disclosed if necessary to prevent other disclosed information from being misleading. Johnson, 2002 WL 31438477, at *4.
The Proxy Statement asserted that "[t]he internal financial projections represent Occam's evaluation of its future financial performance on a stand-alone basis, and without reference to whether the proposed merger transaction will be consummated." Defs.' Mot. Ex. 1 at 106. The plaintiffs contend that this assertion did not accurately represent what the internal financial projections incorporated. The plaintiffs cite evidence suggesting that the August Projections included reductions to the June Projections in anticipation of Calix's acquisition of Occam and the likely subsequent loss of the TDS account. The defendants disagree with this characterization and with the evidence regarding the August revisions.
There is evidence to support the plaintiffs' position. Viewing the facts in favor of the plaintiffs, the court cannot hold as a matter of law that Proxy Statement's description of management's 2011 projections was accurate. Summary judgment on this claim is denied.
The plaintiffs next argue that the Jefferies fairness opinion, which was included in the Proxy Statement, falsely described the information provided to Jefferies by Occam's management. The fairness opinion stated that Jefferies reviewed "certain information furnished to [it] by the Company's management, including financial forecasts for calendar years 2010 and 2011 only, having been advised by management
The defendants contend that the three sets of projections were not intended as financial forecasts and that the 2012 projections were sent to Jefferies accidentally. The plaintiffs cite evidence suggesting that the 2012 projections were reliable, that Seeley and Howard-Anderson were both aware of the 2012 projections, and that Jefferies received a copy of the 2012 projections alongside the 2010 and 2011 projections that it ultimately relied upon in rendering the fairness opinion.
At this procedural stage, the court cannot rule as a matter of law on the accuracy of the italicized portion of the Proxy Statement's description of the information Jefferies's relied upon for its fairness opinion. There is evidence suggesting that this disclosure was false. Summary judgment on this claim is denied.
The plaintiffs contend that the Proxy Statement offered a misleading description of the sale process. The plaintiffs have amassed extensive evidence indicating that the background section more closely resembled a sales document than a fair and balanced factual description of the events leading up to the Merger Agreement. The evidence suggesting a slanted and misleading approach to the background section is particularly troubling because the defendants asked the court to take judicial notice of the contents of the Proxy Statement and rely on its factual accuracy both for purposes of a motion to dismiss and in connection with the preliminary injunction hearing. In response to the defendants' motion for summary judgment, the plaintiffs focus in on three aspects of the background section: (i) Occam's early contacts with Calix, (ii) Occam's negotiations with Adtran, and (iii) the 24-hour market check. Viewed in the light most favorable to the plaintiffs, the evidence gives rise to questions of fact about each of these aspects of the Proxy Statement.
The plaintiffs argue that the Proxy Statement failed to disclose information about Occam's contacts with Calix in early 2009, which disguised the fact that Calix had always been Occam's preferred bidder. A proxy statement does not need to disclose every detail about early discussions with potential acquirers. Where "arm's-length negotiation has resulted in an agreement which fully expresses the terms essential to an understanding by shareholders of the impact of the merger, it is not necessary to describe all the bends and turns in the road which led to that result." Van de Walle, 1991 WL 29303, at *15. Early contacts that do not lead to more formal negotiations or a transaction are not required to be disclosed. See State of Wis. Inv. Bd. v. Bartlett, 2000 WL 238026, at *8 (Del.Ch. Feb. 24, 2000) ("One can not conclude that a failure to disclose the details of negotiations gone south would be either viably practical or material to shareholders in the meaningful way intended by
The plaintiffs also argue that the Proxy Statement falsely portrayed Adtran as an "equivocal" and unresponsive suitor. The Proxy Statement stated that Adtran "informed representatives of Jefferies that it had determined it would not continue discussions with respect to an acquisition of Occam" and described Adtran's purported "determination to discontinue further discussions after over a year of sporadic communications on the topic." Defs.' Mot. Ex. 1 at 84, 91. The plaintiffs cite evidence showing that Adtran had, and continued to have, real interest in Occam and stopped discussions only because it perceived Occam's 24-hour ultimatum as breaking off the negotiations. The defendants contend that the characterization of Adtran as an equivocal and unresponsive suitor was accurate. The court cannot resolve this factual dispute on a motion for summary judgment or rule as a matter of law that the information was immaterial.
Finally, the plaintiffs contend that the Proxy Statement and supplemental disclosures failed to fully disclose details about the 24-hour market check. The plaintiffs cite evidence suggesting that it was the Board, not Jefferies, who ordered the 24-hour market check. The plaintiffs argue that disclosing this information would have informed stockholders that the Board had already settled on Calix and was simply going through the motions with other bidders. The defendants disagree, arguing that the Board determined that a market check should be done quickly, then relied on Jefferies to carry out the directive. The defendants contend that all material information was disclosed. The court cannot resolve this factual dispute or rule as a matter of law that the information was immaterial. Summary judgment on the disclosure claim is denied.
The defendants argue that because the Merger closed, and because it was not a short-form merger or a merger involving a controlling stockholder, it is no longer possible for this court to award a remedy for a breach of the duty of disclosure, warranting summary judgment in their favor. That is an incorrect statement of current Delaware law. See In re Orchard Enters., Inc. S'holder Litig., 2014 WL 1007589, at *32-43 (Del.Ch. Feb. 28, 2014) (surveying Delaware decisions). If the plaintiffs prove at trial that the defendants committed a non-exculpated breach of the fiduciary duty of disclosure, then damages can be awarded using a quasi-appraisal measure. See id.
As with the sale process claim, the director defendants invoke the Exculpatory Provision. The "duty of disclosure is not an independent duty, but derives from the duties of care and loyalty." Pfeffer v. Redstone, 965 A.2d 676, 684 (Del.2009); accord Malpiede, 780 A.2d at 1086 ("[T]he board's fiduciary duty of disclosure, like the board's duties under Revlon and its progeny, is not an independent [duty] but the application in a specific context of the board's fiduciary duties of care, good faith, and loyalty."). The Exculpatory Provision bars any damages recovery for disclosure claims resulting from a breach of the duty of care.
The directors also were in a position to review critically and correct the Proxy Statement's relatively breezy and high-level description of the background of the Merger. The evidence in the record supports an inference that the Proxy Statement misleadingly de-emphasized the extent of Occam's focus on Calix and mischaracterized aspects of Occam's discussions with Adtran.
Other disclosure problems in the Proxy Statement include descriptions of actions taken by particular directors. For example, the Proxy Statement omits some communications between Krausz and Russo and describes others incorrectly. During his deposition Krausz admitted that particular details in the Proxy Statement were wrong, such as the description of an industry conference where he talked with Russo about a strategic transaction. Just as he was able to recognize this error in his deposition, Krausz should have recognized and corrected it before signing off on the Proxy Statement.
Problems that occurred in discovery have caused the court to be skeptical about the defendants' arguments regarding their disclosures. During the injunction phase, by letter dated November 5, 2010, defense counsel represented that the defendants would produce "non-privileged documents and electronically-stored information ... related to Occam's negotiation and decision to enter into the merger agreement with Calix, Inc. and Occam's evaluation of alternatives to the merger," including projections and other categories of documents that were considered by the Board or Occam's executive management team. Despite this undertaking, the defendants did not produce any documents referring to projections for the year 2012 until after the Merger was consummated. Two years later, beginning in October 2012, the defendants produced an additional 103 spreadsheets and emails chronicling the development of the projections. Jefferies also withheld spreadsheets and emails referring to the projections, many of which have not yet been produced despite evidence in defendants' production that Jefferies received the relevant documents.
Under the circumstances, the court will not grant the director defendants' motion for summary judgment on the disclosure claims based on the Exculpatory Provision. See Frank, 2014 WL 957550, at *35 ("[B]ecause the Court cannot presently determine who was informed of what surrounding the [material information], the Court also cannot conclude whether the failure to disclose ... is appropriate or not or whether this disclosure implicates loyalty or good faith concerns."). The confounding evidence of the directors' knowledge and the problems that occurred in discovery prevent the court from inferring at this procedural stage that the directors acted in good faith. It is desirable to inquire into and develop the facts more thoroughly at trial before determining whether and to what degree the Exculpatory Provision applies. See Mentor Graphics, 1998 WL 731660, at *3.
Occam is named as a defendant, but none of the complaint's counts proceed against Occam. The complaint asserts claims for breach of fiduciary duty. It is the fiduciaries serving the entity who owe fiduciary duties; the entity that is served does not. In re Wayport, Inc. Litig., 76 A.3d 296, 322-23 (Del.Ch.2013); see also A.W. Fin. Servs., S.A. v. Empire Res., Inc., 981 A.2d 1114, 1127 n. 36 (Del.2009). Occam is not a proper defendant.
At the injunction stage, the court was able to weigh the evidence and competing inferences when determining whether the plaintiffs had a reasonable probability of success on the sale process claims. After trial, the court again will able to weigh the evidence and choose among competing inferences. At present, the evidence viewed in the light most favorable to the plaintiffs supports an inference that certain decisions fell outside the range of reasonableness. Notwithstanding this ruling, because of the Exculpatory Provision, summary judgment is entered on the sale process claims against the plaintiffs and in favor of defendants Krausz, Abbott, Bylin, Pardun, Strom, and Moyer. Judgment also is entered in favor of Occam. Otherwise, the motion for summary judgment is denied.
