Harbor Finance Partners v. Huizenga
751 A.2d 879 (Del.Ch. 1999)

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