Kahn v. Sullivan
594 A.2d 48 (Del. 1991)
- Hammer was the CEO and Chairman of the Board of Occidental. He arranged for Occidental to make a large ($85M) charitable contribution to build a museum to house Hammer’s art collection.
- The museum was to be called the Hammer Museum (not the Occidental Museum), and would have a giant painting of Hammer in the lobby.
- Occidental shareholders brought two different derivative lawsuits challenging the use of corporate funds to build the museum. Both suits were consolidated and settled. However, the Court had to approve the settlement.
- During the settlement negotiations, the terms of the donation was revised and then got rid of the name and the giant painting.
- The Trial Court approved the settlement. Some of the shareholders didn’t like the settlement and appealed.
- The Trial Court found that the huge donation was not a good business decision. However, whether or not it was a good decision was not their problem. The Business Judgment Rule only requires that a business decision to not be reckless or unconscionable.
- The Appellate Court affirmed.
- The Appellate Court noted that charitable donations are expressly authorized by Delaware law (8 Del.C. §122(9)), and there is no limit on how much can be donated.
- The Court found that because of the Business Judgment Rule, the only time a court should overturn a business decision was when it amounted to 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.
- The Court found that the Trial Court’s holding that the donation didn’t amount to corporate waste was not an abuse of discretion.