Tuesday, November 4, 2008
This case is a bit a dud, but it presents a lot of law in very little space, at least in the edited version provided in the Klein, Ramseyer & Bainbridge casebook that I use, so I continue to like it. The case deals with a challenged merger transaction in which Waste Management acquired Wheelabrator. Although the board seems to have done everything right in terms of recusals of board members who might have had a conflict of interest and submitting the merger for shareholder approval, some shareholders sued alleging breaches of the duties of loyalty and care. I like the fact that the court found that a three-hour board meeting was evidence of sufficient care in this context, especially since the court found that a two-hour meeting was a breach of the duty of care in van Gorkom. So now I know that if I really want to provide a tough duty of care question for my students, I have the board meet for 2 and 1/2 hours.
As to the duty of loyalty claim, the court found that, in this instance, the nature of the loyalty claim was an interested transaction rather than a dominant shareholder transaction. Before the merger, Waste controlled only 22% of Wheelabrator, and the court found that 22% was not sufficient control to dominate. Since the transaction was ratified, the business judgment rule applied.
In re Wheelabrator Technologies, Inc.
Wheelabrator merged into Waste
A decision perhaps made in haste.
Business judgment applied
By the shareholders who'd been displaced.