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Aug. 27 — Two Dole executives were liable for over $148 million in damages for breaches of the fiduciary duty of loyalty in a lawsuit arising out of chief executive officer David Murdock's take-private transaction of the company, the Delaware Chancery Court ruled Aug. 27.
Vice Chancellor J. Travis Laster found that Murdock and ex-president C. Michael Carter could not escape liability even though the merger was approved by an independent special committee that “carried out its task with integrity” and a vote of unaffiliated stockholders.
The defendants had crafted the transaction to be conditioned upon procedures established in Kahn v. M&F Worldwide Corp., 88 A.3d 635, 2014 BL 71689 (Del. 2014). However, the court concluded that despite following MFW's form, “Murdock did not adhere to its substance.”
“But what the Committee could not overcome, what the stockholder vote could not cleanse, and what even an arguably fair price does not immunize, is fraud,” Laster wrote.
Conversely, the court declined to find other defendants liable, including Deutsche Bank AG, which the court concluded had not knowingly participated in the breaches.
The lawsuit arose out of investors' claims that Murdock's buyout of the company was the result of an unfair insider deal, including whether $13.50 per share was the best possible price for 60 percent of the world's largest fresh fruit and vegetable producer.
In its 106-page opinion, court concluded that fraud had tainted the committee's approval and shareholder vote. Specifically, the court found, among other things, that Carter had provided the committee with knowingly false projections for Murdock's benefit.
“[F]raud vitiates everything. Here it rendered useless and ineffective the highly commendable efforts of the Committee and its advisors to negotiate a fair transaction that they subjectively believed was in the best interests of Dole's stockholders,” Laster wrote.
In reaching its ruling that an incremental value of $2.74 per share was warranted, the court determined that even assuming the $13.50 price still fell within a range of fairness, “the stockholders are not limited to a fair price.”
“They are entitled to a fairer price designed to eliminate the ability of the defendants to profit from their breaches of the duty of loyalty,” Laster opined.
In addition to a plenary action for breach of fiduciary duty, investors also filed appraisal claims. The court, however, declined to issue a ruling on whether the appraisal claims have become moot by its decision.
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The opinion is available at http://www.bloomberglaw.com/public/document/IN_RE_DOLE_FOOD_CO_INC_
The MFW decision is available at http://www.bloomberglaw.com/public/document/Kahn_v_MF_
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