recent developments in delaware corporate law - Greenberg Traurig ...

182 Delaware Law Review Volume 7:2
generally high. Failure to adequately plead or prove facts establishing director interest or lack
of independence can result in dismissal of a derivative or class action. On the other hand,
sufficient proof of director independence and disinterest at trial can shift to the plaintiff
the heavy burden of proving the unfairness of the challenged transaction.
In Krasner v. Moffett, 18 the Supreme Court reversed the Court of Chancery’s
dismissal of a complaint challenging the approval of a merger (the “FSC-MOXY Merger”)
of two “sister” corporations, Freeport-McMoRan Sulphur, Inc. (“FSC”) and McMoRan
Oil & Gas Co. (“MOXY”), into a holding company created to effect the merger. The
Court of Chancery originally dismissed the plaintiffs’ complaint under Court of Chancery
Rule 12(b)(6), concluding that although the complaint alleged facts sufficient to infer that a
majority of the FSC board of directors had a disabling self-interest, the complaint did “not
allege facts sufficient to [impugn] the disinterest, independence or processes of the special
committee … [to which] the negotiation of the transaction was specifically entrusted.” 19
The Supreme Court reversed the Court of Chancery, effectively concluding
that because, as the Court of Chancery determined, the plaintiffs pleaded sufficient facts
to infer that a majority of FSC’s directors were interested in the FSC-MOXY Merger, a
dismissal of the complaint under Court of Chancery Rule 12(b)(6) was precluded. 20 First,
the Supreme Court concluded that the allegations contained in the complaint that three
of the seven FSC directors were interested in the FSC-MOXY Merger “because they served
on the boards of the directors of both MOXY and FSC” were sufficient to infer a disabling
self-interest. 21 Second, the Supreme Court found that the complaint’s allegations that two
additional FSC directors “allegedly received substantial income from other entities within
the interlocking directorates of Freeport-McMoRan companies and arguably had an interest
in appeasing the MOXY and FSC insiders who also served with [these two directors]
18. 826 A.2d 277 (Del. 2003).
19. Id. at 282 (quoting In re Freeport-McMoRan Sulphur Inc. S’holders Litig., C.A.
No. 16729, slip op. at 40-41 (Del. Ch. Sept. 10, 2002) (bench ruling)).
20. The Supreme Court also confirmed the Court of Chancery’s determination that
“plaintiffs are entitled to the inference that they may have a cognizable disclosure claim relating to
the stock purchase program,” given that only months after the stock purchase program, the directors
approved the FSC-MOXY Merger and the consideration provided to the FSC stockholders therein,
which was based partly on FSC’s market capitalization. Krasner, 826 A.2d 283-84.
21. Id. at 283.