Arnold v. Society for Savings Bancorp., Inc.

Supreme Court of Delaware · 1994 · Corporations

650 A.2d 1270 (1994)

Updated August 22, 2026

Corporationsfiduciary disclosuremergersSection 102(b)(7)Revlonproxy disclosurematerialitypartial disclosure

Facts

Bancorp, in financial distress, had explored strategic alternatives before agreeing to merge with Bank of Boston in a stock-for-stock transaction. In connection with a failed earlier breakup proposal, Goldman Sachs auctioned FAC, a profitable Bancorp subsidiary, and Norwest confirmed a contingent $275 million bid for FAC, while Goldman also estimated a possible Bancorp value of $19.26 per share based on uncertain assumptions including a speculative stub value. Bancorp's proxy described the background leading to the merger, including Goldman’s exploration of alternatives and the May 1992 board meeting, but did not disclose the $275 million FAC bid or the $19.26 estimate. Plaintiff claimed the proxy’s omissions and misstatements violated the directors’ fiduciary duty of disclosure and that Revlon duties applied to the merger.

Issue

Whether the proxy statement breached Delaware fiduciary disclosure duties by omitting the contingent $275 million FAC bid and other information after making partial disclosures about the merger background and prior strategic alternatives. The court also considered whether Section 102(b)(7) barred personal liability of the individual directors for any disclosure violation, and whether the merger triggered enhanced scrutiny under Revlon as a sale or change of control.

Rule

Directors of Delaware corporations must disclose fully and fairly all material information within the board's control when seeking stockholder action. An omitted fact is material if there is a substantial likelihood that a reasonable stockholder would consider it important in deciding how to vote, meaning disclosure would significantly alter the total mix of information. Delaware law does not require disclosure of inherently unreliable or speculative information, but once directors make partial disclosures about historical events, they must provide an accurate, full, and fair characterization of those events; otherwise the omitted fact may become material because the partial disclosure is misleading. Section 102(b)(7) exculpation applies to disclosure claims unless an exception such as loyalty, bad faith, intentional misconduct, or knowing violation of law is shown.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Granite Harbor Financial, a Delaware corporation based in Portland, Maine, asks stockholders to approve a stock-for-stock merger with Seacoast Union Group, a widely held public company. The proxy says Granite Harbor's board previously explored alternatives, contacted possible counterparties, and received only "preliminary indications of interest," but omits that one bidder had submitted a signed, contingent offer to buy Granite Harbor's most profitable subsidiary for $310 million as part of a multi-step package that required regulatory approvals.

Under Delaware fiduciary disclosure principles reflected in the majority opinion, which is the best assessment of the omission?

Explanation. The majority held that Delaware does not generally require disclosure of speculative information, but once directors undertake a partial account of historical events, they must provide an accurate, full, and fair characterization. Here, the proxy's references to mere preliminary interest could mislead a reasonable stockholder if there was in fact a genuine contingent bid for a key asset. The bid may become material because the partial disclosure distorts the total mix.