Gaffin v. Teledyne, Inc.

Supreme Court of Delaware · 1992 · Corporations

611 A.2d 467 (1992)

Updated August 22, 2026

Corporationsclass actionscommon law fraudtender offer disclosuresrelianceRule 23(b)(3)predominancejustifiable reliance

Facts

Teledyne made a February 1976 repurchase offer for its own common stock at $40 per share and mailed an offering circular that did not disclose certain information the Court of Chancery later found material, including Teledyne's purpose in making the repurchase, the role of senior officers as pension trustees, and financial information that would appear in the forthcoming 1975 Annual Report. The Annual Report was later delivered to brokerage houses and mailed to shareholders before the tender offer closed. The trial court found that highly sophisticated shareholders likely knew of Teledyne's recent earnings information from a January 29, 1976 press release, and that many other shareholders likely received the Annual Report before the close of the offer. Plaintiff pursued only common law/equitable fraud against the corporation and sought recovery on a class-wide basis.

Issue

Can a plaintiff maintain a class action and recover class-wide damages in a purely common law or equitable fraud case arising from a corporate tender offer when justifiable reliance must be shown? More specifically, did the Court of Chancery err in refusing to decertify the class and in awarding damages on a class-wide basis despite individualized questions about each shareholder's reliance?

Rule

In a purely common law or equitable fraud case, a class action may not be maintained because individual questions of law or fact, particularly as to each plaintiff's justifiable reliance, inevitably predominate over common questions under Rule 23(b)(3). Class-wide damages are improper where individual shareholder justifiable reliance is not proven on a class-wide basis, and a presumption of class-wide reliance is rebutted when the facts show materially different levels of knowledge or access to information among class members.

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Summit Alloy Holdings, a Delaware corporation based in Phoenix, mailed a self-tender offer to its shareholders offering $28 per share. A group of tendering shareholders in Illinois files only common law fraud and equitable fraud claims, alleging the offer omitted material information; the record shows some institutional holders had already received updated earnings data from brokers, while many retail holders had not.

Should the court certify the proposed damages class under a Rule 23(b)(3)-style predominance standard?

Explanation. The majority held that a class action may not be maintained in a purely common law or equitable fraud case because individual questions—especially each shareholder’s justifiable reliance—inevitably predominate over common questions. The uniformity of the tender materials does not eliminate the individualized reliance inquiry.