Solomon v. Pathe Communications Corp.

Supreme Court of Delaware · Corporations

Corporationsshareholder class actionstender offersRule 12(b)(6)DelawareChancery Rule 12(b)(6)notice pleadingconclusory allegations

Facts

CLBN held security interests and voting rights in a large percentage of Pathe and MGM stock in connection with approximately one billion dollars in loans used to fund Pathe's purchase of MGM. After disputes involving control and alleged defaults, CLBN foreclosed on the stock and, under an agreement with Pathe, made a public tender offer of $1.50 per share for up to 5.8 million publicly held Pathe shares. Solomon, a Pathe shareholder, sued on behalf of a putative class, alleging that the tender offer was unfair and coercive, that CLBN breached loyalty as a controlling shareholder, and that the Pathe board acted improperly by not negotiating a sufficient price and by not opposing the foreclosure and offer. The amended complaint also alleged board control by CLBN and failures relating to independent advisers and conflicts, but offered no specific facts supporting coercion or disclosure violations.

Issue

Whether the Court of Chancery applied an improper heightened pleading standard in dismissing the shareholder class action under Rule 12(b)(6), and whether the amended complaint stated any claim based on the allegedly unfair and coercive tender offer and related board conduct. Also implicated was whether affirmance was proper even though one defendant's personal-jurisdiction motion had not been decided first.

Rule

Under Delaware Chancery Rule 12(b)(6), the court must assume the truth of all well-pleaded allegations, give the plaintiff the benefit of all reasonable inferences, and dismiss only when it can determine with reasonable certainty that the plaintiff could prevail on no set of facts inferable from the pleadings. A complaint need only give general notice of the claim under notice pleading, but conclusory allegations unsupported by specific facts are not accepted as true. In the context of a totally voluntary tender offer, shareholders have no right to a particular price, and absent coercion or materially false or misleading disclosures, the adequacy of price is not a viable issue.

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

A shareholder of Lakefront Media Group, a Delaware corporation based in Chicago, files a class action in Delaware Chancery after North Bay Capital announces a voluntary tender offer for public shares. The complaint alleges the directors "breached their duties by failing to obtain a fair price" and "allowed an unfair process," but it pleads no supporting facts about what the board did or failed to do.

If the defendants move to dismiss under Rule 12(b)(6), how should the court rule?

Explanation. Under the majority opinion, the court assumes the truth of well-pleaded facts and gives the plaintiff reasonable inferences, but it does not accept bare conclusions unsupported by specific factual allegations. Notice pleading requires only general notice of the claim, yet a complaint that merely asserts failure to obtain a fair price or unfair process without supporting facts does not state a claim. (Derived from Solomon v. Pathe Communications Corp. (n.d.).)