In Re Mony Group, Inc. Shareholder Lit.
2004 WL 769817, 853 A.2d 661 (2004)
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Rule of Law:
When a board of directors' action affecting the shareholder franchise does not involve a matter of directorial control and is not taken to thwart a clear shareholder majority, the board's decision will be reviewed under the business judgment rule if it was made by a disinterested and independent majority acting in good faith to promote a full and fair vote.
Facts:
- On September 17, 2003, The MONY Group Inc. (MONY) and AXA Financial, Inc. (AXA) announced a merger agreement, which included significant change-in-control payments for MONY's management.
- To finance the transaction, AXA issued convertible debt securities known as 'ORANs,' which would become highly profitable for their holders only upon the merger's completion.
- MONY initially set a shareholder vote for February 24, 2004, with a record date of January 2, 2004.
- Following the record date, trading in MONY stock surged dramatically, with approximately 52% of all outstanding shares changing hands before the scheduled vote.
- This heavy trading created concern that the merger would fail to get the required majority of all outstanding shares because new owners were ineligible to vote and former owners who could vote had no incentive to do so.
- The MONY board became aware that investors who held long positions in ORANs were purchasing MONY stock, presumably to vote in favor of the merger.
- Following a court order requiring supplemental disclosures, which necessitated a delay in the vote, the MONY board met on February 22, 2004.
- The outside directors of the MONY board, with the inside directors abstaining, voted to postpone the meeting to May 18, 2004, and set a new record date of April 8, 2004, admittedly believing this would increase the chances of merger approval.
Procedural Posture:
- Shareholders of MONY (plaintiffs) filed a class action lawsuit against the MONY Board of Directors and AXA in the Delaware Court of Chancery.
- Plaintiffs first moved for a preliminary injunction to block the shareholder vote on the merger, alleging breaches of fiduciary duty under Revlon and inadequate disclosures in the proxy statement.
- On February 17, 2004, the Court of Chancery granted a limited injunction, finding that the board had met its Revlon duties but requiring supplemental disclosures regarding executive change-in-control payments.
- After MONY's Board responded by postponing the shareholder meeting and setting a new record date, plaintiffs filed a second motion for a preliminary injunction to stop the Board's action, alleging it was an improper manipulation of the stockholder franchise.
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Issue:
Does a board of directors breach its fiduciary duties by postponing a shareholder meeting and setting a new record date for the primary purpose of increasing the likelihood that a merger, which the board believes is in the corporation's best interests, will be approved?
Opinions:
Majority - Lamb, Vice Chancellor
No, the board of directors did not breach its fiduciary duties. A board's decision to alter the mechanics of a shareholder vote will be upheld under the business judgment rule when it does not touch upon issues of directorial control and is made by a disinterested, independent, and informed board acting in good faith. The court found that the stringent 'Blasius' standard, which requires a 'compelling justification' for actions that interfere with the shareholder franchise, is rarely applied outside the context of director elections or matters of corporate control. Since the directors would not retain their positions after the merger, no control issue was implicated, making 'Unocal' review also inapplicable. Here, the decision was made by a unanimous vote of the independent outside directors in response to several legitimate business concerns, including a court-ordered delay, a stale record date due to heavy share turnover, and the risk that a beneficial merger would fail for mechanical reasons. The board was not thwarting the will of the shareholders—as a majority of votes already cast were in favor of the merger—but was instead enabling a 'fuller and fairer' vote by enfranchising the company's current stockholders. Because the board acted on an informed basis, in good faith, and without self-interest, its decision is protected by the business judgment rule.
Analysis:
This decision clarifies the application of Delaware's standards of review for board actions that impact shareholder voting in a non-control context. It significantly narrows the reach of the stringent 'Blasius' compelling justification test, reserving it primarily for actions aimed at director entrenchment. The case establishes that a disinterested board has considerable latitude to manage the voting process, even with the explicit goal of securing a favorable outcome for a transaction the board deems in the corporation's best interest. This precedent gives boards confidence that such administrative decisions, if made properly, will be shielded by the deferential business judgment rule, thereby avoiding heightened judicial scrutiny.
