Kahn v. Household Acquisition Corp
In Kahn v. Household Acquisition Corp. (Del. 1991) 591 A.2d 166, minority shareholders of Wien Air Alaska, Inc., sued the corporation which acquired Wien, contending defendant breached its fiduciary duty to the minority through nondisclosure of essential financial data.
In its November 1980 proxy statement, defendant stated "it is currently anticipated that Wien's actual net income for 1980 will be materially less than the amount projected, unless Wien's subsidy or mail rate from the U.S. Government, both of which are presently under review by the CAB Civil Aeronautics Board, is increased during 1980 substantially over the amounts proposed by the CAB."
In December 1980 Wien and the CAB staff reached an agreement setting the subsidy rate at $ 6.2 million, an increase of $ 1.3 million over the proposal by the CAB referred to in the proxy statement. Defendant did not supplement its proxy statement to reflect the December 1980 agreement.
The minority claimed defendant's failure to provide this updated information was a breach of its fiduciary duty because the information significantly affected the total mix of financial information which a reasonable shareholder could be expected to consider in order to judge the adequacy of the merger price offered by defendant.
The trial court deemed the failure to disclose the December 1980 agreement immaterial and concluded its disclosure would not have significantly altered the total mix of information available to the shareholders.
Noting the duty of disclosure is a mixed one of law and fact, the Delaware Supreme Court ruled in favor of the shareholders on the law but upheld the trial court's factual determination the information, had it been disclosed, would not have altered the way a reasonable shareholder looked at the merger offer. On the legal issue the court stated:
"The duty of complete disclosure should apply with equal force to supplemental as well as original proxy materials. ... If subsequent events impart a new and significant slant on information already discussed, their disclosure is mandated."
The court qualified this holding by noting "subsequent events may have significance, and thus require disclosure, only as they relate to information originally disclosed." (Kahn v. Household Acquisition Corp., supra, 591 A.2d at page 171.)