Loudon v. Archer Daniels Midland
In Loudon v. Archer Daniels Midland, 700 A.2d 135, 143 (Del. 1997), a class of shareholders sued individual directors in the defendant corporation upon allegations that disclosures in a proxy statement for the 1995 annual meeting to elect directors were incomplete and materially misleading.
At the outset of the opinion, the Court reviewed the principles that govern direct claims by shareholders for breach of director disclosure duties.
The Delaware law of the fiduciary duties of directors, as developed in our judicial decisions, establishes a general duty of directors to disclose to stockholders all material information reasonably available when seeking stockholder action. Whether or not a failure to fulfill that duty will result in personal liability for damages against directors depends upon the nature of the stockholder action that was the object of the solicitation of stockholder votes and the misstated or omitted disclosures in connection with that solicitation. (Id. at 137-38.)
In Loudon, the Court observed:
A timely complaint, properly pleaded and supported by proof sufficient to invoke preliminary equitable relief, could result in an early injunction or the imposition of corrective disclosures before the complained-of corporate activity had been consummated. There may also be a potential damage remedy where the misstatement or omission implicates the stockholders' economic or voting rights. But there is no per se doctrine imposing damage liability on directors in a disclosure case absent these elements. (700 A.2d at 138.)
The plaintiffs in Loudon had sued alleging disclosure violations in a proxy statement for the 1995 annual meeting to elect directors. By the time the case was before the Delaware Supreme Court, the terms of the directors elected at that meeting "had come and gone." 700 A.2d at 141.
The court held that because the terms had expired the claims for equitable and injunctive relief in the form of corrective disclosures and new elections were moot.
The Delaware Chancery Court, in In re the Walt Disney Company Derivative Litigation, 731 A.2d 342 (Del Ch. 1998), aff'd in part and rev'd in part on other grounds, sub nom. Brehm v. Eisner, 746 A.2d 244 (Del. 2000), explained the impact of the Loudon decision.
The court explained that after In re Tri-Star Pictures, Inc., Litigation, 634 A.2d 319, 330 (Del. 1993) was decided, it appeared that disclosure violations by directors would give rise to liability "whenever shareholder action was solicited. " Id. at 371.
The Delaware Supreme Court in Loudon had clarified, however, that "disclosure violations that negatively impact voting or economic rights" support a direct shareholder claim, and require proof of actual damages; disclosure violations that do not negatively impact voting or economic rights "may be dismissed for failure to state a claim." Id. at 371-72.