## Facts

- Towers Watson & Co. negotiated a “merger of equals” with Willis Group Holdings plc, forming Willis Towers Watson plc.
- The transaction allocated 50.1% of the combined company to Willis stockholders and 49.9% to Towers stockholders, despite allegations that Towers had stronger performance and higher market capitalization.
- Market reaction was unfavorable to Towers; its stock price fell, Willis’s rose, and proxy advisors and investors criticized the deal.
- During negotiations, ValueAct (a significant Willis stockholder) presented Towers CEO John Haley—Towers’s lead negotiator—with a proposal contemplating a potential five-fold increase in Haley’s long-term equity compensation as CEO of the combined company.
- Haley did not disclose the proposal to the Towers board, and it was not disclosed in proxy materials seeking stockholder approval.
- With approval at risk, the parties renegotiated; Towers stockholders received an increased special cash dividend, approved the revised transaction, and the merger closed in January 2016.
- After closing, Haley became CEO of the combined company and received a compensation package with a long-term equity component allegedly similar to the earlier proposal.
- Former Towers stockholders sued Haley for breach of fiduciary duty (loyalty/candor) based on the alleged non-disclosure of a personal, deal-related compensation interest.

## Issues

1. Whether the complaint pled a reasonably conceivable claim that an officer breached the duty of loyalty by failing to disclose to the board a material, transaction-specific compensation proposal bearing on the officer’s conflict while he negotiated the merger.
2. Whether it was error at the pleading stage to treat the undisclosed proposal as immaterial as a matter of law and dismiss under a business-judgment framework.

## Decision

- The Delaware Supreme Court reversed the Court of Chancery’s dismissal of the claim against Haley and remanded.
- The court held plaintiffs pled a reasonably conceivable loyalty-based claim that Haley breached an officer’s duty of candor by not disclosing the compensation proposal to the board.
- The court concluded it was reasonably conceivable that a disinterested, reasonable director would view the proposal as significant to evaluating Haley’s recommendations and negotiation conduct, particularly amid pressure to renegotiate deal terms.
- The court held the Court of Chancery improperly resolved materiality against plaintiffs at the motion-to-dismiss stage rather than applying the “reasonably conceivable” pleading standard.
- The court did not disturb dismissal of claims against directors to the extent premised on exculpated duty-of-care liability.

## Legal Principles

- Corporate officers, like directors, owe fiduciary duties of loyalty and candor to the corporation and must not withhold material information from the board when the board is performing fiduciary functions.
- A fiduciary may not use superior knowledge to mislead other fiduciaries; material omissions to the board can constitute a loyalty breach, especially when tied to the fiduciary’s personal interests.
- Information is plausibly material when it concerns a significant, deal-related personal benefit (including prospective post-transaction compensation) that could affect the board’s assessment of the negotiator’s incentives, advice, and strategy.
- On a motion to dismiss, courts must accept well-pleaded allegations as true and draw reasonable inferences for plaintiffs; materiality generally should not be decided adversely to plaintiffs as a matter of law when allegations support a reasonable inference of significance.

## Conclusion

The court held that allegations of a large, undisclosed, merger-related compensation proposal to the company’s lead negotiator plausibly stated a loyalty-based non-disclosure claim, requiring further proceedings rather than dismissal at the pleading stage.


City of Fort Myers Gen. Emps.’ Pension Fund v. Haley, 235 A.3d 702 (Del. 2020)