## Facts

- Harbor Finance Partners, a Republic Industries, Inc. stockholder, challenged Republic’s acquisition of AutoNation, Inc. as a conflicted controller-affiliated transaction and attacked the adequacy of the merger proxy disclosures.
- AutoNation was a start-up formed to develop used-car “megastores” and had not opened a store when the transaction was proposed.
- H. Wayne Huizenga and related parties controlled a large equity position in AutoNation, and several Republic directors also held substantial AutoNation shares.
- In March 1996, Huizenga proposed that Republic acquire AutoNation for $250 million in Republic stock, with a fixed exchange ratio based on Republic’s trading price; Republic publicly announced the proposed terms.
- Republic formed a Special Committee of directors to consider the acquisition and retained Merrill Lynch as financial advisor, despite Merrill Lynch’s prior work developing a valuation model for certain AutoNation stockholders.
- Negotiations were conducted primarily by Republic management, who reported to Huizenga, and the initial price remained unchanged.
- Merrill Lynch delivered a fairness opinion supporting the exchange ratio; the Special Committee and then the full board approved the merger.
- Republic stockholders approved the merger by a majority vote; the approving shares were overwhelmingly disinterested, and the vote was alleged (and found at the pleading stage) to be informed and uncoerced.

## Issues

1. Whether pre-suit demand on Republic’s board was excused as futile under Court of Chancery Rule 23.1 for derivative claims challenging the merger.
2. Whether the complaint stated a claim that the merger was substantively unfair or constituted corporate waste under Rule 12(b)(6), given disinterested stockholder approval.
3. Whether the complaint stated a claim that the merger proxy contained materially misleading statements or omissions under Rule 12(b)(6).

## Decision

- Demand was excused under Rule 23.1 because a majority of the seven-member board could not impartially consider a litigation demand, including a director alleged to lack independence due to family ties and significant business and equity connections to Huizenga and AutoNation.
- The court granted dismissal under Rule 12(b)(6) of the substantive merger challenge because an informed, uncoerced vote by disinterested stockholders invoked business judgment review, limiting any attack to waste.
- The court held the pleaded facts did not state a non-exculpated waste claim; the merger could be viewed as providing rational corporate benefit.
- The court dismissed the disclosure claims, finding the complaint failed to plead material misstatements or omissions in the proxy materials.

## Legal Principles

- Demand is excused under Rule 23.1 when the complaint pleads particularized facts supporting a reasonable doubt that a majority of directors are disinterested and independent as to the decision to pursue litigation.
- Close familial relationships combined with substantial financial or business ties may support a pleading-stage inference that a director cannot act independently for demand-futility purposes.
- An informed and uncoerced approval of a transaction by disinterested stockholders invokes business judgment review and forecloses entire fairness review, leaving at most a residual claim for waste.
- Corporate waste requires pleading that the consideration was so inadequate that no person of ordinary, sound business judgment could view the transaction as a rational exchange.
- A disclosure claim in connection with a stockholder vote requires pleading materially false or omitted facts; absent material deficiency, the vote is treated as informed.

## Conclusion

The court excused demand as futile based on pleaded director conflicts and non-independence, but dismissed the case for failure to state a claim because disinterested stockholders approved the merger in an informed, uncoerced vote that triggered business judgment review and left only an unpled waste theory, while also rejecting the alleged proxy disclosure deficiencies.


Harbor Fin. P’rs v. Huizenga, 751 A.2d 879 (Del. Ch. 1999)