## Facts

- WorldCom, Inc. entered into a merger agreement to acquire Intermedia Communications, Inc.
- Intermedia was the controlling stockholder of Digex, Inc., a publicly traded Delaware corporation.
- As a result of the WorldCom–Intermedia merger, WorldCom would obtain control over Digex and would hold more than 85% of Digex’s voting power, but less than 85% of Digex’s outstanding voting shares.
- Delaware’s business combination statute, DGCL § 203, generally restricts an “interested stockholder” from engaging in a business combination with the corporation for three years after becoming an interested stockholder, unless an exception applies.
- One exception turns on whether the interested stockholder owns at least 85% of the corporation’s voting stock; the parties’ lawyers disputed whether that 85% test looks to voting power or the percentage of outstanding shares held.
- Digex’s board had seven directors: four affiliated with Intermedia and three independent directors.
- The three independent directors advised against waiving § 203 and voted against doing so.
- The four Intermedia-affiliated directors voted to waive Digex’s § 203 protections in favor of WorldCom.
- Digex’s minority stockholders filed consolidated class actions and sought a preliminary injunction either (a) stopping the WorldCom–Intermedia merger, or (b) enjoining the Digex board’s § 203 waiver.
- Plaintiffs argued that the interested Digex directors breached fiduciary duties by approving the waiver while conflicted, and also asserted a corporate opportunity theory tied to a potential direct WorldCom–Digex transaction.

## Issues

1. Whether plaintiffs showed a reasonable probability of success that Digex (or its minority stockholders) had a corporate opportunity in a direct WorldCom–Digex transaction that defendants wrongfully took.
2. Whether plaintiffs showed a reasonable probability of success that the Digex board’s § 203 waiver, approved by Intermedia-affiliated directors over independent directors’ objections, constituted a breach of fiduciary duty and would fail entire fairness review.
3. Whether plaintiffs established irreparable harm and that the balance of equities supported preliminary injunctive relief against the merger or the waiver.

## Decision

- The Court of Chancery denied the motion for a preliminary injunction.
- Plaintiffs did not show a reasonable probability of success on the corporate opportunity claim because Digex lacked a legally protected interest or expectancy in WorldCom bypassing Intermedia to acquire Digex directly.
- Plaintiffs did show a reasonable probability of success on the claim that the § 203 waiver was approved through a conflicted process and was subject to entire fairness review, with a meaningful risk that the waiver was not entirely fair to Digex’s minority stockholders.
- Despite that likelihood of success on the fiduciary-duty theory tied to the waiver, plaintiffs failed to show a non-compensable, imminent injury that required an injunction; the claimed harm could be addressed through post-closing monetary relief.
- Because irreparable harm was not shown, the court allowed the WorldCom–Intermedia transaction to proceed and left plaintiffs to pursue damages and related remedies.

## Legal Principles

- A preliminary injunction requires (1) a reasonable probability of success on the merits, (2) imminent irreparable harm absent relief, and (3) equities that favor the requested order.
- Corporate opportunity liability requires a showing that the corporation had an interest or expectancy in the opportunity; a controller’s decision to sell itself (and thereby its control of a subsidiary) does not, without more, give the subsidiary an enforceable claim to a differently structured deal.
- When directors act while conflicted and approve a transaction step that benefits the controller or the controller’s preferred buyer at the potential expense of minority stockholders, the action may be reviewed for entire fairness (fair dealing and fair price).
- A board’s decision to waive DGCL § 203 protections for an acquiror can be scrutinized under fiduciary-duty standards when the vote is driven by interested directors and independent directors lack meaningful ability to protect the minority.
- Even where plaintiffs show likely success on the merits, injunctive relief is not granted without a showing that money damages would be inadequate and that the threatened harm is forward-looking rather than solely the result of a past board action.

## Conclusion

The court refused to enjoin WorldCom’s acquisition of Intermedia or Digex’s § 203 waiver because, although plaintiffs were likely to prove that the waiver was approved by conflicted directors and was subject to entire fairness review, they did not show imminent irreparable harm that required stopping the transaction, leaving damages as the primary remedy.


In re Digex Shareholders Litigation, 789 A.2d 1176 (2000)