## Facts

- LNR Property Corporation had a dual-class structure: common stock with one vote per share and Class B stock with ten votes per share, giving the Class B holder effective voting control.
- LNR’s controlling stockholder, Stuart Miller, allegedly dominated the company through supervoting Class B shares.
- A buyer group acquired LNR in a cash-out/freeze-out merger that eliminated the public minority stockholders for cash.
- Miller and certain members of management allegedly obtained the right to purchase a 25% equity stake in the surviving entity after the merger.
- Plaintiffs (former minority stockholders) alleged Miller stood on both sides of the transaction and received non-ratable benefits, including post-merger equity and continued roles.
- Plaintiffs alleged the merger consideration paid to the public stockholders was inadequate and unfair.
- LNR’s board formed a special committee, but plaintiffs alleged it lacked real bargaining power and functioned as an ineffective check on the controller’s influence.
- Plaintiffs brought a putative class action alleging fiduciary-duty breaches by the controller and directors; defendants moved to dismiss under Court of Chancery Rule 12(b)(6).

## Issues

1. Whether the complaint’s allegations required review of the merger under the business judgment rule or under the entire fairness standard applicable to conflicted controller transactions.
2. Whether the complaint, though spare, pleaded sufficient facts to support a reasonable inference of controller conflict and unfairness to survive dismissal under Rule 12(b)(6).

## Decision

- The Court of Chancery denied defendants’ Rule 12(b)(6) motion to dismiss.
- Accepting well-pleaded facts and drawing reasonable inferences for plaintiffs, the court held the allegations supported a reasonable inference that the controlling stockholder had a disabling conflict and effectively stood on both sides of the transaction.
- Because such allegations can trigger entire fairness review, dismissal under the business judgment rule was not warranted at the pleading stage.
- The case proceeded to discovery, with entire fairness identified as the potentially operative standard.

## Legal Principles

- A merger involving a controlling stockholder who allegedly stands on both sides of the transaction or receives non-ratable benefits may be subject to entire fairness review.
- Entire fairness review examines both fair dealing (process) and fair price (economic fairness).
- On a Rule 12(b)(6) motion, the court generally confines itself to the complaint and draws reasonable inferences in the plaintiff’s favor; extrinsic materials typically cannot be used to negate pleaded inferences.
- Even a relatively sparse complaint can survive dismissal in the controller-transaction context when it pleads controller status, unique benefits to the controller, and process deficiencies (including an allegedly ineffective special committee).

## Conclusion

The court allowed fiduciary-duty claims challenging a controller-influenced cash-out merger to proceed because the pleadings supported an inference of non-ratable controller benefits and process flaws sufficient to invoke potential entire fairness review at the motion-to-dismiss stage.


In re LNR Prop. Corp. S'holders Litig., 896 A.2d 169 (Del. Ch. 2005)