## Facts

- Wheelabrator Technologies, Inc. (WTI) developed and produced refuse-to-energy services.
- Waste Management, Inc. (Waste) provided waste-management services.
- In 1988, WTI and Waste entered into a transaction that resulted in Waste owning about 22% of WTI’s outstanding shares, making Waste WTI’s largest stockholder.
- The companies continued discussions about combining their businesses, and in March 1990, Waste proposed merging with WTI.
- WTI and Waste negotiated a merger agreement under which WTI would be merged into a wholly owned subsidiary of Waste.
- WTI’s board of directors approved the merger agreement.
- WTI’s stockholders voted to approve the merger, including a majority of the shares not owned by Waste.
- The merger closed on September 7, 1990.
- WTI stockholders filed (and later consolidated) class actions challenging the merger.
- Plaintiffs alleged, among other things, that the directors breached fiduciary duties in negotiating and approving the merger and that a majority of the directors were conflicted such that they did not seek or obtain the best value for WTI stockholders.
- Plaintiffs also asserted disclosure-based fiduciary claims, contending that the proxy materials were materially misleading or omitted material information.
- Defendants moved for summary judgment, arguing that the stockholder vote was fully informed and therefore ratified the merger and the directors’ conduct, extinguishing plaintiffs’ fiduciary-duty claims.

## Issues

1. Whether plaintiffs produced evidence sufficient to defeat summary judgment on their claim that the proxy statement contained materially false statements or omissions.
2. Whether a fully informed, uncoerced stockholder vote approving the merger extinguished post-closing fiduciary claims challenging the directors’ conduct under a duty-of-care theory.
3. Whether that same stockholder vote extinguished loyalty-based claims, or instead changed the standard of review and/or the allocation of the burden of proof.

## Decision

- The court granted summary judgment for defendants on the disclosure claims, finding plaintiffs failed to show a materially false statement or omission in the proxy materials.
- The court granted summary judgment for defendants on plaintiffs’ duty-of-care claims, holding that the fully informed stockholder approval of the merger operated as a complete defense to those claims.
- The court denied summary judgment on the duty-of-loyalty claim, holding that the informed stockholder vote did not automatically eliminate loyalty-based challenges, although the vote affected how those claims would be reviewed.

## Legal Principles

- A fiduciary disclosure claim requires proof of a materially misleading statement or omission; information is material if a reasonable stockholder would view it as important in deciding how to vote.
- The cleansing effect of a stockholder vote depends on whether the vote was fully informed and uncoerced; if disclosure is materially deficient, ratification doctrines do not apply.
- When disinterested stockholders, acting on full information, approve a transaction, that approval can ratify the directors’ decision and bar post-closing claims framed as failures of due care in the board’s decision-making process.
- Stockholder approval does not, by itself, extinguish every loyalty-based claim; rather, it can change the litigation posture by restoring business-judgment deference and placing on plaintiffs the burden to plead and prove facts sufficient to overcome that deference.
- Even where plaintiffs argue for entire-fairness review based on alleged conflicts, an informed, disinterested stockholder vote may limit the availability of that standard and instead require plaintiffs to rebut the business judgment presumption.

## Conclusion

The Court of Chancery held that plaintiffs could not proceed on disclosure claims because the record did not show material misstatements or omissions, and that the fully informed, uncoerced stockholder vote approving the Waste–WTI merger barred post-closing duty-of-care attacks on the directors’ conduct. The court, however, refused to treat the vote as an automatic release of loyalty-based claims; instead, it allowed the loyalty theory to survive summary judgment, while recognizing that informed stockholder approval substantially strengthened defendants’ position by moving review toward business-judgment deference and shifting to plaintiffs the burden to overcome that presumption.


In re Wheelabrator Technologies, Inc. Shareholders Litigation, 663 A.2d 1194 (1995)