## Facts

- General Cigar Holdings, Inc. had a dual-class structure: the public held Class A shares, while a related family group (the “Cullman Group”) held control largely through Class B shares.
- General Cigar’s board approved a merger in which a Swedish Match AB subsidiary would purchase the public Class A shareholders’ shares for cash.
- The transaction structure contemplated that Swedish Match would obtain a large equity stake while the Cullman Group would retain control of the post-transaction company.
- The company issued a proxy statement seeking Class A shareholder approval of the merger.
- A Class A stockholder filed a putative class action asserting fiduciary duty and disclosure claims, alleging that the Cullman Group obtained unique benefits not shared with the public and that several directors lacked independence due to relationships or financial ties.

## Issues

1. Whether the complaint pleaded particularized facts creating a reasonable doubt that a majority of the board was disinterested and independent, sufficient to rebut the business judgment rule at the pleading stage.
2. Whether the merger was cleansed by a fully informed, uncoerced vote of the disinterested Class A stockholders.
3. Whether the proxy disclosures contained materially misleading statements or omissions supporting a claim for breach of the duty of disclosure.

## Decision

- The court granted the motion to dismiss in part and denied it in part.
- The court dismissed most fiduciary duty loyalty/fairness theories because the complaint did not plead particularized facts showing a disabling interest or lack of independence for a majority of directors.
- The court held that allegations of mere friendship or ordinary-course business relationships, without materiality-specific facts, were insufficient to plead lack of independence.
- The court allowed limited disclosure claims to proceed where the complaint identified specific alleged omissions or misstatements that could be material to the Class A vote.
- Because some disclosure claims survived, the court did not treat the stockholder vote as fully informed and cleansing at the pleading stage.

## Legal Principles

- Board decisions are presumptively protected by the business judgment rule; to overcome that presumption on a motion to dismiss, a plaintiff must plead particularized facts showing that a majority of directors were interested, lacked independence, or failed to act in good faith.
- A director is “interested” if the director receives a personal financial benefit not shared equally with stockholders, and the benefit must be material to the director.
- Independence focuses on whether the director’s decision is based on corporate merits rather than extraneous influences; mere friendship or generalized business ties, standing alone, do not reasonably support an inference of non-independence.
- When directors solicit stockholder action, they must disclose fully and fairly all material information within the board’s control; information is material if a reasonable stockholder would view it as important in deciding how to vote.
- A stockholder vote may have ratifying effect only if it is uncoerced and fully informed; viable disclosure claims can preclude treating the vote as cleansing at the pleading stage.

## Conclusion

The court largely maintained business-judgment protection by rejecting conclusory conflict allegations that did not show material interest or lack of independence for a board majority, while permitting narrowly pled disclosure claims to proceed where the proxy allegedly omitted or misstated information that could matter to the public stockholders’ merger vote.


Orman v. Cullman, 794 A.2d 5 (Del. Ch. 2002)