## Facts

- A group of investors (the Bass group) accumulated a substantial stake in Texaco, reaching nearly 10% of outstanding shares by January 1984.
- During the same period, Texaco undertook a major acquisition of Getty Oil Company, creating significant financing, integration, and litigation demands.
- Texaco repurchased the Bass group’s shares at a premium over market price, prompting stockholder class and derivative suits challenging the transaction and related board conduct.
- The actions were consolidated in the Delaware Court of Chancery, where the stockholder plaintiffs negotiated a settlement disposing of the claims.
- After a fairness hearing, the Court of Chancery approved the settlement and dismissed the consolidated actions.
- Certain Texaco stockholders appeared as objectors and/or sought to intervene and appealed the settlement approval.

## Issues

1. Whether the Court of Chancery abused its discretion in approving the settlement as fair and reasonable.
2. Whether the settlement lacked valid consideration when measured against the released claims.
3. Whether alleged director self-interest undermined the settlement’s fairness and the deference owed to board decisions implicated by the released claims.
4. Whether the class/stockholder notice of settlement was legally sufficient.
5. Whether the Chancellor’s factual findings supporting approval were clearly erroneous such that approval constituted an abuse of discretion.

## Decision

- The Delaware Supreme Court affirmed the Court of Chancery’s order approving the settlement and dismissing the consolidated actions.
- The court applied an abuse-of-discretion standard and found no merit in the objectors’ challenges to the Chancellor’s evaluation of fairness.
- The court upheld the Chancellor’s assessment that the settlement provided adequate value in light of litigation risks and uncertainty.
- The court rejected claims that alleged director interest, inadequate notice, or insufficient factual support required reversal.

## Legal Principles

- Appellate review of a Court of Chancery order approving a class or derivative settlement is for abuse of discretion, with substantial deference to the Chancellor’s fairness determination.
- In evaluating settlement fairness, the court may weigh the strength of the claims, defenses, expected recovery, litigation costs, delay, and the uncertainty of proving liability and damages.
- A premium stock repurchase from a significant holder is not per se invalid; challenges commonly turn on fiduciary-duty considerations such as good faith, reasonable investigation, and loyalty-based concerns.
- Allegations of entrenchment or director “interest” must be supported by the record; concern about corporate threats or instability alone does not necessarily establish disabling conflict.
- Settlement notice is sufficient if it reasonably informs affected stockholders of the litigation’s nature, the settlement terms, and the means to object or otherwise protect their rights.

## Conclusion

The Delaware Supreme Court upheld the settlement because the Chancellor, after a fairness hearing, reasonably evaluated the settlement’s benefits against the risks and uncertainties of continued litigation and did not abuse discretion in rejecting objections based on consideration, director interest, notice, or factual support.


Polk v. Good, 507 A.2d 531 (Del. 1986)