## Facts

- A Marriott Corporation shareholder brought a derivative action challenging Marriott’s issuance of 313,000 shares to acquire all stock of six “property companies” principally owned by members of the Marriott family group.
- The property companies owned or leased real estate used by Marriott under leases requiring Marriott to pay expenses and rent, including percentage-rent features tied to sales.
- Marriott’s board included inside directors affiliated with the Marriott family group and outside directors who were not officers or employees and were not owners of the property companies.
- The outside directors unanimously approved the transaction, aiming to eliminate conflicts of interest and facilitate potential stock exchange listing requirements concerning related-party arrangements.
- Before approval, the outside directors obtained independent real-estate appraisals, relied on outside legal, tax, and accounting advice, and obtained an independent valuation analysis of Marriott’s stock using information from non–Marriott-group officers.
- Stockholders, including the plaintiff, later approved the transaction at an annual meeting.
- The plaintiff alleged Marriott overpaid because the assets were overvalued and Marriott’s stock was undervalued, resulting in an unfair exchange benefiting insiders.

## Issues

1. What level of judicial review applies to a stock-for-assets transaction involving insiders when a majority of disinterested directors investigates, negotiates, and approves it.
2. Whether alleged valuation errors and the insider benefit established unfairness sufficient to set aside the transaction or impose liability after closing.

## Decision

- The Court of Chancery entered judgment for the defendants and dismissed the derivative complaint.
- The court held that approval by a majority of independent, informed outside directors warranted substantial deference and the court would not substitute its judgment absent fraud, overreaching, bad faith, or unconscionable unfairness amounting to waste.
- The plaintiff failed to prove the consideration was so grossly inadequate, or the process so defective, as to justify judicial intervention.

## Legal Principles

- In conflict transactions, active approval by a majority of disinterested, independent directors after a careful and informed investigation can restore strong business judgment deference.
- Courts will not reweigh competing valuation methodologies merely because experts disagree; liability requires a showing of fraud, bad faith, domination, or a bargain so one-sided as to constitute corporate waste or an unconscionable exchange.
- Stockholder approval, while not automatically cleansing, supports the inference of fairness when the transaction has been investigated and approved by disinterested directors and presented for a vote.

## Conclusion

The court upheld Marriott’s stock-for-property-company acquisition because independent outside directors conducted meaningful diligence with independent advisors and the plaintiff did not prove fraud, bad faith, or an exchange so unfair as to constitute waste.


Puma v. Marriott, 283 A.2d 693 (Del. Ch. 1971)