## Facts

- Lion Brewery, Inc. (Lion) decided to pursue a sale of the company and conducted a lengthy, auction-style process that drew interest from multiple potential buyers.
- Lion’s board of directors approved a transaction under which Malt Acquiring, Inc. (MAI) would acquire Lion.
- MAI was owned by Lion’s managers, meaning management participated on the buy-side of the proposed deal.
- During the extended sale process, several directors favored a sale to MAI, creating concerns among dissident shareholders about bias and conflicts.
- The board engaged and followed professional advice from financial and legal advisors while evaluating alternatives and negotiating the MAI transaction.
- Dissident shareholders filed a shareholder derivative action in the Luzerne County Court of Common Pleas alleging the directors breached fiduciary duties in connection with the MAI sale.
- The shareholders sought a preliminary injunction to stop the MAI sale from closing, supporting their arguments in part with citations to Delaware takeover cases, including *Unocal* and *Revlon*.

## Issues

1. Whether the shareholders, as derivative plaintiffs, were proper and adequate representatives entitled to seek equitable relief on Lion’s behalf, including whether they were free of ulterior motives or an external personal agenda.
2. Whether the shareholders met Pennsylvania’s requirements for a preliminary injunction to enjoin the board-approved MAI sale, including a sufficient showing of likely success on fiduciary-duty claims and the need for immediate equitable relief.
3. Whether alleged management-side conflicts and director bias, in light of the board’s auction process and reliance on professional advice, showed a probable breach of fiduciary duties warranting an injunction before closing.

## Decision

- The court denied the shareholders’ request for a preliminary injunction to stop the sale of Lion to MAI.
- The court determined the shareholders had not made a strong showing, at the preliminary stage, that the directors likely breached fiduciary duties in approving the MAI transaction.
- The court credited the record showing a protracted sale process with professional guidance and found no clear indication that the board acted without due care and attention to the best interests of Lion’s constituencies, including shareholders, employees, suppliers, and customers.
- The court emphasized equitable limits on derivative litigation, including that a derivative plaintiff must be an adequate representative and must not pursue the case for ulterior motives or an external personal agenda.

## Legal Principles

- A preliminary injunction is extraordinary relief; the moving party bears a heavy burden to show a clear right to relief and a sufficient basis for immediate equitable intervention.
- In a shareholder derivative action, the plaintiff must be a proper representative of the corporation and “must not have or exhibit ulterior motives and must not be pursuing an external personal agenda.”
- When directors act on an informed basis after receiving and following professional financial and legal advice, a court generally gives substantial deference to the board’s decision-making absent a strong evidentiary showing of disloyalty or lack of due care.
- The existence of management involvement on both sides of a proposed transaction may raise loyalty concerns, but interim injunctive relief typically requires more than allegations of bias; it requires evidence indicating a likely breach that justifies stopping the deal before closing.
- Delaware takeover decisions may be cited as persuasive authority, but Pennsylvania courts decide requests for equitable relief based on Pennsylvania standards and the specific record developed on the injunction application.

## Conclusion

*Simmons v. Sutherland* refused to enjoin Lion Brewery’s sale to a management-owned acquisition vehicle because the dissident shareholders did not demonstrate, at the preliminary-injunction stage, a probable fiduciary breach in light of the board’s extended market check and reliance on professional advice, and because derivative plaintiffs must be adequate representatives who are not pursuing an external personal agenda.


Simmons v. Sutherland, 1998 Pa. Dist. & Cnty. Dec. LEXIS 200 (1998)