## Facts

- Trans Union Corporation had significant tax attributes it could not fully use because it lacked sufficient taxable income.
- Trans Union’s CEO and board chair, Jerome W. Van Gorkom, pursued a cash-out sale to an entity affiliated with the Marmon Group controlled by Jay Pritzker.
- Van Gorkom settled on a $55 per share price without obtaining an independent valuation, meaningful internal analysis of intrinsic value, or outside financial advice.
- Key deal terms included a $55 per share cash-out, restrictions on soliciting competing bids and sharing information, and a provision providing Pritzker one million shares at $39 per share if outbid.
- Van Gorkom called a special board meeting to approve the merger; directors received no advance materials, did not review the merger agreement beforehand, and did not obtain a fairness opinion.
- The board meeting lasted roughly two hours; many directors and senior managers first learned of the transaction at that meeting.
- The board approved the merger and submitted it to stockholders; the stockholders later approved the transaction.
- Stockholders filed a class action seeking rescission or damages, alleging the directors breached fiduciary duties by approving the merger through an inadequate process.

## Issues

1. Whether the directors approved the merger through an informed decision-making process sufficient to invoke the business judgment rule.
2. Whether the directors were grossly negligent in failing to inform themselves of material information reasonably available before approving the merger.
3. Whether stockholder approval insulated the directors from liability where the stockholder vote was allegedly not fully informed.
4. What remedy was appropriate if the directors breached the duty of care in approving a cash-out merger.

## Decision

- The Delaware Supreme Court reversed the Court of Chancery’s judgment for the directors.
- The Court held the directors were grossly negligent in approving the merger without adequate information about the company’s intrinsic value and without a deliberate, informed process.
- Because the presumption of the business judgment rule was rebutted, the directors were not protected from liability.
- The Court held the stockholder vote did not cleanse the breach because the stockholders were not fairly informed about the process and basis for the $55 price.
- The Court directed entry of judgment for plaintiffs against the director defendants for the fair value of the shares, to be determined using the valuation approach applied in Delaware appraisal jurisprudence.

## Legal Principles

- Directors must inform themselves, before making a major corporate decision, of all material information reasonably available to them; failure may constitute gross negligence.
- In approving a merger and submitting it to stockholders, directors must act in an informed and deliberate manner under Delaware corporate law.
- The business judgment rule’s protection is a rebuttable presumption; it does not apply when the board’s decision is unadvised because the directors did not reasonably inform themselves.
- A board’s compliance with the duty of care is judged primarily by the adequacy of its process, not by the transaction’s price outcome alone.
- Stockholder approval does not ratify director conduct or bar liability unless the stockholders’ vote is fully informed through disclosure of all material facts.
- When rescission is impractical after consummation of a merger, monetary relief may be awarded based on the fair value of the stockholders’ shares.

## Conclusion

The court imposed liability on directors who approved a cash-out merger after a brief meeting without prior materials, meaningful valuation work, or a fairness opinion, holding that grossly negligent decision-making defeats the business judgment rule and that an uninformed stockholder vote does not cure the breach; the remedy was damages measured by fair value.


Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985)