## Facts

- Donaldson, Lufkin & Jenrette, Inc. (DLJ) was controlled by AXA Financial, Inc., which held about 71% of DLJ’s stock.
- AXA negotiated a transaction in which Credit Suisse Group would acquire DLJ through a two-step structure: purchase of AXA’s controlling stake, followed by a cash tender offer for the remaining shares.
- The tender offer was initially to remain open for 20 business days, but the merger agreement permitted two extensions.
- The DLJ board and Credit Suisse invoked both extensions, delaying closing by 22 days beyond the original schedule.
- Former minority stockholders Patrick Tooley and Kevin Lewis alleged the directors breached fiduciary duties by permitting the delay, claiming injury equal to the lost time-value of the cash merger consideration during the 22-day period.

## Issues

1. Whether a stockholder claim about delayed receipt of merger consideration is direct or derivative.
2. What test governs the direct-versus-derivative inquiry under Delaware law.
3. Whether the complaint stated any claim for relief and, if not, whether dismissal should be with prejudice.

## Decision

- The Delaware Supreme Court rejected the prior “special injury” framework and announced a two-question test for distinguishing direct and derivative claims.
- Applying that test, the Court held the complaint, as pleaded, stated no cognizable claim—neither direct nor derivative.
- The Court affirmed dismissal for failure to state a claim but reversed the “with prejudice” aspect and remanded to permit repleading.
- The Court treated the trial court’s direct/derivative analysis as legally erroneous but harmless given the failure to plead a viable claim.

## Legal Principles

- Whether a claim is direct or derivative turns solely on: (1) who suffered the alleged harm (the corporation or the stockholders individually), and (2) who would receive the benefit of any recovery or other remedy (the corporation or the stockholders individually).
- A claim is direct only if the stockholder can prevail without showing injury to the corporation.
- Labels such as “special injury” are not controlling; courts must focus on the nature of the alleged wrong and where the remedy should flow.
- A theory premised on delayed merger consideration must allege a legally cognizable right to earlier payment or a cognizable corporate injury; otherwise it fails to state a claim.

## Conclusion

The Delaware Supreme Court replaced the “special injury” approach with a two-prong inquiry focusing on who was harmed and who would receive the remedy, then held that minority stockholders’ lost time-value theory from a merger-closing delay, as pleaded, stated no claim; dismissal was affirmed on the merits but allowed repleading.


Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del. 2004)