## Facts

- GenDerm Corporation, a closely held Delaware corporation with over 150 stockholders, explored strategic alternatives after financial difficulties.
- GenDerm negotiated a stock-for-stock merger in which Medicis Pharmaceutical Corporation would acquire GenDerm as a wholly owned subsidiary.
- The GenDerm board sought approval by written stockholder consent on December 1, 1997, with an expected closing date of December 3, 1997.
- The solicitation materials were sparse and, despite being nominally addressed to all stockholders, were not sent to all stockholders.
- The materials largely consisted of a cover letter, consent form, the merger agreement, and the Delaware appraisal statute (8 Del. C. § 262), without current financial statements or an explanation of why the merger was recommended.
- The board omitted material information within its control, including GenDerm’s recent financial performance, prospects, valuation-related facts, and the board’s reasons for supporting the transaction.
- GenDerm had provided the acquirer with more detailed internal financial and business information than it provided to its own stockholders.
- Plaintiffs alleged they did not receive the solicitation materials at the time and instead relied on limited public information, later accepting merger consideration and signing transmittal letters that purported to waive appraisal rights.
- GenDerm’s charter did not include a DGCL § 102(b)(7) exculpation provision for duty-of-care monetary liability.

## Issues

1. Whether the directors breached the fiduciary duty of disclosure by failing to provide material information necessary for stockholders to decide whether to accept merger consideration or pursue appraisal.
2. Whether accepting the merger consideration and signing transmittal letters waiving appraisal rights waived plaintiffs’ equitable fiduciary-duty disclosure claim.

## Decision

- The Court of Chancery granted plaintiffs’ motion for partial summary judgment on liability.
- The court held the directors breached their fiduciary duty of disclosure by providing only cursory materials that omitted material information bearing on the appraisal-or-acceptance decision.
- The court held plaintiffs did not waive their equitable disclosure claim by accepting the merger consideration or by signing documents purporting to waive statutory appraisal rights.
- The court left remedies and damages for later proceedings.

## Legal Principles

- When directors communicate with stockholders about a transaction, they must disclose fully and fairly all material facts within their control that a reasonable stockholder would consider important in deciding how to respond.
- The disclosure standard does not diminish merely because stockholders are deciding whether to seek appraisal rather than casting a vote on the transaction.
- Directors must satisfy an affirmative fiduciary disclosure obligation; pointing stockholders to third-party public information or offering to answer questions upon request is not a substitute for disclosing material facts.
- Acceptance of merger consideration and waiver of statutory appraisal rights does not, by itself, waive separate equitable claims for fiduciary disclosure breaches, particularly where the alleged waiver occurred without adequate fiduciary disclosure.
- Absent a DGCL § 102(b)(7) exculpation provision, directors may face monetary liability for disclosure violations grounded in the duty of care.

## Conclusion

The court imposed liability at summary judgment for materially deficient merger disclosures and rejected a waiver defense based on stockholders’ acceptance of consideration and appraisal waivers, holding that stockholders are entitled to material information from their fiduciaries before choosing between merger consideration and appraisal.


Turner v. Bernstein, 776 A.2d 530 (Del. Ch. 2000)