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Kahn v. Sullivan/Opinion of the Court

[p50] This is an appeal from the approval of the settlement of one of three civil actions brought in the Court of Chancery by certain shareholders of Occidental Petroleum Corporation ("Occidental"). Each civil action challenged a decision by Occidental's board of directors (the "Board"), through a special committee of Occidental's outside directors ("the Special Committee"), to make a charitable donation. The purpose of the charitable donation was to construct and fund an art museum.

The shareholder plaintiffs in this litigation, Joseph Sullivan and Alan Brody, agreed to a settlement of their class and derivative actions subject to the approval of the Court of Chancery. The settlement was authorized, on behalf of Occidental, by the Special Committee. The shareholder plaintiffs in the other two civil actions, Alan R. Kahn ("Kahn") and Barnett Stepak ("Stepak"), appeared in the Sullivan action and objected to the proposed settlement. California Public Employees Retirement System ("CalPERS") was permitted to intervene as a shareholder plaintiff in the Kahn action and also appeared in opposition to the proposed settlement in the Sullivan action.

[p51] On April 4, 1990, a settlement hearing was held in the Sullivan action by the Court of Chancery. In a memorandum opinion dated August 7, 1990, the Court of Chancery concluded that, under all of the circumstances, the terms of the settlement in the Sullivan action were fair and reasonable. It ordered that the settlement be approved. Kahn, CalPERS and Stepak ("the Objectors") have each appealed from that decision and order by the Court of Chancery.

The Objectors contend that the Court of Chancery abused its discretion in approving the settlement in the Sullivan action. The Objectors' first contention is that the Court of Chancery erred in holding that it was "highly probable" that the protection of the business judgment rule would successfully apply to the actions taken by the directors of Occidental who had been named as defendants. The Objectors' second contention is that the Court of Chancery abused its discretion in finding that the shareholder plaintiffs' claims of corporate waste were weak. Finally, the Objectors contend that the Court of Chancery abused its discretion in approving the settlement because the consideration for the settlement was inadequate in view of the strength of the claims which were being compromised.

The applicable standard of appellate review requires this Court to examine the record for an abuse of discretion by the Court of Chancery in approving the settlement. We have carefully reviewed the record and considered the Objectors' contentions. We have concluded that the decision of the Court of Chancery must be affirmed.

Facts
Occidental is a Delaware corporation. According to the parties, Occidental has about 290 million shares of stock outstanding which are held by approximately 495 thousand shareholders. For the year ending December 31, 1988, Occidental had assets of approximately twenty billion dollars, operating revenues of twenty billion dollars and pre-tax earnings of $ 574 million. Its corporate headquarters are located in Los Angeles, California.

At the time of his death on December 10, 1990, Dr. Hammer was Occidental's chief executive officer and the chairman of its board of directors. Since the early 1920's, Dr. Hammer had been a serious art collector. When Dr. Hammer died, he personally and The Armand Hammer Foundation (the "Foundation"), owned three major collections of art (referred to in their entirety as "the Art Collection"). The Art Collection, valued at $ 300-$ 400 million included: "Five Centuries of Art," more than 100 works by artists such as Rembrandt, Rubens, Renoir and Van Gogh; the Codex Hammer, a rare manuscript by Leonardo da Vinci; and the world's most extensive private collection of paintings, lithographs and bronzes by the French satirist Honore Daumier. See The Armand Hammer Collection (J. Walker 2d ed. 1982).

For many years, the Board has determined that it is in the best interest of Occidental to support and promote the acquisition and exhibition of the Art Collection. Through Occidental's financial support and sponsorship, the Art Collection has been viewed by more than six million people in more than twenty-five American cities and at least eighteen foreign countries. The majority of those exhibitions have been in areas where Occidental has operations or was negotiating business contracts. Occidental's Annual Reports to its shareholders have described the benefits and good will which it attributes to the financial support that Occidental has provided for the Art Collection.

Dr. Hammer enjoyed an ongoing relationship with the Los Angeles County Museum of Art ("LACMA") for several decades. In 1968, Dr. Hammer agreed to donate a number of paintings to LACMA, as well as funds to purchase additional art. For approximately twenty years thereafter, Dr. Hammer both publicly and privately expressed his intention to donate the Art Collection to LACMA. However, Dr. Hammer and LACMA had never entered into a [p52]  binding agreement to that effect. Nevertheless, LACMA named one of its buildings the Frances and Armand Hammer Wing in recognition of Dr. Hammer's gifts.

Occidental approved of Dr. Hammer's decision to permanently display the Art Collection at LACMA. In fact, it made substantial financial contributions to facilitate that display. In 1982, for example, Occidental paid two million dollars to expand and refurbish the Hammer Wing at LACMA.

In 1987, Dr. Hammer presented Daniel N. Belin, Esquire ("Belin"), the president of LACMA's Board of Trustees, with a thirty-nine page proposed agreement which set forth the terms upon which Dr. Hammer would permanently locate the Art Collection at LACMA. LACMA and Dr. Hammer tried, but were unable to reach a binding agreement. Consequently, Dr. Hammer concluded that he would make arrangements for the permanent display of the Art Collection at a location other than at LACMA. On January 8, 1988, Dr. Hammer wrote a letter to Belin which stated that he had "decided to create my own museum to house" the Art Collection.

On January 19, 1988, at a meeting of the executive committee of Occidental's board of directors ("the Executive Committee"), Dr. Hammer proposed that Occidental, in conjunction with the Foundation, construct a museum for the Art Collection. After discussing Occidental's history of identification with the Art Collection, the Executive Committee decided that it was in Occidental's best interest to accept Dr. Hammer's proposal. The Executive Committee approved the negotiation of arrangements for the preliminary design and construction of an art museum. It would be located adjacent to Occidental's headquarters, on the site of an existing parking garage used by Occidental for its employees. The Executive Committee also decided that once the art museum project was substantially defined, a final proposal would be presented to the Board or the Executive Committee for approval and authorization.

The art museum concept was announced publicly on January 21, 1988. On February 11, 1988, the Board approved the Executive Committee's prior actions. Occidental informed its shareholders of the preliminary plan to construct The Armand Hammer Museum and Cultural Center of Art ("the Museum") in its 1987 Annual Report. In accordance with the January 19, 1988 resolutions passed by the Executive Committee, construction of a new parking garage for Occidental began in the fall of 1988. The Board approved a construction bond on November 10, 1988.

On December 15, 1988, the Board was presented with a detailed plan for the Museum proposal. The Board approved the concept and authorized a complete study of the proposal. Following the December 15th Board meeting, the law firm of Dilworth, Paxson, Kalish & Kauffman ("Dilworth") was retained by the Board to examine the Museum proposal and to prepare a memorandum addressing the issues relevant to the Board's consideration of the proposal. The law firm of Skadden, Arps, Slate, Meagher & Flom ("Skadden Arps") was retained to represent the new legal entity which would be necessitated by the Museum proposal. Occidental's public accountants, Arthur Andersen & Co. ("Arthur Andersen"), were also asked to examine the Museum proposal.

On or about February 6, 1989, ten days prior to the Board's prescheduled February 16 meeting, Dilworth provided each member of the Board with a ninety-six page memorandum. It contained a definition of the Museum proposal and the anticipated magnitude of the proposed charitable donation by Occidental. It reviewed the authority of the Board to approve such a donation [p53]  and the reasonableness of the proposed donation. The Dilworth memorandum included an analysis of the donation's effect on Occidental's financial condition, the potential for good will and other benefits to Occidental, and a comparison of the proposed charitable contribution by Occidental to the charitable contributions of other corporations.

The advance distribution of the Dilworth memorandum was supplemented on February 10, 1989 by a tax opinion letter from Skadden Arps. That same day, the Board also received a consulting report from the Duncan Appraisal Corporation. The latter document addressed the option price for the Museum's purchase of Occidental's headquarters building, museum facility and parking garage in thirty years as contemplated by the Museum proposal.

During the February 16 Board meeting, a Dilworth representative personally presented the basis for that law firm's analysis of the Museum proposal, as set forth in its February 6 written memorandum. The presentation reviewed again the directors' standard of conduct in considering the Museum proposal, as well as the financial and tax consequences to Occidental as a result of the donation. Following the Dilworth presentation, the Board resolved to appoint the Special Committee, comprised of its eight independent and disinterested outside directors, to further review and to act upon the Museum proposal:

RESOLVED, that a special committee be, and hereby is appointed for the purpose of considering and acting on the Proposal (the "Special Committee"). A copy of the Proposal is attached hereto as Exhibit "A";

FURTHER RESOLVED, that the Special Committee shall consist of the following directors of the Corporation: Senator Gore, Mr. Kluge, Mr. Krim, Mr. Nizer, Mr. Nolley, Dr. Piper, Mr. Syriani and Miss Tomich.

FURTHER RESOLVED, that the Special Committee shall have and is hereby granted full authority to consider, act on, approve and authorize the Proposal and the Special Committee's action respecting the Proposal shall be deemed the action of the Board of Directors of the Corporation and shall bind the Corporation to the same extent as an action of the full Board of Directors.

The Board then adjourned to allow the Special Committee to meet.

The Special Committee consisted of individuals who collectively had approximately eighty years of service on Occidental's board of directors. In alphabetical order, they are as follows: Albert Gore; John W. Kluge; Arthur B. Krim; Louis Nizer; George O. Nolley; Dr. C. Erwin Piper; Aziz D. Syriani; and Rosemary Tomich. Those Board members were not [p54]  officers of Occidental, and were not associated with the Museum or the Foundation.

On February 16, 1989, following the adjournment of the Board meeting, the Special Committee met to consider the proposal presented to the full Board for establishing the Museum. The Special Committee requested the representatives of Dilworth to attend the meeting to respond to any questions relating to its February 6, 1989 opinion letter and memorandum. The Special Committee also asked representatives from Skadden Arps and Arthur Andersen to attend its meeting to address questions concerning the proposed charitable contribution.

The minutes of the February 16, 1989 meeting of the Special Committee outline its consideration of the Museum proposal. Those minutes reflect that many questions were asked by members of the Special Committee and were answered by the representatives of Dilworth, Skadden Arps, or Arthur Andersen. As a result of its own extensive discussions, and in reliance upon the experts' opinions, the Special Committee concluded that the establishment of the Museum, adjacent to Occidental's corporate offices in Los Angeles, would provide benefits to Occidental for at least the thirty-year term of the lease. The Special Committee also concluded that the proposed museum would establish a new cultural landmark for the City of Los Angeles.

On February 16, 1989, the Special Committee unanimously approved the Museum proposal, subject to certain conditions. The proposal approved by the Special Committee included the following provisions:

(1) Occidental would construct a new museum building, renovate portions of four floors of its adjacent headquarters for use by the Museum, and construct a parking garage beneath the museum for its own use for a total cost of approximately $ 50 million.

(2) Occidental would lease the Museum building and the four floors of its headquarters to the Museum rent-free for a term of thirty years. Occidental would continue to pay the property taxes, and the Museum would pay the utilities and maintenance expenses;

(3) Occidental would purchase a thirty-year annuity at an estimated cost of $ 35.6 million to provide for the funding of the Museum's operations during its initial years;

(4) Occidental would grant the Museum an irrevocable option to purchase the Museum building, the parking garage, and the Occidental headquarters building in thirty years for $ 55 million;

(5) Dr. Hammer and the Foundation would transfer the Art Collection entirely to the Museum;

(6) The Museum would be named for Dr. Hammer - The Armand Hammer Museum of Art and Cultural Center.

(7) Occidental would have representation on the board of directors of the Museum;

(8) Occidental would receive public recognition for its role in establishing the Museum, for example, by the naming of the courtyard, library, or auditorium for Occidental and Occidental would have the right to use the Museum, and be entitled to "corporate sponsor" rights.

The Special Committee's unanimous approval of the proposal was subject to the following conditions:

(1) The incorporation of the Museum as a non-profit corporation under Delaware law;

(2) The determination by the Internal Revenue Service that the Museum would be a tax-exempt entity under the Internal Revenue Code;

(3) The receipt of supplementation of the February opinion letters to reflect tax issues discussed at the meeting, including the question of self-dealing; and

(4) The execution of the necessary documents relating to (a) the lease of the Museum facilities, (b) the Museum's option to purchase Occidental's headquarters, (c) Occidental's lease-back rights if the option was exercised, and (d) [p55]  an agreement for the transfer of the Collection from the Foundation and Dr. Hammer to the Museum, including a full inventory of the art.

The Special Committee decided to present requests for expenditures to carry out the foregoing resolutions to the Board in the form of Authorization for Expenditures ("AFE's"). The AFE's proposed by the Special Committee were unanimously approved by the Board when it reconvened on February 16, 1989.

On April 25, 1989, Occidental reported the Special Committee's approval of the Museum proposal to its shareholders in the proxy statement for its annual meeting to be held May 26, 1989. On May 2, 1989, the first shareholder action ("the Kahn action") was filed, challenging Occidental's decision to establish and fund the Museum proposal. The Sullivan action was filed on May 9, 1989. On May 12, 1989, Occidental issued a supplement to the proxy statement. The Stepak action was commenced on May 31, 1989.

Settlement negotiations were entered into almost immediately between Occidental and the attorneys for the plaintiffs in the Sullivan action. The attorney for the plaintiffs in the Kahn action was invited to attend the settlement negotiations. After the parties to the Sullivan action were in substantial agreement, the attorney for the plaintiffs in the Kahn action said it was up to his clients whether to accept the settlement, but that he was not going to recommend it.

On June 3, 1989, the parties to the Sullivan action signed a Memorandum of Understanding that set forth a proposed settlement in general terms. The proposed settlement was subject to the right of the plaintiffs to engage in additional discovery to confirm the fairness and adequacy of the proposed settlement.

On June 9, 1989, the plaintiffs in the Kahn action moved for a preliminary injunction to enjoin the proposed settlement in the Sullivan action and also for expedited discovery. An order granting limited expedited discovery on the motion was entered over the defendants' objection. The motion for a preliminary injunction was denied by the Court of Chancery on July 19, 1989.

In denying the motion for injunctive relief, the Court of Chancery found that Kahn would suffer no irreparable harm if a proposed settlement in Sullivan was subsequently finalized and submitted for approval since Kahn, as a stockholder of Occidental, would have the opportunity to appear and object to the settlement. The Court of Chancery also identified six issues to be addressed at any future settlement hearing:

(1) the failure of the Special Committee appointed by the directors of Occidental to hire its own counsel and advisors or even to formally approve the challenged acts; (2) the now worthlessness of a prior donation by Occidental to the Los Angeles County Museum; (3) the huge attorney fees which the parties have apparently decided to seek or not oppose; (4) the egocentric nature of some of Armand Hammer's objections to the Los Angeles County Museum being the recipient of his donation; (5) the issue of who really owns the art; and (6) the lack of any direct substantial benefit to the stockholders.

On July 20, 1989, the Special Committee met to discuss the Museum proposal. At that time, the Special Committee was in [p56]  receipt of a number of documents required as a result of the conditions precedent it had imposed on February 16, 1989 before it would finally approve the Museum proposal. Those documents included: the Certificate of Incorporation of The Armand Hammer Museum of Art and Cultural Center, Inc.; Internal Revenue Service correspondence; opinion letters in draft form from Skadden Arps and Dilworth (later supplemented); a draft lease and option agreement; the Memorandum of Understanding in the Sullivan action; a list of the art works being transferred; and a proposed agreement for the transfer of the Collection to the Museum ("Transfer Agreement"). After reviewing the aforementioned documents and revising the Transfer Agreement, the Special Committee unanimously resolved that the conditions for approval, which it had imposed at their February 16, 1989 meeting, had been satisfied. The Special Committee then authorized Occidental to enter into the lease agreement with the Museum and "to purchase a thirty-nine million dollar annuity, or other financial arrangement, for the benefit of the Museum, as contemplated by the proposal."

At its July 20 meeting, the Special Committee also reviewed the July 19, 1989 decision and order of the Court of Chancery denying Kahn's request for injunctive relief in the Sullivan action. In response to one of the concerns expressed by the Court of Chancery, the Special Committee resolved to retain independent Delaware counsel with no prior connection to Occidental or its officers. Thereafter, this independent counsel would advise the Special Committee with respect to the Museum proposal and the terms of any settlement of the shareholder litigation. The July 20 meeting of the Special Committee then adjourned.

On July 25, 1989, the Special Committee held a telephone conference to initially consider numerous law firms to serve as its independent counsel. The Special Committee reconvened by telephone on August 4, 1989. At that time it retained the law firm of Morris, James, Hitchens & Williams ("Morris James") as its independent Delaware legal counsel. The Special Committee met with Grover C. Brown, Esquire ("Brown") of Morris James on August 14, 1989 to discuss the shareholder actions that had been filed and the terms of the proposed settlement agreement in the Sullivan action. It met with Brown again on September 20, 1989, at which time it requested a revised Transfer Agreement, explained the basis for its prior actions, and resolved to continue proceeding as planned.

On October 6, 1989, Occidental's Board of Directors, by unanimous written consent, delegated full authority to the Special Committee to settle the shareholder litigation filed in Delaware on Occidental's behalf. Following this delegation of authority, Morris James submitted a written report to the Special Committee on the advisability of settlement. Additional questions from the Special Committee regarding the settlement were directed to Brown after a telephone meeting of the Special Committee on October 19, 1989.

The Special Committee met again on November 16, 1989. Prior to that meeting, the Special Committee received a draft of the Stipulation of Settlement of the Sullivan action, a revised Transfer Agreement in accordance with its September 20 request, and an abstract and analysis of the Transfer Agreement prepared by Morris James. At the meeting on November 16, all of these documents were discussed with Brown of Morris James. The form of a stipulation of settlement was approved unanimously by the Special Committee.

The parties to the Sullivan action presented the Court of Chancery with a fully executed Stipulation of Compromise, Settlement and Release agreement ("the Settlement") on January 24, 1990. This agreement was only slightly changed from the June 3, 1989 Memorandum of Understanding. [p57] The Settlement, inter alia, provided:

(1) The Museum building shall be named the "Occidental Petroleum Cultural Center Building" with the name displayed appropriately on the building.

(2) Occidental shall be treated as a corporate sponsor by the Museum for as long as the Museum occupies the building.

(3) Occidental's contribution of the building shall be recognized by the Museum in public references to the facility.

(4) Three of Occidental's directors shall serve on the Museum's Board (or no less than one-third of the total Museum Board) with Occidental having the option to designate a fourth director.

(5) There shall be an immediate loan of substantially all of the art collections of Dr. Hammer to the Museum and there shall be an actual transfer of ownership of the collections upon Dr. Hammer's death or the commencement of operation of the Museum -- whichever later occurs.

(6) All future charitable contributions by Occidental to any Hammer-affiliated charities shall be limited by the size of the dividends paid to Occidental's common stockholders. At current dividend levels, Occidental's annual contributions to Hammer-affiliated charities pursuant to this limitation could not exceed approximately three cents per share.

(7) Any amounts Occidental pays for construction of the Museum in excess of $ 50 million and any amounts paid to the Foundation upon Dr. Hammer's death must be charged against the agreed ceiling on limitations to Hammer-affiliated charities.

(8) Occidental's expenditures for the Museum construction shall not exceed $ 50 million, except that an additional $ 10 million may be expended through December 31, 1990 but only if such additional expenditures do not enlarge the scope of construction and if such expenditures are approved by the Special Committee. Amounts in excess of $ 50 million must be charged against the limitation on donations to Hammer-affiliated charities.

(9) Occidental shall be entitled to receive 50% of any consideration received in excess of a $ 55 million option price for the Museum property or 50% of any consideration the Museum receives from the assignment or transfer of its option or lease to a third party.

(10) Plaintiffs' attorneys' fees in the Sullivan action shall not exceed $ 1.4 million.

The Court of Chancery directed that for settlement purposes, the Sullivan action would be maintained as a stockholder derivative action and as a class action. The action was to be maintained by those plaintiffs, as representatives of the class who held Occidental common stock on April 6, 1989, and their successors in interest up to and including January 2, 1990, excluding the defendants and members of their immediate families. A settlement hearing was scheduled for April 4, 1990. The Notice of Pendency of Class and Derivative Action, Proposed Settlement, Settlement Hearing and Right to Appear, was sent to all class members one month prior to the hearing.

In presenting their opposition, the Objectors relied upon the discovery which had been authorized prior to the 1990 hearing on the Settlement, as well as the discovery that had been taken with respect to their 1989 motion for a preliminary injunction. That discovery included answers to interrogatories and responses to requests for the production of documents. That discovery also included the depositions of Dr. Hammer; Daniel N. Belin; Senator Albert Gore, Sr., the acting Chairman of the Special Committee; Ronald Asquith, Vice President of Occidental with the responsibility of overseeing the construction of the parking [p58]  garage and art museum facilities; and Hillary Gibson, the Director of Development of the Museum, who was responsible for raising funds for its continuing public support. In addition, William Prickett, Esquire ("Prickett"), counsel for Sullivan and Brody, was deposed twice, once in the Sullivan action and once in the Kahn action.

On April 4, 1990, the settlement hearing in the Sullivan action was held. A number of shareholders appeared or wrote letters objecting to the Settlement. The Objectors argued that the decision of the Special Committee on February 16 to approve the charitable donation to fund the Museum proposal was neither informed nor deliberate and was not cured by any subsequent conduct. Therefore, the Objectors argued that the actions by the Special Committee were not entitled to the protection of the business judgment rule. The Objectors also argued that the charitable donation to the Museum proposal constituted a waste of Occidental's corporate assets. Consequently, in view of the merits of the claims being compromised, the Objectors submitted that the benefits of the proposed Settlement in the Sullivan action were inadequate.

On August 7, 1990, the Court of Chancery found the Settlement to be reasonable under all of the circumstances. The Court of Chancery concluded that the claims asserted by the shareholder plaintiffs would likely be dismissed before or after trial. While noting its own displeasure with the Settlement, the Court of Chancery explained that its role in reviewing the proposed Settlement was restricted to determining in its own business judgment whether, on balance, the Settlement was reasonable. The Court opined that although the benefit to be received from the Settlement was meager, it was adequate considering all the facts and circumstances.

Standard of Review
The Objectors argue that the Court of Chancery erroneously concluded that the Settlement was fair, reasonable and adequate to protect the interests of the shareholders of Occidental. "In analyzing such arguments, this Court has always been assiduous in distinguishing between the function and legal obligations imposed upon the Court of Chancery in initially reviewing a proposed settlement and the appropriate appellate standards by which this Court must subsequently examine such a decision." Nottingham Partners v. Dana, Del. Supr., 564 A.2d 1089, 1101-02 (1989). Those separate and distinct legal principles are both well established. Id. at 1102 (citing Rome v. Archer, Del. Supr., 41 Del. Ch. 404, 197 A.2d 49, 53-54 (1964); Polk v. Good, Del. Supr., 507 A.2d 531, 535-36 (1986)).

Delaware law, as a general proposition, favors the voluntary settlement of contested issues. Id. "However, the settlement of a class action is unique in that, 'because of the fiduciary character of a class action, the Court of Chancery must [p59]  participate in the consummation of a settlement to the extent of determining its intrinsic fairness.'" Id. (quoting Rome v. Archer, 197 A.2d at 53). In determining the fairness of a settlement, the Court of Chancery is not required to afford the parties an opportunity to have a trial on the merits of the issues presented. Id. Nevertheless, the approval of a class action settlement by the Court of Chancery does require more than a cursory scrutiny of the issues presented. Id. The balance between these two extremes has been described as follows: "Under Rome, the [Court of Chancery's] function is to consider the nature of the [plaintiff's] claim, the possible defenses thereto, the legal and factual circumstances of the case, and then to apply its own business judgment in deciding whether the settlement is reasonable in light of these factors." Polk v. Good, 507 A.2d at 535 (citing Rome v. Archer, 197 A.2d at 53). "If, in the light of these matters, the Court of Chancery approves the settlement as reasonable through the exercise of sound business judgment, its function as the so-called third party to the settlement has been discharged." Nottingham Partners v. Dana, 564 A.2d at 1102 (quoting Rome v. Archer, 197 A.2d at 53-54).

In an appeal from the Court of Chancery, following the approval of a settlement of a class action, the function of this Court is more limited in its nature. Id.; see also Polk v. Good, 507 A.2d at 536. This Court does not review the record to determine the intrinsic fairness of the settlement in light of its own business judgment. Nottingham Partners v. Dana, 564 A.2d at 1102. This Court reviews the record "solely for the purpose of determining whether or not the Court of Chancery abused its discretion by the exercise of its business judgment." Id. (citing Polk v. Good, 507 A.2d at 536).

Although the applicable standard of appellate review requires this Court to consider the entire record, "if the findings and conclusions of the trial judge are supported by the record and [are] the product of an orderly and logical deductive process, they will be accepted." Id. (citing Levitt v. Bouvier, Del. Supr., 287 A.2d 671, 673 (1972)). Consequently, for this Court to set aside a settlement which has been found by the Court of Chancery to be fair and reasonable, the evidence in the record must be so strongly to the contrary that the approval of the settlement constituted an abuse of discretion. Id. (citing Rome v. Archer, 197 A.2d at 54).

Claims and Defenses
Initially, we will review the Court of Chancery's examination of the nature of the shareholder plaintiffs' claims and the possible defenses thereto, in the context of the legal and factual circumstances presented. The proponents of the Settlement argued that the business judgment rule could undoubtedly have been invoked successfully by the defendants as a complete defense to the shareholder plaintiffs' claims. The business judgment rule "creates a presumption 'that in making a business decision the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation.'" Polk v. Good, 507 A.2d at 536 (quoting Aronson v. Lewis, Del. Supr., 473 A.2d 805, 812 (1984)). The Objectors presented several alternative arguments in support of their contention that the shareholder plaintiffs would have been able to rebut the defense based on the protection which the presumption of the business judgment rule provides. Each of those arguments was based, at least in part, upon this Court's decision in Smith v. Van Gorkom, Del. Supr., 488 A.2d 858 (1985).

First, the Objectors submitted that the business judgment rule would probably not protect the actions of the Special Committee because the independence of the Special Committee was questionable. In support of that argument, the Objectors assert that at least four members of the Special Committee had close ties to Dr. Hammer and [p60]  personal business dealings with him. After examining the record, the Court of Chancery found that the Objectors had not established any facts that the Special Committee had any self-interest in the transaction either from a personal financial interest or from a motive for entrenchment in office. See Grobow v. Perot, Del. Supr., 539 A.2d 180, 188 (1988). The Court of Chancery also concluded that there was no evidence in the record indicating that any of the members of the Special Committee were in fact dominated by Dr. Hammer or anyone else.

Second, in a related argument, the Objectors argued that the presumption of the business judgment rule would have been overcome because the Special Committee proceeded initially without retaining independent legal counsel. In fact, that was a concern identified by the Court of Chancery in its July 19, 1989 opinion. However, in approving the Settlement, the Court of Chancery noted that the Special Committee had retained independent counsel, and "subsequently, and for the first time, formally approved the challenged charitable contributions." Thus, the Court of Chancery specifically found that the Special Committee had the advice of independent legal counsel before it finally approved the Museum proposal.

In this appeal, with respect to the aforementioned finding, the Objectors submit that the Court of Chancery's eventual approval of the Settlement was based upon its mistaken belief that a major judicial concern, i.e., the failure of the Special Committee to retain independent counsel prior to its formal approval of the Museum proposal, had been rectified. In particular, the Objectors contend that the Special Committee formally approved the Museum proposal at its July 20, 1989 meeting. The parties all agree that the Special Committee retained its independent legal counsel on August 4, 1989. Therefore, the Objectors argue that the Court of Chancery's conclusion that the business judgment rule would apply was based upon an erroneous premise.

In response to that argument by the Objectors, the proponents of the Settlement submit the record reflects that the Special Committee reviewed and ratified all of its prior actions on September 20, 1989, after retaining independent legal counsel. Accordingly, the proponents of the Settlement contend that, whether the September 20, 1989 action by the Special Committee is characterized as the first final approval of the Museum proposal or as a re-approval of its action taken on July 20, 1989, the Special Committee's ultimate decision to proceed with the Museum proposal was based upon the advice of independent counsel.

The Objectors' third argument in the Court of Chancery, challenging the viability of the business judgment rule as a successful defense, was based upon Van Gorkom and contended that the Special Committee and other directors were grossly negligent in failing to inform themselves of all material information reasonably available to them. Thus, the Objectors argued that even if, arguendo, the Special Committee was itself independent and formally approved the Museum proposal after its retention of independent legal counsel, such approval would not have cured the Special Committee's prior failure to exercise due care. The Court of Chancery found the record showed that the Special Committee had given due consideration to the Museum proposal and rejected the Objectors' argument to the contrary. See generally Smith v. Van Gorkom, Del. Supr., 488 A.2d 858 (1985).

[p61] The Court of Chancery carefully considered each of the Objectors' arguments in response to the merits of the suggested business judgment rule defense. It concluded that if the Sullivan action proceeded, it was highly probable in deciding a motion to dismiss, a motion for summary judgment, or a post-trial motion, the actions of "the Special Committee would be protected by the presumption of propriety afforded by the business judgment rule." Specifically, the Court of Chancery concluded that it would have been decided that the Special Committee, comprised of Occidental's outside directors, was independent and made an informed decision to approve the charitable donation to the Museum proposal. These conclusions by the Court of Chancery are supported by the record and are the product of an orderly and logical deductive process. Barkan v. Amsted Industries Inc., Del. Supr., 567 A.2d 1279, 1284 (1989); Nottingham Partners v. Dana, 564 A.2d at 1102; Polk v. Good, 507 A.2d at 536; cf. Rome v. Archer, 197 A.2d at 54.

Following its analysis and conclusion that the business judgment rule would have been applicable to any judicial examination of the Special Committee's actions, the Court of Chancery considered the shareholder plaintiffs' claim that the Board and the Special Committee's approval of the charitable donation to the Museum proposal constituted a waste of Occidental's corporate assets. In doing so, it recognized that charitable donations by Delaware corporations are expressly authorized by 8 Del. C. § 122(9). It also recognized that although § 122(9) places no limitations on the size of a charitable corporate gift, that section has been construed "to authorize any reasonable corporate gift of a charitable or educational nature." Theodora Holding Corp. v. Henderson, Del. Ch., 257 A.2d 398, 405 (1969). Thus, the Court of Chancery concluded that the test to be applied in examining the merits of a claim alleging corporate waste "is that of reasonableness, a test in which the provisions of the Internal Revenue Code pertaining to charitable gifts by corporations furnish a helpful guide." Id. We agree with that conclusion.

The Objectors argued that Occidental's charitable contribution to the Museum proposal was unreasonable and a waste of corporate assets because it was excessive. The Court of Chancery recognized that not every charitable gift constitutes a valid corporate action. Nevertheless, the Court of Chancery concluded, given the net worth of Occidental, its annual net income before taxes, and the tax benefits to Occidental, that the gift to the Museum was within the range of reasonableness established in Theodora Holding Corp. v. Henderson, Del. Ch., 257 A.2d 398, 405 (1969). Therefore, the Court of Chancery found that it was "reasonably probable" that plaintiffs would fail on their claim of waste. That finding is supported by the record and is the product of an orderly and logical deductive process. Barkan v. Amsted Industries Inc., 567 A.2d at 1284; Nottingham Partners v. Dana, 564 A.2d at 1102; Polk v. Good, 507 A.2d at 536; ''cf. Rome v. Archer'', 197 A.2d at 54.

Adequacy of the Settlement
In examining the Settlement, the Court of Chancery applied the analysis set forth by this Court in Rome and its progeny. First, the Court of Chancery evaluated not only the nature of the shareholder plaintiffs' claims but also the possible defenses to those claims. In weighing the validity of the claims and the benefits provided by the Settlement, it was neither [p62]  necessary nor desirable for the Court of Chancery to try the case or to definitively decide the merits of any of the issues. Nottingham Partners v. Dana 564 A.2d at 1102; Polk v. Good, 507 A.2d at 536; Rome v. Archer, 197 A.2d at 53. Nevertheless, the Objectors were permitted to take discovery for the purpose of developing a record to support their contentions. After carefully evaluating the parties' respective legal positions, the Court of Chancery opined that "the [shareholder plaintiffs'] potential for ultimate success on the merits [in the Sullivan action] is, realistically, very poor."

Second, in accordance with the procedures set forth in Rome, after considering the legal and factual circumstances of the case sub judice, the Court of Chancery examined the value of the Settlement. The proponents of the Settlement argued that the monetary value of having the Museum building called the "Occidental Petroleum Cultural Center Building" was approximately ten million dollars. The Court of Chancery noted that, in support of their valuation arguments, the proponents also argued that the Settlement: (1) reinforced and assured Occidental's identification with and meaningful participation in the affairs of the Museum; (2) reinforced and protected the charitable nature and consequences of Occidental's gifts by securing the prompt delivery and irrevocable transfer of the Art Collection to the Museum; (3) imposed meaningful controls upon the total construction costs that Occidental will pay, which had already forced the reduction of the construction budget by $ 19.4 million; (4) placed meaningful restrictions upon Occidental's future charitable donations to "Hammer" affiliated entities and avoided increases in posthumous payments to the Foundation or any other designated recipient after Dr. Hammer's death; (5) restored to Occidental an equitable portion of any appreciation of the properties in the event the Museum exercised its option and disposed of the properties or transferred its option for value; and (6) guaranteed that the Art Collection would continue to be located in the Los Angeles area and remain available for the enjoyment of the American public rather than dissipated into private collections or sold abroad.

The Court of Chancery characterized the proponents' efforts to quantify the monetary value of most of the Settlement benefits as "speculative." The Court of Chancery also viewed the estimate that naming the building for Occidental would have a ten million dollar value to Occidental with "a good deal of skepticism." Nevertheless, the Court of Chancery found that Occidental would, in fact, receive an economic benefit in the form of good will from the charitable donation to the Museum proposal. It also found that Occidental would derive an economic benefit from being able to utilize the Museum, adjacent to its corporate headquarters, in the promotion of its business.

Finally, the Court of Chancery applied its own independent business judgment [p63]  in deciding whether the Settlement was fair and reasonable. In doing so, the Court of Chancery was called upon to function in its special role as the so-called third party to the Settlement. Barkan v. Amsted Industries Inc., 567 A.2d at 1283-84; Nottingham Partners v. Dana, 564 A.2d at 1102 (quoting Rome v. Archer, 197 A.2d at 53-54). This required it to balance the policy preference for settlement against the need to insure that the interests of the shareholders, as a class, had been fairly represented. Barkan v. Amsted Industries, Inc., 567 A.2d at 1283 (citing Rome v. Archer, 197 A.2d at 53).

In discharging its special role in the case sub judice, the Court of Chancery properly evaluated the value of the Settlement in the context of the strength of the claims which were being compromised. Nottingham Partners v. Dana, 564 A.2d at 1103. As this Court stated in Barkan v. Amsted Industries, Inc., 567 A.2d at 1285: "The strength of claims raised in a class action lawsuit helps to determine whether the consideration received for their settlement is adequate and whether dismissal with prejudice is appropriate. Thus, if the [Court of Chancery] were to find that the plaintiff class was being asked to sacrifice a facially credible claim for a small consideration, he would be justified in rejecting a settlement as unfair. Conversely, where the [Court of Chancery] finds that the plaintiff's potential challenges have little chance of success, he has good reason to approve the proposed settlement."

The Court of Chancery found that "the benefit [of the Settlement] to the stockholders of Occidental is sufficient to support the Settlement and is adequate, if only barely so, when compared to the weakness of the plaintiffs' claims." The Court of Chancery concluded that "although the Settlement is meager, it is adequate considering all the facts and circumstances."

"When the Court of Chancery reviews the fairness of a settlement, it must evaluate all of the circumstances of the settlement by using its own business judgment." Barkan v. Amsted Industries, Inc., 567 A.2d at 1284. The Court of Chancery's broad special role contrasts sharply with this Court's own limited one. Because the Court of Chancery's decision constitutes an exercise of discretion, this Court reviews the record simply to determine whether that discretion has been abused. Polk v. Good, 507 A.2d at 536. "We do not exercise our own business judgment in an effort to evaluate independently the intrinsic fairness of the settlement." Barkan v. Amsted Industries, Inc., 567 A.2d at 1284. "Because the Court of Chancery is in the best position to evaluate the factors that support a settlement, we will not second-guess its business judgment upon appeal." Id. "Rather, if the findings and conclusions of the Court of Chancery 'are supported by the record and are the product of an orderly and logical deductive process, they will be accepted' and the decision will be affirmed." Id. (quoting Levitt v. Bouvier, 287 A.2d at 673). The Court of Chancery's decision to approve the Settlement in the Sullivan action is supported by the record and is the product of an orderly and logical deductive process.

Conclusion
The reasonableness of a particular class action settlement is addressed to the discretion of the Court of Chancery, on a case by case basis, in light of all of the relevant circumstances. Evans v. Jeff D., 475 U.S. 717, 742, 106 S.C.t. 1531, 89 L. Ed. 2d 747, reh'g denied, 476 U.S. 1179, 106 S.Ct. 2909, 90 L.Ed.2d 995 (1986). In this case, we find that all of the Court of Chancery's factual findings of fact are supported by the record. We also find that all of the legal conclusions reached by the Court of Chancery were based upon a proper application of well established principles of law. Consequently, we find that the Court of Chancery did not abuse its discretion in deciding to approve the Settlement in the Sullivan action. Barkan v. Amsted Industries, Inc., 567 A.2d at 1285; Nottingham Partners v. Dana, 564 A.2d at 1104; Polk v. Good, 507 A.2d at 536-39; Rome v. Archer, 197 A.2d at 58. Therefore, the decision of the Court of Chancery is AFFIRMED.

title: Kahn v. Sullivan/Opinion of the Court


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116 It appears that the bird life of the islands is somewhat restricted and there is a noticeable lack of the species occurring on the adjacent main-land coast. This Mr. Nelson attributes to the scarcity of water and the prolonged dry season of the Tres Marius. In the list which is given, numerous North American species are noticeable. From the Tres Marias group was described Forrer's Vireo (Vireo flavoviridis forreri) mentioned in the July-August. The paper is but another of the admirable series constituting the North American Fauna, reflecting at the same time much individual credit upon Mr. Nelson. It will prove of interest to Coast workers and especially to any intending to undertake tropical work in ornithology.C. B.

With Notes on the Webster-Harris Expedition. By the Hon. Walter Rothschild Ph. D., and Ernst Hartert, Plates V. and VI. Reprint from Novitates Zoologicæ, Vol. VI. August, 1899, pp. 86-205.

From the fact that some of our members have made collections in the islands, and several others, members of the Anthony party, made an attempt last spring to reach the archipelago, a short notice of the present paper seems desirable. The paper consists of six parts. I. Introductory Notes. II. Diary of Charles Mille Harris. III. Notes from the Diary of Mr. F. P. Drowne. IV. General Remarks about the Fauna of the Galapagos Islands. V. The Birds of the Galapagos Islands. VI. List of the Birds Known to Occur on the Galapagos Islands.

Certhidea olivacea ridgwayi, Geospiza darwini, G. dubia simillima, G. fuliginosa minor, G. scandens septentrionalis, Nesopelia galapagoensis exsul and Creciscus sharpei are described as new. Four species of Pyrocephali are reduced to synonomy, P. nanus and P. arubius alone being recoguized. "Only two forms can be distinguished from the Galapagos Arehipelago the forms separated by Ridgway on account of certain alleged differences in colour, not being recognizable." The differences in color assigned by Ridgway to Certhidea salvini and C. albemarlei are said to be due to different ages of the specimens. These two names are, therefore, discarded.

Perhaps the most radical change in nomenclature is the use of trinomials for the local forms of Passeres, which proceeding seems quite reasonable however. "If trinomials are used everywhere else, there is no reason why the birds of the Galapagos Islands should be deprived of this most useful form of nomenclature. In eases where certain individuals of representative forms are hardly, if at all, distinguishable, but where a series is easily separable, the recognition of subspecies is inevitable. Our material has generally left very little doubt to us, whether we should treat a form as species or subspecies."

In the list of birds known to occur on the islands, 108 species and subspecies are given, representing fifty genera. Of these seventy-nine are peculiar to the ornis. Plate V is poor. It illustrates Diomedea irrorata, Phaethon æthereus on its nest, Anous stolidus galapagensis, and Amblyrhynchus cristatus, all from Hood Island. Plate VI is interesting and useful. It illustrates Bills of the Genus Geospiza. Seven pages are devoted to general remarks about the origin of the islands and their fauna. "There are two theories: viz., that of Darwin Wallace and most other naturalists, that the islands were uplifted from the ocean and never were in connection with the continent of America, or with each other; and that of Dr. Baur, who said that the islands were once connected with America and with each other, and were submerged in or after the Eocene period. Both these views must be taken into earnest consideration."

Having considered all the evidence in the case and having made a careful study of their ample material in the bird line, consisting of 3075 skins from the Harris expedition, the Baur collection of about 11OO skins, and constant access to Gould's and Salvin's types in the British Museum, Dr. Rothschild and Mr. Hartert make the following conservative statements: "I. The entire fauna of the Galapagos Islands derived originally from America. II. It is uncertain whether there has ever been a land-connection between the various islands and between the islands and the continent or not".R. C. M. A Club Crest.}

The accompanying design has been adopted by the Cooper Ornithological Club as its official crest and will be used as an imprint in connection with the issuance of special publications and monographs by the Club. It has also been arranged to have the crest imprinted upon stationery for the especial use of members of the Club. a majority of whom have already adopted the idea.

The design was drawn by Mr. W. Otto Emerson, a prominent artist and Club member who has in process a striking cover, for "The Condor," when the present enters upon its second volume under its title.

license: Creative Commons - Attribution Share-Alike - https://creativecommons.org/licenses/by-sa/4.0/

title: Page:CooperBull1(6).djvu/16


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Page:The Art of Nijinsky.djvu/70

 Rh of any other of the Russian ballets—less a dream than a vision, so that when it comes to an end we feel that it is ourselves that are losing touch with reality rather than that what appeared as reality is now proving itself an illusion.

The secret of this effect is twofold. Partly it lies in the exquisite purity of convention which the ballet retains throughout, partly in the conviction of aloofness which Nijinsky brings to his rendering of the part of Armide's slave. He never forgets for a moment where and what he is, and though, as we have hinted, Armide is first and foremost a choreographic ballet, Nijinsky has also made of it a splendid occasion for the practice of his faculty for imaginative characterisation.

This, I think, explains the fact that one can return to the Pavillon d Armide

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 act of opening their wings. On the other hand, cormorants, shags, and mergansers, birds which do not use their wings in this way, dive in a quite different manner. Instead of the sudden, little, splashy duck, as described, they make a smooth, gliding leap forwards and upwards, rising a little from the water, with the neck stretched out, and wings pressed close to the sides, to enter it again, beak foremost, like a curved arrow, thus describing the segment of a circle. Their shape, as they perform this movement, is that of a bent bow, and there is the same suggestion in it of pent strength and elasticity.

The shag is the greatest exponent of this school of diving, excelling even the cormorant—at least I fancy so—by virtue of his smaller size. He leaps entirely clear of the water, including even, for a moment, his legs and feet. This seems really a surprising feat, for, as I say, the wings are tightly closed, so that, by the force merely of the powerful webbed feet, he is able to throw himself bodily out of the sea. It must be by a single stroke, I think, for the motion is sudden and then continuous. The bird may, of course, have been in ordinary activity just previously, so that some slight degree of impetus may be supposed to have been already gained, but this is unnecessary, and the leap is often from quiescence. The merganser dives like the shag or cormorant—though the curved leap is a little less vigorous—and swims, like them, without using the wings. His food being fish, instead of getting deeper and deeper down till he disappears, like the eider-duck, he usually swims horizontally, sometimes only just beneath the surface,

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 Rh time after time, and with a sense of never-failing refreshment. For the art of Nijinsky has made one free of a strange country, where dancing and simple melodies of music are the natural language of the soul, the perfect expression of an essential and peculiar joy.

"Music," said Noverre, "is to dancing what words are to music—a simile which means nothing except that dance music is, or ought to be, the written poem which determines the movements and the action of the dancer." And truly the artist of the ballet has always been in debt to the musician, while there have been countless efforts actually to interpret musical compositions through the medium of the dance. In no instance, however—so far, at least, as I am aware—has the effort

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 Rh been so elaborate and at the same time so successful as in this ballet of M. Fokine's, set to the music of Schumann. For though we find in Les Sylphides a parallel attempt to visualise music, scarcely there does the music hold its own with the stage picture, and it is only now and then that the fusion between action and music becomes complete. In Carnaval the fusion is complete all through. The reason is, probably, that though Le Carnaval was written with no earthly idea as to its suitability for the framework of a ballet, yet theme by theme the composer had in his mind's eye definite images which were intrinsically of such a kind as could be well expressed in terms of pantomime. Le Carnaval is a work of Schumann's early years, and in these "Scènes Mignonnes," as he described them, there is expressed

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text:
Page:Dictionary of National Biography volume 21.djvu/447

VOL. XXI.


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 Rh This is a ballet quite different in type from those we have been considering. Its aim is essentially dramatic, and everything about it is designed to lead up to a single and thrilling climax. From the first brazen flourish of the overture one is aware that dread and terrible things are going to happen—though it is also this very music of the overture that gives the romantic touch to an atmosphere which would be otherwise almost unbearable.

"The scene," to quote for once from the official programme, "is the harem of Shahriar's palace. The fairest and best-beloved of his wives crouches by the monarch's side, and to engage his thoughts the chief eunuch summons before him three odalisques, who dance languorously. But Shahriar's mood is sinister, and he

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text: Page:Dictionary of National Biography volume 21.djvu/2


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Page:Black Beauty (1877).djvu/34

quite happy in my new place, and if there was one thing that I missed, it must not be thought I was discontented; all who had to do with me were good, and I had a light airy stable and the best of food. What more could I want? Why, liberty! For three years and a half of my life I had had all the liberty I could wish for; but now, week after week, month after month, and no doubt year after year, I must stand up in a stable night and day except when I am wanted, and then I must be just as steady and quiet as any old horse who has worked twenty years. Straps here and straps there, a bit in my mouth, and blinkers over my eyes. Now, I am not complaining, for I know it must be so. I only mean to say that for a young horse full of strength and spirits who has been used to some large field or plain, where he can fling up his head, and toss up his tail and gallop away at full speed, then round and back again with a snort to his companions—I say it is hard never to have a bit more liberty to do as you like. Sometimes, when I have had less exercise than usual, I have felt so full of life and spring, that when John has taken me out to exercise, I really could not keep quiet; do what I would, it seemed as if I must jump,

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Rh or dance, or prance, and many a good shake I know I must have given him, specially at the first; but he was always good and patient.

"Steady, steady, my boy," he would say, "wait a bit, and we'll have a good swing, and soon get the tickle out of your feet." Then as soon as we were out of the village, he would give me a few miles at a spanking trot, and then bring me back as fresh as before, only clear of the fidgets, as he called them. Spirited horses, when not enough exercised, are often called skittish, when it is only play; and some grooms will punish them, but our John did not, he knew it was only high spirits. Still, he had his own ways of making me understand by the tone of his voice, or the touch of the rein. If he was very serious and quite determined, I always knew it by his voice, and that, had more power with me than anything else, for I was very fond of him.

I ought to say, that sometimes we had our liberty for a few hours; this used to be on fine Sundays in the summer-time. The carriage never went out on Sundays, because the church was not far off.

It was a great treat to us to be turned out into the Home Paddock or the old orchard. The grass was so cool and soft to our feet; the air so sweet, and the freedom to do as we liked was so pleasant; to gallop, to lie down, and roll over on our backs, or to nibble the sweet grass. Then it was a very good time for talking, as we stood together under the shade of the large chestnut tree.

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 Rh most interesting for the delicate economy of the means employed. Notice also that the personalities of the dancers are but slightly insisted on, and that the agreement between them is conceived as being so perfect that one is frequently aware of little more than the rhythm in which both are fused. The steps of the dance, too, are appropriately simple, like the scenery, and like the music of Weber's delicious "Invitation."

A friend of mine, returning home from a performance of Les Sylphides sat down while the memory of what he had seen was still fresh, to record if he could the varied evolutions of the ballet in a series of algebraical symbols. He told me that he was astonished at the intricate beauty of the resulting ratios,

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day when Ginger and I were standing alone in the shade we had a great deal of talk; she wanted to know all about my bringing up and breaking in, and I told her.

"Well," said she, "if I had had your bringing up I might have been as good a temper as you are, but now I don't believe I ever shall."

"Why not?" I said.

"Because it has been all so different with me," she replied; "I never had any one, horse or man, that was kind to me, or that I cared to please, for in the first place I was taken from my mother as soon as I was weaned, and put with a lot of other young colts; none of them cared for me, and I cared for none of them. There was no kind master like yours to look after me, and talk to me, and bring me nice things to eat. The man that had the care of us never gave me a kind word in my life. I do not mean that he ill-used me, but he did not care for us one bit further than to see that we had plenty to eat and shelter in the winter. A footpath ran through our field, and very often the great boys passing through, would fling stones to make us gallop. I

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