In re GGP, Inc. Stockholder Litigation ( 2021 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE GGP, INC. STOCKHOLDER ) CONSOLIDATED
LITIGATION ) C.A. No. 2018-0267-JRS
MEMORANDUM OPINION
Date Submitted: February 18, 2021
Date Decided: May 25, 2021
Ronald A. Brown Jr., Esquire, Stephen D. Dargitz, Esquire, J. Clayton Athey,
Esquire, Marcus E. Montejo, Esquire and Samuel L. Closic, Esquire of Prickett
Jones & Elliott, P.A., Wilmington, Delaware; Carl L. Stine, Esquire and Adam J.
Blander, Esquire of Wolf Popper LLP, New York, New York; and Frank P. DiPrima,
Esquire of Law Office of Frank DiPrima, P.A., Morristown, New Jersey, Co-Lead
Attorneys for Plaintiffs.
Seth D. Rigrodsky, Esquire and Gina M. Serra, Esquire of Rigrodsky Law, P.A.,
Wilmington, Delaware and Aaron Brody, Esquire and Patrick Slyne, Esquire of
Stull, Stull & Brody, New York, New York, Attorneys for Plaintiffs’ Executive
Committee.
Kevin G. Abrams, Esquire, John M. Seaman, Esquire and Matthew L. Miller,
Esquire of Abrams & Bayliss LLP, Wilmington, Delaware and John A. Neuwirth,
Esquire, Evert J. Christensen, Jr., Esquire, Seth Goodchild, Esquire and Matthew S.
Connors, Esquire of Weil, Gotshal & Manges LLP, New York, New York, Attorneys
for Defendant Brookfield Property Partners L.P.
David J. Teklits, Esquire and Thomas P. Will, Esquire of Morris, Nichols, Arsht &
Tunnell LLP, Wilmington, Delaware, Attorneys for Defendants Richard Clark,
Bruce Flatt and Brian W. Kingston.
Raymond J. DiCamillo, Esquire and Susan M. Hannigan, Esquire of Richards,
Layton & Finger, P.A., Wilmington, Delaware and Brian T. Frawley, Esquire and
Y. Carson Zhou, Esquire of Sullivan & Cromwell LLP, New York, New York,
Attorneys for Defendant Sandeep Mathrani.
Peter J. Walsh, Jr., Esquire, Berton W. Ashman, Jr., Esquire and Jaclyn C. Levy,
Esquire of Potter Anderson & Corroon LLP, Wilmington, Delaware and Peter E.
Kazanoff, Esquire, Michael J. Garvey, Esquire, Sara A. Ricciardi, Esquire and
Eamonn W. Campbell, Esquire of Simpson Thacher & Bartlett LLP, New York,
New York, Attorneys for Defendants Mary Lou Fiala, Janice R. Fukakusa, John K.
Haley, Daniel B. Hurwitz and Christina M. Lofgren.
SLIGHTS, Vice Chancellor
“In the beginning there was noise. Noise begat rhythm. And rhythm begat
everything else.” 1 As a species, human beings are instinctively attracted to rhythm.
As a subspecies, corporate litigators are no different. In the realm of Delaware post-
closing shareholder litigation, over the past seven years, a rhythm has emerged in
the assertion of claims and defenses as our courts have clarified and refined the
application of standards for reviewing fiduciary conduct. In hopes of securing more
rigorous judicial scrutiny of fiduciary conduct, stockholders invoke the sounds of
minority blockholders who act as if they are controlling stockholders, fiduciary
decisionmakers who are overcome by allegiances to the controller, and stockholders
who are coerced to sell their shares while starved of accurate and complete
information. In hopes of securing more judicial deference to fiduciary decision
making, defendants invoke the sounds of passive minority blockholders and
presumptively disinterested, independent (and often exculpated) fiduciaries who
have faithfully served fully informed, uncoerced stockholders. When laid down on
the same track, the sounds can be perceived as noise. But to the accustomed ear,
there is rhythm.
On August 28, 2018, GGP, Inc. (“GGP” or the “Company”) entered into a
merger (the “Transaction”) with Defendants, Brookfield Property Partners, L.P.
1
Mickey Hart, Rhythms of the Universe (360˚ Prod. 2013).
1
(“BPY”) and its affiliates (the “Brookfield Affiliates” and, together with BPY,
“Brookfield”). Prior to the Transaction, Brookfield owned 35.3% of GGP’s shares.
As a result of the Transaction, Brookfield acquired all of the Company’s shares it
did not own in exchange for a combination of cash and either of two forms of equity,
representing 61% and 39% of the consideration, respectively. Structurally, the deal
consideration would be paid in two parts: (1) a pre-closing dividend of cash and
shares, amounting to about 98.5% of the deal consideration (the “Pre-Closing
Dividend”), and (2) $0.312 per share in cash at closing, representing the balance of
the deal consideration, capped at $200 million.
The Transaction was the culmination of negotiations that began in 2017, when
Brookfield extended an offer to GGP’s board of directors (the “Board”) to acquire
the balance of the Company’s outstanding shares. As if striking a well-worn key on
the piano, Brookfield asked GGP to appoint a committee of independent directors to
evaluate the offer and negotiate the Transaction, and clarified that any final deal
would “be subject to customary approvals including . . . approval of a majority of
the Company’s stockholders not affiliated with [Brookfield].” 2 The Board did not
miss a beat and appointed a special committee (the “Special Committee”) the next
2
Consol. Verified Third Am. S’holder Class Action Compl. (D.I. 109) (“Compl.”) ¶ 138;
Decl. of Matthew L. Miller, Esq. in Connection with Defs.’ Opening Brs. in Supp. of Their
Mots. to Dismiss (D.I. 118) (“Miller Decl.”) Ex. 4 (“Offer Letter”) at 2.
2
day. At the same time, the three Board members affiliated with Brookfield, each
Defendants here, formally recused themselves from the process.
From November 15, 2017 through March 26, 2018, the date the Merger
Agreement was executed, the Special Committee held over thirty meetings to
consider Brookfield’s various proposals while also evaluating GGP’s strategic
options. On June 27, 2018, GGP and Brookfield jointly filed a Proxy soliciting a
“yes” vote on the Transaction from GGP’s stockholders unaffiliated with
Brookfield. Stockholders resoundingly (by vote of 94% of stockholders unaffiliated
with Brookfield) approved.
With the benefit of books and records obtained in an action brought under
8 Del. C. § 220,3 Plaintiffs, three stockholders of GGP, filed this action alleging the
Transaction was the product of actionable breaches of fiduciary duties by GGP’s
Special Committee, its Board and its allegedly controlling stockholder, Brookfield.
According to Plaintiffs, if the Court finds they have not well pled that Brookfield
was GGP’s controlling stockholder, then Brookfield is liable as an aider and abettor
of the fiduciary duty breaches committed by GGP’s conflicted Board, a majority of
whom were beholden to Brookfield.
3
Kosinski v. GGP Inc., 214 A.3d 944 (Del. Ch. 2019) (“220 Decision”).
3
Plaintiffs’ allegations, and the defenses to them, summon the familiar rhythm
of contemporary stockholder post-closing litigation in standard 4/4 time. In motions
to dismiss the Complaint, Defendants answer Plaintiffs’ refrain by arguing
Brookfield’s controller status is not well pled. Brookfield was a minority
blockholder who neither controlled GGP generally nor with respect to the
Transaction specifically. If the Court agrees it is not reasonably conceivable that
Brookfield was GGP’s controlling stockholder, then, say Defendants, the defendant
fiduciaries are entitled to business judgment deference because an overwhelming
majority of GGP stockholders approved the Transaction in an informed, uncoerced
vote and thereby “cleansed” any breaches of fiduciary duty. If the Court disagrees,
Defendants say all fiduciaries are nonetheless entitled to business judgment
deference because the controller’s influence was neutralized by a well-functioning,
independent special committee of the Board and the informed, uncoerced approval
of the Transaction by a majority vote of GGP’s minority stockholders. And the
beat goes on. . . . 4
4
I make this point not to belittle the claims or defenses here, but merely to preview that
they will be well-familiar to those who follow post-closing stockholder litigation. See In re
Rouse Props., Inc., 2018 WL 1226015, at *1 (Del. Ch. Mar. 9, 2018) (“In this post-Corwin,
post–MFW world, a pattern has emerged in post-closing challenges to corporate
acquisitions (whether by merger or tender offer) where a less-than-majority blockholder
sits on either side of the transaction, but the corporation in which the blockholder owns
shares does not recognize him as a controlling stockholder and does not, therefore, attempt
to neutralize his presumptively coercive influence. The pattern, in its simplest form,
4
For reasons explained below, I cannot reasonably infer from the Complaint
that Brookfield was GGP’s controlling stockholder at the time of the Transaction, so
Corwin, not MFW, is the appropriate paradigm under which to determine the
applicable standard of review. I have also determined that the Complaint does not
well plead that the stockholder vote approving the Transaction was either
uninformed or coerced. The upshot is that the business judgment rule is the operative
standard of review. Having determined that GGP stockholders were informed when
they voted to approve the Transaction, including with respect to their right to seek
statutory appraisal, Plaintiffs’ claim for quasi-appraisal fails. Having declined to
plead waste, Plaintiffs’ claims for breach of fiduciary duty against Brookfield, the
Board and Mathrani also fail. And, from all of this, it follows that Plaintiffs’ claim
consists of two elements: (1) the stockholder plaintiff pleads facts in hopes of supporting a
reasonable inference that the minority blockholder is actually a controlling stockholder
such that the MFW paradigm is implicated and the Corwin paradigm is not, and (2) failing
that, the plaintiff pleads facts in hopes of supporting a reasonable inference that the
stockholder vote was uninformed or coerced such that Corwin does not apply. Under our
settled law, these are two cleared pathways to avoid pleading-stage business judgment
deference and to secure post-closing discovery in the wake of a stockholder vote approving
a transaction.” (citing In re KKR Fin. Hldgs. LLC S’holder Litig., 101 A.3d 980 (Del. Ch.
2014), aff’d sub nom. Corwin v. KKR Fin. Hldgs. LLC, 125 A.3d 304 (Del. 2015); In re
MFW S’holders Litig., 67 A.3d 496 (Del. Ch. 2013), aff’d sub nom. Kahn v.
M&F Worldwide Corp., 88 A.3d 635 (Del. 2014)); see also, e.g., id. at *1, n.7 (collecting
cases where stockholders challenged a merger post-closing by alleging that a minority
stockholder was, in fact, a controlling stockholder in hopes of ratcheting up the standard of
review from business judgment rule to entire fairness, and then arguing, alternatively, that
the stockholder vote approving the merger could not “cleanse” fiduciary duty breaches
because stockholders were uninformed or coerced).
5
in the alternative against Brookfield for aiding and abetting fails for lack of a
predicate breach of fiduciary duty. Finally, because the Transaction was duly
executed, Plaintiffs’ unjust enrichment claim against Brookfield fails. Defendants’
motions to dismiss, therefore, must be granted in full.
I. BACKGROUND
I have drawn the facts from the well-pled allegations in Plaintiffs’
Consolidated Verified Third Amended Stockholder Class Action Complaint
(the “Complaint”)5 and documents integral to it or incorporated by reference. 6
5
D.I. 109. I acknowledge at the outset that Plaintiffs’ Complaint is lengthy, weighing in
at 330 paragraphs. But a complaint under our law is scaled not by its physical heft in the
hand but rather by the legal substance of its well-pled allegations.
6
See Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 (Del. 2004) (noting the
court may consider on a motion to dismiss documents that are “incorporated by reference”
or “integral” to the complaint). Citations in the form of “Proxy __” refer to the Company’s
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934, filed
June 27, 2018, attached as Exhibit 3 to the Miller Declaration at D.I. 118. The Court may
take judicial notice of facts not subject to reasonable dispute in documents filed with the
SEC, such as the Proxy. In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 170
(Del. 2006). The parties agreed that “all documents and information provided by the
Company to the Demanding Party shall be deemed incorporated by reference into the
filing.” Miller Decl. Ex. 13 (Agreement Governing the Inspection of Confidential
Material) ¶ 12; see also Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752, 796
(Del. Ch. 2016) (explaining a corporation may condition Section 220 production on
stockholder agreement that the “entirety” of the production “is incorporated by reference
in any [subsequently filed] complaint”).
6
A. The Parties and Relevant Non-Parties
Plaintiffs, Randy Kosinski, Arthur Susman and Robert Lowinger, each held
GGP shares at the time of the Transaction.7 They did not vote to support the
Transaction.8
Defendant, BPY, is a Bermuda limited partnership with headquarters in
Hamilton, Bermuda.9 Its limited partnership units are traded on the NASDAQ and
the Toronto Stock Exchange under the symbol “BPY.” 10 Brookfield, through BPY
and other affiliates, holds a diversified global portfolio of real estate investments,
including office, retail, hospitality, industrial and multifamily residential. 11 At the
7
Compl. ¶¶ 22–24.
8
Compl. ¶ 25.
9
Compl. ¶ 26.
10
Id.11
Id. Plaintiffs use “Brookfield” and “BPY” interchangeably and sometimes in conflicting
ways throughout the Complaint and briefing. Compare Compl. ¶¶ 26, 291–94 (alleging
“BPY held a share ownership and voting interest of approximately 35.3% of GGP’s
outstanding shares,” and bringing a claim for breach of fiduciary duty against “BPY” as
GGP’s controller) with Compl. ¶¶ 82, 103 (alleging, under the heading “Brookfield
Controlled GGP,” that “Brookfield’s voting power gave it control of GGP far beyond what
its 35.3% voting stake implies” and “[a]t the time of the [Transaction], according to the
Proxy, of 958,392,694 shares of GGP outstanding and entitled to vote, 338,336,700 were
held by BPY and other Brookfield Affiliates. Thus, Brookfield had voting power of
35.3% . . . .”). Yet these parties are not treated identically under the counts brought in the
Complaint. Compare, e.g., Compl. ¶¶ 291–94 (alleging breach of fiduciary duty against
BPY) with Compl. ¶¶ 318–25 (naming in their unjust enrichment count “Brookfield” and
alleging in paragraph 322 that “Brookfield has thus been unjustly enriched, at the expense
of Plaintiffs and other members of the Class,” but alleging in paragraphs 319 and 325 that
7
time of the Transaction, Brookfield held approximately 35.3% of GGP’s outstanding
common stock.12
Defendant, Richard B. Clark, is Chairman of the boards of directors of
Brookfield Property Group, BPY, and Brookfield affiliate BPR REIT (defined
herein). 13 He worked at BPY from 1984 through the time of the Transaction,
including serving a term as its CEO. 14 In 2010, Brookfield designated Clark to serve
on the Board of GGP, a position he held continuously leading up to the
Transaction.15 Between 2010 and the Transaction, Clark was a member of the
Nominating and Governance (“N&G”) Committee of the GGP Board and served as
that committee’s chairman between 2011 and 2014. 16
Defendant, Mary Lou Fiala, was a member of the GGP Board at the time of
the Transaction, having served continuously in that capacity since she was
“BPY was enriched” and “the Class . . . is entitled to restitution and/or disgorgement from
BPY.”). For purposes of the Court’s analysis, however, the distinction is irrelevant
because I ultimately grant Defendants’ motions to dismiss in full. Thus, to avoid confusion,
unless otherwise indicated, I will refer to BPY and/or any Brookfield affiliate collectively
as Brookfield.
12
Compl. ¶ 26.
13
Compl. ¶ 27.
14
Id.15
Id.16
Id.8
designated by Brookfield in November 2010. 17 Fiala was a member of two standing
committees of the Board: the N&G Committee and the Compensation Committee.18
Defendant, J. Bruce Flatt, has served as the CEO of BAM since 2002. BAM
is the Brookfield Affiliate with voting control of BPY. 19 In 2010, Brookfield
designated Flatt to the Board of GGP. 20 As of the time of the Transaction, Flatt
served as Chairman of the Board and Chairman of the Board’s Compensation
Committee. 21
Defendant, Janice R. Fukakusa, is the former Chief Financial Officer and
Chief Administrative Officer of the Royal Bank of Canada (“RBC”), having served
in those dual executive capacities for several years until her retirement in 2017.22
Fukakusa was a member of the GGP Board from 2017 through the Transaction,
17
Compl. ¶ 28.
18
Id.19
Compl. ¶ 29.
20
Id.21
Id.22
Compl. ¶ 30. Fukakusa was employed by RBC for 32 years from 1985 to 2017. Id.9
serving on the Special Committee and Audit Committee. 23 Fukakusa also currently
serves as Chancellor of Ryerson University in Toronto, Ontario, Canada. 24
Defendant, John K. Haley, was a partner in the accounting firm of Ernst &
Young LLP from 1988 until his retirement in 2009.25 Haley was a member of the
GGP Board from September 2009 until the Transaction. 26 Like Fiala, Haley was
selected by Brookfield to serve as a director of GGP in 2010.27 Haley was a member
of the Special Committee, Chair of GGP’s Audit Committee and a member of its
Compensation Committee at the time of the Transaction.28
Defendant, Daniel B. Hurwitz, is founder and CEO of Raider Hill
Advisors, LLC, a real estate investment and retail advisory firm. 29 He previously
served as CEO of DDR Corp., an owner and manager of value shopping centers.30
Hurwitz was a member of the GGP Board at the time of the Transaction, having
23
Id.24
Id.25
Compl. ¶ 31.
26
Id.27
Id.28
Id.29
Compl. ¶ 32.
30
Id.10
served continuously in that capacity since 2013. 31 He was a member of the GGP
Board’s Compensation Committee at the time of the Transaction, 32 and also served
as chair of the Special Committee. 33
Defendant, Brian W. Kingston, is Managing Partner and CEO of Brookfield
Property Group and of BPY. 34 Kingston was a member of the GGP Board at the
time of the Transaction, having served continuously in that capacity since 2013,
replacing another Brookfield selection to the GGP Board who had served since
2010. 35 Defendants Clark, Flatt and Kingston were three members of the GGP
Board at the time of the Transaction who were designated by BPY, and were at all
relevant times senior Brookfield officers (together, the “Brookfield Directors”). 36
Defendant, Christina M. Lofgren, was a manager and later a senior corporate
executive of The TJX Companies (“TJX”) between 1989 and 2016. 37 Most recently,
Lofgren served as Executive Vice President, Real Estate and Property Development
31
Id.32
Id.33
Id.34
Compl. ¶ 33.
35
Id.36
Compl. ¶ 36.
37
Compl. ¶ 34.
11
of TJX.38 Lofgren was a member of the GGP Board at the time of the Transaction,
having served continuously in that capacity since 2017. 39 Lofgren was also a
member of the Special Committee. 40
Defendant, Mathrani, was CEO of GGP from 2010 through the time of the
Transaction.41 Mathrani was also a member of the GGP Board at the time of the
Transaction, having served continuously in that capacity since January 2011.42
Upon closing, Mathrani became a top executive at Brookfield.43 The Merger
Agreement identifies Mathrani as a GGP director “affiliated” with Brookfield, along
with the Brookfield Directors. 44
Non-party, GGP, was acquired by Brookfield in 2018. It was organized under
the laws of Delaware and headquartered in Chicago, Illinois.45 Article VIII of
38
Id.39
Id.40
Id.41
Compl. ¶ 35.
42
Id.43
Id.44
Id.45
Compl. ¶ 39.
12
GGP’s Certificate of Incorporation exculpates GGP’s directors from liability for
breaches of the duty of care.46
Non-party, Brookfield Asset Management (“BAM”), a Canadian corporation
based in Toronto, owns a controlling stake in BPY (and other entities) and acts as its
general partner.47
B. GGP Emerges From Bankruptcy
In 2009, GGP, a tax-advantaged real estate investment trust (“REIT”), filed
for bankruptcy protection in the U.S. Bankruptcy Court for the Southern District of
New York (the “Bankruptcy Court”).48 GGP’s reorganization plan called for a sale
of the company and Brookfield emerged as the successful friendly bidder. 49
At the time of its acquisition of GGP, Brookfield entered into two agreements
that are relevant here. The first, a standstill agreement between GGP and Brookfield
(the “Standstill Agreement”), provided that Brookfield was entitled to vote its
shares, up to 10% of the outstanding shares of GGP, for or against any nominee to
the GGP Board not designated by Brookfield.50 The Standstill Agreement also
46
See Miller Decl. Ex. 14 (GGP Certificate of Incorporation).
47
Compl. ¶ 40.
48
Compl. ¶¶ 40, 89, 91–97.
49
Id.50
Compl. ¶ 100; Miller Decl. Ex. 10 (“Standstill Agreement”) § 1.1(c).
13
required that any transaction between Brookfield (including BPY) and GGP be
approved by a majority of GGP’s stockholders not affiliated with Brookfield.51
It stipulated further that GGP would not agree to waive for other large stockholders
certain of the Standstill Agreement’s provisions, including its majority-of-the-
minority condition, unless it also granted a similar waiver to Brookfield.52 The
second agreement, an investment agreement (the “Investment Agreement”),
provided Brookfield a right to designate three nominees for election to the GGP
Board so long as it owned at least 20% of GGP’s stock. 53
Exercising its right under the Investment Agreement, Brookfield designated
Clark, Flatt and Cyrus Madon (eventually replaced by Kingston) to serve as directors
on GGP’s Board.54 Brookfield also successfully moved in the Bankruptcy Court to
have Haley and Fiala appointed to the Board. 55 Once the acquisition out of
bankruptcy was finalized, Brookfield “recruited” Mathrani to become GGP’s CEO
and he soon after joined the Board as well.56 As noted, these directors remained on
51
Compl. ¶ 100; Standstill Agreement § 1.1(e).
52
Standstill Agreement § 1.1.
53
Miller Decl. Ex. 2 (“Inv. Agreement”) § 5.10(a).
54
Compl. ¶ 97.
55
Compl. ¶¶ 31, 99–100.
56
Compl. ¶ 115(a).
14
the GGP Board until the Transaction closed. A seventh, Fukakusa, was later
recruited to the Board by Brookfield and also remained until the Transaction.57
In each of its Form 10-Ks filed from 2011 through 2018, GGP disclosed:
“Brookfield owns, or manages on behalf of third parties, a significant portion of the
shares of our common stock,” and reported that this “concentration of ownership . . .
may make some transactions more difficult or impossible without their support, or
more likely with their support.”58 Each Form 10-K also disclosed that Brookfield
had “significant influence over” GGP concerning, among other matters,
“any determinations with respect to mergers or other business combinations.”59
C. GGP Explores Strategic Alternatives
On January 17, 2016, Mathrani informally shared with the Brookfield
Directors his opinion that public stock markets undervalued GGP’s assets relative to
private real estate markets.60 He then discussed his valuation concerns with the full
Board and reiterated them publicly during an investor conference call where he
opined that deteriorating market conditions had created “a wide discount between
57
Compl. ¶ 132.
58
Compl. ¶¶ 109–12.
59
Id.
60
Compl. ¶ 75.
15
public and private markets.” 61 This, in turn, prompted GGP’s Board to consider all
strategic alternatives. 62 Mathrani explained:
[T]here’s no sacred cow. We will look at all alternatives . . . . It will
be naïve for us not to look at all options available to us to create
shareholder value. . . . So we’re—we will evaluate one of all multiple
paths to go on, and we will make some decisions in the near term. 63
Mathrani’s comments came amidst deteriorating market conditions for the
brick-and-mortar retail industry. 64 Indeed, GGP management informed the Board in
February 2017 that they had revised downward GGP’s 2017 management
projections due to negative market conditions in the retail property industry. 65 Four
months later, in June 2017, management informed the Board that they had again
61
Compl. ¶¶ 69–77, 80, 119, 154, 158, 174, 197.
62
Compl. ¶ 71.
63
Miller Decl. Ex. 20 (“2017 Investor Call Tr.”) at 10. When asked “[f]rom the plate of
options that you have, buying back stocks, spinoff or asset sales or selling the company, is
there one or a couple that is part at least attractive,” Mathrani responded “[t]here is no
sacred cow.” Id. at 8. Plaintiffs argue the transcript of the 2017 Investor Call cannot be
considered because it is beyond the four corners of the Complaint. (Pls.’ Answering Br. in
Opp’n to Defs.’ Mot. to Dismiss) (D.I. 126) (“Pls.’ Answering Br.”) at 21. But Plaintiffs
referenced the transcript in their Complaint, excerpting selective quotes from Mathrani’s
statements. See Compl. ¶¶ 71–74. Under the incorporation by reference doctrine, the Court
may “review the actual document to ensure that the plaintiff has not misrepresented its
contents and that any inference the plaintiff seeks to have drawn is a reasonable one.”
Yahoo!, 132 A.3d at 797. The doctrine is intended to “limit[] the ability of the plaintiff to
take language out of context because the defendants can point to the entire document,” i.e.,
this precise situation. Id.
64
Proxy at 57–59.
65
Id. at 57.
16
made downward revisions to GGP’s 2017 projections of its “financial
performance.” 66
To gauge the potential market valuation of GGP’s portfolio of assets in the
midst of increasing headwinds, the Board authorized the marketing of two of the
Company’s properties. 67 After receiving proposals well below the hoped-for
valuation on one of the properties, GGP became concerned that its implied valuation
and capitalization rate could put pressure on the net asset value of GGP’s overall
portfolio. 68 On the outside, at least, GGP’s concerns went unnoticed: on
November 2, 2017, BPY CFO Davis was asked by an analyst whether his estimated
net value of GGP’s assets changed from his estimate in an earlier quarter. After the
analyst stated, “I think it was about $29 a share in Q2,” Davis replied “[i]t’s about
$30 per share[, because] [w]hat [BPY] saw this quarter is just continued pickup of
our share of [GGP’s] earnings.”69
66
Compl. ¶ 272.
67
Proxy at 58–59.
68
Id. at 59, 65–67.
69
Compl. ¶ 79.
17
D. The Brookfield Offer and Formation of the Special Committee
By letter dated November 11, 2017 (the “Offer Letter”), Brookfield extended
an unsolicited offer to acquire the remainder of GGP’s shares (the “2017 Offer”).70
The Offer Letter requested that GGP appoint a committee of independent directors
to “evaluate” the 2017 Offer and clarified that the acquisition proposal would
“be subject to customary approvals including, as is required by the [S]tandstill
[A]greement, approval of a majority of the Company’s stockholders not affiliated
with BPY.”71
The Board met telephonically the next day to discuss the 2017 Offer. The
three Brookfield designated directors, Clark, Flatt and Kingston, recused. At that
meeting, the Board formed the Special Committee consisting of Fiala, Fukakusa,
Haley, Hurwitz and Lofgren, and empowered it with a broad mandate, including the
authority to engage advisors, direct negotiations with Brookfield and engage with
others who might be interested in pursuing a transaction. 72 On this latter point, the
Special Committee was empowered to negotiate with topping bidders but could not
approve a deal with a third-party topping bidder and recommend it to stockholders
70
Compl. ¶¶ 135, 138. On behalf of Brookfield, Kingston had approached Hurwitz on
November 10 to inform him that an offer was coming. Compl. ¶ 136. Hurwitz was later
selected as head of the Special Committee. Id.
71
Compl. ¶ 138; Offer Letter at 2.
72
Compl. ¶¶ 138, 144–45, 151, 164; Proxy at 60–61.
18
without coming back to the Board. 73 The Board resolution establishing the Special
Committee also empowered it to “determine to elect not to pursue [Brookfield’s]
Proposal” or any alternative transaction. 74
The Special Committee held its first meeting the same day it was formed,
November 12, 2017, retaining Simpson Thacher & Bartlett as legal counsel and
Goldman Sachs & Co. LLP as financial advisor.75 Goldman’s $30 million fee was
made contingent on completing a deal.76
On November 13, 2017, GGP and Brookfield publicly disclosed the
Offer Letter. 77 Brookfield’s press release reiterated that any transaction was subject
to “customary approvals, including[] approval of a majority of the Company’s
stockholders not affiliated with [Brookfield].” 78 The press release confirmed GGP’s
73
Compl. ¶ 151.
74
Id.
75
Compl. ¶ 144. There was no “beauty contest” for the financial advisor role, and the
minutes do not mention discussion of any other financial advisor. Id.
76
Compl. ¶¶ 159–63, 169, 271.
77
Proxy at 6; see also Miller Decl. Ex. 5 (Nov. 13, 2017 GGP Press Release) (“GGP Press
Release”), Ex. 6 (Nov. 13, 2017 Brookfield Press Release) (“Brookfield Press Release”).
78
Brookfield Press Release.
19
receipt of the Offer Letter, the formation of the Special Committee and the Special
Committee’s selection of advisors.79
E. The Special Committee Negotiates with Brookfield
From November 15, 2017 to March 26, 2018 (the date on which the Merger
Agreement was executed), the Special Committee held over thirty meetings to
consider Brookfield’s proposal and its strategic options. 80 Plaintiffs do not allege
that the Brookfield Directors participated in this process in any manner at any time.
In December of 2017, the Special Committee rejected the 2017 Offer,
expressing to Brookfield it would consider an offer with improved financial terms,
including a shift in the form of consideration.81 Goldman Sachs also repeatedly
encouraged Brookfield to incorporate a larger cash component in any revised
proposal.82
Brookfield finally acceded to Goldman and the Special Committee’s request
on February 23, 2018, when it delivered a revised proposal to acquire all of the GGP
stock it did not already own for either 0.9656 BPY units per share, or an equivalent
amount of newly issued stock in Brookfield Property REIT Inc. (“BPR”)—a new
79
GGP Press Release.
80
Proxy at 61–78, 87.
81
Compl. ¶ 156; Proxy at 63–64.
82
Proxy at 68.
20
U.S. REIT security designed to mirror the economics of a BPY unit, or $23 in cash
per share, subject to a 60% cash and 40% equity proration (as opposed to the 50%
cash and 50% equity proration in Brookfield’s 2017 Offer). 83 On February 24, 2018,
the Special Committee met with its advisors to consider Brookfield’s revised
proposal.84 After reviewing Goldman’s preliminary financial analysis of both the
revised offer and GGP on a standalone basis, the Special Committee discussed
(1) the market conditions then impacting the retail property industry and its impact
on REITs, and (2) that no party other than Brookfield had approached GGP
concerning a potential transaction since May 1, 2017, when GGP announced it was
considering strategic alternatives.85 The Special Committee determined that it
would respond to Brookfield with a counteroffer of $24 per share, consisting of 70%
cash and 30% BPY units or BPR stock. 86
Brookfield rejected the Special Committee’s counteroffer later that same
day. 87 After the Special Committee met with its advisors on February 25, 2018,
it asked Brookfield to present its “best and final” proposal; Brookfield responded
83
Id. at 66, 68.
84
Id. at 68.
85
Id. at 69.
86
Id.
87
Id. at 70.
21
with a revised proposal consisting of $23.50 per share in cash (capped at
$9.25 billion) or one BPY unit (or one share of BPR stock) per share of GGP stock,
subject to a 61% cash and 39% equity proration (the “Final Offer”).88 Brookfield
also stated that if the Special Committee did not find the terms of this proposal
acceptable, the parties should terminate discussions. 89
On February 25, 2018, the Special Committee met with its advisors to
consider the Final Offer. 90 Goldman informed the Special Committee that the Final
Offer increased aggregate cash consideration over Brookfield’s initial 2017 Offer by
$1.9 billion but decreased the overall consideration. 91 The Special Committee
resolved to begin negotiating the Merger Agreement based on Brookfield’s Final
Offer.92
F. The Merger Agreement
Between February 25 and the end of March 2018, the Special Committee met
with its advisors at least twelve times to discuss the terms of what would become the
88
Compl. ¶ 2; Proxy at 70.
89
Proxy at 70.
90
Id.
91
Id. at 70–71.
92
Id. at 71.
22
Merger Agreement and to undertake “due diligence with respect to BPY.”93
Although GGP was not subject to an exclusivity agreement with Brookfield, and
was free to consider other proposals, no other bidders emerged in the interim.94
On March 26, 2018, nearly five months after the 2017 Offer, the Special Committee
unanimously recommended that the Board approve the Final Offer and execute a
definitive Merger Agreement.95 Immediately following the Special Committee
meeting, the Board’s Audit Committee (consisting of Fukakusa, Haley and
Hurwitz—each of whom were Special Committee members) met to consider the
proposed Transaction in accordance with GGP’s Related Party Transaction Policy,
which prohibited any transaction between Brookfield and GGP unless the Audit
Committee “determines the transaction is on terms comparable to those that could
be obtained in arm’s length dealings with an unrelated third party.” 96 After
approximately five minutes, the Audit Committee unanimously determined that the
proposed Transaction was on terms comparable to those that could be obtained from
93
Id. at 71–79.
94
Id. Goldman spoke with “management representatives of certain of GGP’s competitors
in the real property industry” during this time, but “none . . . expressed any interest or
ability to pursue an acquisition of GGP.” Id. at 71.
95
Id. at 79.
96
Compl. ¶ 191.
23
an unrelated third party and, like the Special Committee, unanimously recommended
that the Board approve the proposed Transaction. 97
The Board (with the three Brookfield-affiliated GGP directors recusing) then
met to consider the proposed Transaction. 98 After further discussion, the Board
unanimously agreed with the Special Committee that the Transaction was fair to and
in the best interests of GGP and its stockholders unaffiliated with Brookfield. 99
That same day, March 26, 2018, GGP and Brookfield executed the Merger
Agreement and related documents and issued a press release announcing the
Transaction.100 The Transaction was conditioned on the approval of a majority of
the GGP stock unaffiliated with Brookfield. 101 Upon such approval, GGP would
declare a pre-closing dividend payable in respect of all shares of GGP stock
unaffiliated with Brookfield in which stockholders could elect to receive, subject to
proration and other adjustments, cash or BPY units (or BPR stock), with the
97
Compl. ¶¶ 133, 192–93; Proxy at 79. It is important to note that Plaintiffs do not allege
that Mathrani participated in any way in, much less interfered with, the Special
Committee’s process as it negotiated and then consummated the Transaction.
98
Proxy at 79–80.
99
Id.
100
Compl. ¶ 165; Proxy at 80.
101
Compl. ¶ 206(h).
24
understanding that all stockholders would receive the balance of the cash merger
consideration at closing.102
No competing offers emerged between public announcement of the
Transaction and closing. According to Plaintiffs, this is likely due to the Merger
Agreement’s deal protection devices, which included a $400 million breakup fee,103
a no-solicitation term, 104 a matching-rights provision,105 and four-business-days’
notice to Brookfield of GGP’s intent to discuss a potential superior offer, as well as
two business days to match any competing offer.106
On June 27, 2018, GGP filed jointly with Brookfield its definitive Proxy
soliciting a “yes” vote on the Transaction from GGP’s stockholders unaffiliated with
Brookfield in both a Form S-4 (GGP solicitation) and Form F-4 (BPY foreign-issuer
registration). 107 Relevant here, the Proxy disclosed:
• The deal’s structure, consisting of (1) the Pre-Closing Dividend and (2) the
balance of the deal consideration, the latter of which was defined in the Proxy
as the “merger consideration” in lowercase; 108
102
Id.
103
Compl. ¶ 188.
104
Compl. ¶ 182.
105
Compl. ¶¶ 183–85.
106
Compl. ¶ 183.
107
Compl. ¶ 3.
108
Compl. ¶ 4.
25
• GGP stockholders’ right to “demand appraisal of their shares of GGP common
stock (i.e., the dissenting shares) and receive in lieu of the per share merger
consideration a cash payment equal to the ‘fair value’ of their GGP common
stock, as determined by the Delaware Court of Chancery . . . ”;109
• That the Audit Committee determined the proposed Transaction was on terms
comparable to those that could be obtained in arm’s length dealings with an
unrelated third party;110
• That the impact of the Tax Cuts and Jobs Act (“TCJA”) on individual GGP
stockholders’ post-Transaction holdings was uncertain; 111
• Mathrani’s entitlement to a severance payment contemplated under his 2015
GGP employment agreement and his new employment agreement with
Brookfield, to go into effect upon completion of the Transaction, with terms
comparable to his GGP employment agreement; 112
• Fukakusa’s work history with RBC and RBC’s role in the Transaction;113 and
• That Goldman had approached several of GGP’s competitors, none of whom
were interested in pursuing a combination with GGP.114
The Proxy did not disclose:
• The length of the Audit Committee meeting;
• The potential downward pressure a controller’s presence may have on the
price of a company’s publicly traded stock;
• Mathrani’s alleged enthusiasm for a sell-off-the-parts strategy and Davis’
estimation of GGP’s NAV, as stated on investor calls; or
109
Proxy at 32.
110
Id. at 79.
111
Id. at 9, 196–97.
112
Id. at 140–43.
113
Id. at 130, 247. Specifically, and as discussed below, the Proxy disclosed that RBC,
along with several other financial institutions, would act as joint lead arrangers and joint
book runners in connection with the Transaction. Id.
114
Id. at 57, 71.
26
• The extent of Fukakusa’s stockholdings in RBC, her relationships with
Brookfield or her son’s employment as vice president at RBC throughout the
deal process.
On July 26, 2018, holders of approximately 94% of voting shares unaffiliated
with Brookfield approved the Transaction.115 Brookfield and GGP jointly
disseminated an Election Form the next day.116 The Election Form instructed
holders to elect among three choices: cash-electing shares, stock-electing shares and
non-electing shares. The form stated that each cash-electing GGP share will receive
$14.642 in cash and 0.376 units of BPY or shares of BPR Class A stock; each stock-
electing GGP share will receive 0.986 units of BPY or shares of BPR Class A stock
and $0.312 in cash; and each non-electing GGP share will receive $14.642 in cash
and 0.376 units of BPY. 117
On August 24, 2018, the last full trading day before closing, BPY units closed
on the NASDAQ at $19.66; thus, as of that date, a cash-electing or non-electing
share received the blended value of $22.034 per share, and a stock-electing share
115
Compl. ¶ 229; Miller Decl. Ex. 9 (July 26, 2018 GGP Form 8-K) (“Form 8-K”)
at Item 5.07.
116
Decl. of Samuel L. Closic in Connection with Pls.’ Answering Br. in Opp’n to Defs.’
Mots. to Dismiss (D.I. 126–28) Ex. C (“Election Form”).
117
Id.
27
received the value equivalent of $19.385 per share. 118 The Transaction closed on
August 28, 2018.119
G. Mathrani’s Compensation and Transaction-Related Benefits
Brookfield’s chosen CEO for GGP, Mathrani, was paid handsomely as a result
of the Transaction. He recovered his unvested stock options in GGP worth
$42.1 million, received an additional $145 million in instant liquidity when
Brookfield acquired his shares and vested options, and was paid $7.1 million in cash
severance benefits.120 He also negotiated an agreement with Brookfield for post-
Transaction employment with substantial benefits and compensation.121 Those
negotiations are alleged to have begun “days” before the Merger Agreement was
signed.122
H. RBC’s Role in the Transaction
RBC was one-fourth of the four-bank syndicate providing $12.75 billion in
new loans to finance the Transaction, with its share of the financing exceeding
118
Compl. ¶ 281.
119
Compl. ¶ 1.
120
Compl. ¶ 115.
121
Id.
122
Compl. ¶ 7.
28
$3.2 billion.123 Its relationship with GGP extends back at least to 2013, when it
entered into and at various times amended a credit agreement with GGP amounting
to $1.5 billion.124
The Merger Agreement required that, upon closing, GGP or Brookfield would
repay RBC in full with “cash on hand or proceeds from the Financing or the
Requested Transactions (or other funds provided by [Brookfield]” and discharge all
obligations under the 2015 credit agreement totaling $1.5 billion. 125 RBC was also
Brookfield’s second-largest stockholder, with approximately $3.12 billion in BAM
stock and $682 million in BPY units.126
I. Procedural History
Following the announcement of the Merger Agreement, two putative class
actions were filed and subsequently consolidated. 127 Plaintiffs thereafter moved to
expedite and for a preliminary injunction based principally on alleged disclosure
123
Compl. ¶¶ 122–23.
124
Compl. ¶ 124.
125
Merger Agreement § 6.17; Compl. ¶¶ 14, 41.
126
Compl. ¶ 41.
127
See Susman v. Clark, C.A. No. 2018-0267-JRS (filed April 10, 2018); Lowinger v.
Mathrani, C.A. No. 2018-0272-JRS (filed April 11, 2018); In re GGP Inc. S’holder
Litig. See C.A. No. 2018-0267-JRS (D.I. 7) (consolidating the actions).
29
violations. 128 After GGP responded to Plaintiffs’ concerns by filing its June 11, 2018
Amendment No. 1 to the preliminary proxy, Plaintiffs withdrew their motions.129
After the definitive Proxy was issued and the Transaction consummated,
Plaintiffs filed a Consolidated Verified Second Amended Shareholder Class Action
Complaint on January 7, 2019.130 On April 6, 2019, before Plaintiffs responded to
Defendants’ opening briefs in support of their motions to dismiss, the Court granted
Plaintiff Kosinski’s motion to intervene in this action for the limited purpose of
staying this action while he pursued GGP books and records under 8 Del. C.
§ 220.131
On August 28, 2019, then-Vice Chancellor McCormick ruled that Kosinski
had “demonstrated proper purposes” for the inspection of GGP’s books and records
and directed the parties to meet and confer regarding the scope of the inspection.132
GGP produced documents including Board and Special Committee meeting minutes
and materials, director questionnaires, as well as emails.
128
Susman, C.A. No. 2018-0267-JRS, D.I. 20–22.
129
Id. at D.I. 50.
130
D.I. 61.
131
Kosinski v. GGP, Inc., C.A. No. 2018-0540-KSJM (Del. Ch.).
132
220 Decision at 957.
30
On February 10, 2020, the Court entered final judgment in the 220 Action.
After motion practice and responsive amendments under Chancery Rule 15(aaa),
Plaintiffs filed the operative Complaint on May 4, 2020, stating six causes of
action. 133 Count I alleges breach of fiduciary duty against BPY in its capacity as
controlling stockholder of GGP. 134 Count II alleges breach of the fiduciary duty of
loyalty against the Director Defendants for approving the Transaction. 135 Count III
alleges breach of the fiduciary duty of loyalty against all Defendants for failing to
provide GGP stockholders with a fair summary of their appraisal rights and
disclosing all material information relevant to GGP stockholders when deciding
whether to vote in favor of the Transaction or pursue appraisal. 136 Count IV alleges
breach of fiduciary duty against Mathrani, BPY and the Brookfield Defendants for
each party’s role in the negotiation of Mathrani’s post-Transaction employment
contract, thereby facilitating Brookfield’s control over Mathrani and allowing him
to be objectively compromised as he participated in negotiating the Transaction.137
133
D.I. 109.
134
Compl. ¶¶ 291–94.
135
Compl. ¶¶ 295–301. As noted, GGP’s certificate of incorporation contains a provision
exculpating GGP directors from monetary liability for claims alleging breach of the
fiduciary duty of care. Compl. ¶ 306.
136
Compl. ¶¶ 302–07.
137
Compl. ¶¶ 308–17.
31
Count V alleges unjust enrichment against Brookfield as the party on the other side
of an allegedly unfair Transaction.138 Finally, Count VI alleges aiding and abetting
breaches of fiduciary duties in the alternative against BPY if it is deemed not to be
GGP’s controlling stockholder.139
Four groups of Defendants filed separate opening briefs in support of motions
to dismiss the Complaint on July 6, 2020. 140 Plaintiffs filed their consolidated
answering brief on September 4, 2020, 141 to which Defendants replied on
October 19, 2020.142 Oral argument was held on November 16, 2020. 143 After a
138
Compl. ¶¶ 318–25.
139
Compl. ¶¶ 326–30.
140
D.I. 113 (Special Committee Defs.’ Opening Br. in Supp. of Mot. to Dismiss) (“Special
Committee Defs.’ Opening Br.”); D.I. 114 (Mathrani Def.’s Opening Br. in Supp. of Mot.
to Dismiss) (“Mathrani Def.’s Opening Br.”); D.I. 118 (Brookfield); D.I. 119 (Clark, Flatt
and Kingston Defs.’ Opening Br. in Supp. of Mot. to Dismiss) (“Brookfield Director Defs.’
Opening Br.”).
141
D.I. 126.
142
D.I. 131 (Clark, Flatt and Kingston Defs.’ Reply Br. in Further Supp. of Mot. to
Dismiss) (“Brookfield Director Defs.’ Reply Br.”); D.I. 133 (Mathrani Def.’s Reply Br. in
Further Supp. of Mot. to Dismiss) (“Mathrani Def.’s Reply Br.”); D.I. 134 (Brookfield
Defs.’ Reply Br. in Further Supp. of Mot. to Dismiss) (“Brookfield Defs.’ Reply Br.”);
D.I. 135 (Special Committee Defs.’ Reply Br. in Further Supp. of Mot. to Dismiss)
(“Special Committee Defs.’ Reply Br.”).
143
D.I. 142.
32
request for supplemental briefing on December 31, 2020,144 the matter was deemed
submitted for decision on February 18, 2021.145
II. ANALYSIS
Chancery Rule 12(b)(6) requires dismissal of a complaint if the plaintiff could
not recover under “any reasonably conceivable set of circumstances susceptible of
proof” based on the complaint’s well-pled facts. 146 While the court need not accept
conclusory allegations or “every strained interpretation of the allegations proposed
by plaintiff,”147 it “must accept as true all well-pled allegations in the complaint and
draw all reasonable inferences from those facts in plaintiff’s favor.”148
A. Brookfield is Not a Controller
“Under Corwin, the business judgment rule applies to transactions where no
controlling shareholder is involved and a majority of the Company’s disinterested
shareholders approves the transaction with a fully informed, uncoerced vote.”149
“The rationale of this line of cases is simple—where holders of a majority of stock
144
D.I. 143.
145
D.I. 146–47.
146
See Gen. Motors, 897 A.2d at 168; see also Savor Inc. v. FMR Corp., 812 A.2d 894,
896–97 (Del. 2002).
147
Id.148
Rouse, 2018 WL 1226015, at *10 (citations omitted).
149
Id. at *11 (internal quotations omitted).
33
vote to evince their determination that the transaction is in the corporate best interest,
there is little utility in a judicial second-guessing of that determination by the owners
of the entity.”150
Where a conflicted controller stands on both sides of a transaction, however,
its fingerprints on the deal cannot be so readily cleansed—“Corwin cannot protect a
board’s determination to recommend a transaction when it is reasonably conceivable
that a conflicted controller may have influenced the board and the stockholder
decisions to approve the transaction.”151 The rationale is, again, straightforward:
“controller transactions are inherently coercive . . . [and] cannot [therefore] be
ratified by a vote of the unaffiliated majority.”152 “[T]he concern is that fear of
controller retribution in the face of a thwarted transaction may overbear a
150
Sciabacucchi v. Liberty Broadband Corp., 2017 WL 2352152, at *15 (Del. Ch. May 31,
2017).
151
Rouse, 2018 WL 1226015, at *11.
152
Sciabacucchi, 2017 WL 2352152, at *15; see also Leo E. Strine, Jr., The Delaware
Way: How We Do Corporate Law and Some of the New Challenges We (And Europe) Face,
30 DEL. J. CORP. L., 673, 678 (2005) (“Consistent with the nuance that infuses our common
law, Delaware is more suspicious when the fiduciary who is interested is a controlling
stockholder. When that is so, there is an obvious fear that even putatively independent
directors may owe or feel a more-than-wholesome allegiance to the interests of the
controller, rather than to the corporation and its public stockholders. For that reason, when
a controlling stockholder is on the other side of the deal from the corporation, our law has
required that the transaction be reviewed for substantive fairness even if the transaction
was negotiated by independent directors or approved by the minority stockholders.”).
34
determination of best corporate interest by the unaffiliated majority. In such a case,
the Court cannot determine that a vote ratifies the transaction on its own merits.”153
But fiduciaries transacting with a conflicted controller are not without means
to attain coveted business judgment rule deference.154 In In re MFW Shareholders
Litigation, then-Chancellor Strine laid out a process, later endorsed by our Supreme
Court, by which fiduciaries and controlling stockholders negotiating “going private
mergers” can obtain business judgment deference if, from the outset, the transaction
is negotiated and approved by disinterested and independent directors and
conditioned on the informed and uncoerced vote of a majority of the minority
stockholders.155
Plaintiffs allege Brookfield was a conflicted controller; Defendants disagree.
Because Brookfield’s status as a conflicted controller, or not, bears directly on the
analytical framework within which the Court must review Plaintiffs’ breach of
fiduciary duty and related claims, it is appropriate to address this issue first.156
153
Sciabacucchi, 2017 WL 2352152, at *15.
154
See Peter V. Letsou, Steven M. Haas, The Dilemma That Never Should Have Been:
Minority Freeze Outs in Delaware, 61 BUS. LAWYER 25, 82 (Nov. 2005) (discussing the
“covetable policy ramifications” of a “judicial procedure that permits invocation of the
business judgment rule when a freeze out is independently approved [by non-affiliated
stockholders and meets other criteria]”).
155
67 A.3d 496 (Del. Ch. 2013).
156
See Larkin v. Shah, 2016 WL 4485447, at *7 (Del. Ch. Aug. 25, 2016).
35
Under Delaware law, a stockholder will be deemed a controlling stockholder
where he “(1) owns more than 50% of the voting power of a corporation or (2) owns
less than 50% of the voting power of the corporation but exercises control over the
business affairs of the corporation.”157 It is undisputed that Brookfield held 35.3%
of GGP’s common stock at the time of the Transaction. Plaintiffs, therefore, must
tread the path of well pleading that, notwithstanding Brookfield’s minority
stockholder status, it actually “controlled the business affairs” of GGP. While this
implicates “an intensely factual” inquiry that is often “difficult [] to resolve on the
pleadings,”158 a plaintiff cannot simply allege that a minority blockholder is a
controller, tout its substantial holdings and commensurate influence, leave it at that
and then hope to survive a motion to dismiss. More is needed.159
157
KKR, 101 A.3d at 991.
158
In re Cysive, Inc. S’holders Litig., 836 A.2d 531, 550–51 (Del. Ch. 2003).
159
See Rouse, 2018 WL 1226015, at *11 (“Given that the ‘controlling stockholder’
designation for a minority blockholder imposes upon that stockholder fiduciary duties
where none otherwise would exist, our courts generally recognize that demonstrating the
kind of control required to elevate a minority blockholder to controller status is ‘not easy.’”
(quoting In re PNB Hldg. Co. S’holders Litig., 2006 WL 2403999, at *9 (Del. Ch. Aug. 18,
2006))); see also Sciabacucchi, 2017 WL 2352152, at *16 (“This actual control test is not
an easy one to satisfy as stockholders with very potent clout have been deemed, in
thoughtful decisions, to fall short of the mark.” (internal quotations omitted)). See also
van der Fluit v. Yates, 2017 WL 5953514, at *7 (Del. Ch. Nov. 30, 2017) (dismissing claim
that minority blockholder was a controlling stockholder); Larkin, 2016 WL 4485447, at *1
(same); KKR, 101 A.3d at 983 (same).
36
For Brookfield to be deemed a controller notwithstanding its minority equity
interest, it must “exercise[] such formidable voting and managerial power that, as a
practical matter, it is no differently situated than if it had majority voting control.”160
Stated differently, its “power must be so potent that independent directors cannot
freely exercise their judgment, fearing retribution from the controlling minority
blockholder.” 161 With these considerations in mind, the minority blockholder will
be deemed a controlling stockholder either if he “actually dominated and controlled
the corporation, its board or the deciding committee with respect to the challenged
transaction,”162 such that his “presence is hard to ignore because he has injected
himself as ‘dominator’ into the board’s process while it considers the transaction and
is, in that sense, actually ‘in the board room,’”163 or he “actually dominated and
controlled the majority of the board generally.”164 In this latter scenario, the
controller’s dominating presence is evidenced “by the board’s awareness of his
160
In re Morton’s Rest. Gp. S’holders Litig., 74 A.3d 656, 665 (Del. Ch. 2013).
161
Id. (internal quotation omitted).
162
Rouse, 2018 WL 1226015, at *12 (citing Williamson v. Cox Commc’ns, Inc.,
2006 WL 1586375, at *4 (Del. Ch. June 5, 2006)).
163
Id.164
Id. (citing Sciabacucchi, 2017 WL 2352152, at *17; Kahn v. Lynch Commc’n Sys., Inc.,
638 A.2d 1110, 1114–15 (Del. 1994); Cysive, 836 A.2d at 531).
37
ability to make changes at the board level or to push other coercive levers should he
be displeased with the board’s performance or decision-making.” 165
Plaintiffs argue they have well pled that Brookfield controlled the Board both
with respect to the Transaction and GGP’s business affairs more generally. I address
each argument in turn.
Brookfield Did Not Control the Special Committee’s Negotiation of
the Transaction
Plaintiffs allege that “of nine GGP directors, at least five (and conceivably all)
were not independent, not disinterested, or both.”166 Because a majority of GGP’s
directors were conceivably subject to Brookfield’s influence, Plaintiffs contend it is
reasonably conceivable that Brookfield actually dominated and controlled GGP’s
Board with respect to the Transaction.
Of course, Delaware law presumes “that a director’s decision is based on the
corporate merits of the subject matter before the board rather than extraneous
considerations or influence.” 167 “In order to overcome that presumption in the
controller context, the plaintiff must plead facts that support a reasonable inference
165
Id.166
Pls.’ Answering Br. at 53.
167
In re W. Nat’l Corp. S’holders Litig., 2000 WL 710192, at *11 (Del. Ch. May 22, 2000).
38
the director is either beholden to the shareholder or so under its influence that his
discretion is sterilized.” 168
Plaintiffs do not dispute Brookfield moved to neutralize its influence (such as
it was) over the Board’s consideration of the Transaction by recognizing ab initio
that any transaction with GGP would be “subject to customary approvals including,
as is required by the [S]tandstill [A]greement, approval of a majority of the
Company’s stockholders not affiliated with Brookfield.” 169 Plaintiffs also
acknowledge in the Complaint that GGP formed a five-member Special Committee,
at Brookfield’s request, to neutralize the influence of the Brookfield Directors and
Mathrani.170 This five-member Special Committee constituted a Board quorum
168
Rouse, 2018 WL 1226015, at *13.
169
Offer Letter at 2. While Plaintiffs argue some of the Standstill Agreement’s conditions
were “waivable” if GGP waived such requirements for another competing bidder, no bidder
ultimately emerged and there are no facts pled to suggest the Special Committee ever
contemplated waiving these requirements or that they were, in any event, considered
discretionary by the Special Committee. See Pls.’ Answering Br. at 72 n.237
(“The Company shall not waive any provisions similar to Sections 1.1(c), (e) or (f) above
for any Large Stockholder [i.e., a holder of more than 10% of GGP’s equity] under any
other agreement unless the Company [GGP] grants a similar waiver under this Agreement.”
(quoting Standstill Agreement § 1.1)).
170
Offer Letter at 2; Compl. ¶ 145; Proxy at 61–62, 79, 121. Plaintiffs cite Rouse for the
proposition that a CEO who negotiates for post-merger employment and merger-related
compensation while negotiating the merger itself labors under an irreconcilable conflict.
But, unlike Rouse, where the CEO was on the special committee, and participated in
negotiations, Mathrani was not on GGP’s special committee and did not participate in
negotiations. See Rouse, 2018 WL 1226015, at *13–14; see also Compl. ¶¶ 37–38
(describing Mathrani’s conflicts).
39
under GGP’s bylaws, meaning these directors could unilaterally convene a Board
meeting and approve any action, including an alternative transaction, without the
support of (or over opposition from) the Brookfield Directors or Mathrani.171
The Brookfield Directors, for their part, are not alleged to have participated in
the Special Committee’s decision-making process.172 Mathrani is not alleged to
have participated in negotiating the Transaction either, only casting his vote to
approve the Transaction after receiving the Special Committee’s unanimous
recommendation following its months-long review. 173 Under Section 141(e) of the
171
See Miller Decl. Ex. 11 (GGP Bylaws) at Art. II, §§ 3, 6 (filed as Ex. 3.1 to June 2, 2017
GGP Inc. Form 8-K).
172
Plaintiffs’ attempt to problematize the Brookfield Directors’ inaction fails. See Pls.’
Answering Br. at 164 (arguing the Brookfield Directors breached their fiduciary duties by
“conceal[ing] Davis’ valuation, compromis[ing] Mathrani, [and] conceal[ing] Fukakusa’s
conflicts . . . .” (citing Compl. ¶¶ 78, 118, 133, 237, 261–63, 316)). The information
allegedly “concealed” by the Brookfield Directors is, as explained infra, not material.
Mathrani’s post-Transaction compensation is also irrelevant, as that arrangement was
known to the Board and Mathrani is not alleged to have participated in negotiations.
See Proxy at 141–44 (disclosing Mathrani’s Transaction-related compensation and
employment arrangements); see also In re Toys “R” Us, Inc. S’holder Litig., 877 A.2d 975,
1006 (Del. Ch. 2005) (explaining that the court’s job “is not to police the appearances of
conflict that, upon close scrutiny, do not have a causal influence on a board’s process.”).
Brookfield cannot be said to have exerted influence on a Transaction through directors who
recused themselves from the start of negotiations. See In re Crimson Expl. S’holder Litig.,
2014 WL 5449419, at *11 n.66 (Del. Ch. Oct. 24, 2014) (“[T]he focus of the inquiry has
been on the de facto power of a significant (but less than majority) shareholder, which,
when coupled with other factors, gives that shareholder the ability to dominate the
corporate decision-making process.” (quoting Superior Vision Servs., Inc. v. ReliaStar Life
Ins. Co., 2006 WL 2521426, at *4 (Del. Ch. Aug. 25, 2006) (emphasis added))).
173
Plaintiffs argue Mathrani was involved in the Transaction because “(i) he voted for it at
the board level; (ii) he signed the Proxy’s covering letter as CEO, urging a ‘yes’ vote on
40
Delaware General Corporation Law, directors are entitled to rely in good faith on a
special committee’s recommendation absent credible allegations of flaws in that
committee’s process.174
Plaintiffs’ argument that Brookfield controlled GGP’s process leading to the
Transaction thus turns on whether they have well pled that the Special Committee
was beholden to Brookfield such that Brookfield “actually dominated and controlled
the Buyout; (iii) he signed the Merger Agreement; (iv) he surveilled the Five-Minute [Audit
Committee] Meeting; and (v) he declined to require Proxy disclosure of his oft-expressed
value-maximizing strategy and the reasons he departed from it to support the
[Transaction].” Pls.’ Answering Br. at 55 (citing Proxy at 79; Compl. ¶¶ 72–76, 239–40,
313)). By Plaintiffs’ own admission, then, Mathrani is not alleged to have “set the terms
of the deal . . . [or] deceive[d] the board . . . [or] dominate[d] or control[led] the other
directors’ approval of the Transaction.” Benihana of Tokyo, Inc. v. Benihana, Inc., 906
A.2d 114, 121 (Del. 2006) (dismissing fiduciary duty claims against conflicted director).
And, for reasons explained infra, Plaintiffs mischaracterize Mathrani’s publicly-known
“value-maximizing” strategy. See Investor Tr. 8, 10 (Mathrani describing publicly possible
strategies to catalyze appreciation of GGP’s stock).
174
8 Del. C. § 141(e); see also Crimson, 2014 WL 5449419, at *25; In re Ebix, Inc.
S’holder Litig., 2018 WL 3545046, at *13 (Del. Ch. July 17, 2018). Plaintiffs’ sole
argument against application of Section 141(e) to Mathrani is that he did not rely on the
Special Committee’s recommendation in good faith because of his employment agreement.
See Pls.’ Answering Br. at 164. But Mathrani did not enter into an employment agreement
with Brookfield until after the Merger Agreement was signed and waited to negotiate the
terms of his employment until mere days before the Merger Agreement was to be executed,
well after the economic negotiations had ended. Compl. ¶¶ 7, 115–16. Indeed, Brookfield
submitted its final offer on February 25, 2018—a full month before the Special Committee
approved the Merger and before Plaintiffs contend negotiations regarding Mathrani’s
employment began. Proxy at 70, 142; Compl. ¶ 7. This court has rejected similar
allegations that a CEO is interested in a transaction because he negotiated post-merger
employment “five days before the Merger Agreement was signed and after the economic
terms and nearly all the diligence on the deal were finalized.” In re Saba Software, Inc.
S’holder Litig., 2017 WL 1201108, at *22 (Del. Ch. Mar. 31, 2017), as revised (Apr. 11,
2017).
41
the corporation, its board or the deciding committee with respect to the challenged
transaction.”175 One would expect, therefore, that Plaintiffs would allege facts
allowing a reasonable inference that a majority of the Special Committee’s members
were somehow tainted by Brookfield’s dominance.176 They do not. Instead,
Plaintiffs attack the independence and/or disinterest of two of the five Special
Committee members and assert, at the threshold, that they need only plead a single
Special Committee member is interested or not independent from Brookfield to
make reasonably conceivable Brookfield’s status as controller. 177 Defendants
counter that Plaintiffs must plead facts that support a reasonable inference the
compromised minority of Special Committee members “somehow ‘dominated or
controlled’ the Special Committee’s process.”178
175
Rouse, 2018 WL 1226015, at *12 (citing Cox Commc’ns, Inc., 2006 WL 1586375,
at *4).
176
See In re Pilgrim’s Pride Corp. Deriv. Litig., 2019 WL 1224556, at *17 (Del. Ch.
Mar. 15, 2019) (explaining complaint must plead “sufficient facts to implicate the Director
Defendants in the negotiation, structuring or approval of the Acquisition.”).
177
Pls.’ Answering Br. at 53, 78 (citing In re AmTrust Fin. Serv. S’holder Litig.,
2020 WL 914563, at *10 n.105 (Del. Ch. Feb. 26, 2020) (noting that whether one of the
special committee member’s lack of independence conceivably renders an entire
committee not independent in the context of MFW [i.e., when controllership has already
been established] has not been decided under Delaware law).
178
Special Committee Defs.’ Opening Br. at 22 (citing Rouse, 2018 WL 1226015, at *15).
42
Defendants offer the correct interpretation of Delaware law. Where, as here,
a plaintiff alleges only a minority of special committee members are incapable of
disinterestedly and independently considering a transaction, a plaintiff must proffer
at the pleading stage some factual predicate from which the court can infer the
compromised director(s) somehow infected the special committee’s process.179
In other words, an inquiry into the existence of a minority controller focuses on
whether the minority shareholder has “the ability to dominate the corporate
179
See Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 363 (Del. 1993) (“This Court has
never held that one director’s colorable interest in a challenged transaction is sufficient,
without more, to deprive a board of protection of the business judgment rule presumption
of loyalty. . . .” (emphasis in original)); In re Alloy, Inc., 2011 WL 4863716, at *8–9
(Del. Ch. Oct. 13, 2011) (holding allegation that an allegedly conflicted corporate fiduciary
“was in a position” to influence other members of a special committee was inadequate to
support an inference that the special committee’s process was tainted by undue influence);
Texlon Corp. v. Meyerson, 802 A.2d 257, 264 (Del. 2002) (“Where only one director has
an interest in a transaction, however, a plaintiff seeking to rebut the presumption of the
business judgment rule under the duty of loyalty must show that the interested director
controls or dominates the board as a whole” (quotations omitted)); Hamilton P’rs, L.P. v.
Highland Cap. Mgmt., L.P., 2014 WL 1813340, at *16 (Del. Ch. May 7, 2014) (noting
allegation did not support reasonable inference that controlled director sought “to comport
with the wishes or interest” of controlling director and refusing to find domination on
“generalized allegations”); Rouse, 2018 WL 1226015, at *15 (“[I]t does not necessarily
follow that an interested party also controls directors, simply because they lack
independence. Lack of independence focuses on the director, and whether she has a
conflict in the exercise of her duty on behalf of her corporation. Consideration of controller
status focuses on the alleged controller, and whether it effectively controls the board of
directors so that it also controls disposition of the interests of the unaffiliated stockholders.”
(quoting Sciabacucchi, 2017 WL 2352152, at *17) (emphasis in original)).
43
decision-making process” which, in the context of this Transaction, was steered
exclusively by the Special Committee.180
The Special Committee was comprised of Defendants, Hurwitz, Fiala,
Fukakusa, Haley and Lofgren.181 Plaintiffs did not brief and so waived any argument
impeaching the impartiality of Hurwitz, Fiala and Lofgren.182 Thus, to the extent
Plaintiffs argue the Special Committee’s process was poisoned by its members, their
allegations are limited to Haley and Fukakusa.
Plaintiffs’ allegations impugning Haley’s independence from Brookfield are
limited to the observations that (1) he was selected to the Board by Brookfield upon
GGP’s emergence from bankruptcy and (2) his tenure at Ernst & Young overlapped
180
Crimson, 2014 WL 5449419, at *11 n.66 (quoting Superior Vision Servs., Inc. v.
ReliaStar Life Ins. Co., 2006 WL 2521426, at *4 (Del. Ch. Aug. 25, 2006)) (emphasis
added).
181
The Board previously determined each of these directors to be independent under NYSE
listing standards. “Although the fact that directors qualify as independent under the NYSE
rules does not mean that they are necessarily independent under [Delaware] law in
particular circumstances, the NYSE rules governing director independence were
influenced by experience in Delaware and other states and were the subject of intensive
study by expert parties. They cover many of the key factors that tend to bear on
independence, including whether things like consulting fees rise to a level where they
compromise a director’s independence, and they are a useful source for this court to
consider when assessing an argument that a director lacks independence.” MFW, 67 A.3d
at 510.
182
See Emerald P’rs v. Berlin, 726 A.2d 1215, 1224 (Del. 1999) (“Issues not briefed are
deemed waived.”). Plaintiffs also did not challenge these directors’ independence at oral
argument.
44
with two former Brookfield executives. 183 But Plaintiffs do not allege Haley
interacted with or even knew the former Brookfield executives. 184 And Haley retired
from Ernst & Young in 2009, nearly a decade before the Transaction. 185 “Neither
mere personal friendship alone, nor mere outside business relationships alone, are
sufficient to raise a reasonable doubt regarding a director’s independence.” 186 That
Haley attained his directorship by designation of Brookfield years before Brookfield
extended the 2017 Offer does not change that calculus.187
Plaintiffs’ allegations regarding Fukakusa’s supposed subjugated state fare no
better. Plaintiffs allege Fukakusa was dominated and controlled by Brookfield
because: (1) she served as an RBC executive for 30 years (13 as CFO) before joining
183
Compl. ¶ 134. I note Plaintiffs did not advance an argument that Haley harbored any
self-interest adverse to GGP’s stockholders.
184
While the 220 Decision noted Haley’s employment history may be “evidence of another
possible conflict” under the applicable credible basis burden of proof, Plaintiffs have not
pled facts supporting a reasonable inference that such a conflict exists. 220 Decision at 954
(emphasis added).
185
Proxy at 247.
186
Litt v. Wycoff, 2003 WL 1794724, at *4 (Del. Ch. Mar. 28, 2003).
187
See Edgewater Growth Cap. P’rs LP v. H.I.G. Cap., Inc., 68 A.3d 197, 230 (Del. Ch.
2013) (“Our Supreme Court has long recognized that the manner in which someone is
nominated to the board is not evidence of their lack of independence.”); see also KKR,
101 A.3d at 996 (“It is well-settled Delaware law that a director’s independence is not
compromised simply by virtue of being nominated to a board by an interested
stockholder.”).
45
the GGP Board;188 (2) she owned $31–41 million in RBC equity; (3) RBC stood to
gain from the Transaction via (a) GGP’s anticipated payoff of an existing loan from
RBC of $1.5 billion upon closing the Transaction,189 (b) RBC’s $3.2 billion
participation in a syndicate to provide $12.875 billion of new loans to Brookfield to
fund the Transaction, 190 and (c) RBC’s equity stake in Brookfield;191 (3) Fukakusa’s
son was a vice president of RBC; 192 and (4) she was indebted to Brookfield for
helping her to secure her position as Chancellor at Ryerson University. 193
Fukakusa’s previous employment at RBC is unremarkable, as the Complaint
makes clear she joined the GGP Board only after retiring from RBC in
January 2017—months before GGP began negotiations with Brookfield.194
The same can be said for Fukakusa’s son working at RBC, as there is no allegation
that he had any involvement in, or retained any ancillary benefit from, the
Transaction.
188
Compl. ¶ 30.
189
Compl. ¶¶ 14, 30, 41, 124, 129, 146, 178.
190
Compl. ¶¶ 14, 41, 122–23, 146.
191
Compl. ¶ 41.
192
Compl. ¶¶ 14, 124, 146, 236.
193
Compl. ¶ 132.
194
Id.; see also Pls.’ Answering Br. at 56; Proxy at 247.
46
Plaintiffs’ assertion that Fukakusa was dominated by Brookfield with respect
to the Transaction on account of her financial ties to RBC similarly land beyond the
bounds of reasonable conceivability. RBC is not a party to the Transaction. Rather,
it served as one of several lenders in connection with the deal, and there are no
allegations regarding how much RBC stood to earn from the Transaction. Plaintiffs
thus ask the Court to infer that RBC’s role in the Transaction as lender, combined
with its relatively small stockholdings in Brookfield, would increase RBC’s market
value to an extent so material to Fukakusa that she would be rendered unable to
“perform her fiduciary duties” on behalf of GGP stockholders. 195 While it is
conceivable a director could be beholden to a controller by virtue of her embedded
relationship to a lender of the controller, 196 Plaintiffs fail in my view to plead
195
In re Gen. Motors Class H S’holders Litig., 734 A.2d 611, 617 (Del. Ch. 1999); see also
Orman v. Cullman, 794 A.2d 5, 25 n.50 (Del. Ch. 2002) (explaining that, absent a director
standing on both sides of a transaction, materiality allegations are required to establish lack
of independence or a disabling interest). Plaintiffs emphasize that this court observed in
the 220 Decision that RBC “stood to receive a substantial benefit” from the Transaction.
220 Decision at 954. But in the context of plenary litigation, it is black letter Delaware law
that Plaintiffs must allege facts from which the Court can reasonably infer a material
benefit to an interested director, i.e., an alleged benefit “significant enough in the context
of the director’s economic circumstances, as to have made it improbable that the director
could perform her fiduciary duties to the . . . shareholders without being influenced by her
overriding personal interest.” Orman, 794 A.2d at 23 (cleaned up).
196
See In re Dell Techs. Inc. Class V S’holders Litig., 2020 WL 3096748, at *37 (Del. Ch.
June 11, 2020) (“[D]efendants fail to cite any authority that requires a director to have a
compromising relationship with the controller himself as opposed to a close advisor or
other associate.”).
47
sufficient facts allowing an inference that Fukakusa’s relationship with RBC was
such that Brookfield could pull that lever to overcome her presumptively loyal
fiduciary instincts as a GGP director. 197
Finally, while Plaintiffs assert that “Brookfield paved the way for Fukakusa’s
chancellorship as a reward for her paving the way for the Transaction,” 198 Plaintiffs
conspicuously fail to plead how Brookfield actually possessed the imperium to
coerce Ryerson’s 24-member board into naming Fukakusa the school’s chancellor,
much less what specific steps were supposedly taken by Brookfield to deliver that
prize.199 Indeed, Fukakusa served as a member of the Board of Governors of
Ryerson University since 2002 and as its chairperson since 2013—many years
197
Plaintiffs rely on Calesa Associates. L.P. v. American Capital, Ltd., to argue that
Fukakusa is interested due to her ties to RBC. 2016 WL 770251 (Del. Ch. Feb. 29, 2016).
But Calesa dealt with directors whose lack of independence was tied to the alleged
controller that was itself financing the transaction. Id. at *1, *12. The company in Calesa
also acknowledged that the directors’ interests were “in addition to or different” than the
target’s stockholders. Id. at *12. The court found such an acknowledgment weighty,
observing “it is well-settled that a director is considered interested when [she] will receive
a personal financial benefit from a transaction that is not equally shared by the
stockholders.” Id. (internal citations and quotations omitted). Here, RBC was not a party
to the Transaction, and there is no acknowledgment from GGP or otherwise that Fukakusa
received any nonratable benefit from the Transaction based on her ties to RBC.
198
Pls.’ Answering Br. at 58–59.
199
See Board Members 2019-2020, RYERSON UNIV.,
https://www.ryerson.ca/governors/members/ (last visited May 10, 2021); see also Compl.
¶ 132(a), (b), (d) (citing Ryerson’s website three times).
48
before she joined GGP’s Board.200 Her selection as chancellor of Ryerson was
announced two months before the Transaction (after more than a decade-and-a-half
of board service), and there is no allegation that such a position resulted in any extra
compensation, let alone that such compensation was material. Fukakusa’s
connection to Brookfield through Ryerson is therefore a far cry from Plaintiffs’
favorite case on this issue, In re Oracle Corp. Derivative Litigation, 201 where the
members of the Special Litigation Committee were Stanford professors asked to
investigate claims against another Stanford professor and two well-known Stanford
benefactors.202 In totality, Plaintiffs’ allegations with respect to Fukakusa fail to
support a reasonable inference that Brookfield dominated and controlled the Special
Committee’s consideration of the Transaction.
200
Compl. ¶ 132(c).
201
824 A.2d 917 (Del. Ch. 2003).
202
Id. at 943. I note that our Supreme Court has cautioned against applying Oracle, decided
in the special litigation committee context, as a yardstick for measuring independence of
board members in other contexts. Beam ex rel. Martha Stewart Living Omnimedia, Inc. v.
Stewart, 845 A.2d 1040, 1055 (Del. 2004). Plaintiffs also lean for support on Delaware
County Employees Retirement Fund v. Sanchez, but the director and Chairman (who was
interested in the subject transaction) were alleged to be close friends for five decades, with
the director’s personal wealth “largely attributable to business interests over which
Chairman Sanchez has substantial influence,” a favor returned by, among other gestures,
the director’s maxed-out $12,500 donation to the Chairman’s campaign for governor
of Texas. 124 A.3d 1017, 1020–21 (Del. 2015). No comparable facts are pled here.
49
Even assuming the constellation of allegations levelled against Fukakusa
rendered her incapable of considering the Transaction impartially, Plaintiffs have
not even attempted to connect Fukakusa’s alleged ties with Brookfield to any actions
she took to influence the Special Committee or Audit Committee’s process to favor
Brookfield.203 As noted, an inference of transaction-related control must be
supported with well-pled allegations that the compromised Special Committee
member somehow exercised influence over a majority of otherwise disinterested and
independent members. 204 There are no such allegations here.
Perhaps recognizing the fallibility of their challenges to the Special
Committee’s process, Plaintiffs attempt to supplement their claim that Brookfield
actually controlled GGP in the Transaction by reference to several supposed
circumstantial markers of control. First, Plaintiffs point out Brookfield co-authored,
co-filed and co-signed the Proxy. 205 But Plaintiffs cite no authority for the
203
The Court cannot reflexively credit Plaintiff’s conclusory allegation that “Fukakusa’s
participation in the Special Committee tainted the sale process,” but instead must evaluate
the underlying allegations supporting that conclusion. Compl. ¶ 146; see Clinton v. Enter.
Rent-A-Car Co., 977 A.2d 892, 895 (Del. 2009) (explaining the court will not accept
“conclusory allegations unsupported by specific facts”).
204
See Cede & Co., 634 A.2d at 363 (“This Court has never held that one director’s
colorable interest in a challenged transaction is sufficient, without more, to deprive a board
of the protection of the business judgment rule presumption of loyalty.”); Nguyen v.
Barrett, 2016 WL 5404095, at *5 n.46 (Del. Ch. Sept. 28, 2016) (same).
205
Compl. ¶ 329.
50
proposition that a co-authored proxy is somehow offensive under Delaware law, and
I cannot surmise any reason why that fact would support a reasonable inference of
control or impropriety.
Second, Plaintiffs allege “BPY took control of the narrative, issuing press
releases when GGP and the Special Committee did not,” pointing, by way of
example, to Brookfield’s announcement of the 2017 Offer and then GGP’s rejection
of that offer.206 Again, Plaintiffs cite no authority that would support the proposition
that a potential acquirer’s effort to take control over the public narrative of its
negotiations with a target somehow supports an inference that the acquirer actually
controls the target, and I am not persuaded that it does.
Third, Plaintiffs allege GGP’s concession to the suite of deal protections in
the Merger Agreement allows an inference that Brookfield dominated and controlled
the GGP fiduciaries who agreed to these fundamentally lopsided terms. 207 To be
206
Pls.’ Answering Br. at 63 (emphasis omitted); Compl. ¶¶ 153, 156; see also Compl.
¶ 283.
207
Compl. ¶¶ 177–90. In this regard, among other “deal protections,” Plaintiffs reference
in their Complaint a “poison put,” purportedly contained in “the RBC Loan Agreement”—
a capitalized term that never reappears either in Plaintiffs’ Complaint or briefing—which
allegedly provided that “if anyone other than Brookfield acquired more than 50% of GGP’s
outstanding voting power, the loan went into default and became due, requiring the
immediate payment of the $1.4 billion credit facility.” Compl. ¶ 178. Consistent with the
long-on-rhetoric-short-on-substance theme running through Plaintiffs’ claims, and
notwithstanding a Complaint numbering many hundreds of paragraphs, Plaintiffs offer no
further detail on the loan: there is no mention of what specifically the agreement says, when
it was entered or by whom. Plaintiffs never cited to an exhibit in their discussion of the
51
sure, the coercive effects of deal protection devices are always important and they
must be measured against the inferences asked to be drawn from them. 208 But this
court has long recognized that non-solicitation provisions, information and matching
rights provisions, and termination fees of less than 3% of the transaction price are
not particularly remarkable in the realm of arms-length mergers and acquisitions.209
While Plaintiffs attempt to attribute the lack of competing bidders to these customary
“deal protection” provisions, the only reasonable inference to be drawn is that other
poison put, and there are no exhibits on record reflecting a loan agreement between GGP
and RBC. Plaintiffs suggest in briefing the loan agreement was negotiated as a part of the
Merger Agreement, but it does not appear to be mentioned in the Proxy and Plaintiffs do
not take issue with the Proxy’s disclosures in that regard. See Pls.’ Answering Br. at 35–
36 (listing the poison put among the deal-protection devices “employed” by the Merger
Agreement); see also Proxy at 34–38, 151, 226–27 (disclosing other deal-protection
devices but making no mention of a poison put). The Court is thus left without pled facts
from which to draw any inference regarding a poison put-related “deal protection” much
less fiduciary impropriety related to that provision. After dedicating significant time to
searching the Complaint, briefs and record for a better understanding of this “poison put,”
I must conclude that this allegation is a distraction that does not meaningfully impact the
Court’s analysis.
208
See Toys “R” Us, 877 A.2d at 1016.
209
See, e.g., In re 3COM S’holders Litig., 2009 WL 5173804, at *7 (Del. Ch. Dec. 18,
2009) (denying expedition under “colorability” standard and explaining that a non-
solicitation provision, matching rights provision, and termination fee of over 4% of equity
value, even where the directors did not attempt to solicit other buyers before executing the
merger agreement, are “standard merger terms”); see also In re TriQuint Semiconductor,
Inc. S’holders Litig., 2014 WL 2700964, at *3 (Del. Ch. June 13, 2014) (denying
expedition and explaining that non-solicitation provision, matching rights provision, and
2.8% termination fee are “familiar and generally permissible merger agreement
provisions”).
52
suiters did not emerge because none were interested. Indeed, Goldman “had several
discussions with management representatives of . . . GGP’s competitors . . . none of
which expressed any interest or ability to pursue an acquisition of GGP.”210
Brookfield, for its part, also attempted but failed to solicit co-investors. 211
210
Proxy at 71. While Plaintiffs allege Goldman and Simpson Thacher were “preordained”
by Brookfield, and therefore conflicted, they allege no well-pled facts to support that
inference. See Compl. ¶¶ 144, 159, 164. The advisors’ presence at the Special
Committee’s first meeting is unsurprising given Plaintiffs’ pleading that Kingston had, on
Brookfield’s behalf, informed the soon-to-be Special Committee chair Hurwitz of the
incoming bid prior to the 2017 Offer. Compl. ¶ 136. Further, it is undisputed that the
Special Committee had power freely to select its own advisors and, according to the
relevant Board resolutions and Proxy, did, in fact, select both advisors based on their
substantial experience and their independence from GGP and BPY. Proxy at 60–61; Miller
Decl. Ex. 16 (Nov. 12, 2017 Minutes of the Board of Directors) (explaining advisors
“present by invitation”). Plaintiffs allege no facts from which the Court can infer that
Brookfield was somehow involved in this selection, either through early involvement in
the Special Committee or past relationships with either firm. Plaintiffs also take issue with
Goldman’s financial incentives, noting that the financial advisor would receive a fee only
if the deal closed. But Plaintiffs admit, as they must, that contingent fees charged by
investment bankers do not alone create disabling conflicts. See In re Smurfit-Stone
Container Corp. S’holder Litig., 2011 WL 2028076, at *23 (Del. Ch. May 20, 2011), as
revised (May 24, 2011); see also Saba Software, 2017 WL 1201108, at *21. Plaintiffs have
not well pled that GGP’s advisors acted in any manner that might reveal a lack of loyalty
to GGP, much less in a manner that would facilitate BPY’s domination and control over
GGP’s sales process. The best Plaintiffs can do is allege in conclusory terms that
Goldman’s price target was “artificially low.” Compl. ¶ 162. They plead no basis for the
Court reasonably to make that inference other than charted price target comparisons from
a Goldman analyst which were from a “prior recent report” and “unrated” following the
announcement of the Transaction. See Compl. ¶¶ 161–62. Plaintiffs’ allegations in this
regard are precisely the sort of “hindsight quibbles” over a financial advisor’s allegedly
“artificially low projections” that have no bearing on any issue that might be relevant in a
fiduciary duty analysis. See In re Novell Inc. S’holder Litig., 2013 WL 322560, at *12
(Del. Ch. Jan. 3, 2013).
211
Compl. ¶ 16. While Plaintiffs allege in conclusory fashion that Brookfield’s
unsuccessful solicitation of co-investors “poison[ed] the well,” there are, again, no facts
pled that any interested bidder was deterred.
53
Considering these efforts, Plaintiffs’ attempt to lay blame for the apparent lack
of any modicum of third-party interest in GGP on this banal assortment of garden
variety deal protections fails the reasonably conceivable test. 212 Contrary to
Plaintiffs’ implied position, Delaware law does not view the M&A market as
“comprised of buyers of exceedingly modest and retiring personality, too genteel to
make even the politest of uninvited overtures: a cotillion of the reticent.”213
* * * * *
Plaintiffs have attempted to set a stage for their breach of fiduciary duty claims
that has Brookfield, despite its minority ownership stake, playing the role of GGP’s
controlling stockholder by virtue of its domination over GGP’s fiduciaries in the
negotiation and approval of the Transaction. The gambit, of course, is intended to
ratchet up the scrutiny under which the conduct of GGP’s fiduciaries will be
measured.214 For reasons just explained, the gambit falls short.
Brookfield Did Not Actually Control GGP Generally
Even if Brookfield’s control over GGP cannot be surmised from the
Transaction itself, Plaintiffs maintain they have alleged facts sufficient to support a
212
Compl. ¶¶ 143, 176 (internal quotations omitted).
213
Toys “R” Us, 877 A.2d at 1006.
214
See Larkin, 2016 WL 4485447, at *15 (providing examples in the case law where an
alleged controller attempted to exert its coercive influence over a transactional process).
54
reasonable inference that Brookfield controlled GGP generally. The inquiry of
actual control seeks to answer whether, “as a practical matter, [the alleged controller
was] no differently situated than if it had majority voting control.” 215 “It is
impossible to identify or foresee all of the possible sources of influence that could
contribute to a finding of actual control.” 216 Our Supreme Court, however, has set
out various indicia of a stockholder’s general control over the board, including a
stockholder’s ability to:
(a) elect directors; (b) cause a break-up of the corporation; (c) merge it
with another company; (d) cash-out the public stockholders; (e) amend
the certificate of incorporation; (f) sell all or substantially all of the
corporate assets; or (g) otherwise alter materially the nature of the
corporation and the public stockholders' interests.217
Plaintiffs’ case for general control is premised on a constellation of facts they
maintain circumstantially allow an inference that Brookfield dominated the GGP
Board. Graded against Paramount’s rubric, and even more broadly, Plaintiffs’
pleading of general control fails.
215
PNB, 2006 WL 2403999, at *9.
216
Voigt v. Metcalf, 2020 WL 614999, at *12 (Del. Ch. Feb. 10, 2020) (citing Basho Techs.
Holdco B, LLC v. Georgetown Basho Invs., LLC, 2018 WL 3326693, at *26 (Del. Ch.
July 6, 2018), aff’d sub nom. Davenport v. Basho Techs. Holdco B, LLC, 221 A.3d 100(Del. 2019) (TABLE)).
217
Paramount Commc’ns Inc. v. QVC Network Inc., 637 A.2d 34, 43 (Del. 1994).
55
To start, as this court observed in Rouse, an ownership stake approximating
Brookfield’s 35.3% is “not impressive on its own.”218 Plaintiffs argue Brookfield’s
right to take its ownership up to 45% under the Standstill Agreement distinguishes
this case from Rouse. According to Plaintiffs, if one assumes, as this court has, that
stockholder “[m]eetings typically attract participation from just under 80% of the
outstanding shares,”219 then it is reasonable to infer that Brookfield’s potential 45%
vote would easily carry any non-election resolution. By Plaintiffs’ lights,
Brookfield’s contractually-reserved right to vote 10% of all outstanding GGP shares
in directors’ elections further bolstered its influence, especially where, as here, there
were no staggered terms and every GGP director seeking re-election stood for a vote
annually.220 They point to cases like Voigt v. Metcalf to argue that this math, alone,
supports the inference that Brookfield was a controller as a matter of Delaware
law. 221
Plaintiffs are wrong. Far from dispositive, this court’s evaluation of a
blockholder’s voting power based on hypothetical voter turnout has, since its
genesis, been merely one of a mix of factors to be considered in the controlling
218
Rouse, 2018 WL 1226015, at *18.
219
Voigt, 2020 WL 614999, at *18.
220
Compl. ¶ 100.
221
See Pls.’ Answering Br. at 64 (citing Voigt, 2020 WL 614999).
56
stockholder analysis.222 While judges certainly should be, and are, mindful of the
practical reality of an alleged controller’s voting power, a 35.3% equity stake does
not transmogrify a minority blockholder into a controlling stockholder (with the
accompanying fiduciary duties to match). 223 No amount of mental or mathematical
gymnastics can establish controllership by metaphysically stretching one-third into
more than one-half.
While this court has certainly scrutinized voting control under the
hypothetical assumption that voter turnout is rarely (if ever) 100%,224 the practical
222
See Voigt, 2020 WL 614999, at *17–18 (noting that “the interaction of block size
with other factors prevents clear patterns [of the relationship between the size of an alleged
controller’s equity stake and an inference of actual control] from emerging.” (emphasis
added)); see also Crimson, 2014 WL 5449419, at *10 (reviewing a non-exhaustive list of
ten significant cases and concluding there was not “any sort of linear, sliding scale
approach whereby a larger share percentage makes it substantially more likely that the
court will find the stockholder was a controlling stockholder.”).
223
Though GGP’s 10-K filings disclose the impact of BPY’s minority holdings, they are
not substantively different than the disclosures held in Rouse as insufficient to support an
inference of control. Compare Compl. ¶¶ 109–12 (quoting GGP’s Form 10-K) with Rouse,
2018 WL 1226015, at *19 (citing cases and finding disclosure that “our substantial
stockholder may exert influence over us that may be adverse to our best interests and those
of our stockholders” to be a “far cry from the outright admission that a minority
blockholder was the corporation’s ‘controlling stockholder’”). And while the 220 Decision
inferred in the context of its proper purpose inquiry that “Brookfield was a de facto
controller” from the 10-K filings and Brookfield’s stock ownership, in addition to its right
to appoint three directors to GGP’s nine-member board, the court expressly distinguished
Rouse based on the fact that “Rouse was a plenary litigation involving breach of fiduciary
duty claims, whereas this case involves a mere Section 220 demand with a significantly
lower burden.” 220 Decision at 953, n.85.
224
See Cysive, 836 A.2d at 552 n.30; see also Voigt, 2020 WL 614999, at *18.
57
reality of this Transaction is that 88% of the outstanding shares voted in
consideration of it.225 After backing out Brookfield’s vote, an overwhelming
majority of GGP’s shares voted in favor of the Transaction. 226 Indeed, even if
Brookfield had voted its entire stake against the Transaction, the Transaction still
would have been approved by a majority of GGP stockholders. 227
The fact that Brookfield could have increased its ownership to 45% does
nothing to change the calculus. According to Plaintiffs, this fact somehow increases
the likelihood that GGP fiduciaries would fear that Brookfield might throw its
weight around to their detriment. But our law is not concerned with the mere
“potential” that a stockholder might increase its stockholdings and thereby increase
its influence; under that standard, any stockholder of means could, at the pleading
stage, be saddled with fiduciary duties based purely on its ability to acquire a
sufficiently large enough stake in the target to raise an inference of minority
225
Form 8-K at Item 5.07 (disclosing 958,392,649 shares of GGP’s common stock were
outstanding and 849,896,012 shares were represented in person or by proxy at the special
meeting).
226
See id.227
This fact distinguishes this case from Ross v. Lineage Cell, C.A. No. 2019-0822-AGB
(Del. Ch. Sept. 21, 2020), D.I. 56 (TRANSCRIPT). Ross is further distinguishable in that
the court there expressed concern about decidedly low voter turnout (a non-issue in this
case). Id. at 11–12.
58
blockholder control. 228 The question, rather, is whether it is reasonably conceivable
that Brookfield was, at the time of the Transaction, a controller. Plaintiffs do not
allege Brookfield ever made any retributive threats against GGP fiduciaries, either
overtly or implicitly through conduct. 229 Simply put, there is no pled basis to infer
that Brookfield exerted any influence over GGP fiduciaries such that they would
“defer to [Brookfield] because of its position as a significant stockholder” rather than
exercise their own independent business judgment. 230
To be sure, Brookfield had a right under the Investment Agreement to
designate three nominees for election to the Board, so long as it owned at least 20%
of GGP’s stock. 231 But Brookfield had only one representative on the consequential
three-member N&G Committee and Plaintiffs do not challenge the independence of
228
See In re Sea-Land Corp. S’holders Litig., 1987 WL 11283, at *5 (Del. Ch. May 22,
1987) (rejecting a plaintiff’s claim that a 39.5% minority blockholder was a controlling
stockholder because, while the blockholder’s holdings perhaps “had the potential ability to
frustrate a competing bid,” under Delaware law “the potential ability to exercise control is
not equivalent to the actual exercise of that ability.” (citation omitted)); see also Citron v.
Steego Corp., 1988 WL 94738, at *6 (Del. Ch. Sept. 9, 1988) (“Delaware law is well
developed on this point[:] . . . While a position less than a majority stockholding might, as
a factual matter, give rise to control which, in turn, gives rise to a fiduciary duty, it is the
actual exercise of such control, not the simple potential for control, that creates the special
duty.” (internal citations omitted)).
229
See Pls.’ Answering Br. at 65.
230
Lynch, 638 A.2d at 1115. See also Rouse, 2018 WL 1226015, at *18–20 (finding that
plaintiff had failed to plead facts supporting an inference that a minority blockholder
exercised actual control over the target).
231
Inv. Agreement § 5.10(a)(ii).
59
the other two members. 232 Contrary to Plaintiffs’ conclusory allegation, Brookfield
could not impose its will on this important governance committee when, at best, its
preferences were always subject to majority veto.
Further, the Complaint is bereft of allegations that Brookfield had any
contractual right “to dictate any action by the board, to veto any action of the board
or to prevent the board from hiring advisors and gathering information in order to be
fully-informed.”233 To the contrary, Plaintiffs’ allegations detail how Brookfield
made every effort to neutralize its influence by entering the Standstill Agreement,
which provided Brookfield could not acquire more than 45% of GGP’s outstanding
232
See Rouse, 2018 WL 1226015, at *14 (“Plaintiffs seem content to ignore that the
compensation committee comprised three members, two of whom were unquestionably
independent from Brookfield. Thus, Brookfield had no ability to dictate the terms of
Silberfein’s compensation.”).
233
KKR, 101 A.3d at 994. Plaintiffs highlight the Complaint’s allegations that Brookfield
originally nominated or recruited at least seven of the nine GGP directors, all of whom
served throughout the Transaction process until closing. Compl. ¶¶ 27, 36 (Clark),
28 (Fiala), 29, 36 (Flatt), 33, 36 (Kingston), 41 (Haley), 101, (Mathrani) 132 (Fukakusa).
But the fact that a board member was nominated by a stockholder does not cast into
question his independence. See KKR, 101 A.3d at 996 (“It is well-settled Delaware law
that a director’s independence is not compromised simply by virtue of being nominated to
a board by an interested stockholder.”). Brookfield could only vote up to 10% of all
outstanding common shares of GGP for or against other nominees to the Board.
Compl. ¶ 100. Plaintiffs argue the apparently meagre 10% voting block is larger than
advertised due to GGP’s dispersed shareholder base. But a dispersed shareholder base
would appear to empower individual shareholders and dilute Brookfield’s ability to recruit
a meaningful ally to achieve its agenda. Cf. Tesla, 2018 WL 1560293, at *15 (finding
salient a minority blockholder’s ability to “rally other stockholders”). Regardless,
Plaintiffs cannot be heard to argue 10% of a vote could dictate the outcome of a director’s
election.
60
stock without approval by both a majority of disinterested GGP directors and a
majority of GGP stockholders unaffiliated with Brookfield.234 Brookfield thus could
not unilaterally acquire sufficient stock to dictate the outcome of a director’s
election. 235 It further ensured GGP’s independence through several provisions:
• Section 1.1(a) required GGP to have a majority of “independent” directors
under the NYSE Rules;
• Section 1.1(b) required a majority of the Nominating and Governance
Committee to be “disinterested directors” unaffiliated with Brookfield;
• Section 1.1(c) required that, for the election of directors other than
Brookfield’s nominees, Brookfield must vote any shares it held in excess of
10% of GGP’s outstanding stock in proportion to the votes cast by GGP
stockholders unaffiliated with Brookfield; and
• Sections 1.1(e)–(f) required that any transaction involving GGP proposed by
Brookfield or in which Brookfield would receive disparate consideration be
approved by a majority of “disinterested directors” and GGP stockholders
unaffiliated with Brookfield.236
This “bevy of contractual restrictions [that] constrained [Brookfield] from control of
[GGP] . . . prohibit[] a pleading stage inference of control.” 237
Plaintiffs’ final attempt to plead that Brookfield actually controlled GGP rests
upon Brookfield’s role in shaping GGP into what it was at the time of the
234
Standstill Agreement §§ 2.1(a), 4.1(x); Proxy at 144.
235
See Miller Decl. Ex. 14 (GGP Certificate of Incorporation) Art. VI, ¶ C.
236
Standstill Agreement §§ 1.1(a)–(f). As noted, GGP’s Related Party Transaction Policy
also required that any transaction with Brookfield be approved by GGP’s Audit Committee
before being submitted to the Board for consideration. Compl. ¶ 191.
237
Sciabacucchi, 2017 WL 2352152, at *17–18.
61
Transaction. Specifically, the Complaint recites the story of how Brookfield’s
rescue of GGP out of bankruptcy “without the dishonor of default” led GGP and its
fiduciaries to operate under a sense of owing and gratitude toward their redeemer.238
Plaintiffs cite In re Tesla Motors, Inc. Stockholder Litigation by way of analogy,239
where the court relied on the well-pled allegations of the blockholder’s history of
support “in hard times” when the firm was “on the ropes” to support a finding that
it was reasonably conceivable that Tesla’s founder and CEO Elon Musk controlled
the company. 240
Plaintiffs are correct that the court in Tesla pointed in passing to Musk’s early
and necessary support of Tesla when addressing plaintiffs’ allegations that Musk
was Tesla’s controlling stockholder. But that fact, alone, was hardly dispositive.
The Tesla plaintiffs pled much more, including Musk’s ability to rally other
stockholders to follow his initiatives, his alleged history of dominating the Tesla
board, his dominating role in directing Tesla policy and strategy, and Tesla and
Musk’s own acknowledgement of Musk’s control. 241 None of those facts have been
pled here. Indeed, unlike Tesla, the Board signaled its independence from
238
Compl. ¶¶ 83–99.
239
2018 WL 1560293 (Del. Ch. Mar. 28, 2018).
240
Id. at *16.
241
Id. at *14–19.
62
Brookfield by forming a well-functioning Special Committee promptly after
receiving Brookfield’s offer and excluding from deliberations of the Transaction all
Brookfield-affiliated directors. 242 Without well-pled facts supporting an inference
that an alleged controller’s financial support weighed on the minds of a company’s
directors, this factor has no significance in the outcome of the controller inquiry.
In re Cysive, Inc. Shareholders Litigation 243 has been characterized as the
historical “benchmark for the minimum degree of managerial clout needed to meet
the actual control test where the alleged controller’s holdings are well below 50% of
a company’s outstanding shares.”244 In Cysive, then-Vice Chancellor Strine found
the stockholder held “day-to-day managerial supremacy” over the company where:
(1) he served as “Chairman and CEO of Cysive, and a hands-on one, to boot”;
(2) “by admission [he was] involved in all aspects of the company’s business, was
the company’s creator, and . . . its inspirational force”; and (3) two “close family
242
See id. (noting the complaint well pled Musk played an integral role in Tesla’s success,
“brought the [acquisition] proposal to the Board not once, not twice, but three times. . . .
[T]he Board never considered forming a committee of disinterested, independent directors
to consider the bona fides of the Acquisition” notwithstanding the “obvious conflicts of its
members.”).
243
836 A.2d 531 (Del. Ch. 2003).
244
Larkin, 2016 WL 4485447, at *14; see also Morton’s, 74 A.3d at 65 (characterizing
Cysive as the “most aggressive finding that a minority blockholder was a controlling
stockholder”); but see Rouse, 2018 WL 1226015, at *19 n.163 (noting “[i]t is likely that
more ‘aggressive’ examples can be found in our post-Cysive case law, but Cysive is still
generally regarded” as an aggressive example of our controller jurisprudence).
63
members” of the controller served in executive positions.245 Evidence of managerial
clout, combined with the stockholder’s “unified voting coalition” totaling 40% of
the company’s voting stock, drove the court in Cysive to conclude it was reasonably
conceivable that the minority stockholder was actually a controller.246 There are no
comparable allegations of Brookfield’s “managerial supremacy” over GGP. The
best Plaintiffs can muster is the fact that a Brookfield-affiliated director held the
position of Chairman at the time of the Transaction.247 This fact alone, however,
does not move the needle, as Plaintiffs have not pled how any other facts demonstrate
Brookfield exercised managerial supremacy over the day-to-day affairs of GGP or
general control over the Board.
* * * * *
For reasons just stated, I have determined that Brookfield was not a
controlling shareholder of GGP at the time of the Transaction. That finding has two
consequences. First, neither Brookfield nor any Brookfield-affiliated Defendant
owed fiduciary duties to GGP’s shareholders, and so Count I alleging breach of
fiduciary duty against BPY must be dismissed. Counts III and IV must also be
245
Cysive, 836 A.2d at 552.
246
See id. at 551–52.
247
Pls.’ Answering Br. at 67.
64
dismissed as to BPY, as they are both predicated on the existence of BPY’s fiduciary
duties.
Second, Corwin applies because the Transaction did not involve a conflicted
controller.248 Plaintiffs planned for this contingency, arguing that, even under
Corwin, the Transaction cannot be blessed on the pleadings because stockholder
approval was uninformed and coerced. I take up that issue now.
B. Stockholder Approval Was Fully Informed and Uncoerced
Our Supreme Court affirmed in Corwin that, “when a transaction not subject
to the entire fairness standard is approved by a fully informed, uncoerced vote of the
disinterested stockholders, the business judgment rule applies.”249 “Thus, in the
absence of a controller, to avoid the application of the business judgment
presumption under Corwin, a plaintiff must well-plead that the stockholder vote
248
See In re USG Corp. S’holder Litig., 2020 WL 5126671, at *13 (Del. Ch. Aug. 31,
2020). While not necessary to the outcome, even if I had concluded that Plaintiffs had well
pled Brookfield was GGP’s controlling stockholder, I would have landed at business
judgment review in any event given that all involved in the Transaction followed the MFW
roadmap as later refined by our Supreme Court in Flood v. Synutra Int’l, Inc., 195 A.3d
754 (Del. 2018). “[B]efore the start of substantive economic negotiations,” the parties to
the Transaction agreed to and then implemented a process whereby the Transaction was
negotiated by an independent, well-functioning Special Committee and then subjected to
approval by a majority of GGP’s unaffiliated, fully informed, uncoerced stockholders.
See id. at 760.
249
Corwin, 125 A.3d at 309.
65
approving a transaction was either coerced or uninformed.”250 Plaintiffs have failed
to invoke either basis to avoid Corwin.
The Stockholder Vote Was Informed
Delaware law requires directors soliciting stockholder action to “disclose fully
and fairly all material information within the board’s control.”251 When a
stockholder alleges that disclosures relating to a solicitation of stockholder approval
were inadequate, “[t]he essential inquiry is whether the alleged omission or
misrepresentation is material.”252 Information is “not material simply because [it]
might be helpful.”253 Rather, information related to a stockholder vote is material
only if “there is a substantial likelihood that a reasonable shareholder would consider
it important in deciding how to vote.” 254
A majority of voting shares unaffiliated with Brookfield voted to approve the
Transaction;255 Plaintiffs allege that this vote was uninformed. To sustain their
burden to support that conclusion with well-pled facts, Plaintiffs must allege
250
Rouse, 2018 WL 1226015, at *21.
251
Stroud v. Grace, 606 A.2d 75, 84 (Del. 1992).
252
In re Solera Hldgs., Inc. S’holder Litig., 2017 WL 57839, at *9 (Del. Ch. Jan. 5, 2017).
253
Skeen v. Jo–Ann Stores, Inc., 750 A.2d 1170, 1174 (Del. 2000).
254
Saba Software, 2017 WL 1201108, at *8 (quoting Rosenblatt v. Getty Oil Co., 493 A.2d
929, 944 (Del. 1985)).
255
Form 8-K at Item 5.07.
66
“a [material] deficiency in the operative disclosure document, at which point the
burden would fall to defendants to establish that the alleged deficiency fails as a
matter of law in order to secure the cleansing effect of the vote” under Corwin.256
Plaintiffs take to a kitchen sink approach to meeting their burden, enumerating
a laundry list of purportedly “material” facts omitted from, or misleadingly described
in, the Proxy. Most of Plaintiffs’ disclosure claims are obviously deficient and can
be disposed of quickly. Others require more intensive review. For reasons explained
below, I find all fall short.
a. The Five-Minute Audit Committee Meeting
The Audit Committee was charged with meeting to consider the proposed
Transaction in accordance with GGP’s Related Party Transaction Policy, which
prohibited any transaction between Brookfield and GGP unless the Audit Committee
“determines the transaction is on terms comparable to those that could be obtained
in arm’s length dealings with an unrelated third party.”257 Plaintiffs contend the
Proxy should have disclosed that the Audit Committee’s meeting to approve the
Transaction lasted a mere five minutes. Plaintiffs assert that a reasonable GGP
stockholder would have wanted to know that an Audit Committee charged with “the
256
Solera, 2017 WL 57839, at *8.
257
Compl. ¶ 191; Proxy at 79.
67
most germane and complex task in the entire process” took so little time to
deliberate.258
I disagree. The Audit Committee was comprised of Fukakusa, Haley and
Hurwitz. 259 Each of these three directors served on the Special Committee that had
negotiated the Transaction throughout a process that lasted several months. Each
were intimately familiar with the Transaction and its history. The fact that they met
for only five minutes when they took their Special Committee hats off and put their
Audit Committee hats on is not at all surprising. To have disclosed that fact, in these
circumstances, would not have informed stockholders; it would have misled them.260
b. The Potential Impact of TCJA on the Value of GGP Stock
Plaintiffs argue that the Proxy failed sufficiently to disclose material facts
concerning the TCJA. 261 More specifically, Plaintiffs characterize the Proxy’s
disclosures regarding the TCJA’s effect on the value of BRP REIT (the “give”) as
“faulty and inadequate,” and make much of the fact that the Proxy makes no
disclosures at all regarding the statute’s effect on the value of GGP (the “get”), also
258
Pls.’ Answering Br. at 153.
259
Compl. ¶ 193.
260
See Globis P’rs, L.P. v. Plumtree Software, Inc., 2007 WL 4292024, at *12, n.119
(Del. Ch. Nov. 30, 2007); McMillan v. Intercargo Corp., 1999 WL 288128, at *9
(Del. Ch. May 3, 1999).
261
Compl. ¶¶ 248–60.
68
a REIT.262 According to Plaintiffs, these facts would have been material to
stockholders, each of whom “had to decide whether to vote to surrender their GGP
shares, and every one not choosing appraisal had to decide whether the equity
portion of their consideration would be a U.S. REIT (BPR REIT) or a Bermuda-
based non-REIT (BPY).”263
Plaintiffs’ theory ignores that the Proxy expressly directed stockholders to
consult their tax advisors on the impact of tax rules on the Transaction specifically
and the ownership of stock in a REIT generally.264 The Proxy also expressly
addressed how the TCJA might affect BPR and its taxable REIT subsidiaries under
the heading “MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
AND CONSEQUENCES.”265 It warned expressly, inter alia, that “[t]he effect of
262
Pls.’ Answering Br. at 155.
263
Id.264
Proxy at 9 (“THE U.S. FEDERAL INCOME TAX RULES APPLICABLE TO THE
TRANSACTIONS AND TO THE OWNERSHIP OF STOCK OF [REITS], AND
BPY UNITS GENERALLY ARE HIGHLY TECHNICAL AND COMPLEX.
HOLDERS OF SHARES OF GGP COMMON STOCK AND HOLDERS OF BPY
UNITS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE TRANSACTIONS, THE
OWNERSHIP OF CLASS A STOCK, AND BPR’S QUALIFICATION AS A REIT
FOLLOWING THE MERGER, AND THE OWNERSHIP OF BPY UNITS,
INCLUDING THE APPLICABILITY AND EFFECT OF U.S. FEDERAL, STATE,
LOCAL AND NON-U.S. INCOME AND OTHER TAX LAWS, AND POTENTIAL
CHANGES IN APPLICABLE TAX LAWS, IN LIGHT OF THEIR PARTICULAR
CIRCUMSTANCES.” (all caps and emphasis in original)).
265
Id. at 196–97.
69
the TCJA on BPR and its holders is uncertain, and administrative guidance will be
required in order to fully evaluate the effect of many provisions.” 266 Delaware law
does not require that fiduciaries soliciting stockholder approval of a transaction
confer individualized tax advice.267 In this instance, it was more than adequate that
the Proxy flagged the issue and suggested that stockholders seek out their own expert
advice.
c. Disclosures Regarding the “Minority Discount”
Plaintiffs assert that class members receiving either BPY units or BPR REIT
stock suffered near-total loss of voting power from the Transaction’s creation of
different classes of stock. They contend the Proxy should have, but did not, disclose
the resulting potential for a “minority discount,” a term which describes an
empirically observable phenomenon whereby the presence of a controlling
stockholder tends to exert downward pressure on the price of a company’s publicly
traded stock.268
266
Id. at 197.
267
See Skeen, 750 A.2d at 1174 (explaining stockholders need not be provided all
information allowing for “an independent determination of fair value”); Dent v. Ramtron
Int’l Corp., 2014 WL 2931180, at *10 (Del. Ch. June 30, 2014); In re Plains Expl. & Prod.
Co. S’holder Litig., 2013 WL 1909124, at *10 (Del. Ch. May 9, 2013).
268
Compl. ¶ 204 (citing Paul Hanouna, Atulya Sarin & Alan C. Shapiro, Value of
Corporate Control: Some International Evidence, (Marshall School of Bus., Working
Paper No. 01-04, 2001).
70
Contrary to Plaintiffs’ characterizations, however, the Proxy contains a 21-
page section entitled “Comparison of Rights of Holders of GGP Common Stock,
Class A Stock and BPY Units.” 269 That section details the “material differences
between the rights of GGP common stockholders, holders of class A stock and BPY
unitholders under the governing documents of GGP, BPR and BPT,”270 and provides
a comparison of “voting rights,” including the differences in number of votes
per share and any matters on which those shares would not be entitled to vote.271
Other sections of the Proxy disclose the impact of the change in voting rights,
including that:
[U]naffiliated GGP common stockholders who receive class A stock
following the closing of the Transactions will have less voting power
over BPR than they did over GGP prior to the closing of the
Transactions. Consequently, unaffiliated GGP common stockholders as
a group will exercise less influence over the management and policies
of BPY after the consummation of the Transactions than they
currently exercise over the management and policies of GGP.272
Defendants thus disclosed expressly that stockholders “will have less voting
power over BPR than they did over GGP.” 273 They need not have gone further to
269
Proxy at 308–30; see also Compl. ¶ 266 n.56 (citing that section of the Proxy).
270
Proxy at 309.
271
Id. at 310–12.
272
Id. at 150–51 (emphasis added).
273
Id.71
incant Plaintiffs’ preferred magic words (“minority discount”) or speculate as to the
well-known ways in which a change in control might affect the minority
shareholders’ stock pricing. 274 The stockholders were given sufficient information
to understand the potential imposition of a minority discount and its implications.
d. Conflicts Between Special Committee Minutes and the Proxy
Plaintiffs offer several examples where the 220 Documents purportedly reveal
that the primary official minutes of the Board and Special Committee contradict the
Proxy’s more detailed recitation of the same events. According to Plaintiffs, the
contemporaneously created minutes are the better evidence of what really happened,
and stockholders were entitled to know that version of events leading up to the
approval of the Transaction. Plaintiffs point to the following examples:
• The Proxy states that the Special Committee retained Goldman (1) following
a presentation from Goldman “confirming” the absence of certain conflicts
and (2) based on the Committee’s assessment that Goldman was
“independent[t] from BPY, GGP and their respective management.”275
Plaintiffs highlight that the minutes from the same meetings do not provide an
indication that either of these events occurred as described, and do not explain
why the Special Committee chose to pay Goldman $30 million on a fully
contingent basis.
• The Proxy states that on November 29, 2017, GGP management discussed
with the Board GGP’s worsening market environment and the Company’s
274
See In re MONY Gp., Inc. S’holder Litig., 853 A.2d 661, 682 (Del. Ch.2004) (“[A]s a
general rule, proxy materials are not required to state ‘opinions or possibilities, legal
theories or plaintiff's characterization of the facts.’” (citation omitted)).
275
Compl. ¶ 271.
72
revised projections reflecting this worsening environment, yet references to
such discussions are entirely absent from the meeting minutes.276
• The Proxy notes—without any support in the meeting minutes—that on
December 8, 2017, the Special Committee discussed that Brookfield might
retain Mathrani post-Transaction (which Plaintiffs assert would objectively
conflict Mathrani).277
• The Proxy notes—without any support in the meeting minutes—that on
February 24, 2018, the Special Committee discussed “negative market
conditions” facing GGP. 278
• The Proxy notes—without any support in the meeting minutes—that the
Special Committee discussed due diligence issues and “potential strategies”
regarding “potential leaks.” 279
• The Proxy dedicates ten “dense, single-spaced pages” to recounting the
Special Committee’s and Board’s discussions the day of the Merger
Agreement’s execution, but the minutes “indicate that the March 26 meetings
were extremely limited, in scope, depth, and time, with the GGP Board
meeting lasting only 15 minutes.” 280
While Plaintiffs misleadingly characterize their nitpickings as “conflicts”
between the minutes and Proxy, their argument distills to a concern that the Proxy
contains more detail than GGP’s minutes. But the purpose of shareholder
disclosures is to provide stockholders additional information; if meeting minutes
were sufficient to disclose all material facts, then companies would have no need to
undertake the significant expense (on stockholders’ behalf) to organize and include
276
Compl. ¶ 272.
277
See Proxy at 64; Compl. ¶ 273.
278
Compl. ¶ 274.
279
Compl. ¶ 275.
280
Pls.’ Answering Br. at 160 (citing Compl. ¶ 276).
73
such details in their disclosures. They would simply attach meeting minutes
(redacted as appropriate) to their public filings and call it a day. In the real world,
meeting minutes need not contain the level of detail contained in a proxy issued to
inform stockholders of all material issues related to a transformative transaction.
To include such granular detail in meeting minutes, in most cases, would entail a
titanic waste of resources by a company owned and run for the benefit of
stockholders. Indeed, Plaintiffs admit in briefing that Delaware law imposes no
requirement that board minutes be prepared to any specified level of particularity.281
In any event, I do not find any of the purported “conflicts” raised by Plaintiffs to be
material.
e. Brookfield’s Transaction-Related Payments to Mathrani
Plaintiffs argue Defendants breached their duty of disclosure by failing to
disclose the details of Mathrani’s post-Transaction plans to work as Vice Chairman
of BAM and CEO of Brookfield’s retail operations. Plaintiffs admit, as they must,
that the Proxy discloses that Mathrani’s then three-year-old 2015 GGP employment
agreement contemplated his receipt of a severance payment if the agreement was
281
Id. at 161 (citing Feuer v. Redstone, 2018 WL 1870074, at *14 n.146 (Del. Ch. Apr. 19,
2018) (observing “that there is no requirement under Delaware law that board minutes
adopt any level of particularity.”)).
74
terminated “without cause” or for “good reason.”282 It also discloses that Mathrani’s
new Brookfield employment agreement would go into effect immediately upon
completion of the Transaction, with terms comparable to his GGP employment
agreement.283 Plaintiffs take issue, however, with the fact that the Proxy did not
disclose whether Mathrani would have been entitled to his severance had he not
bargained with Brookfield for this severance payment while still CEO of GGP.
Contrary to Plaintiffs’ contentions, the Proxy need not have disclosed Board
speculation regarding an irrelevant hypothetical. To assist GGP stockholders in
evaluating the merits of the Transaction, the Proxy disclosed that Brookfield
determined Mathrani’s 2015 GGP employment agreement’s severance package was
due as part of Brookfield’s post-merger employment decisions. 284 That disclosure
was sufficient to put shareholders on notice of Mathrani’s interest in his severance
payment. In any event, Brookfield agreed to pay Mathrani only after the Transaction
was negotiated (without Mathrani’s involvement) and the Merger Agreement was
282
Compl. ¶¶ 8, 17, 115(d), 116, 247, 311; Proxy at 140–43 (“Under the BAM Employment
Arrangement and in connection with the closing of the Transactions, Mr. Mathrani will
receive the cash severance provided in the 2015 Employment Agreement for a termination
without ‘cause’ or for ‘good reason’ . . . .”).
283
Proxy at 142.
284
Id. at 141.
75
signed.285 As such, Mathrani’s severance was irrelevant to the stockholder’s
consideration of the Transaction and need not have been disclosed.
f. Management’s Valuation Theses
Plaintiffs allege that Mathrani at one time advocated “selling off individual
[GGP] properties or groups of properties as a way for shareholders to realize far
more value than the market afforded,” but then “did not object when the GGP Special
Committee did not even test such an approach.”286 They cite our Supreme Court’s
decision in Appel v. Berkman to argue that “[i]t is inherent in the very idea of a
fiduciary relationship that the stockholders that directors serve are entitled to give
weight to their fiduciaries’ opinions about important business matters.”287 Plaintiffs
reason that, just as the Court found in Appel, Defendants here devoted “acres and
acres of the [Proxy] on identifying the subjective reasons for the transaction, as well
as other reasons against it,”288 and so should have included Mathrani’s pre-
Transaction valuation thesis.
In the same vein, Plaintiffs argue that BPY’s long-time CFO’s (Bryan Davis)
statement on an investor call that GGP’s NAV was estimated to be $30 per share
285
Compl. ¶¶ 7, 115–16.
286
Compl. ¶ 119.
287
180 A.3d 1055, 1062 (Del. 2018).
288
Id. at 1060–61.
76
should have been disclosed in the Proxy. As support, they cite Lynch v. Vickers
Energy289 as “controlling precedent” and argue that the undisclosed information was
not, as a matter of law, stale because Davis gave his valuation just before the
2017 Offer was extended.
Plaintiffs’ arguments are unpersuasive on both fronts. First, the Complaint
and documents it incorporates by reference show Plaintiffs mischaracterize
Mathrani’s supposed support for a “sell-off-the-parts” strategy based on isolated
statements Mathrani made during a 2017 investor call. 290 On that call, Mathrani
stated multiple times that “there’s no sacred cow” and GGP “will look at all
alternatives,” including a sale of the Company. 291 Mathrani only described the sell-
off-the-parts strategy in the context of illustrating for analysts “a very extreme
situation,” reiterating in the same breath that he “do[es]n’t know the answer” and is
simply “trying to demonstrate that if a market doesn’t value the real estate, it’s our
job to make sure that the investors get their appreciation.”292 Plaintiffs concede that
this position was widely known in the market.293 Ultimately, Mathrani appears to
289
383 A.2d 278 (Del. 1977).
290
Compl. ¶¶ 69–77, 80, 119, 154, 158, 174, 197.
291
2017 Investor Call Tr. at 6, 8, 10.
292
Id. at 13.
293
Pls.’ Answering Br. at 10–11, 134–37.
77
have decided Brookfield’s offer was the best option; this decision is entirely
consistent with the position he advertised to stockholders before the Special
Committee set about negotiating the Transaction. 294 Thus, Mathrani’s purportedly
fully-formed (and exclusive) “sell the parts” valuation thesis is a litigation-driven
figment of Plaintiffs’ imagination that need not have been disclosed in the Proxy.
As for Davis’ “valuation,” Plaintiffs base their claim on Davis’ response to an
investor question during the November 2, 2017 earnings call regarding the change
in GGP’s NAV since Q2 2017. 295 After an analyst suggested that GGP’s IFRS NAV
“was about $29 a share in Q2,” Davis responded “[i]t’s about $30 per share
[this quarter because] . . . . [w]hat we saw this quarter is just continued pickup of our
share of their earnings. And, as a result of that, it ticked up a little bit more than it
was in Q2.” 296 Unlike Vickers, there is no “report” (or any substantive basis)
proffered by Plaintiffs from which this Court could infer Davis’ answer was anything
other than what it appears to be: an off-the-cuff remark in a back-and-forth with an
analyst during an earnings call, acknowledging a slight price bump based apparently
294
See 2017 Investor Call Tr. at 6, 8, 10 (Mathrani explaining “there’s no sacred cow” and
GGP “will look at all alternatives,” including a sale of the Company).
295
Compl. ¶ 78.
296
Id.
78
on a “slightly-better-performance-than-last-quarter” rationale. 297 A company
properly excludes from proxy materials any “speculative” or unsettled valuations.298
In any event, the gap between GGP’s private and public valuation was no
secret; indeed, it motivated GGP to explore strategic alternatives, and it no doubt
enticed Brookfield into making its 2017 Offer. Moreover, the Proxy addresses the
perceived gap between GGP’s private and public valuation in its discussion of GGP
management’s effort to pursue a sale of two GGP properties it believed would serve
as “a helpful indication as to the potential private market valuation of other
comparable assets in GGP’s portfolio,” as they “were representative, from a
valuation perspective, of GGP’s portfolio of Class A retail properties.”299 The Proxy
further disclosed that a proposal GGP received in January 2018 on one of its
properties was below the sales price capitalization rate authorized by the Board and
was not approved by the Board due to a concern it would “put pressure on the net
asset value of GGP’s portfolio more generally.” 300
297
See Vickers, 383 A.2d at 280.
298
Clements v. Rogers, 790 A.2d 1222, 1245–46 (Del. Ch. 2001); see also In re Netsmart
Techs., Inc. S’holders Litig., 924 A.2d 171, 200 (Del. Ch. 2007) (rejecting plaintiff’s
contention that a valuation was material where plaintiff made “no demonstration that this
part of [the] estimate was at all reliable”).
299
Compl. ¶ 242 (quoting Proxy at 58–59).
300
Proxy at 65–66.
79
Finally, and importantly, neither Mathrani nor Davis are Board members
alleged to have changed their view on the merits of the Transaction: Mathrani voted
in favor of the Transaction, while Davis recused himself early in the process due to
his affiliation with Brookfield. This fact distinguishes this case from Plaintiffs’ cited
authority where courts held as material the reasons for a board member’s objection
or abstention from a board vote.301 For these reasons, I find that neither Mathrani’s
nor Davis’ “valuation” remarks were subject to mandated disclosure.
g. Fukakusa’s Conflicts
Plaintiffs next take aim at the Proxy’s failure to disclose Fukakusa’s conflicts.
Plaintiffs admit, as they must, that the Proxy disclosed that (1) Fukakusa was a RBC
financial executive for 32 years, 13 as CFO, and that she retired from RBC in 2017,
(2) RBC would obtain repayment in the Transaction of its $1.5 billion loan to GGP
and (3) RBC would participate in a syndicate providing many billions of dollars in
new loans to finance the Transaction. Plaintiffs point out, however, that the Proxy
did not disclose the “hard facts” of (4) Fukakusa’s interest in RBC equity of C$31–
301
See Appel, 180 A.3d at 1057, 1059–64 (holding that board Chairman and founder’s
abstention from supporting the merger due to disappointment with the price would have
been material to a reasonable stockholder); Chester Cty. Empls.’ Ret. Fund v. KCG Hldgs.,
Inc., 2019 WL 2564093 (Del. Ch. June 21, 2019) (holding as reasonably conceivable the
materiality of board member and CEO’s “objection to the merger price and change of
position”); Gilmartin v. Adobe Res. Corp., 1992 WL 71510, at *9–10 (Del. Ch. Apr. 6,
1992) (holding as material “at least two directors . . . believed that this was a bad time to
sell Adobe from the perspective of the stockholders due to the depressed gas market; and
that they communicated that belief to others on the Adobe board.”).
80
41 million, (5) RBC’s $8.3 billion ownership of BAM/BPY equity, (6) her 20-year
interlocking directorships and collegial relationships with Brookfield at Ryerson,
and (7) her son’s employment as vice president of RBC (2015–2019) throughout the
deal process. Plaintiffs maintain these conflicts were material and argue that
Defendants had a duty to disclose all aspects of Fukakusa’s conflicts having
“traveled down the road of partial disclose.” 302
For reasons explained, however, Plaintiffs fail to allege facts suggesting
Fukakusa’s interest in RBC or RBC’s equity holdings in Brookfield resulted in
material personal benefit to a degree that would have divided her loyalties. Plaintiffs
also fail to establish the materiality of Fukakusa’s son’s employment at RBC, as
there are no allegations he was involved in, or in any way stood to gain from, the
Transaction. As for Fukakusa’s connection to Brookfield through Ryerson, the
Proxy disclosed her overlapping service on the Ryerson Board with Brookfield
executives and, for reasons already explained, Fukakusa’s service in that respect
cannot reasonably be inferred to compromise her independence from Brookfield.303
In sum, the Fukakusa/RBC connection was adequately disclosed.
302
Morrison v. Berry, 191 A.3d 268, 283 (Del. 2018) (citation omitted).
303
Proxy at 247, 255. Because I find Fukakusa’s service on Ryerson immaterial, the
“buried facts” doctrine is not implicated. See Voigt, 2020 WL 614999, at *24.
81
h. Appraisal
Plaintiffs focus the bulk of their disclosure claim on the way in which
Defendants disclosed stockholders’ appraisal rights. In this regard, Plaintiffs
concede that “[t]he Proxy makes clear that the Transaction did, in fact, trigger
appraisal rights under Delaware law.” 304 The Proxy further described the mechanics
for electing appraisal:
GGP common stockholders who comply exactly with the applicable
requirements and procedures of Section 262 of the DGCL will be
entitled to demand appraisal of their shares of GGP common stock
(i.e., the dissenting shares) and receive in lieu of the per share merger
consideration a cash payment equal to the “fair value” of their GGP
common stock, as determined by the Delaware Court of Chancery,
which we refer to as the Court of Chancery, in accordance with
Section 262 of the DGCL, plus interest, if any, on the amount
determined to be the fair value, subject to the provisions of Section 262
of the DGCL.
[. . .]
If a GGP stockholder elects to exercise appraisal rights under
Section 262 of the DGCL, such GGP stockholder must do ALL of the
following: NOT vote such GGP common stock “FOR” the merger
proposal; deliver a written demand for appraisal of such GGP common
stock that complies exactly with Section 262 of the DGCL before the
vote is taken on the proposal to adopt the merger agreement at the
special meeting . . .; and continuously hold of record such GGP stock
through the effective time of the merger.305
304
Compl. ¶ 209.
305
Proxy at 32, 335–36.
82
As a predicate to their claim that Defendants committed actionable fiduciary
duty breaches by failing adequately to disclose to stockholders the true nature of
their appraisal right, Plaintiffs urge the Court to conclude that the Transaction’s two-
step structure—the payment of the Pre-Closing Dividend followed by a post-closing
payout—violated positive law. Specifically, Plaintiffs argue that 8 Del. C. § 262
(“Section 262”) required Defendants to offer GGP stockholders appraisal for their
shares at a pre-Transaction value. By paying the Pre-Closing Dividend separately,
Plaintiffs assert Defendants removed almost all value underlying the GGP shares
available for appraisal. In this regard, Plaintiffs point to Louisiana Municipal Police
Employees Retirement System v. Crawford for the proposition that the Transaction’s
two-step payment structure should be deemed one transaction and, as such, the Pre-
Closing Dividend should be deemed consideration paid separate and apart from the
“merger consideration.” 306 Viewed in this light, the GGP fiduciaries approved a
transaction that was designed to deny GGP stockholders the right to seek appraisal
for the full pre-Transaction value of their shares as Section 262 requires. Even if the
Court finds Defendants technically complied with Section 262, Plaintiffs assert
306
918 A.2d 1172, 1191–92 (Del. Ch. 2007).
83
Defendants acted in bad faith by attempting to deprive stockholders of their full
appraisal rights.307
Defendants respond that the Transaction’s structure did not violate positive
law, as Section 262 grants dissenting stockholders the right “to an appraisal by the
Court of Chancery of the fair value of the stockholder’s shares of stock” at the
effective time of the merger; the statute says nothing of a right to an appraisal of the
fairness of the merger consideration more generally. 308 Pre-closing dividends in
connection with merger transactions are, according to Defendants, unremarkable.
Thus, so long as GGP paid the Pre-Closing Dividend to all eligible stockholders,
including those who sought appraisal, the Transaction did not violate positive law or
notions of equity.
After careful review, I agree with Defendants that the Transaction’s structure
did not violate Section 262. As an initial matter, the DGCL is an enabling statute
designed to apprise those owning and managing corporations what they can do with
307
See Schnell v. Chris-Craft Indus., Inc., 285 A.2d 437, 439 (Del. 1971) (“Inequitable
action does not become permissible simply because it is legally possible.”); see also Bäcker
v. Palisades Growth Cap. II, LP, 246 A.3d 81, 96 (Del. 2021) (applying Schnell, holding
certain lawful-as-to-form boardroom deceptions constituted bad faith; reaffirming that
“director actions are twice-tested, first for legal authorization, and second for equity”).
308
8 Del. C. § 262(a) (emphasis added).
84
far less emphasis on what they cannot do. 309 It thus comes as no surprise that
Plaintiffs cannot identify any statutory text restricting a buyer’s use of a pre-closing
dividend in advance of a merger as a means to move consideration from the
transacting parties to stockholders.
While Defendants offer no support for their assertion that the Transaction’s
structure is “common,” one of Plaintiffs’ favorite cases, Crawford, provides an
example of a nearly identical deal structure, and the Court has identified others.310
Plaintiffs’ analogy to Crawford is otherwise inapt, however, as the court there dealt
with a situation where no appraisal rights were granted to dissenting stockholders
after an all-cash pre-merger dividend was conditioned on a cashless stock-for-stock
merger that would not otherwise have triggered appraisal rights under Section 262.
Chancellor Chandler looked past the form of the payment to its substance, holding
that the pre-merger dividend required appraisal rights and enjoining the merger until
309
See Grimes v. Alteon Inc., 804 A.2d 256, 266 (Del. 2002) (explaining the DGCL affords
corporations “the freedom to enter into new and different forms of transactions”); Leo E.
Strine, Jr., The Delaware Way: How We Do Corporate Law and Some of the New
Challenges We (and Europe) Face, 30 DEL. J. CORP. L. 673, 674 (2005) (“Consistent with
a contractarian vision, our statute is, by design, a broad enabling one that permits and
facilitates company-specific procedures. In other words, our statute is much different than
one might find in a civil law nation, which would more likely have a prescriptive
corporation law chock full of mandatory terms specifying exactly how corporations must
conduct their business.”).
310
Crawford, 918 A.2d at 1191–92; In re Delphi Fin. Gp. S’holder Litig., 2012 WL 729232(Del. Ch. Mar. 6, 2012); Hartford’s sale of life and annuity lines calls for $300M pre-
closing dividend, Westlaw Mergers and Acquisitions Daily Briefing (Dec. 6, 2017).
85
the target disclosed that stockholders had the right to dissent and seek appraisal.311
Here, there is no dispute that the Proxy disclosed that GGP stockholders had the
right to seek appraisal and further disclosed how they should go about exercising
that right.
Neither party could identify case law addressing how a pre-closing dividend
would (or should) be treated in an appraisal proceeding, but the answer lies in the
statute itself at Section 262(h), which directs the Court to value GGP “shares” as if
GGP were a going concern “exclusive of any element of value arising from the
accomplishment or expectation of the merger,” and then empowers the court to “take
into account all relevant factors.”312 That language is designed to endow our courts
with flexibility, enabling the presiding judge to view the Transaction as a whole in
the course of determining GGP’s fair value at the time of the merger. 313 The Pre-
Closing Dividend would, in my view, qualify as a “relevant factor” in the court’s
assessment of the fair value of a GGP stockholder’s shares.
311
Crawford, 918 A.2d at 1191–92.
312
8 Del. C. § 262(h).
313
See Ala. By-Prods. Corp. v. Cede & Co., 657 A.2d 254, 258 (Del. 1995) (describing the
purpose of appraisal as a “legislative remedy developed initially as a means to compensate
shareholders of Delaware corporations for the loss of their common law right to prevent a
merger or consolidation by refusal to consent to such transactions.” (citing Schenley Indus.,
Inc. v. Curtis, 152 A.2d 300, 301 (Del. 1959) (explaining the appraisal statute “provid[es]
for the appraisement of their stock and the payment to them of the full value thereof in
money.”))).
86
Thus, a GGP shareholder seeking appraisal could argue, and the Court could
determine under Section 262, that the Pre-Closing Dividend plus the closing
consideration undervalued the dissenting stockholder’s shares. The fundamental
issue raised for resolution in the appraisal proceeding would remain unchanged: did
the stockholder receive fair value for its proportionate share of the corporation upon
closing?314 If the answer was “no,” then the dissenting shareholder would receive
an appraisal award that reflected the difference between what she had received in
the Pre-Closing Dividend and the adjudicated fair value of her shares. With this in
mind, I cannot discern any basis to determine that, by agreeing to structure the
Transaction as it did, GGP denied GGP stockholders their right to seek statutory
appraisal of their shares. To the contrary, far from a “bad faith” attempt to rob GGP
stockholders of appraisal rights, as Plaintiffs put it, GGP stockholders seeking
appraisal would appear to be better off with the Pre-Closing Dividend in hand than
they would be in the typical case, where a dissenting stockholder must forego all
merger consideration in order to perfect her appraisal challenge.
Even assuming the Transaction’s structure did not violate positive law,
Plaintiffs argue the Proxy failed adequately to disclose appraisal rights under
Section 262(d)(1), which requires that companies “notify” stockholders
314
See Cede & Co., 684 A.2d at 296 (Del. 1996); Cavalier Oil Corp. v. Harnett, 564 A.2d
1137, 1143–44 (Del. 1989).
87
“that appraisal rights are available . . . .” 315 The problem, say Plaintiffs, is that the
Proxy falsely disclosed that stockholders pursuing appraisal would receive a
payment of the fair value of their shares “in lieu of the per share merger
consideration,” as “merger consideration” was an uncapitalized term defined as the
post-dividend payment to be made at closing. This disclosure disincentivized
stockholders from pursuing appraisal, Plaintiffs argue, by misleadingly implying
that only the post-dividend payment (comprising a small proportion of the overall
consideration) was subject to appraisal.
I disagree. Section 262 requires companies to disclose to shareholders their
right to an appraisal of their shares. To that end, GGP disclosed via the Proxy the
options available to its stockholders: either (a) accept the post-dividend payment to
be made at closing, or (b) forfeit that payment and demand appraisal for a payment
equal to the “fair value” of the stockholder’s GGP shares. The Proxy then “urged”
stockholders to seek out legal advice in considering whether to exercise their
appraisal rights, which necessarily would have entailed evaluating the role of the
Pre-Closing Dividend on a hypothetical appraisal proceeding. 316 That is all our law
requires, as “there is no obligation [under Delaware law] to supply investors with
315
8 Del. C. § 262(d)(1).
316
Proxy at 336.
88
legal advice” 317 or, relatedly, to engage with legal hypotheticals that are “inherently
speculative.”318
The Special Committee’s related disclosures do not change that outcome.
Plaintiffs take issue with the Special Committee’s statement that dissenting
stockholders demanding appraisal would have an “opportunity to have the Court of
Chancery determine the fair value of their shares of GGP common stock, which may
be more than, less than, or the same as the consideration to be received in the
Transactions.”319 Because “Transactions” was defined to include the Pre-Closing
Dividend, Plaintiffs quibble that there is an apparent unexplained discrepancy
between GGP’s and the Special Committee’s opinions on appraisal rights as stated
in the Proxy. Like its meeting minutes claim, this purported discrepancy is
manufactured, as the Special Committee, like GGP, described stockholders’
appraisal rights as the right to a determination of “the fair value” of “GGP common
317
Kahn v. Caporella, 1994 WL 89016, at *7 (Del. Ch. Mar. 10, 1994) (citation omitted);
see also In re MONY Gp., Inc. S’holder Litig., 853 A.2d 661, 682 (Del. Ch. 2004) (“[A]s a
general rule, proxy materials are not required to state ‘opinions or possibilities, legal
theories or plaintiff[’]s characterization of the facts.’” (quoting Seibert v. Harper & Row,
Publ’rs, Inc., 1984 WL 21874, at *6 (Del. Ch. Dec. 5, 1984))).
318
IRA Tr. FBO Bobbie Ahmed v. Crane, 2017 WL 7053964, at *17 (Del. Ch. Dec. 11,
2017); see also Goodwin v. Live Entm’t, Inc., 1999 WL 64265, at *12–13 (Del. Ch. Jan. 25,
1999) (explaining disclosure of a hypothetical “may have made” the proxy “less, not more,
reliable”), aff’d, 741 A.2d 16 (Del. 1999) (TABLE).
319
Proxy at 86.
89
stock.”320 The additional comment that the Court of Chancery may determine it to
be “more than, less than, or the same as the consideration to be received in the
Transactions” was not misleading, but merely reflects the unremarkable observation
that Section 262 empowers this court to determine fair value and the outcome of the
court’s adjudicated valuation is difficult to predict ex ante.321
Certainly, the Proxy could have been more clearly drafted. For example, the
stockholders may have been better served had Defendants capitalized the defined
term “merger consideration” and tightened up its definition. But “perfect” and
“sufficient” are two distinct concepts; Delaware’s disclosure law concerns itself with
the latter.322 For the foregoing reasons, I find the Proxy’s disclosures concerning
appraisal rights were sufficient and therefore reject Plaintiffs’ claim that the
stockholder vote was uninformed based on the Proxy’s disclosure of appraisal rights.
320
Id.321
Plaintiffs also attempt to draw into the disclosure analysis Goldman’s fairness opinion’s
discussion of “aggregate consideration” and the Election Form’s statement that “[a]ppraisal
is only available with respect to the Merger Consideration.” Compl. ¶¶ 222–23. But
Goldman’s fairness opinion was not proffered to address appraisal rights, and I find it
inconceivable that its entirely separate discussion could mislead a reasonable stockholder
as to the nature or scope of her appraisal rights. As for the Election Form, it could not have
misled any stockholder into foregoing appraisal because it was disseminated after the
stockholder vote when the time to seek appraisal had expired. See Election Form.
322
Enstar Corp. v. Senouf, 535 A.2d 1351, 1356–57 (Del. 1987); Dent v. Ramtron Int’l
Corp., 2014 WL 2931180, at *15 (Del. Ch. June 30, 2014) (no need for “blow-by-blow”
disclosures).
90
i. “Other” Material Omissions
Finally, at page 162 of Plaintiffs’ answering brief, Plaintiffs throw at the wall
(under their catch-all “Other” category) several more disclosure violations in hopes
that one sticks. According to Plaintiffs, the Proxy should have disclosed:
(1) the other deal prospects who were contacted and what deal structure they were
shopped; (2) the members or level of management conducting the outreach; and
(3) the Board’s efforts, if any, to solicit indications of interest in a potential
acquisition from third parties. Plaintiffs also contend that the Proxy misleadingly
stated that “from [the BPY Press Release to the Merger Agreement],” Goldman
“had several discussions with . . . certain of GGP’s competitors in the retail property
industry”323 because, in reality, “the universe of prospects is far broader than this
tiny pool of candidates.” 324
The different prospects and deal structures proposed by Brookfield and the
identity of those involved in Brookfield’s or the Board’s outreach efforts are
precisely the sorts of “bends and turns in the road” or “play-by-play” of the
negotiations Delaware law does not require a proxy to disclose.325 The Proxy
323
Proxy at 71.
324
Pls.’ Answering Br. at 162.
325
Globis P’rs, 2007 WL 4292024, at *14.
91
disclosed GGP management had discussions with third-parties throughout 2017,326
and that Goldman “had several discussions with management representatives of . . .
GGP’s competitors . . . none of which expressed any interest or ability to pursue an
acquisition of GGP.” 327 Further details on the Board’s attempt to solicit third-party
interest, and Board explanations of its motives when making transaction-related
decisions, are precisely the sort of “tell me more” disclosures routinely characterized
by Delaware courts as immaterial and unnecessary. 328
Plaintiffs’ unsupported speculation that the universe of transaction prospects
was broader than the realm of those actually contacted is conclusory and so cannot
be credited. Plaintiffs cite no basis to support an allegation that Goldman cast an
unduly small net in shopping GGP. Indeed, the deal’s sheer size likely limited the
pool of potential bidders capable of marshaling the requisite resources. The limited
number of potential suitors is borne out by the record, as bidders were free for
months to step forward and take a run at GGP after Brookfield’s offer was made
public. No one else stepped up. Plaintiffs’ “other” disclosure allegations fail as a
matter of law.
326
Proxy at 57.
327
Id. at 71.
328
See Saba Software, 2017 WL 1201108, at *9 (collecting cases).
92
* * * * *
In sum, Plaintiffs have failed to plead facts allowing a reasonable inference
that the Proxy was misleading. Accordingly, Count III’s claim for the remedy of
quasi-appraisal based on the Proxy’s mis- or mal-disclosures must be dismissed.329
And, Plaintiffs are left under Corwin to plead the stockholder vote was coerced if
they are to avoid business judgment review.
The Stockholder Vote Was Uncoerced
Under Corwin, a stockholder vote will be deemed coerced “[i]f the vote was
structured in such a way that the vote may reasonably be seen as driven by matters
extraneous to the merits of the transaction.” 330 Plaintiffs recycle their disclosure
argument to argue the Transaction was coercive as a result of Defendants structuring
the merger consideration to remove 98.5% of the deal consideration from appraisal.
According to Plaintiffs, this left stockholders with only one choice: vote for the
Transaction and accept the merger consideration.331 Stated differently, Plaintiffs’
329
See In re Cyan, Inc. S’holders Litig., 2017 WL 1956955, at *17 (Del. Ch. May 11, 2017)
(“[B]ecause I have concluded that plaintiffs’ disclosure allegations are without merit,
plaintiffs’ request for the remedy of quasi-appraisal based on those allegations must be
dismissed as well.”); see also Compl. ¶¶ 302–07 (Plaintiffs basing their quasi-appraisal
claim on disclosures).
330
Sciabacucchi, 2017 WL 2352152, at *2.
331
Compl. ¶¶ 17–18, 206–34.
93
theory is that the Transaction’s structure was coercive because it “presented
appraisal as a non-rational economic choice.” 332
Delaware law has taxonomized various strains of coercion, including inherent,
structural and situational coercion.333 I gather Plaintiffs endeavor to fit their
“coercion” claim under the rubric of “structural coercion,” which “occurs when the
Board structures the vote in a manner that requires stockholders to base their decision
on factors extraneous to the economic merits of the transaction at issue.”334
Plaintiffs’ attempt to repackage their disclosure claim regarding appraisal rights as
structural coercion fails for the same reason the disclosure claim failed.
As explained, Section 262’s plain text allows a court in an appraisal proceeding to
account for the Pre-Closing Dividend in its determination of fair value. I have also
determined that the Proxy adequately disclosed to stockholders their right to seek
332
Compl. ¶¶ 17–18.
333
See Rouse, 2018 WL 1226015, at *21 (collecting cases).
334
Id. (citations omitted). “Inherent coercion” is inapt on its face, as it applies to
transactions involving conflicted controllers and I have found BPY was not a controlling
stockholder. See In re Pure Res., Inc., S’holders Litig., 808 A.2d 421, 438 (Del. Ch. 2002).
“‘Situational coercion’ can arise when the board, by its conduct, creates a situation where
‘stockholders are being asked to tender shares in ignorance or mistaken belief as to the
value of the shares.’” Rouse, 2018 WL 1226015, at *21 (quoting Next Level Commc’ns,
Inc. v. Motorola, Inc., 834 A.2d 828, 851 n.90 (Del. Ch. 2003) (internal quotations
omitted)). Plaintiffs focus their coercion claim on appraisal rights, not hidden value. While
some of Plaintiffs’ disclosure claims (e.g., Mathrani’s “valuation thesis”) arguably fit
within the “situational coercion” paradigm, Plaintiffs do not argue those omissions were
coercive and, in any event, I have determined such disclosures were not required.
94
appraisal. There was nothing coercive about the Transaction’s structure or the
Proxy’s disclosure of stockholder appraisal rights.
* * * * *
For the foregoing reasons, I am satisfied Plaintiffs have failed to well-plead
that the stockholder vote was uninformed or coerced. “[T]he legal effect of a fully-
informed stockholder vote of a transaction with a non-controlling stockholder is that
the business judgment rule applies and insulates the transaction from all attacks other
than on the grounds of waste, even if a majority of the board approving the
transaction was not disinterested or independent.” 335 As our Supreme Court
explained, the “long-standing policy” of Delaware law “has been to avoid the
uncertainties and cost of judicial second-guessing when the disinterested
stockholders have had the free and informed chance to decide on the economic
merits of a transaction for themselves.”336
No waste has been pled. Accordingly, Counts II (breach of fiduciary duty of
loyalty against Director Defendants) and IV (bad faith and breach of the duty of
335
KKR, 101 A.3d at 1001; see also In re Books-A-Million, 2016 WL 5874974, at *8
(Del. Ch. Oct. 10, 2016) (“When the business judgment rule provides the operative
standard of review, then a court will not consider the substance of the transaction unless its
terms are so extreme as to constitute waste.”), aff’d, 164 A.3d 56 (Del. 2017) (TABLE).
336
Corwin, 125 A.3d at 313.
95
loyalty concerning Mathrani’s Employment Agreement against Mathrani,
Brookfield and the other Brookfield Defendants) are dismissed.
C. Aiding and Abetting
In Count VI, Plaintiffs plead in the alternative that, even if the Court finds
Brookfield was not a controller, they have stated a viable claim that Brookfield aided
and abetted the Special Committee’s breach of fiduciary duties. “To state a claim
[of] aiding and abetting, a plaintiff must allege: (1) the existence of a fiduciary
relationship, (2) a breach of the fiduciary's duty, (3) knowing participation in that
breach by the defendants, and (4) damages proximately caused by the breach.”337
Accordingly, a well-pled claim of breach of fiduciary duty is a predicate to stating
an aiding and abetting claim. Having found Plaintiffs have failed to state a claim for
breach of fiduciary duty against the Special Committee, it follows Count VI must
also be dismissed.
D. No Unjust Enrichment
In Count V, Plaintiffs allege that Brookfield was unjustly enriched by the
Transaction. To obtain restitution for unjust enrichment, “the plaintiffs [must] . . .
337
Dent, 2014 WL 2931180, at *17.
96
show that the defendants were unjustly enriched, that the defendants secured a
benefit, and that it would be unconscionable to allow them to retain that benefit.”338
Plaintiffs’ legal theory is that Brookfield was unjustly enriched because the
Transaction is the product of a misleading Proxy and conflicts among members of
the Audit Committee and Special Committee. Because I have determined Plaintiffs
have not adequately pled the Proxy was misleading or that the Audit or Special
Committee functioned ineffectively, their claim that Brookfield has been unjustly
enriched fails as a matter of law.
III. CONCLUSION
For the foregoing reasons, Defendants’ motions to dismiss must be
GRANTED.
IT IS SO ORDERED.
338
Schock v. Nash, 732 A.2d 217, 232 (Del. 1999).
97