In re Dole Food Co., Inc. Stockholder Litigation and In re Appraisal of Dole Food Company, Inc.

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
)
IN RE DOLE FOOD CO., INC. ) CONSOLIDATED
STOCKHOLDER LITIGATION. ) C.A. No. 8703-VCL
)
)
IN RE APPRAISAL OF DOLE FOOD ) CONSOLIDATED
COMPANY, INC. ) C.A. No. 9079-VCL
)
MEMORANDUM OPINION
Date Submitted: July 2, 2015
Date Decided: August 27, 2015
Stuart M. Grant, Nathan A. Cook, Kimberly A. Evans, Michael Manuel, GRANT &
EISENHOFER, P.A., Wilmington, Delaware; Randall J. Baron, A. Rick Atwood, Jr.,
David T. Wissbroecker, Edward M. Gergosian, Maxwell R. Huffman, ROBBINS
GELLER RUDMAN & DOWD LLP, San Diego, California; Marc A. Topaz, Lee D.
Rudy, Michael C. Wagner, Justin O. Reliford, KESSLER TOPAZ MELTZER &
CHECK, LLP, Radnor, Pennsylvania; Class Counsel for Plaintiffs in In re Dole Food
Co., Inc. Stockholder Litigation.
Stuart M. Grant, Geoffrey C. Jarvis, Nathan A. Cook, Kimberly A. Evans, GRANT &
EISENHOFER, P.A., Wilmington, Delaware; Counsel for Petitioners Hudson Bay
Master Fund Ltd., Hudson Bay Merger Arbitrage Opportunities Master Fund Ltd., and
Ripe Holdings LLC in In re Appraisal of Dole Food Company, Inc.
Kevin G. Abrams, J. Peter Shindel, Jr., Daniel R. Ciarrocki, Matthew L. Miller,
ABRAMS & BAYLISS LLP, Wilmington, Delaware; Counsel for Petitioners Merion
Capital LP, Merion Capital II, LP, Magnetar Capital Master Fund Ltd., Spectrum
Opportunities Master Fund Ltd., Magnetar Global Event Driven Master Fund Ltd., and
Blackwell Partners LLC in In re Appraisal of Dole Food Company, Inc.
J. Clayton Athey, PRICKETT, JONES & ELLIOTT, P.A., Wilmington, Delaware; Peter
M. Stone, Edward Han, PAUL HASTINGS LLP, Palo Alto, California; Counsel for
Defendants David H. Murdock and DFC Holdings, LLC.
Bruce Silverstein, Elena C. Norman, YOUNG CONAWAY STARGATT & TAYLOR,
LLP, Wilmington, Delaware; Andrea E. Neuman, Colin B. Davis, GIBSON, DUNN &
CRUTCHER LLP, New York, New York; William B. Dawson, GIBSON, DUNN &
CRUTCHER LLP, Dallas, Texas; Counsel for Defendants C. Michael Carter and David
A. DeLorenzo and Respondent Dole Food Company, Inc.
Stephen C. Norman, Matthew F. Davis, POTTER ANDERSON & CORROON LLP,
Wilmington, Delaware; David B. Hennes, Stephen M. Juris, Joshua D. Roth, Jesse Ryan
Loffler, Andrew B. Cashmore, FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
LLP; Counsel for Defendants Deutsche Bank AG, New York Branch and Deutsche Bank
Securities Inc.
LASTER, Vice Chancellor.
In November 2013, defendant David H. Murdock paid $13.50 per share to acquire
all of the common stock of Dole Food Company, Inc. (―Dole‖ or the ―Company‖) that he
did not already own. Before the transaction, Murdock owned approximately 40% of
Dole‘s common stock, served as its Chairman and CEO, and was its de facto controller.
The transaction was structured as a single-step merger (the ―Merger‖). The Merger closed
on November 1, 2013.
In his initial letter to Dole‘s board of directors (the ―Board‖), Murdock offered to
pay $12.00 per share. Informed by then-Chancellor Strine‘s decision in MFW,1 Murdock
conditioned his proposal on (i) approval from a committee of the Board made up of
disinterested and independent directors (the ―Committee‖) and (ii) the affirmative vote of
holders of a majority of the unaffiliated shares. Despite mimicking MFW‘s form,
Murdock did not adhere to its substance. He and his right-hand man, defendant C.
Michael Carter, sought to undermine the Committee from the start, and they continued
their efforts throughout the process.
Before trial, the allegations and evidence regarding Murdock and Carter‘s
activities, together with the relationships between certain Committee members and
Murdock, were sufficient to create triable questions of fact regarding the Committee‘s
independence. The record at trial, however, demonstrated that the Committee carried out
1
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). During the pendency of this case,
the Delaware Supreme Court adopted then-Chancellor Strine‘s analysis.
1
its task with integrity. The Committee was assisted in this effort by expert legal counsel
and an investment bank—Lazard Frères & Co. LLC (―Lazard‖)—that likewise acted with
integrity. In contrast to a string of decisions that have criticized financial advisors for
flawed and outcome-driven analyses,2 this opinion can praise and rely on Lazard‘s
thorough and balanced work product.
Because of the diligence of its members and their advisors, the Committee
overcame most of Murdock and Carter‘s machinations. The Committee negotiated an
increase in the price from $12.00 to $13.50 per share, which Lazard opined fell within a
range of fairness. Several market indicators supported Lazard‘s opinion. Stockholders
approved the Merger, with the unaffiliated stockholders narrowly voting in favor in a
50.9% majority.
But what the Committee could not overcome, what the stockholder vote could not
cleanse, and what even an arguably fair price does not immunize, is fraud. Before
Murdock made his proposal, Carter made false disclosures about the savings Dole could
2
See, e.g., Koehler v. NetSpend Hldgs., Inc., 2013 WL 2181518, at *16-17 (Del.
Ch. May 21, 2013) (reviewing details of ―weak fairness opinion‖); In re El Paso Corp.
S’holder Litig., 41 A.3d 432, 441 (Del. Ch. 2012) (Strine, C.) (noting ―questionable
aspects‖ of banker‘s valuation); In re S. Peru Copper Corp. S’holder Deriv. Litig., 52
A.3d 761, 771‐73, 803‐804 (Del. Ch. 2011) (Strine, C.) (critiquing misleading analyses
prepared by financial advisor); In re Loral Space & Commc’ns Inc., 2008 WL 4293781,
at *10‐11, *14‐15 (Del. Ch. Sept. 19, 2008) (Strine, V.C.) (analyzing erroneous and
misleading presentation by financial advisor); Robert M. Bass Gp., Inc. v. Evans, 552
A.2d 1227, 1245 (Del. Ch. 1988) (critiquing banker‘s analyses that included ―at least one
assumption that is incorrect, and upon others that are highly questionable‖); see also In re
Del Monte Foods Co. S’holders Litig., 25 A.3d 813, 817 (Del. Ch. 2011) (enjoining
transaction where banker ―secretly and selfishly manipulated the sale process to engineer
a transaction that would permit [the bank] to obtain lucrative buy-side financing fees‖).
2
realize after selling approximately half of its business in 2012. He also cancelled a
recently adopted stock repurchase program for pretextual reasons. These actions primed
the market for the freeze-out by driving down Dole‘s stock price and undermining its
validity as a measure of value. Then, after Murdock made his proposal, Carter provided
the Committee with lowball management projections. The next day, in a secret meeting
that violated the procedures established by the Committee, Carter gave Murdock‘s
advisors and financing banks more positive and accurate data. To their credit, the
Committee and Lazard recognized that Carter‘s projections were unreliable and engaged
in Herculean efforts to overcome the informational deficit, but they could not do so fully.
Critically for purposes of the outcome of this litigation, the Committee never obtained
accurate information about Dole‘s ability to improve its income by cutting costs and
acquiring farms.
By taking these actions, Murdock and Carter deprived the Committee of the ability
to negotiate on a fully informed basis and potentially say no to the Merger. Murdock and
Carter likewise deprived the stockholders of their ability to consider the Merger on a fully
informed basis and potentially vote it down. Murdock and Carter‘s conduct throughout
the Committee process, as well as their credibility problems at trial, demonstrated that
their actions were not innocent or inadvertent, but rather intentional and in bad faith.
Under these circumstances, assuming for the sake of argument that the $13.50
price still fell within a range of fairness, the stockholders are not limited to a fair price.
They are entitled to a fairer price designed to eliminate the ability of the defendants to
profit from their breaches of the duty of loyalty. This decision holds Murdock and Carter
3
jointly and severally liable for damages of $148,190,590.18, representing an incremental
value of $2.74 per share. Although facially large, the award is conservative relative to
what the evidence could support.
The other defendants are not liable. Defendant David A. DeLorenzo erred by
siding with Murdock at the outset of the Committee process, but he did not participate in
the breaches of duty that led to liability. The plaintiffs also sought to impose secondary
liability on Murdock‘s financial advisor and lead financing source, defendants Deutsche
Bank Securities, Inc. and Deutsche Bank AG (jointly ―Deutsche Bank‖). Deutsche Bank
acted improperly by favoring Murdock and treating him as the bank‘s real client in
transactions before the Merger, even when Deutsche Bank was officially representing
Dole, but Deutsche Bank did not participate knowingly in the breaches that led to
liability, and Deutsche Bank‘s role as Murdock‘s advisor did not lead causally to
damages.
In addition to the plenary litigation, holders of 17,287,784 shares sought appraisal.
This decision likely renders the appraisal proceeding moot. The parties will confer on this
issue and inform the court of their views.
I. FACTUAL BACKGROUND
Trial took place over nine days. The parties introduced over 1,800 exhibits. Ten
fact witnesses and three experts testified live. The parties lodged twenty-nine depositions.
The laudably thorough pre-trial order contained 419 paragraphs, and the pre-trial and
post-trial briefs collectively totaled 668 pages.
4
The voluminous evidence conflicted on many issues. To facilitate fact-finding
under conditions of uncertainty, courts evaluate evidence against a burden of proof. For
this case, the appropriate standard of proof was straightforward: a preponderance of the
evidence.3 The question of who bore it was complex.
For the breach of fiduciary duty claim, the defendants initially bore the burden of
proof under the entire fairness standard of review. See Ams. Mining Corp. v. Theriault, 51
A.3d 1213, 1239 (Del. 2012). The Delaware Supreme Court held in Americas Mining that
if defendants believe the allocation should be different, they must seek and obtain a
pretrial determination in their favor. Id. at 1243. Otherwise, ―the burden of persuasion
will remain with the defendants throughout the trial to demonstrate the entire fairness of
the interested transaction.‖ Id. The defendants moved for summary judgment on the
standard of review and allocation of burden, arguing that because they emulated MFW,
the business judgment rule became the operative standard of review. Alternatively, they
argued that if entire fairness continued to apply, the burden had shifted to the plaintiffs to
3
See Estate of Osborn ex rel. Osborn v. Kemp, 2009 WL 2586783, at *4 (Del. Ch.
Aug. 20, 2009) (―Typically, in a post-trial opinion, the court evaluates the parties‘ claims
using a preponderance of the evidence standard.‖), aff’d, 991 A.2d 1153 (Del. 2010).
―Proof by a preponderance of the evidence means proof that something is more likely
than not. It means that certain evidence, when compared to the evidence opposed to it,
has the more convincing force and makes you believe that something is more likely true
than not.‖ Agilent Techs, Inc. v. Kirkland, 2010 WL 610725, at *13 (Del. Ch. Feb. 18,
2010) (Strine, V.C.) (internal quotation marks omitted). ―Under this standard, [the party
bearing the burden] is not required to prove its claims by clear and convincing evidence
or to exacting certainty. Rather, [the party] must prove only that it is more likely than not
that it is entitled to relief.‖ Triton Const. Co. v. E. Shore Elec. Servs., 2009 WL 1387115,
at *6 (Del. Ch. May 18, 2009), aff’d, 988 A.2d 938 (Del. 2010) (TABLE).
5
prove unfairness. See Emerald P’rs v. Berlin (Emerald II), 787 A.2d 85, 98-99 (Del.
2001). I held that the defendants had not made the showing necessary to change the
standard of review or shift the burden, and so ―the burden of persuasion will remain with
the defendants throughout the trial to demonstrate the entire fairness of the interested
transaction.‖ Dkt. 585 at 4, 6.
The burden for the aiding and abetting claim differed: it rested with the plaintiffs.
In re Rural Metro Corp., 88 A.3d 54, 85 (Del. Ch. 2014) (appeal pending). The burden
for the appraisal proceeding was different still: each side bore the burden of proving its
contentions. Montgomery Cellular Hldg. Co. v. Dobler, 880 A.2d 206, 221 (Del. 2005).
Although I have tried to adhere to the different burdens required by the case law,
the Delaware Supreme Court has explained that the real-world benefit of burden-shifting
is ―modest‖ and only outcome-determinative in the ―very few cases‖ where the ―evidence
is in equipoise.‖ Ams. Mining, 51 A.3d at 1242. This was not one of those cases. Had the
burden been allocated to the plaintiffs on all issues, the result would have been the same.4
A. Murdock’s Relationship With Dole
Dole is one of the world‘s largest producers and marketers of fresh fruit and
vegetables. Murdock became involved with Dole in 1985 when Flexi-Van Corporation
4
The allocations did influence my rulings on a number of procedural issues,
including the allotment of trial time, the order of witnesses, the schedule for post-trial
briefing, and presentation of post-trial argument. Generally speaking, because the
defendants bore the burden of proof on the fiduciary duty claim, they were given the
advantages that ordinarily inure to the party that bears the burden, such as the opportunity
to present their case and arguments first and to present a rebuttal case and reply.
6
merged with Castle & Cooke, which had owned all of Dole‘s stock since 1961. Both
were public companies. Before the merger, Murdock was the CEO and 33% owner of
Flexi-Van. After the merger, Murdock became Chairman and CEO of the combined
company, which was named Castle & Cooke. Flexi-Van‘s stockholders received 45% of
the combined company, giving Murdock a 14% stake. In 1991, the combined company
changed its name to Dole.
In 2003, Murdock took Dole private in a leveraged buyout. While owned solely by
Murdock, Dole felt the effects of the financial crisis of 2008. Dole had taken on
significant debt, and a large tranche of bonds was scheduled to mature in 2009. Dole
typically refinanced its debt a year before maturity, but it delayed in the hope that rates
would improve. Instead, the bond markets froze. Dole finally refinanced its debt just sixty
days before the bonds matured. It was forced to pay a very high interest rate.
Murdock‘s real estate ventures also suffered. Murdock had obtained loans that
required unanimous approval from all of the banks in the lending syndicate to waive a
covenant or extend a maturity date. During the financial crisis, several loans went into
default. Some of the more troubled banks refused to modify the loans. Murdock had
provided personal guarantees and faced the threat of collection actions.
Deutsche Bank and Wells Fargo stepped in to help Murdock. They had worked
with Murdock for years and took a ―long term view [of] the relationship.‖ JX 1680 at 2.
They bought out the objecting banks and granted the loan modifications Murdock sought.
The plaintiffs accurately observe that this instance reflects the longevity and depth of
Murdock‘s relationship with his favored banks, such as Deutsche Bank. See Murdock 74-
7
76 (describing his relationships with banks and noting that ―most of my banks have been
with me for 40 years‖).
To pay down the debt on the Company and his real estate ventures, Murdock
considered selling Dole. Late in 2009, Dole approached Del Monte Packaged Foods
Company. The negotiations stalled with Del Monte offering $700 million and Murdock
asking $1 billion.
Instead of selling Dole entirely, Murdock decided to sell a portion of Dole‘s equity
to the public. In October 2009, Dole conducted an initial public offering of approximately
41% of its shares. The IPO price was $12.50 per share, which valued Dole at
approximately 5.9x estimated 2010 EBITDA.5
Murdock retained sole ownership of Castle & Cooke, which was spun off before
the IPO. Castle & Cooke owned Murdock‘s other business ventures and real estate assets,
including the Hawaiian island of Lanai. Murdock became CEO of Castle & Cooke. Scott
Griswold, who had previously managed the Castle & Cooke businesses as part of Dole,
became Castle & Cooke‘s Executive Vice President of Operations. Griswold was deeply
5
Murdock obtained additional liquidity by entering into a forward sale covering
another 27% of Dole‘s stock. The forward sale was structured through the Murdock
Automatic Common Exchange Security Trust, and the resulting securities were called
―MACES.‖ The plaintiffs have argued that the MACES influenced the timing of the
announcement of the ITOCHU Transaction, discussed below, and that communications
surrounding the MACES show that Deutsche Bank‘s primary loyalty was to Murdock,
not Dole. It is undisputed that the ITOCHU Transaction was favorable for Dole and its
stockholders, and the timing of that transaction does not have any relevance to the
outcome of this litigation. That Deutsche Bank saw Murdock as its primary client is
apparent from overwhelming evidence in the record. The communications surrounding
the MACES are cumulative.
8
involved in the process leading to the Merger. When considering his involvement, it is
important to recall that he was not a Dole officer or employee during the relevant period.
Griswold worked for Murdock in his capacities as the owner of Castle & Cooke and as a
stockholder of Dole.
The newly public Dole operated three business segments: Fresh Fruit, Fresh
Vegetables, and Packaged Foods. Fresh Fruit was Dole‘s largest division, with revenue of
$4.4 billion in 2012. Fresh Vegetables and Packaged Foods were significantly smaller,
with revenue of $1.1 billion and $1.3 billion respectively. Fresh Fruit focused primarily
on bananas and pineapples with smaller operations for other products, like kiwifruit.
Fresh Vegetables distributed a wide variety of fresh produce. It also included Dole‘s fresh
berry business (despite the division‘s name) and distributed packaged salads and other
packaged vegetables. Packaged Foods produced products such as canned pineapples,
fruits cups, and frozen fruit.
B. Murdock’s Goal Of Taking Dole Private
After Dole became public, Murdock regularly considered the possibility of taking
it private again. As Murdock testified at trial, he had ―never really wanted‖ to sell equity
to the public, but ―it was a necessity‖ because of the financial issues he faced. Murdock
98; see id. at 87, 89, 94-95; JX 1680. Others at Dole recognized that Murdock did not like
the public company model. Sherry Lansing, an outside director and member of the
Committee, testified that Murdock ―seemed frustrated all the time. He seemed frustrated
with boards . . . . He seemed not to like the push back‖ or the need to ―have [outside
directors] there . . . .‖ Lansing Dep. 15.
9
Murdock evidenced his distaste for the public company model in how he ran Dole.
Murdock was an old-school, my-way-or-the-highway controller, fixated on his authority
and the power and privileges that came with it. Murdock testified that he was ―the boss‖
at Dole, and ―[t]he boss does what he wants to do.‖6 In contemporaneous documents, his
6
Murdock 49-51 (video testimony); see Murdock 40 (admitting that he can be
―pushy‖); Murdock 47 (―I‘m abrupt. I‘m always a strong-willed man. That‘s the reason
why I get so many things done.‖ (video testimony)); Murdock 76 (―I have been charged
many times with being a strong individual, and I‘m not ashamed of it.‖); Murdock Dep.
175 (referring to his outside directors, ―They have their own opinions too, but I‘m usually
a little stronger than most people.‖).
Murdock tried out three different personas during his testimony. During his
deposition, he showed the true force of his domineering personality. During the first day
of trial, Murdock tried to appear more reasonable and conciliatory on direct, but on cross-
examination, he could not resist being combative. He denied basic points and made long
speeches. Both during his deposition and on the first day of trial, many of Murdock‘s
assertions were not credible or plainly wrong. To rehabilitate him, the defendants tried to
portray him as a confused 91-year-old man, but it was clear that Murdock‘s intellect
remains sharp. Murdock‘s problem was different. By dint of his prodigious wealth and
power, he has grown accustomed to deference and fallen into the habit of characterizing
events however he wants. That habit serves a witness poorly when he faces a skilled
cross-examiner who has contrary documents and testimony at his disposal.
On the second day of trial, Murdock tried a different approach: He became evasive
and attempted to cast himself as an uninvolved CEO who lacked any meaningful
knowledge about what was going on at his company. He even denied being involved in
major decisions, such as when Dole started giving intra-quarter earnings guidance in the
months before the Merger. See Murdock 304-05, 311-14. This version of Murdock was
not credible either.
In addition to offering the ―confused old man‖ theory, the defendants sought to
blunt the cumulative effect of Murdock‘s testimony, demeanor, and actions by citing his
philanthropy, which is commendable. But it does not inoculate his business dealings.
Tycoons like Vanderbilt, Carnegie, and Rockefeller built great fortunes as aggressive
businessmen, then devoted substantial portions of their wealth to the betterment of all.
More recently, Bill Gates led a company that was prosecuted successfully for antitrust
violations, yet his foundation appears (at least to me) to be a force for good. The ultimate
10
associates did not address him by name. They referred to him deferentially as ―the
Chairman.‖ Criticizing Murdock was unthinkable. On those rare occasions in the record
when Murdock was challenged, he responded aggressively, including by giving tongue-
lashings to outside directors Andrew J. Conrad and Dennis Weinberg, then forcing
Weinberg off the Board. Murdock‘s bankers were careful not to offend him, knowing that
he would put them in the ―penalty box.‖7
The fact that Murdock preferred to see Dole become a private company did not
mean that he was unwilling to consider other transactions that would enhance his
personal wealth. He is, after all, a highly successful capitalist. One example was late
2010, when Dole contacted Chiquita Brands International Inc. about a potential merger.
Importantly, the Chiquita transaction would have expanded Murdock‘s empire. In
substance, Dole would have acquired Chiquita, with Dole‘s stockholders owning 63.5%
of the combined company, Dole designating a proportionate number of the initial board
seats, and the company operating out of Dole‘s headquarters. The companies came close
to finalizing a deal that would have valued Dole at $1.256 billion, but Dole ultimately
balancing is for posterity and the divine. My task is far narrower: to evaluate how
Murdock and his fellow fiduciaries behaved in connection with a specific transaction.
7
Grellier Dep. at 47; see Grellier 2114 (describing Murdock as ―extremely
volatile‖); id. at 2130 (describing Murdock as ―very, very headstrong‖ and ―not receptive
to being pushed by anybody to do anything‖). In one of the more telling moments at trial,
plaintiffs‘ counsel asked Dole‘s coverage banker about an internal email in which he
referred facetiously to Murdock, after the sale of Lanai, as being ―bunkered in his office
counting his money.‖ Brook 1983. The banker quailed and quickly testified, ―I was
actually being very flip on that. He wasn‘t in his office counting his money.‖ Id. His
demeanor reflected serious concern about how Murdock would react to his remark.
11
decided not to go forward because of concerns about payments Chiquita had made in
Colombia to a known terrorist organization.
The next year, Wells Fargo pitched Murdock on selling some or all of Dole to
Hain Celestial Group (―Hain‖). Murdock and DeLorenzo, who had taken the job as
Dole‘s CEO in 2007, met with Hain. The discussions quickly shifted to Hain purchasing
either Packaged Foods or a combination of Packaged Foods and Fresh Vegetables. A deal
for those businesses seemed close, but Hain broke off talks in April 2012.
During the discussions with Hain, Murdock asked Dole‘s CFO, Joseph Tesoriero,
to provide his recommendations about the strategic alternatives that Dole should pursue.
Tesoriero prepared a two-page memorandum describing ―value creation projects
currently under consideration at Dole . . . in the ideal sequence in which they should
occur.‖ JX 162 at 1 (the ―Tesoriero Memo‖). As the memo reflected, these were not
hypotheticals; they were projects ―currently under consideration.‖ Id. Tesoriero sent the
document to Murdock and copied DeLorenzo and Griswold.
The Tesoriero Memo contemplated a three-phase plan. First, Dole would complete
four small transactions then underway. As it happened, two of the deals were completed,
and two were not.
Next, Dole would sell Packaged Foods and Fresh Vegetables to Hain, which was
the transaction under consideration at the time. After that deal fell through, Dole explored
other alternatives for Packaged Foods. As events turned out, Dole sold Packaged Foods
and the Asian operations of Fresh Fruit to ITOCHU Corporation of Japan (―ITOCHU‖).
12
Finally, Murdock would ―take [the remaining Dole] business private or . . . merge
it with another company.‖ Id. Tesoriero explained that although the remaining business
―contains valuable assets (e.g. the Hawaii land, idle land in Latin America, our fleet of
ships . . . ), it may not demand a very high multiple in the stock market due to the nature
of the fresh fruit business.‖ Id.
The Tesoriero Memo was a candid assessment of Murdock‘s overall strategy. It
shows that Murdock‘s goal was to take Dole private again, and that Murdock and his
team saw some form of break-up as a key step in the process. The basic premise was to
separate Dole‘s higher-margin businesses (predominantly Packaged Foods) from its
lower margin businesses (predominantly Fresh Fruit), realize the value of the higher-
margin businesses, and then pursue a transaction involving the remainder of the
Company. Although Murdock was open to other ideas for the remainder, the primary
option was for Murdock to buy it.
C. Exploring Alternatives For Packaged Foods
When the Tesoriero Memo was written, the near-term alternative for generating
value from Packaged Foods was a sale to Hain. After negotiations with Hain broke down,
Murdock and Dole management began considering other options. One obvious way to
separate the businesses was by spinning off Packaged Foods.
Murdock focused on a spinoff after reaching an agreement on April 8, 2012, to sell
Lanai for $300 million. This transaction was part of Murdock‘s effort to generate
liquidity and reduce his overall debt, thereby strengthening his personal balance sheet for
a potential take-private.
13
Murdock had owned Lanai through Castle & Cooke, and Griswold was heavily
involved in the sale process. Deutsche Bank served as Castle & Cooke‘s advisor on the
sale. With the agreement in hand, Murdock told Griswold that he wanted to focus on
splitting Dole into two companies.
During the same period, Deutsche Bank began modeling a transaction in which
Dole would spin off Packaged Foods and then Murdock would take the remaining
company private. Eric Brook, the Deutsche Bank coverage officer for Dole, instructed his
team to model ―[a] separation of the Packaged Foods business . . . with the idea being that
the Fruit/vegetable business would be a privateco . . . . The Consumer team will begin the
go private analysis.‖ JX 173 at 1. The overall structure resembled the plan in the
Tesoriero Memo, but with the separation of Packaged Foods accomplished via a spinoff
rather than a sale to Hain.
Deutsche Bank presented the spinoff-plus-take-private idea to Murdock on April
27, 2012. After the meeting, Brook instructed the Deutsche Bank team to work on two
separate projects: a split-off and a refinancing for Dole and a freeze-out for Murdock. JX
179 at 1. Brook stressed that the latter was ―not to share with Dole mgmt.‖ Id.
At the time, Wells Fargo was already working with the Board on a spinoff of
Packaged Foods. There were two main differences between Wells Fargo‘s plan and
Deutsche Bank‘s. First, Wells Fargo planned a domestic IPO of Packaged Foods, while
Deutsche Bank had convinced Murdock of the benefits of an Asian IPO. Second,
Deutsche Bank was working on a follow-on take-private.
14
With Murdock on board, Deutsche Bank quickly asserted itself. On April 30,
2012, Deutsche Bank gave Dole management the presentation on the ―Asian split-off and
a refinancing‖ that Brook had contemplated. JX 183. On May 1, the Deutsche Bank team
met again with Murdock. On May 2, the Board was scheduled to consider Wells Fargo‘s
plan for the spinoff. So advanced was the transaction that the Wells Fargo presentation
contemplated announcing it the next day. But after Deutsche Bank‘s meetings with
Murdock and Dole management, the Board decided to conduct a broader strategic
business review. Dole retained both Wells Fargo and Deutsche Bank as advisors. Wells
Fargo considered primarily U.S.-based transactions. Deutsche Bank explored
opportunities in Asia.
On May 3, 2012, Dole announced the strategic business review. The defendants
tried to spin this announcement as if Dole was exploring strategic alternatives for the
whole Company, but Dole‘s announcement was narrower: Dole said it was reviewing
alternatives and evaluating prospects and options ―pertaining to select businesses of the
company.‖ JX 197. The announcement highlighted the possibility of a ―separation of one
or more of our businesses,‖ which was consistent with Wells Fargo and Deutsche Bank‘s
earlier presentations focusing on divesting Packaged Foods. Id. Dole management
considered and rejected a broader description. JX 196. Moreover, Murdock owned 40%
of Dole‘s stock, and he was not a seller. Dole was looking primarily to sell Packaged
Foods or other specific businesses to pay down debt. If an offer for the whole company
had come in, Murdock and the Board would have considered it, but that was not the main
focus of the exercise.
15
Wells Fargo contacted seventeen parties about their interest in potential
transactions involving Dole‘s businesses. Ten executed nondisclosure agreements and
received confidential information. None proposed a transaction. Apollo Global
Management LLC (―Apollo‖) did contact Dole and expressed interest in purchasing
Fresh Vegetables for $300 million. DeLorenzo told Apollo to offer at least $500 million.
After receiving some due diligence, Apollo said it would raise its price, but would not
commit to $500 million.
Meanwhile, Dole and Deutsche Bank reached out to ITOCHU, a company that had
worked with Dole in Asia for over fifty years. ITOCHU had been Dole‘s importer of
record in Japan, distributed many of Dole‘s products, and provided back-office services
for Dole in the region. Dole and Deutsche Bank thought ITOCHU could serve as a
cornerstone investor for an Asian IPO. ITOCHU was interested, and discussions began.
In May 2012, the prospect of an Asian IPO became less attractive after a selloff in
the Asian markets. Murdock suggested that Dole and ITOCHU instead form a joint
venture that would own the Asian operations of Fresh Fruit and Packaged Foods (―Dole
Asia‖). Negotiations shifted to that idea.
On June 14, 2012, Deutsche Bank provided Dole management with a presentation
that analyzed both Apollo‘s offer for Fresh Vegetables and the potential ITOCHU joint
venture. Deutsche Bank calculated that if Dole continued to trade at 6.1x EBITDA, then
selling Fresh Vegetables for $500 million would increase Dole‘s stock price by 8.5%. JX
233 at 16. In contrast, selling half of the Asian joint venture to ITOCHU would increase
Dole‘s stock price by 35.9%. Id. at 17.
16
After the meeting, Dole broke off discussions with Apollo to focus on the
ITOCHU joint venture. The transactions were not mutually exclusive, but DeLorenzo
thought continuing discussions with Apollo would be ―too much of a distraction.‖
DeLorenzo Dep. 21. The plaintiffs have questioned that decision, claiming weakly that it
was intended to help Murdock with his eventual buyout. Having considered the record, I
do not see anything problematic about the decision to focus on the joint venture.
D. Murdock And Deutsche Bank Continue Their Freeze-Out Discussions.
During the strategic business review, Deutsche Bank acted as Dole‘s financial
advisor and reported to the Board. While serving in that role, Deutsche Bank should not
have been secretly helping Murdock plan to acquire Dole. But Deutsche Bank
characterized itself as having a number of different relationships with Murdock and his
companies. Deutsche Bank used these alternative relationships as conduits for
conversations with Murdock that it should not have been having as the Board‘s advisor.
Deutsche Bank‘s roles included advisor and lender to Castle & Cooke and
Murdock personally. Those roles provided the context for Deutsche Bank‘s meetings
with Murdock about a going-private transaction in early 2012. Deutsche Bank had two
separate coverage officers: Brook for Dole, and Richard Grellier for Castle & Cook and
Murdock. To maintain a façade of separation, Grellier took the lead during the early 2012
discussions with Murdock. Internally, Brook and Grellier kept each other informed and
planned together.
Other Deutsche Bank roles included purchasing agent for Murdock‘s trades in
Dole stock and margin lender to Murdock. In July, Murdock and Deutsche Bank used
17
these roles as cover for further discussions about a going-private transaction. An internal
Deutsche Bank presentation described Murdock‘s plans:
Murdock has requested that [Deutsche Bank] consider providing debt
capital alongside his capital to
- 1) cash settle the remaining 24 [million] shares subject to forward sale
[under the terms of the MACES issued at the time of the IPO]
- 2) acquire some or all of the 15 [million] shares held by the top 15
shareholders in Dole
- 3) depending on availability, acquire 90% or all of the shares of Dole.
JX 260 at 9. The presentation went on to discuss financing for an acquisition of ―100% of
the shares of Dole.‖ Id. The presentation cited indications that Murdock was serious,
including:
 Murdock was receptive to guaranteeing the debt.
 Murdock was willing to secure the debt using the $770 million in
equity value of his holdings outside Dole.
 Murdock had told Deutsche Bank that ―he will continue to sell real
estate assets that were previously considered lifetime hold assets‖ to
fund the purchase of additional Dole stock.
 In June 2012, Murdock had sold Madison Warehouse for $226
million and Castle & Cooke Cold Storage for $225 million, in
addition to his earlier sale of the island of Lanai. Murdock had told
Deutsche Bank that he was ―committed to contribute another $90
million of proceeds‖ from those sales ―to increase his share
position.‖
Id. at 8-9, 14. The internal Deutsche Bank presentation was consistent with the overall
picture that emerges from the Tesoriero Memo, Murdock‘s prior discussions with
18
Deutsche Bank, and Murdock‘s conduct, including his sales of assets like Lanai.
Murdock was pursuing a long-term strategy directed towards taking Dole private.
E. The ITOCHU Transaction
In late summer 2012, Dole‘s discussions with ITOCHU shifted to the possibility
of ITOCHU acquiring Dole Asia (the ―ITOCHU Transaction‖). Both sides liked the idea,
and discussions unfolded during August. On September 17, 2012, ITOCHU formally
agreed to acquire Dole Asia for $1.685 billion in cash. Dole announced the agreement the
same day. The price of Dole stock increased to over $14.00 per share.
Shortly after the ITOCHU Transaction was announced, Grellier and Murdock
scheduled another meeting to discuss a freeze-out. Before the meeting, Brook spoke with
DeLorenzo, who thought it was ―best to find a way to get [M]urdock out of the [D]ole
stock.‖ JX 330 at 1. He recommended that Deutsche Bank present options that included
an ―equity market selldown,‖ ―sell[ing] [Murdock‘s] stake to [a] [private equity] or
strategic [buyer],‖ and a cash sale to Chiquita, as well as a ―full take private.‖ Id.; see JX
325. But when Grellier met with Murdock the next day, Murdock volunteered that he
wanted to take Dole private himself. Grellier 2123. Afterwards, Grellier told his team that
Murdock was ―anxious to do a deal‖ and ―[e]specially interested in whether to aggregate
assets and do transformational deals before or after a potential take private.‖ JX 326 at 1.
On January 11, 2013, Deutsche Bank sent a presentation about a freeze-out to
Dole‘s Treasurer, Beth Potillo. Deutsche Bank asked that she review it and ―let us know
if you catch anything awry.‖ JX 394 at 1. The presentation evaluated a freeze-out funded
19
in part by rolling over Murdock‘s existing equity and an additional equity contribution of
either $100 million or $250 million. Id. at 4-7.
The sending of the freeze-out presentation to Potillo illustrated how difficult it was
for Deutsche Bank to maintain the fiction that it could differentiate between its roles. In
this instance, while working for Dole and reporting to its Board, Deutsche Bank sent a
presentation about Murdock‘s acquisition bid to a Dole officer and asked the Dole officer
for comment. No one passed the information on to the Board.
At trial, Deutsche Bank claimed that it was no longer working for Dole when it
began working on a freeze-out, but that was not accurate. Deutsche Bank began
discussing a freeze-out with Murdock after the sale of Lanai. The spinoff and freeze-out
were part of a two-step plan in which Murdock would take Dole private in the second
step, although the second part of the strategy was ―not to share with Dole mgmt.‖ JX 179
at 1. Deutsche Bank continued its consideration of a take-private during the strategic
business review, as shown by the July presentation about Murdock‘s stock ownership.
See JX 260. Moreover, the signing of the agreement for the ITOCHU Transaction did not
mean that Deutsche Bank‘s engagement ended. The firm‘s retention letter specified that
its engagement did not end until that transaction closed, and that event did not occur until
April 1, 2013. During this post-signing, pre-closing period, Deutsche Bank continued
working on the ITOCHU Transaction, including by fielding calls from third parties and
assisting Dole with regulatory approvals. During that period, Deutsche Bank continued
helping Murdock plan a freeze-out.
20
F. Carter Takes Over.
As part of the ITOCHU Transaction, DeLorenzo committed to leave Dole, join
ITOCHU, and run Dole Asia for at least two years. JX 371 at 9. In anticipation of
DeLorenzo‘s resignation, the Board agreed that Murdock would start functioning as
CEO, and Carter would start functioning as President and COO. Both formally assumed
their roles in February 2013, after DeLorenzo resigned. The transition effectively took
place in December 2012. Carter retained his position as Dole‘s General Counsel and
Corporate Secretary. He also joined the Board. So did a former Dole director, Rolland
Dickson. Dickson served on the Committee, and his background is discussed in
connection with that role.
As a practical matter, responsibility for day-to-day management of Dole passed
from DeLorenzo to Carter in December 2012. Carter was Murdock‘s only direct report,
which meant that the executive team reported to him. See JX 699 at 2. His job was to
carry out Murdock‘s plans, and he did so effectively, even ruthlessly. When Carter set a
goal for a division, they fell into line. See Carter 869. Dole‘s executives could not
envision anyone failing to carry out Carter‘s instructions. See Mitchell Dep. 56.
With the ITOCHU Transaction wrapping up, a freeze-out was the next step in the
long-term plan Murdock had been pursuing. Dole had split off its higher-margin
businesses, achieved a premium valuation, and used the proceeds to pay down debt. This
created an opportunity to take the remaining business private.
The defendants have contended that Murdock did not decide to pursue a freeze-out
until June 7, 2013, and did not make any preparations for the transaction before May
21
2013. That characterization is not accurate. Murdock had been focusing on a freeze-out
since 2012, as demonstrated by the Tesoriero Memo, his regular discussions with
Deutsche Bank, and his preparatory sales of assets. Once Carter took the reins, he began
priming Dole for the final step.
1. Carter Guides The Market Downward.
Dole management knew that after the ITOCHU Transaction, Dole could achieve
significant cost savings. Dole had sold approximately half of its business and could
―right-size‖ the rest. See JX 1147 at 6. In its fairness presentation to the Board, Deutsche
Bank advised that Dole could achieve $50 million in annual cost savings. Deutsche Bank
viewed the $50 million per year estimate as reasonable, had undertaken ―due diligence
discussions around it,‖ evaluated ―what triggered the cost savings,‖ and ―stress-tested‖
the estimate to ―understand what the sources of those cost savings were to confirm that
those made sense in the context of the separation of Dole Asia.‖ DiMondi 1464-66. In a
presentation to analysts, DeLorenzo provided the same $50 million figure, explaining that
$20 million of savings would be implemented immediately at the corporate level and the
remaining $30 million would be implemented at the division level, with the full run-rate
of $50 million per year achieved by the end of 2013. These estimates were arguably
conservative. An April 2012 analysis by Dole management estimated annual total cost
savings as high as $125 million. JX 1615 at 3. And in January 2013, Deloitte & Touche
had sent Carter an analysis identifying savings of $50-90 million per year. JX 389 at 4.
In November 2012, Dole reiterated that it expected to achieve the full $50 million
in annual savings, with $20-25 million achieved in 2013 and the full $50 million per year
22
starting in 2014. JX 350 at 11. A Board presentation in December 2012 projected similar
figures, although with a one-year delay before they would be fully achieved. According
to that presentation, $35 million in savings would be achieved in 2014 and the full $50
million achieved in 2015. JX 370 at 8.
Then in January 2013, Carter announced something different. In a January 2 press
release, he told the markets that Dole‘s ―current expectation‖ was for adjusted 2013
EBITDA in the $150-$170 million range, ―including 2013 planned cost savings in the
$20 million range.‖ JX 384. He did not mention any additional cost savings. Dole‘s stock
price dropped 13% after the announcement. JX 987 at 5.
Three weeks later, Dole issued another press release. It quoted Carter as saying,
―[W]e expect 2013 Adjusted EBITDA for the new Dole to be at the low end of the
guidance range we announced on January 2, 2013, assuming no major market changes.‖
JX 400 at 3. The January 24 release also lowered Dole‘s valuation of certain assets,
including 25,000 acres of land in Hawaii, which was revised down to $175-$200 million
from over $500 million just four months prior. Id. at 4; JX 1138 17. And, on February 22,
2013, Carter announced that ―[f]resh fruit performance is continuing its declining trend,
principally due to banana market conditions, and Dole expects that 2013 Adjusted
EBITDA for these businesses will be at the low end of the previously announced
guidance range of $150 - $170 million . . . .‖ JX 426 at 3.
The defendants have claimed that Carter made these announcements because he
honestly believed that Dole would not hit its guidance and that $30 million of the $50
million in savings was not achievable. The $50 million in savings that DeLorenzo
23
announced, however, was actually lower than Dole‘s internal plan, which identified $62
million in specific cost-cutting initiatives. JX 3069 at 2. As support for the supposed
impossibility of achieving the cuts, Carter argued that ―one of the ideas was to smash
together, merge if you wish, our Vegetables business with our North America Fresh Fruit
business‖ and that such a move ―just could not work in the market in terms of the people
we sold to.‖ Carter 1105. That portion of the cost-saving plan accounted for only $10-$20
million in cost savings, leaving $42-52 million in other initiatives. JX 389 at 13. The
defendants never went over the detailed spreadsheet of department-by-department
savings that DeLorenzo prepared. They simply relied on Carter‘s testimony, without
offering any quantification or support. See Carter 872, 1105, 1137.
Just as the defendants did not explain where the cost savings went at trial, Carter
did not explain the disappearance of the cost savings to the market. The loss of $30
million in savings represented approximately 20% of Dole‘s forecasted EBITDA, yet he
mentioned it virtually without comment. The timing of his announcement on January 2
suggests the real reason. It came just after Deutsche Bank renewed its discussion with
Murdock about the freeze-out and just days before Deutsche Bank gave a detailed
presentation that it prepared with the assistance of Dole management on January 11. See
JX 326, 394. In other words, Carter made the announcement just as internal discussions
about the freeze-out were heating up.8
8
Equally telling was the fact that promptly after the Merger had been negotiated,
Murdock told his lenders that Dole could achieve $200 million in EBITDA. Carter
testified that Murdock made that claim without any support, and that he was forced to fill
24
2. The Brouhaha Over The Self-Tender
A week after the January 2, 2013, release that guided the market downward,
Murdock, Carter, and Potillo met with Deutsche Bank, ostensibly about a potential share
repurchase program for Dole. Deutsche Bank‘s presentation did discuss Dole
repurchasing $25-$200 million of its shares, but also contained a section on a potential
purchase of 100% of the Company‘s outstanding stock—a full take-private. JX 392. On
January 25, 2013, Deutsche Bank sent Griswold and Potillo another presentation and
discussed in the cover email how the different programs would affect Murdock‘s
ownership and his ability to gain majority control. JX 404 at 1. A presentation prepared
by Scotiabank, another Dole lender, explained how the repurchase program would fit into
plans for Murdock to take Dole private. JX 447 at 6. Scotiabank projected that the
repurchase price would be significantly lower than what Murdock would pay for the
remaining shares, meaning Murdock would benefit more from a larger repurchase.
In February 2013, Deutsche Bank provided Dole management with another
presentation, this time analyzing the choice between a self-tender and a program of open
market purchases. JX 415 at 6-7. The presentation explained that a self-tender would
enable Dole to buy a larger volume of shares quickly, but that Dole would have to pay a
in the gap with cost savings. Carter 970-71. Fortunately, Carter was able immediately to
identify $40 million in cost savings, $35 million of which were unrelated to the
elimination of public company costs. Carter 971, 979. In reality, the cost savings that
Carter found were the same savings that were previously available. During his deposition,
Renato Acuña, the President of the Fresh Fruit division, testified candidly that the cost
savings achieved after the Merger were available previously. See Acuña Dep. 14-15.
Carter simply delayed them so that post-Merger, Murdock would benefit.
25
premium over market. With the open market program, Dole would not a pay a premium,
but there was a ―risk of price appreciation given the long time frame.‖ Id. at 7. Describing
the price appreciation as a ―risk‖ showed where Deutsche Bank‘s loyalties lay. Price
appreciation was a risk to Murdock for taking the company private. It was not a risk for
Dole or its stockholders, who would benefit from the higher price.
Murdock and management decided that that they favored the self-tender. Dole
hired Bank of America Merrill Lynch (―BAML‖), another bank that Dole had worked
with frequently in the past, to advise on the share repurchase. At Deutsche Bank, Grellier
and Brook decided they were ―comfortable‖ with this development because they thought
it was ―[b]etter to hold out for [the] advisory‖ engagement on the freeze-out transaction.
JX 474 at 1. They just needed to ―[make] sure [the BAML bankers] don‘t get too close to
go private discussions.‖ Id.
On May 2, 2013, the Board discussed the potential share repurchase program. At
the time, the Board had nine members. Three were members of management: Murdock,
Carter, and DeLorenzo. A fourth was Murdock‘s son Justin. The other five were outside
directors: Conrad, Weinberg, Lansing, Dickson, and Elaine Chao. The four outside
directors other than Weinberg would later serve on the Committee, and this decision
discusses their backgrounds in connection with that event.
Conrad and Weinberg opposed the self-tender. They believed that open market
purchases were better for Dole and its stockholders. Due to their opposition, the Board
decided to revisit the issue in three to five days. Weinberg made plans for the outside
directors to have an executive session with counsel in the interim.
26
Meanwhile, the bankers at BAML were becoming concerned. They advised Carter
and Potillo to buy shares in the open market or wait for the stock price to decline. JX 510
at 1. Internally, the bankers described the self-tender as ―ridiculous and terrible corporate
finance‖ to the point where ―[r]eputational risk of such is [a] real issue . . . .‖ JX 511 at 1.
But Murdock kept pressing for a self-tender, and he called Conrad and Weinberg
repeatedly about it. Eventually, Conrad told Murdock bluntly that he thought Murdock
was trying to get a majority of the shares and that Conrad would not let him do it through
a self-tender. Murdock became furious. Conrad 831. On May 4, 2013, he left Conrad the
following voicemail:
Hello, Dr. Conrad. David [Murdock]. I‘d like to talk to you. I‘m in New
York at [telephone number]. I wanted to talk with you about what‘s going
on [with] you and Denny Weinberg. I can‘t believe that you are opposed to
the most, very good thing for the company, and I cannot imagine why you
would be opposing it, but it sure as hell pisses me off to think that you
didn‘t call me and tell me what it is going on with you. I‘m not accustomed
to having a friend double-cross me but if that has happened . . . .
JX 518. Murdock continued speaking, but Conrad‘s voicemail stopped recording. At trial,
Murdock testified that he ended his threatening message with the suddenly conciliatory
conclusion, then ―I‘ll go your way.‖ Murdock 415. That testimony was not credible.
On May 6, 2013, the outside directors met in executive session. They discussed
the self-tender and open market repurchases. They also considered possible defensive
measures against Murdock, but decided not to implement any.
On May 8, 2013, the full Board met. Murdock did not attend. The directors
unanimously approved open market repurchases.
27
After the vote, Murdock left a voicemail for Weinberg that was similar to the one
he left for Conrad. Weinberg described the message as ―not for public consumption.‖
Weinberg Dep. 33. Conrad described it as ―stronger than mine.‖ Conrad Dep. 13.
Weinberg recalled Murdock saying, ―[I]f you think you‘re trying to take over my
company, you won‘t be successful. Nobody needs you, including me, and we‘ll talk
about that more when you call me.‖ Weinberg Dep. 33; cf. Murdock 62-66 (providing
not-credible testimony after viewing video clip of Weinberg).
Weinberg did not call Murdock back. A few days later, Carter called Weinberg
and asked him to resign, citing a ―lack of collegiality at the board level‖ due to
Weinberg‘s ―personality clash‖ with Murdock. Carter Dep. 20. On May 14, 2013, the
Board executed written consents accepting Weinberg‘s resignation. Justin Murdock also
resigned. This left Dole with three management directors (Murdock, Carter, and
DeLorenzo) and four non-management directors (Conrad, Chao, Lansing, and Dickson).9
9
When asked about the reason for Weinberg‘s departure during his deposition,
Murdock initially testified that Weinberg had bought a house on Lanai, ―was thinking
about retiring,‖ ―was thinking of doing other things,‖ ―didn‘t have time,‖ and ―couldn‘t
always be [present at Board meetings].‖ Murdock Dep. 41. After being confronted with
his May 4 voicemail to Conrad and Weinberg‘s deposition testimony, Murdock conceded
the true backstory of Weinberg‘s ouster. Murdock 42-45. Murdock nevertheless claimed
that he and Weinberg ―stayed—not quite as close a friends as we used to be, but friendly‖
and that Weinberg ―was at his house and had meals.‖ Murdock 67. Weinberg testified
during his deposition in May 2014 that he had not spoken to Murdock since leaving the
Board a year earlier. Weinberg Dep. 34.
28
3. Carter Cancels The Repurchase Plan.
Murdock did not get his way on the self-tender, but he and Carter made sure that
the outside directors did not get their way either. Two weeks later, Carter used the pretext
of funding new ships to cancel the repurchase program.
Dole shipped most of the bananas destined for North America on a fleet of three
refrigerated vessels. By 2013, the ships were old and needed replacing. In May, Dole
management recommended commissioning three new ships for $168 million.
Management explained the old ships had to be retired, and Dole would either need to buy
new ships or pay expensive third-party shipping costs. Management estimated that new
ships would save $37 million per year compared to third-party shipping costs.
The Board approved the new ships, and Carter issued a press release announcing
the decision on May 28, 2013. In the same press release, he announced that share
repurchases had been ―suspended indefinitely.‖ JX 582. The press release quoted Carter
as stating:
[W]e have decided to use our existing funding resources to take advantage
of this opportune window in the shipping industry. . . . With the
approximate $165 million investment in the ships and the drag on earnings
due to significant losses in our strawberry business, the share repurchase
program is being suspended indefinitely.
Id. at 1. After the announcement, Dole‘s stock price tumbled 10%.
Carter had not informed the Board about his decision to suspend the repurchase
plan, nor had he suggested any connection between the ships and the repurchase plan.
Dole‘s outside directors only learned of the plan‘s cancellation from public sources. Chao
described the press coverage as ―pretty devastating‖ and asked Carter if he had
29
anticipated the response. He had, and he testified at trial that he knew the announcement
would drive down the stock price. JX 592; Carter 1101.
At trial, Carter claimed he cancelled the plan because he was worried about
covenants in Dole‘s debt, and he performed a calculation which showed the covenants
were at risk if Dole immediately spent the entire $200 million to repurchase shares and
immediately paid the entire $165 million for the ships. That calculation was pretextual.
Dole was not obligated to spend the full $200 million on shares, and the program was
authorized to be carried out over a year. The contract for the ships called for payments
spread over four years, with $32.9 million per year due in 2013 and 2014. The Board
believed that the ship acquisition and share repurchase programs were both feasible. So
did BAML, which advised the Board on the share repurchase. On cross-examination
Carter conceded that the debt covenants would not have been tripped by pursuing both
initiatives, even if the ships had been paid in full and all $200 million of share
repurchases were completed in May 2013. Carter 1097-1101. In any case, there was no
reason Carter needed to take action immediately without consulting the Board.
G. Murdock Makes His Proposal.
While these events were unfolding, Murdock was making his final preparations for
the freeze-out. During a meeting on April 12, 2013, Murdock cautioned Deutsche Bank
to provide feedback ―in verbal form only‖ and ―to restrict the working group to only
senior bankers,‖ which meant the people who had ―been at his breakfast table over the
last 90 days.‖ JX 476 at 1. After the meeting, Deutsche Bank updated its internal
materials. JX 1681 at 1.
30
On May 15, 2013, Murdock met with senior bankers from Deutsche Bank and told
them he wanted a ―highly confident‖ letter on May 29 and would ―approach the board on
the 31st.‖ JX 555 at 1. Murdock and Carter spoke with Deutsche Bank again on May 20.
JX 564 at 1. They discussed ―arranger fees‖ for Deutsche Bank to finance the take-
private. Id.
At trial, despite all of his preparations, Murdock testified that he had not yet
decided to propose the Merger. He claimed that in early June 2013, he visited his friend
Lee Kun-hee, the chairman of Samsung, in South Korea, and that Lee told him to make
up his mind. Murdock supposedly decided on the flight back to pursue the freeze-out.
That is a nice story, but Murdock did too much planning over the preceding
months, had been considering a freeze-out for too long, and is too decisive an individual
to have dithered until Lee bucked up his courage. He initially delayed because he thought
the share price was trending down, in part because of Carter‘s activities, and a lower
price would make his proposal look better. See JX 1689. Murdock may well have chosen
not to make his proposal formally until after he returned from Korea, but that was a
matter of personal convenience. It was not because he was at a loss for what to do.10
10
Carter claimed at trial that he was shocked to receive Murdock‘s proposal.
Carter 946. That testimony was not credible. Carter participated in meetings and
conference calls concerning Murdock‘s take-private plans during the preceding months,
and he had helped negotiate the financing fees that Deutsche Bank would earn.
31
H. The Committee
On June 10, 2013, Murdock delivered his initial proposal to the Board. JX 604.
The stock had most recently traded at $10.20. Murdock‘s letter contemplated a
transaction at $12.00 per share. Murdock stated that he was ―a buyer, not a seller,‖ so the
Board would not be able seek a higher price per share from a third party interested in
buying the entire Company. See JX 610; Murdock 460-61; Conrad Dep. 9.
Murdock set a deadline of July 31, 2013, for the Board to respond to his offer. His
letter stated that ―time is of the essence‖ and that he planned to withdraw his offer if it
wasn‘t accepted by July 31. JX 604 at 4. Murdock did not set the deadline because of any
particular event that would occur after July 31. Murdock admitted at trial that he set an
artificial deadline so the Board would have to act quickly. Murdock 459-60.
On June 11, 2013, the Board formed the Committee, comprising Conrad, Chao,
Dickson, and Lansing. Of the four, Conrad had the most entanglements with Murdock:
 Conrad had a long history as a director for Murdock-controlled companies. He
served as a director of Castle & Cooke from 2005 to 2009, and as a director of
Castle & Cooke Investments from 2008 to 2009. At the time of the Merger, he had
served as a director of Dole since 2003 and also served as a director of NovaRx
Corporation, another company that Murdock controlled.
 In addition to serving as a director of NovaRx, Conrad served as a clinical design
consultant for NovaRx and invested $2 million in Prescient Innovations I, LLC,
the affiliate through which Murdock controls NovaRx.
 Conrad and Murdock co-founded the California Health & Longevity Institute,
where Conrad served as the Lab Director. Conrad owned 70% of the entity, which
was located across the street from Dole‘s headquarters in space leased from a
Murdock affiliate.
 Conrad was the Chief Scientific Officer of the North Carolina Research Campus
(the ―NCRC‖), which Murdock founded in 2005 and to which Murdock gave $700
32
million. One of the NCRC‘s programs is the David H. Murdock Research Institute
(the ―Murdock Institute‖). During the time that he served on the Board, Conrad
served as a director of the Murdock Institute. Since 2007, Murdock and his
affiliates made contributions and extended loans to the Murdock Institute totaling
$243.2 million. On May 8, 2013, shortly before he made his merger proposal,
Murdock pledged an additional $50 million to the Murdock Institute.
 Conrad was the Executive Vice President and Chief Scientific Officer of LabCorp.
In collaboration with Duke University, LabCorp was commercializing new
biomarkers using data from the MURDOCK Study (Measure to Understand
Reclassification of Disease of Cabarrus/Kannapolis), funded through a $35 million
grant from Murdock.
In addition to these carrots, Murdock had shown Conrad the stick. After Conrad and
Weinberg led the opposition to Murdock‘s self-tender proposal, Murdock left threatening
voicemails for both of them, and Carter secured Weinberg‘s resignation.
Dickson‘s connections to Murdock were not as extensive as Conrad‘s, but also
deserved a closer look. He was the Emeritus Director of Development at the Mayo
Foundation for Medical Education and Research. Murdock had contributed to the Mayo
Foundation to fund a professorship called the David H. Murdock-Dole Food Company
Professorship, and the Mayo Clinic listed Murdock as a principal benefactor. In 2001 and
earlier, Dickson served as Murdock‘s personal physician. From 1999 to 2003, Dickson
served on the Dole Board, and he was a member of the special committee that approved
Murdock‘s going-private transaction in 2003. After that deal closed, Dickson left the
Board. Murdock reappointed Dickson to the Board in February 2013—just months before
he made his proposal. One might be skeptical about the coincidence. Dickson received
$98,000 for serving on the Committee in 2013, which represented approximately one-
fourth of his income.
33
Lansing was a former actress and successful film studio executive, having served
as Chair and CEO of the Motion Picture Group of Paramount Pictures from 1992 to 2005.
She was also a philanthropic leader. She co-founded the California Spirit gala, which
raises funds for the American Cancer Society. In 2009, the California Spirit event
honored Murdock, and Lansing joined the Board later that year. Of a similar order of
magnitude, Lansing had served on the Board of Regents of the University of California
system since 1999 and was Chair from 2011 to 2013. She also served on the board of the
UCLA Foundation, while Murdock has been a Regents‘ Professor of Creativity in
Business at UCLA‘s Anderson Graduate School of Management and presented at the
UCLA Longevity Center Institute Conference. Lansing also served on the American Red
Cross Board of Governors, which held its All American Award Dinner in 2013 at the
David H. Murdock Core Laboratory at the NCRC.
Chao had the fewest ties to Murdock. She served as a director of Dole from 1993
to 2001, then rejoined the Board in 2009. She served as Secretary of Labor in the cabinet
of President George W. Bush from 2001 to 2009. Murdock raised funds for George W.
Bush. She is married to Senator Mitch McConnell, and Murdock contributed $4,800 to
his campaign in 2008.
Murdock, Carter, and DeLorenzo wanted the Board to pick the Committee‘s
Chair, and they wanted it to be Conrad. The Committee members wanted to pick their
own Chair, and because they comprised a majority of the Board, they were able to
include this power in the resolutions. Murdock, Carter, and DeLorenzo voted against that
34
provision. The disagreement over who should pick the Chair turned out not to matter,
because the Committee chose Conrad anyway.
Before trial, Conrad‘s role as Chair was not a reassuring fact. It was reasonable to
infer from Conrad‘s ties to Murdock, the events surrounding Weinberg‘s resignation, and
the insiders‘ desire to have Conrad as Chair that Conrad would be cooperative, if not
malleable, when facing Murdock. But after hearing Conrad testify and interacting with
him in person at trial, I am convinced that he was independent in fact.
Dickson, Lansing, and Chao did not testify at trial, but having considered the
Committee‘s performance, I have no concerns about their independence. That is all the
more true for Lansing, whose connections to Murdock suggested only that they moved in
the same circles and were not themselves compromising, and for Chao, whose
connections to Murdock were similar in tenor but less extensive.
I. Carter Interferes With The Committee.
With the Committee established, it would have been nice if Murdock and Carter
had stepped aside and let the Committee do its job. They could have taken the 4-to-3 vote
on choosing the Chair as an indication that the Committee would be independent. Instead,
Carter asserted himself.
The first fight was over the scope of the Committee‘s authority. The Committee
wanted its mandate to include considering alternatives to Murdock‘s proposal, with the
additional authority to continue considering alternatives even if Murdock withdrew his
proposal. Carter objected, telling the Committee:
35
The Dole Board created the Special Committee . . . specifically to deal with
Murdock‘s proposal and for no other purpose. That‘s the only delegated
authority from the Board. That‘s why the resolutions have a termination
provision, so that the Special Committee‘s mandate ends if the proposal is
withdrawn. . . . [T]he Board did not replace itself with a charge to sell the
company other than in the context of the proposal.
JX 651 at 1. As Conrad recalled, Carter ―hammered on‖ these issues with the ―intention
to try to limit the scope of what the Committee could do.‖ Conrad Dep. 20. The
Committee members decided not to force the issue because they believed that if push
came to shove, they comprised a majority of the Board and could have a new vote at the
Board level.
The next confrontation was over the Committee‘s ability to enter into non-
disclosure agreements with other potential bidders. Carter insisted on having control over
the terms of the agreements. He stated that ―Dole will not delegate its authority over its
own proprietary confidential information‖ to the Committee, and he insisted that ―Dole
will enter in a direct confidentiality agreement with that party, starting from a standard
form and tailoring for the specific attributes of that third party.‖ JX 651 at 1. On this
issue, Carter was clearly in the wrong, because it was the Committee that was empowered
to exercise Dole‘s authority, not Carter. But the Committee decided not to force this issue
either. As a result, Carter always knew whenever the Committee provided confidential
information to an interested party. Carter nominally worked for Dole, but he really
worked for Murdock, so Murdock knew as well.
The third dispute was over the Committee‘s choice of advisors. Conrad took the
lead in the selection process, and he started by reading MFW. With the help of other
36
Committee members, Conrad compiled a list of law firms and investment banks. To
ensure that their advisors would be independent, Conrad and the Committee ruled out
firms that had done business with Murdock or Dole, as well as any firms that Murdock or
Dole recommended. After interviewing several, they retained Sullivan & Cromwell LLP
and Richards Layton & Finger, P.A. as their legal counsel, and Lazard as their financial
advisor. The lead attorney from Sullivan & Cromwell was Alison Ressler. The lead
partner for Lazard was Al Garner.
Carter objected to Lazard. He wanted the Committee to hire BAML, a bank with a
longstanding relationship with Dole. Carter complained that Conrad had not given him a
draft of Lazard‘s engagement letter before signing it, that a twelve-month engagement
was too long, and that the letter contemplated that Lazard would explore alternative
transactions. Returning to his stance on the Committee‘s mandate, Carter argued that
―Lazard is incentivized to go well beyond Murdock‘s Proposal and the Board‘s intended
scope of the Special Committee.‖ JX 660 at 3. Carter complained to Murdock and
DeLorenzo as well, explaining that ―the scope of Lazard‘s engagement goes well beyond
the Special Committee‘s mandate.‖ Id. at 1.
In response to Carter‘s concerns, the Committee and Lazard removed the reference
to a twelve-month engagement and the detailed description of alternative transactions.
Compare JX 654 with JX 652. At trial, Conrad explained the practical reasoning behind
the concession. Carter was refusing to let Lazard start conducting due diligence until he
signed off on Lazard‘s engagement letter, and the clock was ticking on a response to
Murdock‘s offer.
37
Meanwhile, Murdock was preparing to launch a hostile tender offer if the
Committee did not respond favorably by the July 31 deadline. On June 28, Murdock told
Deutsche Bank that he was 75% sure he wanted to move forward with a hostile tender
offer if the Committee did not agree to a transaction, and he told Deutsche Bank to be
ready to launch in three to four weeks. JX 1729 at 1. Murdock indicated that his reserve
price for the tender offer was between $13.00 and $13.50 per share. Id. Deutsche Bank
prepared an internal ―hostile offer memo‖ describing the offer. JX 1613. A draft press
release contemplated that the offer would be launched during the Committee‘s
deliberations. It included a proposed quotation from Murdock which stated that he was
making a tender offer despite ―recogniz[ing] that the Dole special committee has not
concluded its study of my initial proposal.‖ JX 678 at 2. Other documents confirm that
Murdock was preparing to launch a hostile offer. See, e.g., JX 679; JX 1607; JX 1730; JX
1757. Carter knew that Murdock was preparing the hostile offer and consulted with
Deutsche Bank and Murdock about it. See JX 1729 at 1; JX 1730 at 1; cf. Carter 966. At
trial, Carter argued that he had no obligation to inform the Committee as long as
Murdock had not yet made a firm decision to launch. Carter 1013.
J. Carter Gives False Financial Information To The Committee.
The next step in Carter‘s interactions with the Committee proved fatal to the
process. To be able to negotiate at arm‘s length with Murdock, the Committee needed
reliable financial projections from Dole management. Lazard‘s work, including any
fairness opinion it rendered, likewise depended on ―the accuracy and completeness‖ of
―estimates and forecasts provided by the Company.‖ JX 783 at 2. As Garner candidly
38
acknowledged, material misinformation from the Company could undermine the entire
exercise. Garner 1311.
Carter used his control over Dole‘s management to provide false information to
the Committee. In the ordinary course of business, on an annual basis, Dole prepared
three-year budgets and financial projections using a bottom-up process. That process
typically began in late summer and continued through the fall. It started with the
operating divisions, which created detailed models and projections for Dole‘s
management. Management then aggregated the projections, met with the divisions, and
pushed them to refine their figures. After an iterative process, senior management
generated the final numbers.
Using its standard process, under DeLorenzo‘s direction, Dole had prepared a set
of three-year projections in December 2012 (the ―December Projections‖). In April 2013,
Dole provided the December Projections to its lenders for use in refinancing Dole‘s debt
after the ITOCHU Transaction.
Lazard obtained a copy of the December Projections shortly after being retained.
On July 8, 2013, Lazard met with Dole management to discuss the December Projections.
At the meeting, Lazard asked for updated projections that reflected Dole management‘s
―current best views about the prospects of [the] business.‖ Garner 1248. Lazard also
asked Dole management to extend the projections from three to five years.
Carter took charge of revising the December Projections. He called together
Dole‘s senior management, including the division heads from foreign offices, for a two-
day meeting on July 9 and 10, 2013. During the meeting, Carter instructed the division
39
heads to create modified projections from the top down. Rather than generating a
complete set of projections with supporting profit-loss statements, Carter and his team
created only high-case and low-case adjusted EBITDA forecasts. Carter told the division
heads to reverse engineer the supporting budgets after the meeting. That process was not
completed until July 22, 2013.
On July 11, 2013, Carter presented the new five-year projections (the ―July
Projections‖) to the Board and the Committee. He did not give the Committee or its
advisors the opportunity to meet in person with the division heads.
The July Projections were significantly lower than the December Projections. For
example, the July Projections reduced the EBITDA in year three of the December
Projections from $211.9 million to $169.2 million, a reduction of over 20%. JX 783 at 17.
The July Projections were so low that Lazard did not think they would support
Murdock‘s $12.00 offer, much less provide a basis for negotiating a higher price. Garner
1249. Conrad concluded that the projections were not ―an accurate representation of the
value of the Company.‖ Conrad Dep. 25. Garner thought that ―management had taken a
meat cleaver to the projections in a way that it would be very difficult, if not
inappropriate, for a committee to weigh these projections as the basis for determining the
adequacy of a price.‖ Garner Dep. 32.
Two aspects of the July Projections warrant particular focus. First, the projections
contained only $20 million out of the $50 million in post-ITOCHU cost savings that
Deutsche Bank had validated and DeLorenzo had originally predicted. Carter 881-82.
This decision has already discussed the unsupported nature of that reduction.
40
Second, the July Projections did not forecast that Dole would receive any
additional income from purchases of farms. Carter 985. At the time Carter prepared the
July Projections, Dole management had identified the need to acquire farms as a strategic
imperative. Dole sourced its fruit in Latin America from both Dole-owned farms and
independent growers, and Dole had embarked on a long-term strategy of increasing the
amount of fruit sourced from Dole-owned farms. Historically, Dole occupied an
advantageous position as a middleman that bought from disorganized and unsophisticated
growers and sold to a fragmented distribution market that lacked pricing power. But in
the new millennium, both ends of the equation were changing. Consolidation in the
grocery industry and the entry of large purchasers like Wal-Mart shifted the balance of
pricing power towards distributors. Meanwhile, the internet gave growers access to
detailed pricing information, and changes in the transportation market enabled them to
bypass Dole by shipping fruit in refrigerated containers on general purpose container
ships. The logical strategic response for Dole was to increase the scope of its vertical
integration by acquiring farms, thereby capturing the growers‘ share of the profits.
Before the ITOCHU Transaction, Dole had plans to purchase additional farms in
Latin America. In October 2012, the Board approved the acquisition of 2,328 hectares of
banana farms in Ecuador for $58.9 million, which Dole estimated would generate $15
million per year in incremental income. JX 344 at 71. Dole expected that investing in
other new farms similarly would ―improve [Dole‘s] average fruit cost . . . and margins.‖
JX 900 at 2.
41
Dole delayed the farm purchases because of ―cash flow restrictions‖ before the
ITOCHU Transaction. Id. at 2. The sale to ITOCHU gave Dole the financial resources to
resume its purchases. Id. Dole bought approximately half of its targeted farms before the
remaining purchases were suspended because of a tax dispute with Ecuadorian
authorities. JX 421 at 7; Acuña 1167.
Although Dole had focused initially on Ecuador, the Company‘s interest in farms
was not limited to that country. Dole was engaged in a ―permanent search for the most
efficient source mix‖ in Latin America and beyond. JX 900 at 2. Put simply, Dole was
interested in good deals on farms wherever it could find them, and the capital request for
the Ecuador farms noted that buying farms in Guatemala and Costa Rica would be
advantageous for the same reasons. JX 900 at 2; DeLorenzo 641-43, 680. But the July
Projections did not contain any incremental income from farms.
In contrast to what gave the Committee, Carter provided more positive
information to Murdock‘s bankers when he met with them separately the next day.
Griswold had asked Carter to set up a meeting between Dole management and the lenders
for Murdock‘s freeze-out so that the lenders could conduct financial due diligence.
Having brought Dole‘s management together to create the July Projections, Carter had
them stay for a meeting with Murdock‘s bankers on July 12, 2013 (the ―Lender
Meeting‖). Multiple representatives from Deutsche Bank, BAML, and Scotiabank
attended, as did Griswold and Murdock‘s attorneys from Paul Hastings. At least fourteen
members of Dole‘s senior management were present. Carter did not tell the Committee or
its advisors that the meeting was taking place.
42
Carter claimed at trial that the purpose of the Lender Meeting was to update
Dole‘s existing lenders about the Company‘s performance, not to talk about Murdock‘s
take-private proposal. Carter 964. That was false, as he conceded when confronted with
contrary evidence on cross-examination. Carter 1024. Griswold had asked for the
meeting, and he was not a Dole employee. When instructing Dole management to stay for
the meeting, Carter told them explicitly that they needed to ―[p]lan to hold over to make
presentations/respond to questions in a D/D [due diligence] meeting on Friday July 12 . . .
[to] [a]bout 20+ people from DHM‘s [Murdock‘s] four lead banks re the go-private
proposal.‖ JX 681 (emphasis added). Deutsche Bank regarded the Lender Meeting as a
―Project Fresh Financing Due Diligence Session,‖ using the code name for the freeze-out
(―Project Fresh‖). JX 3042 at 1.
During the Lender Meeting, Carter told Murdock‘s bankers that Dole would
outperform the July Projections. He said that Dole would ―beat or meet forecasts of $155
[million in EBITDA]‖ and that Dole likely could ―upsize the projection by $18-$19
[million].‖ JX 692 at 1.
During the Lender Meeting, Carter discussed the projected $50 million in post-
ITOCHU Transaction cost savings. The meeting agenda included a discussion of the
―timing and realization of total cost savings, originally guided at $50 m[illion] at the time
of [the] announcement of [the] ITOCHU transaction.‖ JX 3042 at 10. In preparing for the
meeting, Carter did not simply stick to the lowered guidance he had given the market in
January. He instead instructed Tesoriero to send him the original analysis that supported
―well over $50 [million in cost savings]‖ on July 2. JX 1697 at 1. According to notes by a
43
Deutsche Bank representative, Carter said Dole already had achieved ―just $20 [million]
of cost savings‖ in the $154 million EBITDA for 2013. JX 692 at 3.
Carter also told Murdock‘s bankers during the Lender Meeting that Dole would be
able to substantially increase its income by buying more farms. Notes taken by a
Deutsche Bank representative reflect that Dole‘s farm purchases ―[e]asily could be $100
[million] ($15 [million] initial return or 20% EBITDA margin).‖ JX 692 at 3. Dole was
―[t]rying to reach a competitive advantage in Guatemala‖ and hence ―buying its own
farms for the first time.‖ Id. at 2. Ecuador remained at the top of the list, but Dole ―could
capture a buck on pricing anywhere by buying farms.‖ Id. at 3. Notes taken by a BAML
representative confirm Dole‘s plan to ―[a]cquire more land to have more Dole owned
bananas and pineapples.‖ JX 699 at 5.
The Committee and its advisors never found out about the full scope of the Lender
Meeting. They did learn the next day that Deutsche Bank had met with Dole management
without them, and they were informed that Deutsche Bank had access to the Committee‘s
data room. JX 700 at 3. But until this litigation, the Committee and its advisors never
knew that BAML, Scotiabank, Wells Fargo, Paul Hastings, and Griswold had also
attended the Lender Meeting, or that Murdock‘s advisors had the opportunity to meet in
person with and question Dole‘s international management. Id.; Conrad 816. By the time
the Committee learned about the meeting, Dole‘s international management team had
already dispersed throughout the world, so the Committee could not obtain equivalent
information for itself. See Conrad 813.
The Lender Meeting was an obvious violation of the procedures that the
44
Committee had established. On June 24, 2013, Conrad had sent letters to Murdock and
Carter setting forth the procedures to be followed for confidential information about Dole
in connection with Murdock‘s proposal. JX 646 (the ―Process Letter‖). The Process
Letter instructed Murdock and his advisors to go through the Committee when interacting
with Dole on matters relating to Murdock‘s proposal. It stated clearly that ―all
communications by you or any of your advisors concerning [the proposed take-private]
. . . should be strictly limited to myself, as Chairman of the Committee, or our advisors,
[Sullivan & Cromwell] and Lazard.‖ Id. at 2.
If the Committee had known about the planned Lender Meeting, it would not have
permitted the meeting to take place. Garner 1323-24. If the Committee had authorized
some form of due diligence meeting for Murdock‘s lenders, then Lazard and possibly the
Committee members themselves would have attended. Id. Lazard and the Committee
never learned what Carter told Murdock‘s lenders about the cost savings and the farms.
Conrad 815-16, 819-22. As Conrad recognized, ―[t]his information would have been
helpful and important to us. We should have known this.‖ Conrad 834.
The Lender Meeting was not the only time that Carter flouted the Committee‘s
instructions. After learning that Deutsche Bank had met with Dole management, Sullivan
& Cromwell instructed Carter to ―immediately shut down Deutsche Bank‘s access to the
data room and cease to provide them with any information.‖ JX 700 at 3. Carter refused.
When Sullivan & Cromwell responded that providing information to Deutsche Bank
violated the Process Letter, Carter responded, without explanation, ―I am complying with
45
the process letter.‖ Id. at 1. But he wasn‘t, and he hadn‘t.11 Carter also had violated the
Process Letter and his duties to Dole by helping Murdock and Deutsche Bank to plan a
hostile tender offer, and he would do so again later in the process by advising Murdock
and his team about negotiating with the Committee and the terms of the eventual merger
agreement.
K. The Committee Develops Its Own Projections.
Once the Committee and Lazard realized that they could not rely on the July
Projections, they decided to prepare their own forecasts. They used the December
Projections as a starting point and made their own adjustments. The Committee instructed
Lazard to attempt to replicate Dole‘s normal bottom-up budgeting process and to draw on
other sources within Dole, such as materials used to secure financing, public statements
about value, and Board presentations.
Using these inputs, Lazard prepared the ―Committee Projections.‖ See JX 783 at
21-22. Conrad personally spent many hours working with Lazard on the new projections.
Conrad 767. The Committee and Lazard concluded that the Committee Projections
11
At trial, after being pinned down on cross-examination and forced to concede
the actual subject matter of the Lender Meeting, Carter characterized his decision not to
tell Lazard about it as an innocent mistake, suggesting that ―if I had to do it again, I
would have [invited Lazard].‖ Carter 965. That testimony was not credible. Carter
invented a cover story for the Lender Meeting at the time, and he stuck with it until it was
proven false on cross-examination at trial. He never provided the Committee with full
disclosure about the participants in the Lender Meeting or its subject matter even after the
fact. And he continued to violate the Process Letter in other ways as the Committee‘s
process unfolded.
46
represented an aggressive but reasonable and achievable forecast. Conrad Dep. 29;
Garner 1258.
Notably, because Lazard relied on guidance provided by Dole management, the
Committee Projections did not include upward adjustments for achieving the final $30
million of the $50 million in cost savings or from the purchases of additional farms.
Conrad 820-22. Lazard did not include any additional cost savings associated with the
division-level restructuring plan that was adopted after the ITOCHU Transaction because
management did not advise Lazard that the remaining initiatives could still be
undertaken. Lazard also did not have access to Tesoriero‘s analysis that supported the
$50 million in cost savings, even though Carter consulted with Tesoriero about it in
preparation for the Lender Meeting. Lazard did include a sensitivity case in its analysis
that contemplated an additional $30 million in annual cost savings. JX 783 at 31. Lazard
calculated that achieving these cost savings would increase Lazard‘s estimate of Dole‘s
value by $345 million, or $3.80 per share. Id.
Lazard did not include a sensitivity case for farms because management had not
provided specific guidance on this issue. Garner 1283-84. By contrast, Carter had told
Murdock‘s bankers in the Lender Meeting that Dole would acquire $100 million in farms,
generating $15 million in annual EBITDA improvement. See JX 692 at 3. DeLorenzo
admitted at trial that the Board had never suspended or terminated the farm purchase
program. DeLorenzo 688.
47
L. The Committee Receives Indications Of Interest From Other Bidders.
After the announcement of Murdock‘s proposal, the Committee and its advisors
received incoming calls from interested parties. The most serious were from two potential
financial buyers, Platinum Equity and Apollo, and two potential strategic buyers,
ITOCHU and Chiquita. The initial expressions of interest from ITOCHU and Apollo did
not develop into offers, and no one focused on them at trial. Platinum Equity floated a
figure of $14 per share, but Garner testified credibly that after questioning Platinum
Equity, Lazard decided that the offer was not serious.
Chiquita, by contrast, was serious about acquiring all of Dole, including
Murdock‘s stake. Lazard viewed Chiquita as the most promising bidder, in part because
Dole and Chiquita had previously come close to finalizing a deal. Because of this view,
the Committee and its advisors asked Murdock to entertain an offer from Chiquita. He
refused, confirming that he was only a buyer, not a seller.
M. The Committee Negotiates With Murdock.
In late July 2013, with Murdock‘s artificial deadline of July 31 approaching, the
Committee decided to send Conrad to meet with Murdock. The Committee and Lazard
had met with Murdock initially on June 24, shortly after Lazard was retained, so that
Murdock could make his pitch. After that meeting, Carter‘s opposition delayed Lazard‘s
access to confidential information, and then Lazard and the Committee had to invest
significant time and effort preparing the Committee Projections.
Conrad met with Murdock at his home on July 27, 2013. The Committee and its
advisors agreed beforehand that Conrad would not make a counteroffer or accept a
48
proposal during the meeting, and Conrad told Murdock that. He also told Murdock that
the July 31 ―deadline was unrealistic unless there was a sensational offer that would wow
the committee‖ and that otherwise the Committee was going to continue its process.
Conrad 778-79.
Murdock became upset. He reiterated his demand that the Committee make a
decision by July 31 and criticized the pace of the Committee‘s work. Conrad 778. During
what Conrad described as an ―arduous‖ meeting, Murdock pressured Conrad, but Conrad
consistently refused to make a counter-offer. Conrad 778-79. Frustrated, Murdock began
negotiating against himself, increasing his offer to $12.25, then to $12.50. Conrad 778.
Finally, Conrad thanked Murdock and started to leave. While Conrad was walking down
the driveway, Murdock called him back and offered $13.05. Conrad 779-80. Conrad
reiterated that he was not authorized to accept an offer and left. Conrad 779-80.
N. The Committee And Murdock Agree On Price.
The Committee scheduled a second meeting with Murdock for five days later, on
August 1, 2013. This time, Lansing accompanied Conrad, with the rest of the Committee
and its advisors available by phone.
The meeting took place at Murdock‘s offices. Murdock attended with his advisors.
Murdock increased his offer to $13.25 per share, stating ―That‘s it, I‘m not going to pay
any more.‖ Murdock 782. After teleconferencing separately with their team, Conrad and
Lansing countered at $14.00. Conrad cited the expression of interest from Platinum
Equity at $14 per share as a justification for that price. Murdock met with his advisors
49
separately and then offered $13.50. Conrad and Lansing teleconferenced again with their
team, and the Committee decided to accept Murdock‘s price.
Conrad felt that Murdock ―had reached his limit‖ and ―that there was nothing left
for him to pay.‖ Conrad 784. Lazard‘s DCF analysis using the Committee Projections
valued Dole at between $11.40 and $14.08, and the $13.50 price fell closer to the top of
the range than the midpoint. See JX 783 at 29. The price also exceeded the ranges of
values generated by Lazard‘s public company and precedent transaction analyses. Id. The
Committee‘s advisors believed that it was a good outcome. Conrad 784. At the time, the
Committee and its advisors did not know that the projections Lazard had used lacked
material information about planned cost savings and farm purchases.
O. The Terms Of The Merger Agreement
After reaching agreement on price, the Committee and its advisors negotiated the
terms of the Agreement and Plan of Merger among DFC Holdings, LLC, DFC Merger
Corp., Murdock, and Dole (the ―Merger Agreement‖). Murdock pushed for a two-step
transaction with strong deal protections, and he claimed (inaccurately) that the
Committee‘s agreement on price had encompassed those terms. See JX 759. The
Committee stood firm and insisted on a one-step transaction, a go-shop period, a small
breakup fee, and an additional equity commitment from Murdock to ensure the
transaction would close.
During the negotiations, without receiving permission from the Committee, Carter
and other members of Dole‘s senior management advised Murdock. They took steps to
conceal their involvement by minimizing their written communications, but the record
50
contains sufficient examples to suggest that the communications were more extensive.
For example, Carter, Potillo, and Jeff Conner, Dole‘s Associate General Counsel, helped
Murdock‘s counsel revise an agreement with Murdock‘s lenders. JX 770. Carter also
spoke with Murdock‘s attorneys about the deal by phone. JX 778. Carter even advised
Murdock‘s attorneys about pro-Murdock terms to obtain in the Merger Agreement. See
JX 759 at 1. He also consulted with Murdock‘s attorneys about how to deal with the
Committee on other matters. See JX 635.
P. The New Budget
While negotiations over the Merger Agreement were ongoing, Carter started
Dole‘s annual budgeting process and instructed Dole‘s divisions to correct certain
unreasonable assumptions made weeks earlier for purposes of the July Projections. On
August 8, 2014, acting on Carter‘s instructions, Dole‘s Controller sent a memo to
management about creating their forecasts. JX 773. The memorandum noted that all
operating divisions except Europe would ―easily‖ exceed 4% EBITDA margins, that the
new base case EBITDA projections needed to be ―at the high end of the EBITDA
projections‖ from the July Projections, and stated that the EBITDA margins therefore
―must meet a minimum 4% target for 2014, with improvements each year thereafter.‖
Id. at 1 (emphasis in original). The memo told management to ignore the EBITDA
forecasts for years four and five in the July Projections because those forecasts ―need to
be reassessed, as these years‘ projections were kept flat from 2016.‖ Id. The new
projections were supposed to be more favorable in other areas as well, with annual capital
expenditures to be forecasted ―at no more than 1.25% of divisional revenues,‖ compared
51
to the 1.5% of revenue forecast in the July Projections. Id.; JX 783 at 15. The memo
emphasized that the materials attached to the email for use in preparing the new
projections were ―not to be circulated outside of this distribution group.‖ JX 773 at 2
(emphasis in original).
If the Committee had seen the new budget or knew about the different
assumptions, it might have upended the agreement on price and reset the valuation
expectations for Dole. On August 11, 2013, it seemed possible that the Committee might
find out. Murdock‘s and Dole‘s attorneys were resisting Sullivan & Cromwell on some
final points. The Committee had been scheduled to meet to consider the Merger
Agreement that day, but on the morning of August 11, Ressler of Sullivan & Cromwell
suggested that the Committee would hold off. She cited a Board meeting scheduled for
the next day at which Dole‘s management would present updated information on the
budget, and she observed that the Committee could take that information into account. JX
782 at 2.
Ressler sent her email to other lawyers who were working on the Merger for Dole.
When they asked Carter about the budget meeting, he lied. Despite having started the
budgeting process and given instructions to Dole‘s controller about the changes to convey
to management, Carter claimed to ―know nothing about a management team meeting next
week.‖ JX 782 at 1. He also wrote that ―[t]here are no changes to the operating budget -- I
had conversations with Lazard yesterday about our timing of payments in 2013 to
husband cash for the closing in light of bank requirements, that‘s all.‖ Id. He concluded,
―I don‘t believe there is any need to delay the merger agreement consideration.‖ Id.
52
Carter also forwarded his response to Murdock‘s attorneys, who used it to push Sullivan
& Cromwell to have the Committee vote on the deal. See JX 780; JX 782 at 1.
Later that morning, Murdock called Conrad and left one of his signature
voicemails. This time he attacked Ressler and urged Conrad to have the Committee
consider the transaction that day.
Yes, Andrew. David [Murdock], here. It is 20 minutes after 11:00 and I
very desperately need to talk to you quickly and if I can possibly get to you.
I don‘t know if this call is going through to you or not. But they are going
to postpone the transaction and they will destroy it today if that woman
lawyer [referring to Ressler] gets her way. And we‘re all wondering – Pete
[Tennyson] and Michael [Carter] – all of us – are wondering what in the
hell do they think they‘re doing. They‘ve already taken 10 days past the 1st
and so they‘ll destroy it. And I‘m urging you not to let them. You have the
power to tell them you want a vote today. They are saying they don‘t want
to vote, and they want to get another meeting on Monday.
JX 787. Conrad received the voicemail. Conrad 788.
The Committee meeting went forward that afternoon, and they recommended
Murdock‘s proposal to the Board. Immediately afterwards, the Board met and approved
the transaction. The terms of the final transaction included an additional $50 million
equity commitment from Murdock plus a 30-day go-shop period during which Dole
would pay Murdock a $15 million breakup fee if Dole terminated Murdock‘s deal to
accept a superior proposal.
After the Merger Agreement was signed, Dole made presentations to the rating
agencies in September 2013 and to its lenders in October 2013 that utilized forecasts
similar to the Committee Projections and significantly higher than the July Projections
that Carter gave Lazard. The presentations noted that (i) Dole planned ―to increase owned
53
production in bananas, pineapples and selected berries to improve productivity at the
farm level,‖ JX 837 at 17, and (ii) the adjusted EBITDA margins for the Fresh Fruit
division were expected to ―increase by 50 bps from 2013 to 2015 due to increased
operating leverage through further investments‖ in Company-owned farms. JX 845 at 2.
Internal management materials entitled ―Latin American 2014 Budget and 5 Y[ear]
P[lan]‖ prepared in October 2013, observed that Dole‘s ―5YP presumes we continue
investing in additional banana and pineapple company farms.‖ JX 879 at 39.
Q. The Transaction Closes.
During the go-shop period, Lazard contacted over sixty parties. Leonard Green &
Partners and Platinum Equity executed confidentiality agreements and met with
management. Both eventually declined to bid.
Murdock‘s financing syndicate changed after the Merger Agreement was signed.
The final price exceeded what the lending group previously had authorized. Wells Fargo,
one of Murdock‘s long-time bankers, dropped out. Deutsche Bank and the other
participating lenders put together the financing.
Dole held a special meeting of stockholders on October 31, 2013. A narrow
majority of 50.9% of the disinterested shares voted in favor, 21.2% voted against, 10.5%
abstained, and 17.4% did not vote. The transaction closed on November 1, 2013.
R. Dole’s Performance Shortly After The Transaction
After the Merger closed, Dole bought almost exactly the amount of farms that
Carter had predicted at the Lender Meeting. Carter told Murdock‘s bankers at the Lender
Meeting that farm purchases ―[e]asily could be $100 [million]‖ and produce a ―$15
54
[million] initial return.‖ JX 692 at 3. Dole met or exceeded both predictions after the
take-private. According to a Wells Fargo analyst report dated December 5, 2014, that
year Dole spent ―$37 million for the acquisition of a pineapple farm and $7 million for
the acquisition of a banana farm . . . . In addition, Dole has purchased several farms
throughout the year, which require payments in FQ4 exceeding $80 million.‖ JX 924 at 2.
A Deutsche Bank report stated that the farms were expected to increase EBITDA by
―around $23 million once the acquisitions are fully integrated.‖ JX 920 at 1. Carter
testified that Dole purchased a total of ―maybe $80, $100 million worth of farms,
roughly‖ in 2014. Carter 985.
The defendants insist that none of these farm purchases could have been foreseen,
but all were consistent with Dole‘s long-term strategy of buying farms. See, e.g., JX 900
at 2. Moreover, Dole actually was considering plans to purchase some of the specific
farms before the Merger. Carter had told Murdock‘s bankers at the Lender Meeting that
Dole was considering buying farms in Ecuador, Guatemala, and Chile. JX 699 at 5; JX
692 at 3. In addition, in October 2013, shortly after negotiations with the Committee
ended, a Dole presentation indicated that the Company was interested in acquiring seven
farms for a total of $75.9 million (including required capital investments for
improvements) at an average cash flow return on investment of 30.9%. JX 879 at 41. The
list identified a pineapple farm in Costa Rica and banana farms in Costa Rica, Ecuador,
Guatemala, Honduras, and Peru. Id. at 47. Just one month after the Merger closed, Dole
acquired a pineapple farm in Costa Rica for approximately $40 million. Acuña 1198.
Dole had identified this farm as an acquisition target in July 2013. Acuña Dep. 16-17.
55
After the Merger closed, Dole achieved more than the $50 million in cost savings
predicted after the ITOCHU Transaction. See JX 914 at 1. Dole achieved roughly $30
million of cost savings in 2014 and approximately $51 million in 2015. JX 920 at 1.
Carter testified that Dole ultimately achieved approximately $70 million in cost
reductions, with only $5.5 million attributed to Dole no longer operating as a public
company. Carter 984, 979.
II. LEGAL ANALYSIS
―This case is another progeny of one of our law‘s hybrid varietals: the combined
appraisal and entire fairness action.‖ Del. Open MRI Radiology Assocs., P.A. v. Kessler,
898 A.2d 290, 299 (Del. Ch. 2006) (Strine, V.C.). The Delaware Supreme Court has
instructed that when a merger gives rise to both a plenary action for breach of fiduciary
duty and a statutory appraisal proceeding, the court should rule on the plenary claims
first, because a finding of liability and the resultant remedy could moot the appraisal
proceeding. Cede & Co. v. Technicolor, Inc. (Technicolor Appraisal I), 542 A.2d 1182,
1189 (Del. 1988). ―[R]egardless of the Court‘s substantive findings, the plaintiffs are
limited to, and statutorily assured of, a single recovery.‖ Bomarko, Inc. v. Int‘l
Telecharge, Inc. (Bomarko I), 794 A.2d 1161, 1177 (Del. Ch. 1999), aff’d, 766 A.2d 437
(Del. 2000) (Bomarko II).
In the plenary proceeding, the plaintiffs claim that the Merger was not entirely
fair. They argue that Murdock, Carter, and DeLorenzo breached their duty of loyalty and
are personally liable for damages, and they contend that Deutsche Bank is also liable as
56
an aider and abetter. They also seek to impose liability on DFC Holdings, LLC, one of
two entities that Murdock used to effect the Merger.
This decision holds that Murdock and Carter breached their duty of loyalty and are
liable to the Class for $148,190,590.18, representing damages of $2.74 per share. The
plaintiffs did not prove their case against DeLorenzo or Deutsche Bank.
A. The Merger Was Not Entirely Fair.
―When a transaction involving self-dealing by a controlling shareholder is
challenged, the applicable standard of judicial review is entire fairness, with the
defendants having the burden of persuasion.‖ Ams. Mining, 51 A.3d at 1239. The Merger
was an interested transaction, so entire fairness provided the baseline standard of review.
Because the record did not permit a pretrial determination that the defendants were
entitled to a burden shift or a lower standard of review, ―the burden of persuasion . . .
remain[ed] with the defendants throughout the trial to demonstrate the entire fairness of
the interested transaction.‖ Id. at 1243.
―The concept of fairness has two basic aspects: fair dealing and fair price.‖
Weinberger v. UOP, Inc., 457 A.2d 701, 711 (Del. 1983). Fair dealing ―embraces
questions of when the transaction was timed, how it was initiated, structured, negotiated,
disclosed to the directors, and how the approvals of the directors and the stockholders
were obtained.‖ Id. Fair price ―relates to the economic and financial considerations of the
proposed merger, including all relevant factors: assets, market value, earnings, future
prospects, and any other elements that affect the intrinsic or inherent value of a
company‘s stock.‖ Id. Although the two aspects may be examined separately, ―the test for
57
fairness is not a bifurcated one as between fair dealing and price. All aspects of the issue
must be examined as a whole since the question is one of entire fairness.‖ Id.
Fairness does not depend on the parties‘ subjective beliefs. Once entire fairness
applies, the defendants must establish ―to the court’s satisfaction that the transaction was
the product of both fair dealing and fair price.‖ Cinerama, Inc. v. Technicolor, Inc.
(Technicolor Plenary IV), 663 A.2d 1156, 1163 (Del. 1995) (internal quotation marks
omitted). ―Not even an honest belief that the transaction was entirely fair will be
sufficient to establish entire fairness. Rather, the transaction itself must be objectively
fair, independent of the board‘s beliefs.‖ Gesoff v. IIC Indus., Inc., 902 A.2d 1130, 1145
(Del. Ch. 2006).
1. Fair Dealing
The evidence at trial established that the Merger was not a product of fair dealing.
This is not a case that requires an overly granular analysis of the Weinberger factors.
Carter engaged in fraud. The concept of entire fairness ―certainly incorporates the
principle that a cash-out merger must be free of fraud or misrepresentation.‖ Rabkin v.
Philip A. Hunt Chem. Corp., 498 A.2d 1099, 1104 (Del. 1985). According to the common
law nostrum, fraus omnia corrumpit—fraud vitiates everything. Here it rendered useless
and ineffective the highly commendable efforts of the Committee and its advisors to
negotiate a fair transaction that they subjectively believed was in the best interests of
Dole‘s stockholders.
58
a. Timing and Initiation
Under Weinberger, the concept of fair dealing encompasses an evaluation of how
the transaction was timed and initiated.12 The scope of this factor is not limited to the
controller‘s formal act of making the proposal; it encompasses actions taken by the
controller in the period leading up to the formal proposal. For approximately eighteen
months, Murdock had planned on taking Dole private after first separating and realizing
the value of Dole‘s higher-margin businesses. This strategy was reflected in the Tesoriero
Memo and Murdock‘s discussions with Deutsche Bank about a spinoff-plus-privatization
structure. It was corroborated by Murdock‘s sales of assets, including Lanai, and his
discussions with Deutsche Bank about the availability of the resulting capital for that
purpose. The ITOCHU Transaction set the stage for the planned freeze-out to unfold. But
rather than making a merger proposal when Dole‘s stock was trading at high levels
12
See, e.g., Glassman v. Unocal Exploration Corp., 777 A.2d 242, 248 (Del.
2001) (reaffirming teaching of Weinberger that fairness must take into account whether
―the merger was timed to take advantage of a depressed market, or a low point in the
company‘s cyclical earnings, or to precede an anticipated positive development‖);
Rabkin, 498 A.2d at 1106 (reversing dismissal of complaint challenging fairness of
freeze-out merger where plaintiff alleged that controller timed the proposal to occur after
a one-year commitment to pay a higher price expired); In re John Q. Hammons Hotels
Inc. S’holder Litig., 2009 WL 3165613, at *14 (Del. Ch. Oct. 2, 2009) (explaining that
―[p]laintiffs could prevail at trial on the issue of fair dealing if they were able to establish
that the price of the minority shares was depressed as a result of Hammons‘s [pre-merger]
improper self-dealing conduct‖); Sealy Mattress Co. of N.J. v. Sealy, Inc., 532 A.2d 1324,
1335 (Del. Ch. 1987) (explaining that a controlling stockholder is ―obliged not to time or
structure the transaction, or to manipulate the corporation‘s values, so as to permit or
facilitate the forced elimination of the minority stockholders at an unfair price‖); see also
Braasch v. Goldschmidt, 199 A.2d 760, 763 (Del. Ch. 1964) (finding that complaint
stated claim based on actions taken before short-form merger in which ―the merger was
the final step of a conspiracy to accomplish an unlawful end by unlawful means‖).
59
following the announcement of the ITOCHU Transaction, which took into account
DeLorenzo‘s explanation of the $50 million in run-rate cost savings that Dole could
achieve, Carter first primed the market by pushing down the stock.13
―[A] calculated effort to depress the [market] price‖ of a stock ―until the minority
stockholders [are] eliminated by merger or some other form of acquisition‖ constitutes
unfair dealing. Sealy Mattress, 532 A.2d at 1336. It is an example of the ―prototype
instance in which the timing of a merger would itself likely constitute a breach of a
controlling shareholder‘s duty‖ under the entire fairness standard, namely, ―when it could
13
Academic research has found a correlation between management-led buyouts
and lowered guidance, increased reserves, and other measures that reduce the apparent
performance of a company during periods before the announcement of the buyout. ―The
US literature on accounting manipulation states that downward earnings management
prior to [management buyouts] is expected.‖ Yaping Mao & Luc Renneboog, Do
Managers Manipulate Earnings Prior to Management Buyouts? 5 (Center Discussion
Paper Series No. 2013-055, October 11, 2013); see James Ang, Irena Hutton & Mary
Anne Majadillas, Manager Divestment in Leveraged Buyouts, 20 European Fin. Mgmt.
462 (2013) (finding positive pre-transaction earnings management when managers
disinvest in a third-party leverage buyout but negative earnings management when
managers retain a significant ownership stake after the transaction); Patricia Dechow,
Weili Ge & Catherine Schrand, Understanding Earnings Quality: A Review Of The
Proxies, Their Determinants And Their Consequences, 50 J. Acc. & Econ. 344 (2010)
(finding that managers have options to make different accounting choices that vary
depending on their misrepresentation objective); Y. Woody Wu, Management Buyouts
And Earnings Management, 12 J. Acc. & Fin. 373 (1997) (finding that earnings
manipulation in management buyouts caused an average decrease in price of 18.6%);
Susan E. Perry & Thomas H. Williams, Earnings Management Preceding Management
Buyout Offers, 18 J. Acc. & Econ. 157 (1994) (finding evidence of downward accrual
management); see also Paul E. Fisher & Henock Louis, Financial Reporting And
Conflicting Managerial Incentives: The Case Of Management Buyouts, 54 Mgmt. Sci.
1700 (2008) (finding downward earnings manipulation generally decreases when the
managers require large amounts of external financing, but that the effect is smaller if the
company has significant fixed assets to serve as collateral). The behavior in this case
provides a real-world example of this phenomenon.
60
be shown both (1) that the minority was financially injured by the timing (i.e., from their
point of view it was an especially poor time to be required to liquidate their investment)
and (2) that the controlling shareholder gained from the timing of the transaction what the
minority lost.‖ Jedwab v. MGM Grand Hotels, Inc., 509 A.2d 584, 599 (Del. Ch. 1986)
(Allen, C.).
As described in the Factual Background, Carter departed from Dole‘s historic
practice by providing earnings guidance, and the guidance he provided changed Dole‘s
estimate of its ability to achieve cost savings after the ITOCHU Transaction. DeLorenzo
had told the markets that Dole could achieve $50 million in cost savings, with $20
million implemented immediately in 2012 and the remaining $30 million implemented in
2013. By the end of 2013, Dole would have achieved the full run-rate of $50 million per
year. In his January 2013 press release, Carter told the markets that Dole‘s ―current
expectation‖ was that Dole only would achieve ―2013 planned cost savings in the $20
million range.‖ JX 384. Dole‘s stock price dropped 13% after the announcement.
It is certainly possible for cost estimates to change, but in this case the evidence at
trial forced me to conclude that Carter‘s reduced estimate was false. Deutsche Bank had
done diligence on Dole‘s cost-cutting plan and believed it was reasonable. DeLorenzo
backed it, and he was a credible witness. Other analyses suggested the total cost savings
could be higher. See JX 1615; JX 389. Carter was not a credible witness on this issue, and
he did not provide a believable explanation for the reduced figure. See Factual
Background, Part F.1, supra.
61
Not coincidentally, after the Merger closed, Dole told the analysts who covered its
publicly traded debt that Dole had completed over $30 million in additional cost cutting.
A Deutsche Bank analyst covering Dole drew the obvious conclusion: ―We would have
expected a rationalization of the business post the [ITOCHU Transaction] but it seems
like the company is just getting around to it now.‖ JX 914. Logically, Dole should have
achieved these savings as a result of the ITOCHU Transaction, not the Merger. In the
ITOCHU Transaction, Dole sold approximately half of its business, significantly
reducing the size of the Company. As DeLorenzo and Deutsche Bank recognized, the
sale naturally presented the opportunity for major cost cutting. The Merger did not. After
Murdock bought it, the Company was essentially the same, with only $5.5 million of
savings attributed to public company costs.14
For Carter to have intentionally given the market a subterranean estimate of Dole‘s
anticipated cost savings matches up with his unilateral and pretextual cancellation of the
14
According to the defendants, Murdock and Carter could not achieve the cost
savings they generated after the Merger as long as Dole was a public company ostensibly
because the cuts were too ―risky‖ for public stockholders. Carter 982. That argument
turns traditional principles of limited liability and diversification upside down.
Diversified public stockholders should be less risk-averse, precisely because of their
diversification, than a large stockholder with non-diversified risk. See, e.g., Gagliardi v.
TriFoods Int’l, Inc., 683 A.2d 1049, 1052 (Del. Ch. 1996) (―Shareholders can diversify
the risks of their corporate investments. Thus, it is in their economic interest for the
corporation to accept in rank order all positive net present value investment projects
available to the corporation, starting with the highest risk adjusted rate of return first.
Shareholders don‘t want (or shouldn‘t rationally want) directors to be risk averse.‖). The
contention that the post-ITOCHU cuts had to be made after the Merger was a face-saving
rationalization of self-interested behavior. The savings from discontinuing Dole‘s status
as a public company stand on a different footing.
62
stock repurchase program that the Board adopted on May 8, 2013. As discussed in the
Factual Background, Murdock had pushed for Dole to engage in a self-tender offer that
would have increased his ownership above a mathematical majority and helped him pay a
lower overall price in an eventual freeze-out. See, e.g., JX 404; JX 447. Led by Conrad
and Weinberg, the Board opted instead for a program of open market purchases that
would provide greater benefits to Dole and its unaffiliated stockholders. Later that month,
the Board also approved the plan for Dole to purchase three new refrigerated transport
ships. On May 28, just under three weeks after the Board approved the repurchase plan,
Carter announced that share repurchases had been ―suspended indefinitely‖ so that Dole
could use its capital on the ships. JX 582. Dole‘s stock price tumbled 10% after the
announcement.
Carter knew the announcement would drive down the stock price. JX 592; Carter
1101. Carter had not informed the Board of this decision or suggested any connection
existed between the ships and the repurchase plan. Dole‘s outside directors only learned
of the decision from public sources. At trial, Carter claimed that he was worried about
covenants in Dole‘s debt, but they would not have been tripped even if Dole spent the
entire $200 million to repurchase shares and immediately paid the entire $165 million for
the ships. Regardless, Dole did not have to do either. Dole was authorized to repurchase
shares in management‘s discretion over the course of a year; it did not have to spend the
full $200 million and not right away. The contract for the ships called for payments
spread over four years, with $32.9 million per year due in 2013 and 2014. The evidence
establishes that the ship acquisition and share repurchase programs were both feasible.
63
Carter did not cancel the stock repurchase plan because doing so would benefit Dole. He
did it to make Dole‘s stock price drop in advance of Murdock‘s planned merger
proposal.15
15
He also did it to spite the outside directors and teach them a lesson about who
was really in charge. During pre-trial proceedings, Murdock and Carter‘s response to the
outside directors‘ opposition to the self-tender was part of what factored into my
conclusion that triable issues of fact existed regarding the Committee‘s independence.
Delaware decisions have long worried about a controller‘s potential ability to take
retributive action against outside directors if they did not support the controller‘s chosen
transaction and whether it could cause them to support a deal that was not in the best
interests of the company or its stockholders. See, e.g., Kahn v. Tremont Corp. (Tremont
II), 694 A.2d 422, 428 (Del. 1997) (describing the inherent coercion present when a
controlling stockholder is on the other side of a transaction as involving the ―risk . . . that
those who pass upon the propriety of the transaction might perceive that disapproval may
result in retaliation by the controlling shareholder‖); In re Cox Commc’ns, Inc. S’holders
Litig., 879 A.2d 604, 617-19 (Del. Ch. 2005) (Strine, V.C.) (describing case law); In re
Pure Res., Inc., S’holders Litig., 808 A.2d 421, 436 (Del. Ch. 2002) (same). The
Delaware Supreme Court has confirmed that controlling stockholder status does not,
standing alone, give rise to concern. In re Cornerstone Therapeutics Inc. S’holders Litig.,
115 A.3d 1173, 1183 (Del. 2015). At the same time, Delaware decisions recognize that
when controllers actually make retributive threats, that fact is evidence of unfair dealing.
See Kahn v. Lynch Commc’n Sys., Inc. (Lynch), 638 A.2d 1110, 1120 (Del. 1994); Reis v.
Hazelett Strip-Casting Corp., 28 A.3d 442, 465 (Del. Ch. 2011) (citing threats made by
controlling stockholder as ―evidence of unfairness‖); Hammons, 2009 WL 3165613, at
*12 n.38 (―[N]either special committee approval nor a stockholder vote would be
effective if the controlling stockholder engaged in threats, coercion, or fraud.‖); cf. Pure
Res., 808 A.2d at 445 (reviewing tender offer by controlling stockholder under lower
standard of review as long as ―the controlling stockholder has made no retributive
threats‖).
In this case, just weeks before Murdock proposed the Merger, Murdock and Carter
gave the outside directors a demonstration of the costs and futility of resistance. When
Murdock and Dole management proposed the self-tender, Conrad and Weinberg opposed
it. As detailed in the Factual Background, Murdock was furious and did everything he
could to pressure both of them into changing their views. After the directors held an
executive session on May 6, 2013, Murdock petulantly absented himself from the next
Board meeting on May 8. After Conrad and Weinberg convinced the Board to adopt the
program of open market repurchases, Murdock left a threatening message for Weinberg
64
b. Transaction Negotiation
Under Weinberger, fair dealing encompasses questions of how the transaction
was negotiated. The defendants have relied on the indisputably excellent work of the
Committee and its advisors. But even the most motivated, skilled, and well-advised
special committee cannot achieve a fair result if those in control of the corporation
deliberately undermine its efforts.16
―[A]n important element of an effective special committee is that it be fully
informed in making its determination.‖17 ―[I]n order to make a special committee
that was ―not for public consumption.‖ Weinberg Dep. 33. A few days later, Carter called
Weinberg and demanded his resignation, citing a ―lack of collegiality at the board level‖
due to Weinberg‘s ―personality clash‖ with Murdock. Carter Dep. 20. Weinberg resigned,
and the full Board accepted his resignation. Less than three weeks later, Carter cancelled
the repurchase program.
Before evaluating the evidence at trial, it seemed to me that these events provided
an extreme example of retributive action that would influence the thinking and actions of
an outside director. Murdock and Carter had shown the outside directors that if they went
in a different direction than Murdock wanted, they risked losing their Board seats, and the
decision they staked their positions on would be nullified. As discussed, having reviewed
the record at trial and heard Conrad testify, I am convinced that the Committee was in
fact independent, notwithstanding Murdock and Carter‘s shot across the bow.
16
See Mills Acq. Co. v. Macmillan, Inc., 559 A.2d 1261, 1284 (Del. 1989)
(―[W]hen a board is deceived by those who will gain from such misconduct, [including
officers of the corporation,] the protections girding the decision itself vanish.‖); cf. Lynch,
638 A.2d at 1120 (holding that even if the members of a special committee were ―truly
independent and . . . performed their tasks in a proper manner,‖ that alone would not be
sufficient to show fair dealing) (citing Am. Gen. Corp. v. Texas Air Corp., 1987 WL
6337, at *4 (Del. Ch. Feb. 5, 1987)).
17
In re Tele-Commc’ns, Inc. S’holders Litig., 2005 WL 3642727, at *10 (Del. Ch.
Dec. 21, 2005); see also Lynch, 638 A.2d at 1120-21 (―Particular consideration must be
given to evidence of whether the special committee was truly independent, fully informed
and had the freedom to negotiate at arm‘s length.‖).
65
structure work it is necessary that a controlling shareholder . . . disclose fully all the
material facts and circumstances surrounding the transaction.‖18 There are certain
categories of negotiating information that the controlling stockholder need not share, such
as ―information disclosing the top price that a proposed buyer would be willing or able to
pay, or the lowest price that a proposed seller would accept,‖ 19 but the categories of
information that the controller must disclose include:
1) . . . all of the material terms of the proposed transaction;
2) . . . all material facts relating to the use or value of the assets in question
to the beneficiary itself. Such facts would include alternative uses for assets
or ―hidden value‖ (e.g., there is oil under the land subject to sales
negotiation);
3) . . . all material facts which it knows relating to the market value of the
subject matter of the proposed transaction. Such facts would include[,] for
example[,] forthcoming changes in legal regulation or technological
changes that would affect the value of the asset in question either to the
subsidiary or to others.
18
Kahn v. Tremont Corp. (Tremont I), 1996 WL 145452, at *15 (Del. Ch. Mar.
21, 1996) (Allen, C.) (internal quotation marks omitted). In Tremont I, Chancellor Allen
held that the special committee functioned effectively and shifted to the plaintiffs the
burden to prove that the transaction price was unfair. Id. at *1. On appeal, the Delaware
Supreme Court held that the special committee had not functioned effectively and
reversed for a new determination of fairness with the burden properly assigned. Tremont
II, 694 A.2d at 429-30. The Delaware Supreme Court did not reverse any of the
Chancellor‘s legal rulings, although it did disagree with the use of the term ―privileged‖
to describe information that a controller can withhold during a negotiation. Id. at 432.
This decision cites aspects of Tremont I that were not reversed on appeal. In light of this
disclosure, citations to Tremont I omit the cumbersome ―rev‘d on other grounds.‖
19
Tremont I, 1996 WL 145452, at *15; accord Pure Res., 808 A.2d at 451.
66
Tremont I, 1996 WL 145452, at *16 (footnotes omitted). These categories are intended to
encompass ―all material information known to the fiduciary except that information that
relates only to its consideration of the price at which it will buy or sell and how it would
finance a purchase or invest the proceeds of a sale.‖ Id.
Implicit in the expectation that the controller disclose this information is the
requirement that the controller disclose it accurately and completely. The controller must
believe that the disclosures are true and cannot deliberately withhold material information
or otherwise immaterial information that is nevertheless necessary to make the disclosed
information complete and non-misleading. The fair dealing element of the entire fairness
standard mandates that all fiduciaries, including the controller and its representatives,
comply with
the duty of candor owed by corporate fiduciaries to disclose all material
information relevant to corporate decisions from which they may derive a
personal benefit. . . . The duty of candor, integral to fair dealing, dictates
that fiduciaries, corporate or otherwise, may not use superior information or
knowledge to mislead others in the performance of their own fiduciary
obligations.20
20
Bomarko I, 794 A.2d at 1180 (internal quotation marks omitted; emphasis
added); accord HMG/Courtland Props., Inc. v. Gray, 749 A.2d 94, 119 (Del. Ch. 1999)
(Strine, V.C.) (explaining that directors have an ―unremitting obligation to deal candidly
with their fellow directors‖ (internal quotation marks omitted)); see Odyssey Partners,
L.P. v. Fleming Cos., 735 A.2d 387, 413 (Del. Ch. 1999) (―No doubt Fleming [the
controlling stockholder] had a duty of disclosure to the ABCO board of directors in
seeking their approval.‖). Even in a short-form merger, where appraisal is the exclusive
remedy, a court of equity has ―the ever-present power . . . to deal with illegality or fraud.‖
Stauffer v. Standard Brands, Inc., 187 A.2d 78, 80 (Del. 1962); accord Braasch, 199
A.2d at 764. See generally In re Unocal Exploration Corp. S’holders Litig., 793 A.2d
329, 347 (Del. Ch. 2000) (―Stauffer and Braasch remain authoritative expressions of the
law.‖), aff’d sub nom. Glassman v. Unocal Exploration Corp., 777 A.2d 242 (Del. 2001).
67
To state what should be obvious, a controller cannot engage in fraud. Nor can a corporate
officer, even if his principal loyalty is to a controller who is his boss and source of post-
transaction employment. To be blunt, if a duly empowered committee asks for
information, a corporate officer, employee, or agent has a duty to provide truthful and
complete information.21
Accurate and up-to-date information about the company‘s financial performance is
particularly important to a committee‘s work. Withholding the company‘s latest
―projections, and knowledge of their existence, from the [Special] Committee and its
advisors‖ is ―without more . . . enough to render the Special Committee ineffective as a
bargaining agent for the minority stockholders.‖ Emerging Commc’ns, 2004 WL
1305745, at *35.
The Committee asked Carter for updated management forecasts that reflected Dole
management‘s ―current best views about the prospects of [the] business.‖ Garner 1248.
Carter constructed a set of projections that contained falsely low numbers. In place of
21
In re Cysive, Inc. S’holders Litig., 836 A.2d 531, 544 (Del. Ch. 2003) (Strine,
V.C.) (holding that the duty of an officer-director was to ―provide the special committee
and its advisors with all the information they asked for, because they were entitled to all
the information the company had‖); see Kalisman v. Friedman, 2013 WL 1668205, at *3
(Del. Ch. Apr. 17, 2013) (―A director‘s right to information is essentially unfettered in
nature.‖) (internal quotation marks omitted); accord Schoon v. Troy Corp., 2006 WL
1851481, at *1 n. 8 (Del. Ch. June 27, 2006); Intrieri v. Avatex, 1998 WL 326608, at *1
(Del. Ch. June 12, 1998); Belloise v. Health Mgmt., Inc., 1996 Del. Ch. LEXIS 127, at
*36 (Del. Ch. June 11, 1996) (Allen, C.).
68
Dole‘s usual bottom-up approach, Carter and the management team created the new
projections from the top down. Garner described the process as follows:
[Dole management] used a different approach than I normally see in which
they basically did not start out by saying what‘s revenues, what‘s expenses,
what‘s the difference and there‘s the profit. They basically said, let‘s look
at the profit line, the EBITDA line that had come from the three-year
process and let‘s see what‘s different from the way we now see the world in
terms of pricing and costs of the system and how the bottom line would
change given management‘s new view of the world. And then they worked
their way back up to the top, you know, in other words, in terms of what the
revenue was. They had a high and a low case and they looked in the middle
and they developed it on the way up. It was – suffice it to say, it was not a
particularly rigorous process in our view.
Garner Dep. 25.
The Committee and Lazard had immediate concerns about the July Projections:
 Dole management could not provide a basis for the reduction in revenue forecasts
as compared to the December Projections.
 The projections were inconsistent with what Dole gave its lenders in April 2013
for the post-ITOCHU Transaction refinancing.
 The forecasts were inconsistent with what the Board reviewed just weeks earlier
when approving the purchase of the new ships.
 The growth forecasted for 2014 and 2015 was ―just an extrapolation based on a
mathematical formula, not on real information.‖ Conrad Dep. 26.
 Dole management inexplicably kept flat the EBITDA estimates for 2016 and 2017
except for a small adjustment for the new cargo ships.
Conrad concluded that the July Projections were not ―an accurate representation of the
value of the Company‖ and that the Committee would ―have to find an independent way
to evaluate the value of the company.‖ Conrad Dep. 25. Garner believed that
―management had taken a meat cleaver to the projections in a way that it would be very
69
difficult, if not inappropriate, for a committee to weigh these projections as the basis for
determining the adequacy of a price.‖ Garner Dep. 32; accord Garner 1249, 1313.
Conrad and Garner were too polite and professional to come right out and say it,
but a court has to call things as they are. The projections Carter provided were knowingly
false. Carter intentionally tried to mislead the Committee for Murdock‘s benefit.
The contrast between what Carter told the Committee and what he told Murdock‘s
lenders and advisors during the Lender Meeting the next day confirms the fraudulent
nature of the July Projections. So does the contrast between what Carter told the
Committee and the instructions he gave a month later for the preparation of the budgets
and projections that would be used to run the Company post-Merger. See Factual
Background, Part P, supra.
Faced with Carter‘s fraud, the Committee and Lazard created, on an expedited
basis, their own set of projections. Their heroic efforts have enabled the defendants to
argue that Carter‘s misconduct was a ―no harm, no foul‖ situation. The Committee and
Lazard did succeed in generating a credible and reliable projection regarding Dole‘s
business—the most credible and reliable projection in the case—but they could not do so
for areas where they did not receive full or accurate information.
The Committee and Lazard never received full and accurate information about the
cost savings that Dole could achieve. Dole management failed to share with the
Committee or Lazard the analysis supporting the $50 million in cost savings that
Tesoriero prepared, even though Carter considered it and contacted Tesoriero about it
before meeting with Murdock‘s lenders. Dole management also did not provide the
70
Committee and Lazard with accurate information about Dole‘s farm purchases, and as a
result Lazard removed any effect of additional farm purchases from its analysis. See
Factual Background, Part K, supra. By providing the Committee with false information,
Carter ensured that the process could not be fair.
Although the false projections were the most egregious of Carter‘s activities, he
interfered with and obstructed the Committee‘s efforts to manage the process and
negotiate with Murdock in other ways as well:
 At the outset, Carter sought to restrict the Committee‘s mandate and limit the
Committee to a simple ―up or down‖ decision on Murdock‘s offer, rather than
having the ability to consider and explore the viability of potentially superior
alternatives.
 Carter resisted the Committee‘s hiring of Lazard, sought to steer the Committee
towards BAML, a banker with a prior relationship with Dole and Murdock, and
attempted to limit the scope of Lazard‘s activities.
 When the Committee asserted its authority to enter into confidentiality agreements
on behalf of the Company, Carter refused to go along, insisting that it was his job.
Through Carter, Murdock thereby gained a window into the Committee‘s actions
that he should not have had.
 Carter secretly assisted Murdock and his advisors in preparing a hostile tender
offer for use if the Committee did not accede quickly enough.
 Carter secretly convened the Lender Meeting, which was a clear violation of the
Process Letter established by the Committee.
 After the Committee caught wind that Deutsche Bank had attended a meeting with
management and had access to the Company‘s data room, Carter did not come
clean about the full scope of the Lender Meeting, its subject matter, or attendees.
 When the Committee instructed Carter to cancel Deutsche Bank‘s access to the
data room, Carter refused.
 Carter secretly advised Murdock on how to negotiate against the Committee and
provided advice to Murdock and his counsel on deal terms and agreements.
71
Given Carter‘s activities, the negotiation of the Merger was the antithesis of a fair
process. Through his actions, Carter ―render[ed] the Special Committee ineffective as a
bargaining agent for the minority stockholders,‖ notwithstanding the Committee‘s valiant
efforts. Emerging Commc’ns, 2004 WL 1305745, at *35.
c. Transaction Structure And Approval
Carter‘s fraud tainted the approval of the Merger by the Committee, as well as the
stockholder vote. Perhaps, with the benefit of full information, the Committee would
have approved the Merger anyway. Whether they would have approved the transaction
―is inherently unknowable because there is no way to learn what [the Committee would
have done] in the absence of [the fiduciaries‘] disloyal conduct.‖ Bomarko, 794 A.2d at
1184.
Likewise, perhaps if the stockholders had full information about Murdock and
Carter‘s activities, both before and during the negotiation process, they might
nevertheless have voted for the deal. That outcome is also impossible to know. Because
both protective procedures were tainted, neither provides evidence of fairness.
There are features of the Merger Agreement which, on different facts, might
provide evidence of fairness. The Committee obtained a go-shop provision with a low
break-up fee, and Lazard diligently sought out other bidders. If Murdock had committed
72
to support an alternative transaction, then the failure of a higher bidder to come forward
would be a significant indicator.22
But Murdock controlled over 40% of Dole‘s voting power, and he was not a seller.
He made that clear in his original proposal. He had affirmed that fact in his meetings with
Conrad. He had confirmed it separately when the Committee asked him to entertain a
proposal from Chiquita. Conrad had to inform potential bidders that Murdock would not
sell his Dole shares or partner with them. On the facts of this case, the go-shop was
cosmetic.
2. Fair Price
The second aspect of the entire fairness inquiry is fair price. ―The fair price
analysis is part of the entire fairness standard of review; it is not itself a remedial
calculation.‖ Reis, 28 A.3d at 465. For purposes of determining fairness, as opposed to
crafting a remedy, the court‘s task is not to pick a single number, but to determine
whether the transaction price falls within a range of fairness. ―The value of a corporation
is not a point on a line, but a range of reasonable values . . . .‖ Cede & Co. v. Technicolor,
22
Compare Cysive, 836 A.2d at 538 (noting that the controlling stockholders
―were enthusiastic supporters of the effort to find a buyer or strategic partner for [the
company],‖ and consequently, the lack of any higher bid provided evidence that the
transaction price was a fair price), and Union Illinois 1995 Inv. Ltd. P’ship v. Union Fin.
Gp., Ltd., 847 A.2d 340, 350 (Del. Ch. 2004) (Strine, V.C.) (finding merger price was a
reliable indicator of the company‘s value where the company‘s largest stockholder was
willing to sell its stake and the sales process was not flawed in any material respect), with
In re First Boston, Inc. S’holders Litig., 1990 WL 78836, at *7 (Del. Ch. June 7, 1990)
(Allen, C.) (―[T]he fiduciaries‘ position may preclude the emerge[nce] of alternative
transactions at a higher price.‖).
73
Inc., 2003 WL 23700218, at *2 (Del. Ch. Dec. 31, 2003), aff’d in part, rev’d in part on
other grounds, 884 A.2d 26 (Del. 2005). When evaluating the fair price aspect of the
entire fairness standard of review, the court considers whether the transaction was one
―that a reasonable seller, under all of the circumstances, would regard as within a range
of fair value; one that such a seller could reasonably accept.‖23 ―A court readily could
conclude that a price fell within the range of fairness and would not support fiduciary
liability, and yet the point calculation demanded by the appraisal statute could yield an
award in excess of the merger price.‖24
―The range of fairness permits a court to give some degree of deference to
fiduciaries who have acted properly; it is not a rigid rule that permits controllers to
impose barely fair transactions.‖ Reis, 28 A.3d at 466. ―The range of fairness concept has
most salience when the controller has established a process that simulates arm‘s-length
bargaining, supported by appropriate procedural protections.‖25
23
Cinerama, Inc. v. Technicolor, Inc. (Technicolor Plenary III), 663 A.2d 1134,
1143 (Del. Ch. 1994) (Allen, C.), aff’d, Technicolor Plenary IV, 663 A.2d 1156; accord
Tremont I, 1996 WL 145452, at *1 (―A fair price is a price that is within a range that
reasonable men and women with access to relevant information might accept.‖).
24
Reis, 28 A.3d at 466; compare Technicolor Plenary IV, 663 A.2d at 1176‐77
(affirming that merger consideration of $23 per share was entirely fair), with Cede & Co.
v. Technicolor, Inc., 884 A.2d 26, 30 (Del. 2005) (awarding fair value in appraisal of
$28.41 per share).
25
Id.; see, e.g., M.P.M. Enters., Inc. v. Gilbert, 731 A.2d 790, 797 (Del. 1999) (―A
merger price resulting from arm‘s-length negotiations where there are no claims of
collusion is a very strong indication of fair value.‖); Van de Walle v. Unimation, Inc.,
1991 WL 29303, at *17 (Del. Ch. Mar. 6, 1991) (―The most persuasive evidence of the
fairness of the $21 per share merger price is that it was the result of arm‘s-length
74
Fair price can be the predominant consideration in the unitary entire fairness
inquiry.26 Most often, however, the two aspects of the entire fairness standard interact. ―A
strong record of fair dealing can influence the fair price inquiry, reinforcing the unitary
nature of the entire fairness test. The converse is equally true: process can infect price.‖27
negotiations between two independent parties, where the seller . . . was motivated to seek
the highest available price, and a diligent and extensive canvass of the market had
confirmed that no better price was available. The fact that a transaction price was forged
in the crucible of objective market reality (as distinguished from the unavoidably
subjective thought process of a valuation expert) is viewed as strong evidence that the
price is fair.‖).
26
Even a controller that has effected a squeeze-out unilaterally with no process at
all conceivably could prove at trial that the transaction was entirely fair. Envision, for
example, an altruistic controller who is the sole director of a privately held company and
who owns a majority of the shares with the balance held by the company‘s employees.
For idiosyncratic reasons, the controller wishes to eliminate the minority. At the same
time, because of the controller‘s relationship with the employees, the controller wishes to
provide an indisputably generous price. The controller implements the deal unilaterally
via a one-page merger agreement, approves it at the board level with a unanimous written
consent, and approves it at the stockholder level by written consent. The concept of
―process‖ is non-existent, but even under those circumstances, I believe that a controller
who proved that the price was indeed fair would not have breached his duties. Cf. In re
Trados Inc. S’holder Litig., 73 A.3d 17 (Del. Ch. 2013) (holding that fiduciaries did not
breach their duties when they failed to follow a fair process yet nevertheless approved a
transaction that yielded a fair price).
27
Reis, 28 A.3d at 467; accord Ross Holding & Mgmt. Co. v. Advance Realty Gp.,
LLC, 2014 WL 4374261, at *33 (Del. Ch. Sept. 4, 2014) (―Robust procedural protections
may support a determination that price was fairly within a range of reasonable values,
and a failure of process may prevent a Court from reaching such a conclusion.‖); see
William Penn P’ship v. Saliba, 13 A.3d 749, 758 (Del. 2011) (―Merely showing that the
sale price was in the range of fairness, however, does not necessarily satisfy the entire
fairness burden when fiduciaries stand on both sides of a transaction and manipulate the
sales process.‖); Tremont II, 694 A.2d at 432 (―[H]ere, the process is so intertwined with
price that under Weinberger‘s unitary standard a finding that the price negotiated by the
Special Committee might have been fair does not save the result.‖); Gentile v. Rossette,
2010 WL 2171613, at *9 (Del. Ch. May 28, 2010) (―From a tainted process, one should
75
The fact that negotiations occurred is not dispositive. ―It is not sufficient for . . . directors
to achieve the best price that a fiduciary will pay if that price is not a fair price.‖ First
Boston, 1990 WL 78836, at *7. Nor is it sufficient to obtain a fair price if that price is not
the best alternative available for the corporation and its stockholders. Id.
The principal evidence on the issue of fair price consists of the expert opinions at
trial, the Committee‘s negotiations, Lazard‘s fairness opinion, and market indications.
Taken together, these sources indicate that without accounting for Carter‘s fraud, the
$13.50 per share price fell within a range of fairness. After accounting for Carter‘s fraud,
the $13.50 per share price represents a closer call, but still may have fallen within the
lower end of a range of fairness.
The opposing expert opinions presented at trial adopted widely divergent views of
the value of Dole, as is often the case in valuation litigation. See In re Appraisal of Dole
Food Co., Inc., 114 A.3d 541, 556-59 (Del. Ch. 2014). Relatively speaking, the plaintiffs‘
expert was more helpful, because his work demonstrated how different assumptions and
inputs affected Dole‘s value. The defense expert did little more than provide a second
fairness opinion using pro-defendant assumptions. Lazard‘s work was far more credible.
As already noted, it was thorough and balanced, and it was prepared for the benefit of the
Committee as part of their consideration of the transaction, rather than by an expert
not be surprised if a tainted price emerges.‖); Bomarko I, 794 A.2d at 1183 (―[T]he
unfairness of the process also infects the fairness of the price.‖); HMG/Courtland, 749
A.2d at 116 (holding that the defendants did not satisfy their burden by showing that the
price was ―within the low end of the range of possible prices that might have been paid in
negotiated arms-length deals‖ where ―[t]he process was . . . anything but fair‖).
76
retained by the defendants to help them defeat the plaintiffs‘ claims. In the final analysis,
neither of the parties‘ experts provided compelling evidence about the fairness or
unfairness of the price.
If the Committee and Lazard had not been misled, then the Committee‘s
negotiations and Lazard‘s analysis would have provided powerful evidence of fairness.
But Carter‘s actions tainted both the negotiation process and Lazard‘s work product.
Methods of valuation ―are only as good as the inputs to the model.‖ Neal v. Alabama By-
Products Corp., 1990 WL 109243, at *9 (Del. Ch. Aug. 1, 1990), aff’d, 588 A.2d 255
(Del. 1991).
Modifying Lazard‘s discounted cash flow (―DCF‖) analysis to take into account
the information that Carter misrepresented or withheld suggests that the $13.50 per share
price may have been below the range of fairness. In its DCF analysis, Lazard determined
that the range of fair value for Dole‘s common stock at the time of the Merger was
between $11.40 and $14.08. In the areas where Lazard received complete information,
the Committee Projections and Lazard‘s DCF provide the best insight into Dole‘s
business and its value at the time of the Merger. But the Committee Projections require
adjustments for the areas where the Committee and Lazard were misled.
The first issue is cost-cutting. The evidence showed that Murdock and Carter
delayed Dole‘s cost-cutting program until after the freeze-out, then achieved more than
$30 million in incremental savings. In its sensitivity table, Lazard calculated that an
incremental $30 million cost savings would justify an increase in price of $3.80 per share.
77
The second issue is farm purchases. At the Lender Meeting, Carter predicted that
Dole easily could purchase $100 million in new farms. The plaintiffs‘ expert, Kevin
Dages, calculated that purchasing an incremental $28.6 million in farms in Ecuador
would have increased Dole‘s value by $1.22 per share. Compare JX 1590 at 108 with id.
at 106. In making this calculation, Dages used 3.2% both as his perpetual growth rate and
to project cash flows in years four and five. Lazard used 1.5%, which this decision adopts
for consistency. Modifying these inputs reduces the value of an incremental $28.6 million
in farms to $0.87 per share. Scaling up the benefit proportionately for Carter‘s $100
million in farm purchases yields incremental value of $3.04 per share.
At the time of the Merger, there was obviously some uncertainty about how much
Dole actually could achieve in cost savings, as well as the number of farms that Dole
could buy and the value they would generate. Both undertakings were riskier and less
certain than Dole‘s established business. In my view, it would overvalue the incremental
cash flows available from these sources to treat them for valuation purposes as being just
as certain as the cash generated by Dole‘s core operations. As discussed below, this
decision finds that for purposes of this case, a more reasonable estimate of the cost
savings is $1.87 per share, and a more reasonable estimate of the value of the planned
farm purchases is $0.87 per share. See, infra, Part D.
Adding the full value of the incremental cost savings and farm purchases ($6.84
per share) increases the range of fair value implied by Lazard‘s DCF to $18.24 to $20.92.
Adding what this decision determines to be a more reasonable assessment of the value of
78
those initiatives ($2.74 per share) increases the range to $14.14 to $16.82. The Merger
price falls below both ranges.
The defendants have argued vociferously—nigh desperately—that the court
cannot consider anything that happened after the Merger closed and must ignore both the
cost savings that Dole actually achieved, as well as its farm purchases. ―Delaware law is
clear that ‗elements of future value, including the nature of the enterprise, which are
known or susceptible of proof as of the date of the merger and not the product of
speculation, may be considered.‘‖ Del. Open MRI, 898 A.2d at 315 (quoting Weinberger,
457 A.2d at 713). ―In essence, when the court determines that the company‘s business
plan as of the merger included specific expansion plans or changes in strategy, those are
corporate opportunities that must be considered part of the firm‘s value.‖ Id. at 315 n.51.
Obviously, when a business has opened a couple of facilities and has plans
to replicate those facilities as of the merger date, the value of its expansion
plans must be considered in determining fair value. To hold otherwise
would be to subject our appraisal jurisprudence to just ridicule. The dangers
for the minority arguably are most present when the controller knows that
the firm is on the verge of break-through growth, having gotten the hang of
running the first few facilities, and now being well-positioned to replicate
its success at additional locations—think McDonald‘s or Starbucks.
Id. at 315-16. This is what Dole was doing with the cost savings and farm purchases. The
plans to cut costs and buy farms to improve profits were part of Dole‘s ―operative reality‖
on the date of the Merger.28
28
See id.; accord Cede & Co. v. Technicolor, Inc., 758 A.2d 485, 499 (Del. 2000)
(holding that post-closing evidence that validated a pre-merger forecast was admissible to
show that ―plans in effect at the time of the merger have born fruition‖); Cede & Co. v.
Technicolor, Inc., 684 A.2d 289, 298‐99 (Del. 1996) (requiring that valuation include
79
The modified DCF analysis suggests that with the benefit of full information about
Dole‘s value, including its plans for cost savings and farms, the Merger price was not
fair. That said, the DCF methodology was not the only method Lazard used, and the fact
that the modified calculations in this decision generate ranges above the deal price does
not mean that Lazard would have made the same judgments or done the math the same
way. Even if Lazard agreed with the figures in this decision, it does not necessarily mean
that the firm would have concluded that the Merger price of $13.50 per share fell below
value of business plans in existence at the time of the merger); Huff Fund Inv. P’ship v.
CKx, Inc., 2014 WL 2042797, at *4 (Del. Ch. May 19, 2014) (―It is clear from our case
law that, where a company begins to implement business plans, revenues from those
plans must be accounted for in an income-based valuation method.‖), aff’d, 2015 WL
631586 (Del. Feb. 12, 2015) (ORDER); ONTI, Inc. v. Integra Bank, 751 A.2d 904, 910
(Del. Ch. 1999) (discussing law governing incorporation in valuation of plans in
existence at the time of the merger); Ryan v. Tad’s Enters., Inc., 709 A.2d 682, 697 (Del.
Ch. 1996) (considering multiple post-closing events in determining the fairness of the
merger price). See generally Lawrence A. Hamermesh & Michael L. Wachter, The Fair
Value of Cornfields in Delaware Appraisal Law, 31 J. Corp. L. 119, 146 (2005)
(―Remember that the company is worth not only the present value of the free cash flow
from its current assets, but also the free cash flows generated by the reinvestment strategy
that it pursues. The development of the cornfield is a reinvestment of the company‘s free
cash flow and, although the actual investments are not made until after the squeeze-out,
the plans are in place before the squeeze-out.‖); John C. Coffee, Jr., Transfers of Control
and the Quest for Efficiency: Can Delaware Law Encourage Efficient Transactions While
Chilling Inefficient Ones?, 21 Del. J. Corp. L. 359, 418 (―Although the idea [of excluding
elements of value arising from the accomplishment or expectation of the merger] makes
some sense in the arm‘s-length transaction where the dissenting shareholder is truly
opting out, it is misapplied in squeeze-outs where the shareholder is being expelled and
where those who remain may be exploiting asymmetric information.‖). Although these
cases focus on appraisal, the valuation principles and standards for determining statutory
fair value are the same as those used to evaluate the fair price aspect of the entire fairness
test. See Orchard Enters., 88 A.3d at 30 & n.11 (collecting cases). Additionally, ―[i]n an
entire fairness case, where the influence of control is important, there is a sucker
insurance purpose to such evidence.‖ In re S. Peru Copper Corp. S’holder Deriv. Litig.,
52 A.3d 761, 812 n.177 (Del. Ch. 2011) (Strine, C.), aff’d 51 A.3d 1213 (Del. 2012).
80
the range of fairness. The firm may have concluded that the price was still fair, albeit at
towards the lower end of fairness.
There are also market indicators. The defendants relied on every transaction that
Dole had considered since Murdock‘s discussion with Del Monte in 2009, as if Dole had
been engaged in an ongoing, multi-year market check. That was a decent try for purposes
of litigation, but it was not what actually happened. The only time Murdock really
considered selling Dole was after the financial crisis, when he and Dole were
overburdened by debt. He solved his difficulties by taking Dole public. From that point
on, the only third-party transaction involving all of Dole that Murdock seriously
considered was the Chiquita deal, which was really an acquisition by Dole of Chiquita
and would have expanded Murdock‘s empire. Otherwise Murdock was not a seller. If
someone had approached him with a blow-out price he likely would have considered it,
but he placed a high value on the benefits of control. He was particularly unwilling to sell
during the period surrounding the Merger, which is the only relevant timeframe.
The defendants have also used metrics implied by various transactions involving
Dole and its peers (Chiquita and Del Monte) to show that the Merger was fair. Taken
together, these indicators point in the same direction as the Lazard analysis: Without
information about Dole‘s cost savings and farm purchases, the $13.50 price was within
the range of fairness. With information about Dole‘s cost savings and farm purchases, the
deal price fell towards the low end of the range of fairness and may have dropped below
it. The defendants also pointed to Wells Fargo‘s decision to withdraw from the loan
syndicate as evidence that the deal price was high. Wells Fargo just as easily could have
81
been uncomfortable with the amount of leverage rather than the price. The number of
turns of leverage that banks will fund is heavily affected by prevailing market conditions,
and there were meaningful external dynamics at work in 2013, such as the ―Taper
Tantrum,‖ when rates jumped in response to concern that the Federal Reserve was
moderating the massive subsidy known euphemistically as Quantitative Easing. See
Frauen 2042-43. On a company-specific level, the degree of leverage also depends on the
size of the equity check, and Murdock was only committing to provide an incremental
$100 million in equity. He did not actually write the check to Dole until early 2015.
Given the multiple factors involved, Wells Fargo‘s apparent discomfort with Murdock‘s
preferred financing package does not indicate that the price was fair.
3. The Unitary Determination Of Fairness
―The concept of fairness is of course not a technical concept. No litmus paper can
be found or [G]eiger-counter invented that will make determinations of fairness . . . .‖
Tremont I, 1996 WL 145452, at *8. ―This judgment concerning ‗fairness‘ will inevitably
constitute a judicial judgment that in some respects is reflective of subjective reactions to
the facts of a case.‖ Technicolor Plenary III, 663 A.2d at 1140.
In my view, Carter‘s conduct rendered the Merger unfair. He engaged in ―fraud,
misrepresentation, self-dealing, [and] gross and palpable overreaching.‖ Weinberger, 457
A.2d at 714. Assuming for the sake of argument that the $13.50 price fell within a range
of fairness, the plaintiffs are entitled under the circumstances to a ―fairer‖ price. Reis, 28
A.3d at 466. This is because by engaging in fraud, Carter deprived the Committee of its
ability to obtain a better result on behalf of the stockholders, prevented the Committee
82
from having the knowledge it needed to potentially say ―no,‖ and foreclosed the ability of
the stockholders to protect themselves by voting down the deal.29
B. The Liability Of The Fiduciary Defendants
A ruling that a transaction is not entirely fair does not automatically result in
liability for the defendants. ―The entire fairness test seeks to determine whether directors
complied with their fiduciary duties.‖ Reis, 28 A.3d at 465. The test ―has only a crude
and potentially misleading relationship to the liability any particular fiduciary has for
involvement in a self-dealing transaction.‖ Venhill Ltd. P’ship v. Hillman, 2008 WL
2270488, at *22 (Del. Ch. June 3, 2008) (Strine, V.C.). Directors who have breached
their duties may have defenses to liability, such as exculpation under Section 102(b)(7) of
the DGCL, protection due to reliance on advisors under Section 141(e) of the DGCL, or
other doctrines.
Section 10.1 of Dole‘s certificate of incorporation provides that ―[t]o the fullest
extent permitted by the DGCL as the same exists or as may hereafter be amended, no
director of the Corporation shall be personally liable to the Corporation or its
29
See HMG/Courtland, 749 A.2d at 116‐17 (finding that although price fell within
lower range of fairness, ―The defendants have failed to persuade me that HMG would not
have gotten a materially higher value for Wallingford and the Grossman's Portfolio had
Gray and Fieber come clean about Gray‘s interest. That is, they have not convinced me
that their misconduct did not taint the price to HMG‘s disadvantage.‖); Bomarko I, 794
A.2d at 1184 (holding that although the ―uncertainty [about] whether or not ITI could
secure financing and restructure‖ lowered the value of the plaintiffs‘ shares, the plaintiffs
were entitled to a damages award that reflected the possibility that the company might
have succeeded absent the fiduciary‘s disloyal acts).
83
stockholders for monetary damages for breach of fiduciary duty as a director.‖ Dkt. 695
Ex. A. (the ―Exculpatory Clause‖). Section 102(b)(7) of the DGCL provides that
the certificate of incorporation may also contain . . . [a] provision
eliminating or limiting the personal liability of a director to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that such provision shall not eliminate or limit the
liability of a director: (i) For any breach of the director‘s duty of loyalty to
the corporation or its stockholders; (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of
law; (iii) under § 174 of this title; or (iv) for any transaction from which the
director derived an improper personal benefit.
8 Del. C. § 102(b)(7). The effect of a provision like the Exculpatory Clause is to protect
directors from personal liability for monetary damages for a breach of fiduciary duty,
except for the four categories listed in Section 102(b)(7). ―The totality of these limitations
or exceptions . . . is to . . . eliminate . . . director liability only for ‗duty of care‘
violations. With respect to other culpable directorial actions, the conventional liability of
directors for wrongful conduct remains intact.‖ 1 David A. Drexler et al., Delaware
Corporation Law and Practice § 6.02[7] at 6‐18 (2013).
When a corporation has an exculpatory provision and a self-dealing transaction
has been determined to be unfair, ―only the self-dealing director [is] subject to damages
liability for the gap between a fair price and the deal price without an inquiry into his
subjective state of mind.‖ Venhill, 2008 WL 2270488, at *22. For other directors, ―even
the ones who might be deemed non-independent by status, the presence of the
exculpatory charter provision . . . require[s] an examination of their state of mind, in
order to determine whether they breached their duty of loyalty by approving the
transaction in bad faith . . . , rather than in a good faith effort to benefit the corporation.‖
84
Id. at *23. ―In other words, their status [as non-independent directors] is only a fact
relevant to the ultimate determination whether they complied with their fiduciary duties,
it is not a status crime making them a guarantor of the fairness of the transaction.‖ Id. In
light of the Exculpatory Clause, ―[t]he liability of the directors must be determined on an
individual basis because the nature of their breach of duty (if any), and whether they are
exculpated from liability for that breach, can vary for each director.‖ Emerging
Commc’ns, 2004 WL 1305745, at *38.
1. Murdock
Murdock is personally liable for damages resulting from the Merger. Murdock
acted in two capacities in connection with the Merger: as Dole‘s controlling stockholder
and as a Dole director.
As this court held in Emerging Communications, a provision like the Exculpatory
Clause ―does not apply to [a defendant] in his capacity as [a] controlling stockholder.‖ Id.
As Dole‘s controlling stockholder, Murdock ―breached his duty of loyalty to . . . the
plaintiff shareholder class, by eliminating [Dole‘s unaffiliated] stockholders for an unfair
price in an unfair transaction . . . . For that breach of duty [Murdock] is liable.‖ Id.
Murdock is also liable in his capacity as a director. He breached his duty of loyalty
by orchestrating an unfair, self-interested transaction. In addition, as the buyer, he
―derived an improper personal benefit‖ from the transaction. Id. The Delaware Supreme
Court recently confirmed this outcome in Cornerstone: As the interested party, ―a finding
of unfairness after trial will subject [him] to liability for breach of the duty of loyalty
85
regardless of [his] subjective bad faith.‖ 115 A.3d at 1181; accord Venhill, 2008 WL
2270488, at *22.
Up to this point, this decision has not focused separately on DFC Holdings, LLC,
an entity Murdock controlled and used as one of the acquisition vehicles for the Merger.
Before the Merger, DFC Holdings, LLC was the sole owner of DFC Merger Corp., which
merged with and into Dole. In Emerging Communications, this court held that the
acquisition vehicles that the controlling stockholder used to effectuate an unfair freeze-
out merger were liable as aiders and abetters to the same extent as the controlling
stockholder. 2004 WL 1305745, at *38. The same analysis applies to DFC Holdings,
LLC.
2. Carter
Carter is personally liable for damages resulting from the Merger. He also acted in
two capacities in connection with the Merger: as a director and as Dole‘s President, Chief
Operating Officer, and General Counsel. He is liable both as a director and as an officer.
Carter is not entitled to exculpation in his capacity as a director because he
breached his ―duty of loyalty to the corporation [and] its stockholders‖ and his acts and
omissions were ―not in good faith.‖ 8 Del. C. § 102(b)(7). The Delaware Supreme Court
has held that for purposes of the Delaware common law of fiduciary duties, these
concepts elide: The duty of loyalty includes a requirement to act in good faith, which is
―a subsidiary element, i.e., a condition, of the fundamental duty of loyalty.‖ Stone ex rel.
AmSouth Bancorporation v. Ritter, 911 A.2d 362, 370 (Del. 2006) (internal quotation
marks omitted). Likewise for purposes of the Delaware common law of fiduciary duties,
86
the Delaware Supreme Court has held that ―acting in bad faith‖ and ―not acting in good
faith‖ are two sides of the same coin.30 At a minimum, good faith requires that the
decision-maker act ―honestly and without pretext.‖31 Bad faith involves the opposite. In
its most extreme form, it involves ―the conscious doing of a wrong because of dishonest
purpose or moral obliquity‖ or ―a state of mind affirmatively operating with furtive
design or ill will.‖ McGowan v. Ferro, 859 A.2d 1012, 1036 (Del. Ch. 2004). But it also
encompasses other failures to act in good faith, including when a decision-maker
―intentionally fails to act in the face of a known duty to act, demonstrating a conscious
disregard for [the decision-maker‘s] duties,‖ or when the decision-maker ―intentionally
acts with a purpose other than‖ the purpose that the decision-maker is obligated to
30
See ev3, Inc. v. Lesh, 114 A.3d 527, 539 (Del. 2014); DV Realty Advisors LLC
v. Policemen’s Annuity & Benefit Fund of Chi., 75 A.3d 101, 110-11 (Del. 2013); Allen v.
Encore Energy P’rs, L.P., 72 A.3d 93, 104 (Del. 2013); Stone v. Ritter, 911 A.2d 362,
369 (Del. 2006); In re Walt Disney Co. Deriv. Litig. (Disney II), 906 A.2d 27, 67 (Del.
2006). See generally Leo E. Strine, Jr. et al., Loyalty’s Core Demand: The Defining Role
of Good Faith in Corporation Law, 98 Geo. L.J. 629 (2010).
31
Joseph K. Leahy, A Decade After Disney: A Primer on Good and Bad Faith, 83
U. Cin. L. J. 859, 864 (2015); accord Strine, supra, at 655 (explaining that the concept of
good faith encompasses a director‘s ―honest, non-pretextual use of power‖). For cases
illustrating these concepts see, e.g., Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984)
(explaining that as part of the business judgment rule, directors are presumed to act ―in
good faith and in the honest belief that the action taken was in the best interests of the
company‖); In re Walt Disney Co. Deriv. Litig. (Disney I), 907 A.2d 693, 755 (Del. Ch.
2005) (―To act in good faith, a director must act at all times with an honesty of purpose
and in the best interests and welfare of the corporation.‖), aff’d, 906 A.2d 27 (Del. 2006);
Kaplan v. Goldsamt, 380 A.2d 556, 568 (Del. Ch. 1977) (stating that directors must act
―in good faith, with honest motives, and for honest ends‖).
87
pursue.32 A corporate fiduciary thus acts in bad faith when motivated by a purpose other
than that of advancing the best interests of the corporation and its stockholders.33
Carter demonstrated that his primary loyalty was to Murdock, not to Dole or to its
unaffiliated stockholders. Through Dole, Murdock was Carter‘s employer, and Carter
would continue to run Dole for Murdock after the Merger. Carter knew of Murdock‘s
buyout plans at least as early as January 2013, and he consistently acted to promote
Murdock‘s interests. In support of Murdock‘s plan to privatize Dole, Carter (i) pushed
down the stock price, (ii) advocated for the self-tender, (iii) participated in calls and
meetings concerning Murdock‘s plans to launch a hostile tender offer, (iv) sought at the
32
Disney II, 906 A.2d at 67; accord Stone, 911 A.2d at 369 (―A failure to act in
good faith may be shown, for instance, where the fiduciary intentionally acts with a
purpose other than that of advancing the best interests of the corporation . . . .‖ (quoting
Disney II, 906 A.2d at 67)).
33
See Venhill, 2008 WL 2270488, at *28 (―Howard did not act in the good faith
pursuit of Venhill‘s best interests, as he was bound to do. Instead, he acted in bad faith by
impoverishing Venhill in order to keep Auto‐Trol afloat for personal reasons unrelated to
Venhill‘s own best interests.‖); Guttman v. Huang, 823 A.2d 492, 506 n.34 (Del. Ch.
2003) (Strine, V.C.) (―A director cannot act loyally towards the corporation unless she
acts in the good faith belief that her actions are in the corporation‘s best interest. . . . The
reason for the disloyalty (the faithlessness) is irrelevant, the underlying motive (be it
venal, familial, collegial, or nihilistic) for conscious action not in the corporation‘s best
interest does not make it faithful, as opposed to faithless.‖); Gagliardi v. TriFoods Int’l,
Inc., 683 A.2d 1049, 1051 n.2 (Del. Ch. 1996) (Allen, C.) (defining a ―bad faith‖
transaction as one ―that is authorized for some purpose other than a genuine attempt to
advance corporate welfare or is known to constitute a violation of applicable positive
law‖); In re RJR Nabisco, Inc. S’holders Litig., 1989 WL 7036, at *15 (Del. Ch. Jan. 31,
1989) (Allen, C.) (explaining that the business judgment rule would not protect ―a
fiduciary who could be shown to have caused a transaction to be effectuated (even one in
which he had no financial interest) for a reason unrelated to a pursuit of the corporation‘s
best interests‖).
88
outset to restrict the authority of the Committee and its advisors, (v) created falsely low
forecasts for the Committee to use, (vi) convened the secret Lender Meeting and lied to
the Committee about his supposed compliance with the Process Letter, (vii) disregarded
the Committee‘s instructions to terminate Deutsche Bank‘s access to the data room, (viii)
provided advice to Murdock, Deutsche Bank, and Murdock‘s counsel, and (ix) started a
new budgeting process using quite different and more positive assumptions and estimates
without telling the Committee. Carter‘s vote in favor of the Merger as a director was the
culmination of a course of conduct permeated by bad faith and disloyalty.
Carter also acted in his capacity as Dole‘s President, COO, and General Counsel.
Indeed, Carter primarily interacted with the Committee as an officer. When he provided
false information to the Committee and when he organized and led the Lender Meeting,
Carter was acting primarily as President and COO of Dole. When he interfered with the
Committee‘s operations in other ways, such as by trying to cabin its mandate, objecting
to Lazard, insisting on having control over Dole‘s confidential information, and
providing legal and strategic advice to Murdock, Carter was acting primarily as Dole‘s
General Counsel. As an officer, Carter owed the same duties that he owed as a director,
but the Exculpatory Clause does not protect him when acting in those capacities. Gantler
v. Stephens, 965 A.2d 695, 709 nn.36-37 (Del. 2009).
3. DeLorenzo
DeLorenzo presents a close call, but I conclude that he is not liable to the
plaintiffs. After the ITOCHU Transaction, DeLorenzo left Dole but remained on the
Board. The plaintiffs contend that Murdock kept him there to have a guaranteed vote in
89
favor of the Merger. As evidence of DeLorenzo‘s allegiance to Murdock, they observe
that he voted against the Committee‘s resolution to give it authority to appoint its own
chairman—something DeLorenzo admitted did not make sense. DeLorenzo 699-701. The
plaintiffs then analogize DeLorenzo‘s situation to Salvatore Muoio in Emerging
Communications. 2004 WL 1305745 at *39-40. In that decision, Justice Jacobs (sitting
by designation) held that a director who (i) had longstanding affiliations with the
controller, (ii) was serving as a paid consultant for the controller and was seeking
additional business from the controller, and (iii) continued to have financial relationships
with the controller after the transaction failed to prove that he was entitled to exculpation.
Id. Justice Jacobs observed that Muoio had special expertise that placed him ―in a unique
position‖ to know that controller‘s freeze-out was unfair, yet he remained silent and voted
in favor of the deal.
In these circumstances, it was incumbent upon Muoio, as a fiduciary, to
advocate that the board reject the $10.25 price that the Special Committee
was recommending. As a fiduciary knowledgeable of [the controlled
company‘s] intrinsic value, Muoio should also have gone on record as
voting against the proposed transaction at the $10.25 per share merger
price. Muoio did neither. Instead he joined the other directors in voting,
without objection, to approve the transaction.
Id. at *40. Justice Jacobs noted that unlike other less knowledgeable and less
sophisticated directors, Muoio could not claim to have relied on the fairness opinion
obtained by the committee. Id.
Given these facts, Justice Jacobs asked the following question: ―Knowing (or at
least having very strong reasons to suspect) that the price was unfair, why, then, would
Muoio vote to approve the deal?‖ Id. He recognized that the possibility existed that
90
Muoio sincerely believed that the $10.25 price was minimally fair, but he observed that
under Section 102(b)(7), the burden falls upon the director to show that his failure to
withstand an entire fairness analysis is exclusively attributable to a violation of the duty of
care.‖ Id. (citing Emerald II, 787 A.2d at 98) (internal quotation marks and alterations
omitted). He continued:
The credible evidence persuades the Court that Muoio‘s conduct is
explainable in terms of only one of two possible mindsets. The first is that
Muoio made a deliberate judgment that to further his personal business
interests, it was of paramount importance for him to exhibit his primary
loyalty to [the controller]. The second was that Muoio, for whatever reason,
consciously and intentionally disregarded his responsibility to safeguard the
minority stockholders from the risk, of which he had unique knowledge,
that the transaction was unfair. If motivated by either of those mindsets,
Muoio‘s conduct would have amounted to a violation of his duty of loyalty
and/or good faith.
Id. (internal quotation marks and footnotes omitted). Justice Jacobs concluded that Muoio
had ―not established to the satisfaction of the Court, after careful scrutiny of the record,
that his motivation was of a benign character.‖ Id.
The plaintiffs contend that DeLorenzo, even more so than Muoio, possessed
specialized knowledge about the value of Dole. He knew in particular about the cost
savings available after the ITOCHU Transaction, having led the effort to identify a total
of $50 million in recurring savings and given that number to the market, and he also
knew about Dole‘s plans to buy farms. They contend DeLorenzo should have advocated
against a transaction that he knew undervalued Dole and voted against the deal. They say
that instead he remained silent and voted in favor of the Merger to further his relationship
91
with Murdock and because he had been well compensated by Murdock and Dole over the
years.
DeLorenzo‘s situation resembles Muoio‘s in many ways. The principal
distinctions are that DeLorenzo had left to work for ITOCHU, was no longer receiving
remuneration from Murdock or his companies, and was not soliciting business from
Murdock. At most, DeLorenzo may have felt some residual loyalty to Murdock.
Importantly, DeLorenzo did not personally participate in or know about the specific
misconduct in which Murdock and Carter engaged.
Ultimately what is required is an assessment of DeLorenzo‘s motives. ―[D]ivining
the operations of a person‘s mind is an inherently elusive endeavor.‖ Id. at *40. Although
the issue is close and the analogy to Emerging Communications is strong, I find that
DeLorenzo was entitled to rely on the Committee‘s recommendation of the Merger. See 8
Del. C. § 141(e). I do not believe that he acted disloyally or in bad faith. He is therefore
entitled to exculpation. See 8 Del. C. § 102(b)(7).
C. The Claim For Aiding And Abetting Against Deutsche Bank
The plaintiffs seek to impose liability on Deutsche Bank for aiding and abetting
Murdock and Carter‘s breaches of fiduciary duty. This claim has four elements: (i) the
existence of a fiduciary relationship, (ii) a breach of the fiduciary‘s duty, (iii) knowing
participation in the breach, and (iv) damages proximately caused by the breach. Malpiede
v. Townson, 780 A.2d 1075, 1096 (Del. 2001). The finding of liability against Murdock
and Carter satisfies the first, second, and fourth elements, but the third element is lacking.
92
Because the involvement of secondary actors in tortious conduct can take a variety
of forms that can differ vastly in their magnitude, effect, and consequential culpability,
the element of ―knowing participation‖ requires that the secondary actor have provided
―substantial assistance‖ to the primary violator. Kuhns v. Bruce A. Hiler Delaware QPRT,
2014 WL 1292860, at *21 (Del. Ch. Mar. 13, 2014). Section 876(b) of the Restatement
(Second) of Torts reflects this requirement by making a secondary actor liable ―[f]or
harm resulting to a third party from the tortious conduct of another‖ if the secondary
actor ―knows that the other‘s conduct constitutes a breach of duty and gives substantial
assistance or encouragement to the other so to conduct himself.‖ Restatement (Second) of
Torts § 876(b) (1979); see Anderson v. Airco, Inc., 2004 WL 2827887, *2-3 (Del. Super.
Nov. 30, 2004).
A court‘s analysis of whether a secondary actor ―knowingly‖ provided ―substantial
assistance‖ is necessarily fact intensive. Illustrative factors include the following:
 The nature of the tortious act that the secondary actor participated in or
encouraged, including its severity, the clarity of the violation, the extent of the
consequences, and the secondary actor‘s knowledge of these aspects;
 The amount, kind, and duration of assistance given, including how directly
involved the secondary actor was in the primary actor‘s conduct;
 The nature of the relationship between the secondary and primary actors; and
 The secondary actor‘s state of mind.
The list is drawn from and expands on factors that appear in Kuhns, which drew its list
from Patton v. Simone, 1992 WL 398478, *12 (Del. Super. Dec. 14, 1992).
In the current case, the plaintiffs did not prove that Deutsche Bank knowingly
participated in the breaches of duty giving rise to fiduciary liability. The critical breaches
93
of duty involved fraud regarding Dole‘s cost-cutting and purchases of farms. The tortious
conduct was serious, its wrongfulness was clear, and the extent of the consequences was
obvious, but Deutsche Bank did not know about or participate in those acts. Deutsche
Bank did not make any of the misrepresentations, was not present for them, and did not
conceal information from the Committee. Deutsche Bank was not directly involved, nor
even secondarily involved, in the critical breaches of duty.
Deutsche Bank did participate directly in the Lender Meeting, but the plaintiffs did
not prove that Deutsche Bank knew about the Process Letter or that the meeting violated
its terms. A sophisticated firm like Deutsche Bank doubtless would have expected the
Committee and its advisors to establish protective procedures such as those set forth in
the Process Letter, and if the Deutsche Bank representatives had pondered whether the
Committee had authorized the meeting, then they likely would have found it suspicious
that Lazard and possibly Conrad and other Committee members were not in attendance.
But even then, Carter and his team might have provided the same information to the
Committee and Lazard separately. Deutsche Bank did not have any reason to think that
the information it received at the Lender Meeting was different than the information that
the Committee received.
The most that can be said is that the Deutsche Bank professionals who attended
the meeting might have had some reason to be concerned that something may have been
amiss. For that purpose, it is important to consider that when the Lender Meeting took
place, Deutsche Bank was acting as Murdock‘s advisor and lead financier. Given that
role, I do not believe it was Deutsche Bank‘s job to call the Committee, its counsel, or
94
Lazard to make sure everything was OK.34 The fault lay with Dole‘s officers and
employees, principally Carter, who owed their duties to Dole and, for purposes of
Murdock‘s offer, reported to and acted under the direction of the Committee. The same
analysis applies to Deutsche Bank‘s access to the Committee‘s data room and its
communications with Carter, Potillo, and other Dole officers.
The plaintiffs take a broader view of Deutsche Bank‘s culpable conduct. They
argue that Deutsche Bank should be liable for acting as Murdock‘s de facto advisor,
advancing his interests, and assisting him with preliminary planning for the freeze-out
beginning in 2012. The plaintiffs emphasize the periods when the bank was formally
advising Dole on the strategic business review and the ITOCHU Transaction, but they
also stress the months from January through May 2013 when Deutsche Bank was
communicating regularly with Carter, Potillo, and other Dole officers to help plan the
freeze-out.35 The plaintiffs complain that Deutsche Bank knowingly received confidential
Dole information that it used to help Murdock plan the freeze-out and to advance his
interests on other matters.
This theory might present problems for Deutsche Bank if it constituted an inherent
breach of duty for a director or officer to share Dole‘s confidential information with a
34
Of course, had they done so, it would have been commendable and insulated
them from any risk of liability relating to the meeting.
35
See Murdock 132-33, 248-60, 262-269, 286-290; Carter 950, 954; Grellier
2149-2165, 2197-2202; JX 173; JX 244; JX 393; JX 394; JX 396; JX 404; JX 476; JX
478; JX 1634; JX 1670; JX 1671.
95
substantial stockholder without Board authorization. In his capacity as a director and
Dole‘s de facto controller, and later as its CEO, Murdock had complete access to Dole‘s
confidential information. Because Murdock was also Dole‘s controlling stockholder, and
because he is a human being with only one brain, in practice he was necessarily and
constantly sharing that information with himself in his stockholder capacity. He went
further by sharing Dole‘s confidential information with his personal advisors, such as
Deutsche Bank, Griswold, and his counsel at Paul Hastings, during periods when they
were advancing his personal interests as a stockholder. At Murdock‘s direction, other
Dole fiduciaries, like Carter and Potillo, also shared confidential information and
participated in discussions with Deutsche Bank, Griswold, and Paul Hastings. If Murdock
had been a third party unaffiliated with Dole, rather than its dominant investor, no one
from Dole would have been sharing this information with him and his advisors. At a
minimum they would not have received information without Board approval and a
confidentiality agreement.
In my view, a fiduciary sharing of information with an affiliated stockholder and
its advisors, standing alone, is not inherently a breach of duty. 36 It depends on what the
36
See Kalisman, 2013 WL 1668205, at *6; Kortum v. Webasto Sunroofs, Inc., 769
A.2d 113, 121 (Del. Ch. 2000); KLM v. Checchi, 1997 WL 525861, at *2‐3 (Del. Ch.
July 23, 1997); Moore Bus. Forms, Inc. v. Cordant Hldgs. Corp., 1996 WL 307444, at *5
(Del. Ch. June 4, 1996); AOC Ltd. P'ship v. Horsham Corp., 1992 WL 97220, at *1 (Del.
Ch. May 5, 1992); see also Schoon v. Smith, 953 A.2d 196, 208 (Del. 2008) (holding that
director lacked standing to sue derivatively because stockholder he represented could
bring suit, which only could happen if director was able to share information with
affiliated stockholder). For discussions of the nuanced issues raised by information
sharing and the difficulties of a bright-line rule that either permits or prohibits sharing,
96
provider and recipients do with the information, including whether they use the
information to the detriment of the corporation and its stockholders or to benefit
themselves improperly.37 Under existing law, it does not seem to me that the information
sharing and preparatory activities in which Murdock engaged, including Deutsche Bank‘s
consultations with Dole officers and its use of Dole‘s confidential information for
preliminary takeover planning, rose to the level of breach.38 Of course, just as the law
see J. Travis Laster & John Mark Zeberkiewicz, The Rights and Duties of Blockholder
Directors, 70 Bus. Law. 33, 54-57 (2015); Cyril Moscow, Director Confidentiality, 74 L.
& Contemp. Probs. 197 (2011), and Catherine G. Dearlove & Jennifer J. Barrett, What To
Do About Informational Conflicts Involving Designated Directors, 57 Prac. Law. 45
(2011).
37
See, e.g., Oberly v. Kirby, 592 A.2d 445, 463 (Del. 1991) (―It is an act of
disloyalty for a fiduciary to profit personally from the use of information secured in a
confidential relationship.‖) (emphasis added); Brophy v. Cities Serv. Co., 70 A.2d 5, 7-8
(Del. Ch. 1949) (―A fiduciary is subject to a duty to the beneficiary not to use on his own
account information confidentially given him by the beneficiary or acquired by him
during the course of or on account of the fiduciary relation or in violation of his duties as
fiduciary, in competition with or to the injury of the beneficiary, . . . unless the
information is a matter of general knowledge.‖ (internal quotation marks omitted;
emphasis added)); Holdgriewe v. Nostalgia Network, Inc., 1993 WL 144604, at *6-7
(Del. Ch. Apr. 27, 1993) (Allen, C.) (limiting director‘s ability to share information
directly or through advisors where he was affiliated with entity engaged in active
litigation against corporation); Henshaw v. Am. Cement Corp., 252 A.2d 125, 130 (Del.
Ch. 1969) (same; noting that a remedy for breach of fiduciary duty would exist if the
director seeking inspection were to ―abuse his position as director [by making]
information available to persons hostile to the corporation or otherwise not entitled to
it‖).
38
Imagine an alternative history in which Murdock not only mimicked MFW‘s
form but adhered to its substance. Under those circumstances, the Committee would have
had full access to accurate information about the Company, could have bargained with
Murdock on an informed and arm‘s length basis, and could have agreed to a deal or, if it
concluded that Murdock was not willing to pay a fair price or that there were better
alternatives available for Dole and its stockholders, said no. By stepping back from his
97
could have a bright-line anti-sharing rule, it could have a bright-line rule against
unauthorized bid preparations by insiders. Indeed, such a rule likely follows from a
strong-form anti-sharing rule. Under such an approach, the law would require a controller
like Murdock (or a manager considering an LBO) to act like a third-party bidder. Before
a third-party bidder can legitimately access confidential information about its target, it
has to approach the company and obtain permission. A controller or manager would have
to do the same. Under such a regime, an advisor who consciously assisted a fiduciary in
preparing an as-yet unauthorized bid would have knowingly participated in the breach. If
the company or its stockholders suffered harm, as they did here, then the advisor would
be jointly and severally liable. But our law does not appear to me to have adopted a
bright-line position. The use and sharing of information is rather another context-
dependent inquiry.
If I am incorrect and Murdock‘s sharing and use of Dole‘s confidential
information was prohibited, then Deutsche Bank knowingly participated in the breach.
Under the first illustrative factor, Deutsche Bank knew that it was receiving confidential
information from Murdock, Carter, Potillo, and other Dole insiders, and it used the
information to assist Murdock in planning for the freeze-out and on other issues that
controller role and disabling himself at the Board and stockholder level when he made his
initial proposal, Murdock would no longer have stood on both sides of the transaction, the
Committee could have performed its function effectively, and the stockholders could
have protected themselves at the ballot box. It does not seem to me that under those
circumstances, Murdock would be thought to have breached his fiduciary duties by
making preparations for his offer and enlisting Deutsche Bank‘s assistance.
98
affected his personal interests as a stockholder. Deutsche Bank‘s assistance was
prolonged and extensive. At all stages, its relationship with the primary actors was
problematic. Deutsche Bank took pains at trial to stress that at many points when it was
receiving and using this information, it was not working for Dole. During those periods,
Deutsche Bank knew it should not have access to Dole‘s confidential information. At
other times, Deutsche Bank was serving as a common law agent and owed a duty of
loyalty to Dole.39 During those periods, Deutsche Bank should have been focused on
promoting Dole‘s interests. It should not have been using Dole‘s confidential information
to advance Murdock‘s interests.
But to reiterate, I do not believe that the preparatory activities amounted to a
breach on the facts of this case, nor that any actions by Deutsche Bank while its loyalties
were divided resulted in harm. In my view, the scope of Deutsche Bank‘s exposure to
liability depends on their knowing participation in the breaches of duty that gave rise to
causally related damages, namely Carter‘s interference with and fraudulent
misrepresentations to the Committee. The aiding and abetting claim against Deutsche
Bank therefore fails.
39
In re Shoe-Town, Inc. S’holders Litig., 1990 WL 13475, at *7 (Del. Ch. Feb. 12,
1990); see Restatement (Third) of Agency § 1.01 & cmt. b (2006); William W. Bratton &
Michael L. Wachter, Bankers and Chancellors, 93 Tex. L. Rev. 1, 31 (2014). As
Professors Bratton and Wachter discuss, a common law agency relationship is
contractable, subject to certain outer limits. Because Deutsche Bank does not face
liability even under a traditional common law relationship, this decision does not parse
the potential implications of provisions in Deutsche Bank‘s engagement letters.
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D. Damages
Once a breach of duty has been established, this court‘s ―powers are complete to
fashion any form of equitable and monetary relief as may be appropriate . . . .‖
Weinberger, 457 A.2d at 714. At that point, the remedy could be a damages award equal
to the fair value of the shares, but ―the measure of any recoverable loss . . . under an
entire fairness standard of review is not necessarily limited to the difference between the
price offered and the ‗true‘ value as determined under appraisal proceedings.‖ Cede &
Co. v. Technicolor, Inc., 634 A.2d 345, 371 (Del. 1993). ―In determining damages, the
powers of the Court of Chancery are very broad in fashioning equitable and monetary
relief under the entire fairness standard as may be appropriate, including rescissory
damages.‖ Bomarko II, 766 A.2d at 440. The award may include ―elements of rescissory
damages‖ if the court ―considers them susceptible of proof and a remedy appropriate to
all the issues of fairness‖ presented by the case. Weinberger, 457 A.2d at 714. An award
exceeding the fair value of the plaintiffs‘ shares may be appropriate ―particularly where
fraud, misrepresentation, self-dealing, deliberate waste of corporate assets, or gross and
palpable overreaching are involved.‖ Id.
―Delaware law dictates that the scope of recovery for a breach of the duty of
loyalty is not to be determined narrowly.‖ Thorpe v. CERBCO, Inc. (Thorpe II), 676 A.2d
436, 445 (Del. 1996). Damages must be ―logically and reasonably related to the harm or
injury for which compensation is being awarded.‖ In re J.P. Morgan Chase & Co.
S’holder Litig., 906 A.2d 766, 773 (Del. 2006). But as long as that connection exists,
―[t]he law does not require certainty in the award of damages where a wrong has been
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proven and injury established. Responsible estimates that lack m[a]thematical certainty
are permissible so long as the court has a basis to make a responsible estimate of
damages.‖ Red Sail Easter Ltd. P’rs v. Radio City Music Hall Prods., Inc., 1992 WL
251380, at *7 (Del. Ch. Sept. 29, 1992) (Allen, C.). ―[O]nce a breach of duty is
established, uncertainties in awarding damages are generally resolved against the
wrongdoer.‖ Thorpe v. CERBCO, Inc., 1993 WL 443406, at *12 (Del. Ch. Oct. 29,
1993).
In a plenary breach of fiduciary duty action, ―the court can, and has in the past,
awarded damages designed to eliminate the possibility of profit flowing to defendants
from the breach of the fiduciary relationship.‖ Gesoff, 902 A.2d at 1154. ―Once disloyalty
has been established, the standards evolved in Oberly v. Kirby and Tri-Star require that a
fiduciary not profit personally from his conduct, and that the beneficiary not be harmed
by such conduct.‖ Thorpe II, 676 A.2d at 445 (citing Oberly, 592 A.2d at 463, and In re
Tri-Star Pictures, Inc., Litig., 634 A.2d 319, 334 (Del. 1993)).
The rule, inveterate and uncompromising in its rigidity, does not rest upon
the narrow ground of injury or damage to the corporation resulting from a
betrayal of confidence, but upon a broader foundation of a wise public
policy that, for the purpose of removing all temptation, extinguishes all
possibility of profit flowing from a breach of the confidence imposed by the
fiduciary relation.
Guth v. Loft, Inc., 5 A.2d 503, 510 (Del. 1939).
As discussed, on the facts presented, the stockholders are not limited to an
arguably fair price. They are entitled to a fairer price.
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The Committee Projections and Lazard‘s analysis, with adjustments for the areas
where Murdock and Carter misled the Committee, provide the best insight into Dole‘s
business and its value at the time of the Merger. Because uncertainties in damages
calculations are resolved against the wrongdoer, these items could support an award of
damages as high as $6.84 per share, consisting of $3.80 per share for the delayed cost-
cutting and $3.04 for the concealed projections about farm purchases. But while such a
finding is possible, it would treat all of the upside from those initiatives as certain and
would assume that the Committee could extract 100% of the incremental benefits from
Murdock. If the goal of awarding damages in a case involving a breach of the duty of
loyalty is to extinguish ―all possibility of profit,‖ then imposing that figure on Murdock
and Carter is what the law demands.
To my mind, however, that level of damages seems unrealistic and harsh, except
as a form of rescissory damages.40 The cost-saving initiatives and the purchases of new
40
Because Carter engaged in fraud, rescissory damages could be justified on these
facts, and there is evidence suggesting that damages of $6.84 per share would not be
unwarranted. Carter testified that Dole not only met its budget for 2014, but that it had
exceeded that budget by ―quite a bit.‖ Carter 994. At trial, the plaintiffs introduced
evidence showing that Dole reached $196.5 million in adjusted EBITDA in just the first
three quarters of 2014, more than what was forecasted in the Committee Projections for
the entire year. JX 923 at 4; Carter 993-95; cf. JX 783 at 22 (showing that the Committee
Projections forecasted $189 in EBITDA in 2014). Supposedly to contradict this evidence,
the defendants sought to introduce just one of the monthly comprehensive management
reporting packages for 2014, called the ―Tuesday Package,‖ even though Dole previously
moved for a protective order to avoid producing those documents. See Tr. 2072-73. After
the plaintiffs objected and I ordered the production of the remaining Tuesday Packages
from 2014, the defendants withdrew the lone Tuesday Package from evidence. Despite
my ruling, the defendants never produced the other Tuesday Packages, yet they
continued to rely on Carter‘s unsupported testimony about the withdrawn Tuesday
102
farms were riskier and less certain than Dole‘s established business, so it overvalues the
incremental cash flows from these sources to treat them as being just as certain as the
cash generated by Dole‘s core operations. This opinion therefore incorporates more
modest cost savings and benefits from farm purchases. Dole‘s Management High Case
assumed $14.8 million in incremental cost savings. Carter 908; see JX 783 at 21
(rounding to $15 million). The number was adopted by Seth Ferguson, one of the
defendants‘ experts. JX 1593 at 72. It provides a reasonable middle-ground estimate of
the likely benefits of additional cost-cutting. Lazard‘s sensitivity table implies that $14.8
million in cost savings would be worth $1.87 per share.
For the farm purchases, this decision adopts the plaintiffs‘ ask. Rather than
seeking the full $100 million in farm purchases that Carter identified at the Lender
Meeting or which Dole otherwise appears to have planned, the plaintiffs only sought to
incorporate $28.6 million. As discussed above, that investment in farms would be worth
an additional $0.87 per share.
Package. The natural inference is that the Tuesday Packages would have supported an
even higher damages award based on rescissory principles. See Lynch, 638 A.2d at 1119
n.7 (―The production of weak evidence when strong is, or should have been, available
can lead only to the conclusion that the strong would have been adverse.‖); accord Smith
v. Van Gorkom, 488 A.2d 858, 879 (Del. 1985); Chesapeake Corp. v. Shore, 771 A.2d
293, 301 & n.7 (Del. Ch. 2000) (Strine, V.C.). Ironically, one of the defendants‘ main
themes during post-trial argument was that the plaintiffs had ―cherry-picked‖ their
evidence.
103
These more modest estimates add $2.74 per share to Lazard‘s DCF valuation
range, increasing it to $14.14 to $16.82 per share. The midpoint of the adjusted range,
which is $15.48 per share, approximates the result of an arm‘s length negotiation between
parties having equal information. The result is a price $1.98 per share higher than the
$13.50 per share Murdock paid. But because the defendants engaged in fraud, and in light
of the Delaware Supreme Court‘s guidance regarding damages calculations for loyalty
breaches, the plaintiffs are entitled to the full incremental $2.74 per share in damages.
The resulting damages award implies a fair value for Dole of $16.24, significantly
less than the maximum of $20.34 per share the responsible estimate standard could
support. The $2.74 per share figure suggests that Murdock and Carter‘s pre-proposal
efforts to drive down the market price and their fraud during the negotiations reduced the
ultimate deal price by 16.9%. This result matches the findings of one study in which the
data supported an average price decrease of 18.6% caused by earnings manipulation
before management-led buyouts. See Wu, supra. Another way to evaluate the award is to
start with the market price after the ITOCHU Transaction, when Dole‘s stock traded
above $14.00 per share. By the time Murdock made his offer, the price had declined to
$10.20 per share, in part because of Carter‘s actions. The award of $16.24 represents a
16.0% premium over the trading price of $14.00 per share, which is relatively modest.41
41
See, e.g., FactSet, US M&A News and Trends (July 2015),
http://www.factset.com/websitefiles/PDFs/flashwire/flashwire_7.15 (reporting an average
deal premium between 30% and 40% in the third quarter of 2013, when the freeze-out
was negotiated); Jens Kengelbach & Alexander Roos, Boston Consulting Gp., Riding the
Next Wave in M&A 12 (2011) (finding an average deal premium of 26% between 1990
104
―[A] successful plaintiff is entitled to interest on money damages as a matter of
right from the date liability accrues.‖ Summa Corp. v. TransWorld Airlines, Inc., 540
A.2d 403, 409 (Del. 1988). Pre- and post-judgment interest will accrue at the legal rate,
fluctuating with the underlying Federal Discount Rate and compounded quarterly, until
the date of payment.42
E. The Appraisal Proceeding
The appraisal claimants seek the fair value of their shares. They are also members
of the Class and are entitled to the remedy provided by this decision. Because they are
only entitled to a single recovery, the damages award potentially renders the appraisal
claim moot. The appraisal proceeding could regain its relevance, however, if the
appraisal claimants did not receive complete relief from Murdock, Carter, and DFC
Holdings, at which point they would have reason to proceed against Dole. But because
Dole is owned indirectly by Murdock through DFC Holdings, a separate remedy against
Dole may not have incremental utility.
and 2010 in a sample of approximately 26,000 transactions); Gregg A. Jarrell, James A.
Brickley & Jeffry M. Netter, The Market for Corporate Control, 2 J. Econ. Persp. 49, 51
(1988) (finding average historical deal premiums ranging from 19% to 35% in different
decades).
42
See 6 Del. C. § 2301(a); Levey v. Browstone Asset Mgmt., LP, 2014 WL
4290192 (Del. Ch. Aug. 29, 2014) (explaining rationale for fluctuating rate); Taylor v.
Am. Specialty Retailing Gp., Inc., 2003 WL 21753752, at *13 (Del. Ch. July 25, 2003)
(using quarterly compounding interval for legal rate ―due to the fact that the legal rate of
interest most nearly resembles a return on a bond, which typically compounds
quarterly‖).
105
The issue may also be moot because this court held in Emerging Communications
that both acquisition vehicles used by the controller to effect an unfair privatization—
both the parent company and the merger subsidiary—were liable to the same degree as
the controller. See Part B.1, supra. Through DFC Holdings, Murdock caused DFC
Merger Corp. to merge with and into Dole, which thereby became liable for DFC Merger
Corp.‘s obligations. See 8 Del. C. § 259(a).
It may be that the parties can resolve these issues in the first instance. Rather than
burdening an overly long opinion with further analysis of appraisal and its contingent
relevance, the parties shall meet and confer about whether further rulings are necessary.
III. CONCLUSION
Murdock, his entity DFC Holdings, LLC, and Carter are liable for breaches of
their duty of loyalty in the amount of $148,190,590.18. DeLorenzo and Deutsche Bank
are not liable to the plaintiffs. The parties will confer and advise the court as to any issues
that remain to be addressed.
106