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Court of Chancery Denies Motion to Dismiss Complaint Where Board Materially Misled Shareholders About Search For New CEO

Shamrock Holdings, et al. v. The Walt Disney Co., et al., C.A. No. 1330-N, 2005 WL 1377490 (Del. Ch. June 6, 2005) Plaintiff dissident shareholders seek to void the result of a corporate election of directors, to compel the company to make full and fair disclosure of the CEO selection process, and (following such disclosure) compel another election of directors. Defendants filed a motion to dismiss Plaintiffs' complaint. The Court of Chancery denied the Motion. This action was one in a long, protracted series of disputes between camps of shareholders and the management of The Wal Disney Company. On November 30, 2003, Plaintiff Disney resigned as a director of the Company. Plaintiff Gold resigned the next day. From that time, they have "publicly challenged the corporate governance and business practices of the management and directors of the Company." The most widely reported of these challenges was a campaign in connection with the Company's 2004 Annual Stockholders Meeting to have shareholders demonstrate their lack of confidence in current management by voting "no" on the election of Eisner, Mitchell and Estrin as directors of the Company. On the heels of this campaign, plaintiffs announced on May 3, 2004, that they would evaluate nominating a competing slate of directors at the 2005 Annual Meeting. Six months later, on September 9, 2004, Eisner announced that he would retire as CEO of the Company on September 30, 2006, and the Company represented that they would endeavor to undertake an expansive search for a new CEO, with particular consideration given to external candidates. The Baord failed to undertake any such search. The court found that,
"Given plaintiffs' undisputed prior statements of their intent to run an opposition slate of directors, had plaintiffs known the purported truth about the CEO search process, it is reasonable to infer that such information would have significantly altered the total mix of information available to them and assumed importance in their decision whether to propose an alternate slate of directors at the 2005 Annual Stockholders Meeting."
As such, the Court of Chancery denied Defendants' Motion to Dismiss. To be sent a PDF copy of this opionion, please click here. Authored by: Liza Haley Sherman 302.888.6940 lsherman@morrisjames.com