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In re Rouse Properties, Inc. Fiduciary Litigation

Court of Chancery of Delaware

March 9, 2018

IN RE ROUSE PROPERTIES, INC. FIDUCIARY LITIGATION

          Submitted: December 19, 2017

          Stuart M. Grant, Esquire, Cynthia A. Calder, Esquire, Nathan A. Cook, Esquire and Michael T. Manuel, Esquire of Grant & Eisenhofer P.A., Wilmington, Delaware and Jason M. Leviton, Esquire and Bradley Vettraino, Esquire of Block & Leviton LLP, Boston, Massachusetts, Attorneys for Plaintiffs.

          Stephen C. Norman, Esquire, Kevin R. Shannon, Esquire and Jaclyn C. Levy, Esquire of Potter Anderson & Corroon LLP, Wilmington, Delaware and Andrew W. Stern, Esquire, Jon W. Muenz, Esquire and Leah R. Milbauer, Esquire of Sidley Austin LLP, New York, New York, Attorneys for Individual Defendants.

          Kevin G. Abrams, Esquire, Daniel R. Ciarrocki, Esquire and Matthew L. Miller, Esquire of Abrams & Bayliss LLP, Wilmington, Delaware and John A. Neuwirth, Esquire, Seth Goodchild, Esquire, Evert J. Christensen, Jr., Esquire and Matthew S. Connors, Esquire of Weil, Gotshal & Manges LLP, New York, New York, Attorneys for Brookfield Defendants.

          MEMORANDUM OPINION

          SLIGHTS, VICE CHANCELLOR

          Plaintiffs, two stockholders of non-party Rouse Properties Inc. ("Rouse" or the "Company"), seek to recover damages on behalf of a putative class of Rouse stockholders for alleged breaches of fiduciary duty by Rouse's directors and its 33.5% shareholder, a collective of companies affiliated with Brookfield Asset Management, Inc. (collectively referred to as "Brookfield"), arising out of Rouse's merger with Brookfield. In January 2016, Brookfield made an offer to acquire all of Rouse's non-Brookfield shares for $17 per share cash. In response, Rouse formed a special committee of non-Brookfield directors to negotiate with Brookfield and consider other strategic alternatives.

         The special committee hired legal and financial advisors and negotiated with Brookfield for several weeks. The parties eventually arrived at a price of $18.25 per share and thereafter signed a merger agreement on February 25, 2016 (the "Merger Agreement").[1] Both the special committee and the board voted to approve the offer and the Company presented the proposed transaction to the Rouse shareholders for approval. Plaintiffs filed their original complaint prior to the stockholder vote along with motions to expedite and preliminarily to enjoin the transaction. The Court declined to grant the motion to expedite because Plaintiffs failed to identify any prospect of a superior proposal or any basis to infer that the stockholder vote on the Merger would be uninformed or coerced. On June 23, 2016, 82.44% of Rouse's unaffiliated shares voted in favor of the Merger and the transaction closed days later.[2]

         Plaintiffs' Amended Complaint for post-closing damages (the "Complaint") alleges that the Merger is a product of breaches of fiduciary duties by Rouse's special committee and Rouse's controlling stockholder, Brookfield.[3] Alternatively, as to Brookfield, Plaintiffs allege that it aided and abetted the special committee's breaches.

         In this post-Corwin, [4] post-MFW[5] world, a pattern has emerged in post-closing challenges to corporate acquisitions (whether by merger or tender offer) where a less-than-majority blockholder sits on either side of the transaction, but the corporation in which the blockholder owns shares does not recognize him as a controlling stockholder and does not, therefore, attempt to neutralize his presumptively coercive influence. The pattern, in its simplest form, consists of two elements: (1) the stockholder plaintiff pleads facts in hopes of supporting a reasonable inference that the minority blockholder is actually a controlling stockholder such that the MFW paradigm is implicated and the Corwin paradigm is not[6]; and (2) failing that, the plaintiff pleads facts in hopes of supporting a reasonable inference that the stockholder vote was uninformed or coerced such that Corwin does not apply.[7] Under our settled law, these are two cleared pathways to avoid pleading- stage business judgment deference and to secure post-closing discovery in the wake of a stockholder vote approving a transaction.[8]

         Plaintiffs' Complaint seeks to traverse both paths. It alleges that, notwithstanding its less-than-majority position, Brookfield is Rouse's controlling stockholder owing fiduciary duties of care and loyalty to the minority stockholders. According to Plaintiffs, since Defendants do not dispute that the Rouse board of directors failed to follow the dual MFW procedural imperatives, its members cannot claim business judgment protection at the pleading stage in connection with this conflicted controller transaction. Alternatively, the Complaint alleges that the Company's proxy statement relating to the Merger was inadequate. Consequently, according to Plaintiffs, the stockholder vote approving the Merger was coerced and uninformed such that Defendants cannot avail themselves of Corwin "cleansing."

         For their part, Defendants maintain that the Complaint must be dismissed because it does not plead facts that support the rare reasonable inference that a stockholder with less than 50% ownership is nevertheless a controlling stockholder.[9]Nor does the Complaint allow a reasonable inference that the overwhelming stockholder vote approving the Merger was uninformed or coerced.

         Because Plaintiffs seek to avoid Corwin's cleansing effect by arguing that Brookfield was Rouse's controlling stockholder, I take up that issue first. I find that Plaintiffs have not pled facts that allow a reasonable inference that Brookfield was a controller. Thus, the breach of fiduciary duty claim against Brookfield must be dismissed. Given that finding, Corwin applies. After an appropriately deferential review of the operative Complaint, I am satisfied Plaintiffs have failed to well-plead that the stockholder vote approving the Merger was uninformed or coerced. Accordingly, I review the Complaint's allegations with respect to the Merger under the business judgment rule. Because there is no pled claim for waste, I dismiss the fiduciary duty claims against the individual Defendants as well. Finally, in the absence of viable breach of fiduciary duty claims, the aiding and abetting claim against Brookfield must also be dismissed. My reasoning follows.

         I. BACKGROUND

         I have drawn the facts from the well-pled allegations in the Complaint, documents incorporated therein by reference and those matters of which the court may take judicial notice.[10] At this stage, I have accepted all well-pled allegations in the Complaint as true.[11]

         A. Parties and Relevant Non-Parties

         Non-party Rouse, a Delaware corporation, was a real estate investment trust ("REIT") prior to the Merger and its common stock was traded on the New York Stock Exchange.[12] It operated a portfolio of 36 malls and retail centers across 21 states.[13]

         Plaintiffs, the George Leon Family Trust and Dr. Robert A. Corwin, were owners of Rouse common stock at all relevant times.[14] The "Individual Defendants" are the five members of Rouse's special committee formed to consider the Merger (the "Special Committee" or the "Committee"): Andrew Silberfein, Michael Hegarty, Christopher Haley, David Kruth and Michael Mullen.[15] The remaining members of Rouse's board of directors (the "Board"), Jeffrey Blidner, Richard Clark and Brian Kingston, are not defendants in this action.[16]

         The "Brookfield Defendants" are Brookfield Asset Management Inc. ("BAM"), a Canadian corporation, and several of its affiliates. BAM is "a global alternative asset manager focused on real estate, infrastructure, and renewable power with approximately $225 billion in assets under management."[17] Its stock is publicly traded on the New York Stock Exchange.[18] As of the Merger, Brookfield, mainly through Brookfield Property Partners L.P. ("BPY") and BAM, owned 33.5% of Rouse's outstanding common stock.[19]

         B. Rouse's Spin-Off

         Prior to 2012, Rouse was a wholly-owned subsidiary of General Growth Properties, Inc. ("GGP") which, at the time, was 40% owned by Brookfield.[20] In January 2012, GGP spun off Rouse to its shareholders, retaining only a 1% non-voting interest in the Company (the "Spin-Off").[21] The Complaint alleges that, after the Spin-Off, Brookfield selected Individual Defendants Silberfein, Haley, Kruth and Mullen to join the Board as purportedly independent directors, and designated three directors as its Board representatives (the current designees are non-party directors Blidner, Clark and Kingston).[22]

         C. Rouse-Brookfield Transactions Prior to the Merger

         Plaintiffs allege that Brookfield's influence over the Rouse Board is revealed in a series of transactions between Rouse and Brookfield on terms favorable to Brookfield. In 2012, Rouse conducted a stock purchase rights offering through which existing stockholders could buy shares at $15 per share for one month.[23]At that time, the shares were trading at around $13.75.[24] The Complaint alleges that less than 15% of non-Brookfield shareholders participated in the offering.[25] Thus, to avoid the offering's failure, the Board caused Rouse to pay Brookfield a $6 million fee to guarantee its "success."[26] Upon completion of the offering, Brookfield had acquired an additional 11.35 million shares making it a 54% Rouse stockholder.[27]

         Following this acquisition, Rouse engaged in two allegedly questionable transactions with its new majority owner, Brookfield. First, Rouse transferred $150 million to a Brookfield subsidiary, Brookfield U.S. Holdings, in the form of a demand deposit with a return of Libor plus 1.05%, which was due to mature approximately one year later.[28] Plaintiffs allege that Rouse's decision to place such substantial funds into a Brookfield affiliate with a below-market interest return, rather than in a higher rated financial institution offering at least market interest rates, supports the inference that Brookfield controlled Rouse. Second, around the same time, "Rouse opened a $100 million credit line with Brookfield U.S. Holdings that cost Libor plus 8.5[%], plus a onetime initiation fee of $500, 000."[29] With regard to this transaction, Plaintiffs point to the fact that Rouse agreed to pay a substantially higher interest rate on Brookfield's money than Brookfield was required to pay on Rouse's money-again, evidence of Brookfield's control over Rouse decision-makers. The credit line remains untouched.[30]

         D. The Brookfield Offer and Formation of the Special Committee

         On January 16, 2016, Brookfield made a written, unsolicited, non-binding proposal to acquire Rouse's outstanding common stock not already owned by Brookfield.[31] The offer was for $17 per share in cash.[32] By this time, Brookfield had reduced its Rouse holdings to 33.5%.[33] In response to the offer, the Board formed the Special Committee comprised of all Board members except those designated to represent Brookfield (Blidner, Clark and Kingston).[34] The Committee was vested with full authority to negotiate with Brookfield or consider other strategic alternatives.[35]

         1. The Special Committee Directors

         Special Committee members, Haley, Kruth and Mullen, had been on the Board since the Spin-Off in January 2012. Aside from the fact that Brookfield selected them to serve on the Board following the Spin-Off, Haley, Kruth and Mullen have no ties to Brookfield. As for the remaining two Committee members, Silberfein and Hegarty, however, the Complaint alleges the existence of "disabling conflicts that prevented them from acting independently of [] Brookfield."[36]

         Silberfein was Rouse's President and CEO prior to and following the Spin-Off and remained in that position throughout the negotiations leading up to the Merger. Plaintiffs challenge his independence based on his employment "at the pleasure of Brookfield" and the compensation he received from Rouse upon the approval of Rouse's three-person compensation committee allegedly chaired by a Brookfield-designated director, Clark.[37] According to Plaintiffs, Silberfein's loyalty to Brookfield was further secured after the Committee adopted a Silberfein-designed "Retention Plan" for Rouse's senior executives.[38] The Retention Plan, along with Brookfield's repeated requests during negotiations to speak with Silberfein (and other Rouse executives) about post-Merger employment, [39] allegedly provided Silberfein with additional incentives to close the deal with Brookfield rather than consider the Merger independently on its merits.[40]

         Plaintiffs also question Hegarty's independence. They allege that Hegarty has "strong past ties to affiliates of [] Brookfield"[41] through his prior service on the board of a Brookfield-controlled company, Brookfield Office Properties, Inc. ("Brookfield Office"), until June 2014, and his exclusion from an independent committee of Brookfield Office's board when that company was considering a transaction with BPY.[42] According to the Complaint, Hegarty's prior Brookfield Office board service, and his "conceded" lack of independence with respect to the prior transaction, support a reasonable inference that he also lacked independence from Brookfield with respect to the Merger.

         2. The Special Committee Advisors

         Throughout several meetings between January 16, 2016, and January 18, 2016, the Committee interviewed three law firms and four investment banks. It ultimately retained Sidley Austin LLP ("Sidley"), the Company's legal counsel, as its legal advisor and Bank of America Merrill Lynch ("Bank of America") as its financial advisor.[43] The Committee cited the advisors' "experience in advising special committees in M&A transactions and in the REIT and mall space" as bases for its decision.[44] In its selection process, the Committee considered the advisors' independence from Brookfield, taking into account that

most, if not all, investment banks with the desired experience would likely have provided financial services to [Brookfield] and, therefore, [the Committee] focused on the relative independence of the proposed M&A advisory teams interviewed and, in particular, on a lack of recent engagements by [Brookfield] with respect to M&A and similar investment banking transactions.[45]

         The Committee concluded that neither Sidley nor Bank of America had "significant" conflicts. With respect to Bank of America specifically, the Committee determined that any compensation Bank of America had received from Brookfield did not "impair [Bank of America's] ability to perform its financial advisory services to the Special Committee."[46] The Committee received additional information concerning Bank of America's potential conflicts throughout the Merger negotiations and determined that none of that information provided grounds to terminate the engagement.[47]

         3. The Special Committee Process and Negotiations

         From the time of its formation on January 16, 2016, until the execution of the Merger Agreement on February 25, 2016, the Committee convened fourteen meetings.[48] On February 4, the Committee met and reviewed potential responses to the Brookfield proposal and strategic alternatives for the Company with Sidley and Bank of America.[49] At this meeting, Bank of America presented the Committee with "20 potential financial buyers . . ., approximately five potential strategic buyers . . . and more than 20 potential joint venture partners or buyers of selected assets, " noting that Silberfein and Bank of America had only received a small number of calls from interested parties since the announcement of the Brookfield offer.[50] The Committee did not, at that time, direct Bank of America to make contact with any other potential interested parties.

         The Committee unanimously decided to reject Brookfield's initial $17 offer as "inadequate and not in the best interest of the Company or its stockholders."[51]It directed Sidley to communicate its rejection to Brookfield and to advise Brookfield that the Committee would "likely insist that any transaction with [Brookfield] include a condition that it be approved by the holders of a majority of the Company's shares held by Unaffiliated Stockholders of the Company."[52] Upon receiving this news, Brookfield's counsel, Weil, Gotshal & Manges LLP ("Weil"), responded that Brookfield "likely would object to such a condition."[53]

         On February 8, Brookfield made an offer of $17.75 per share. The Committee rejected the offer that same day, explaining that it was looking for an offer "closer to $19 per share" with a "majority of the minority" provision.[54] In response to this rejection, on February 9, Brookfield made its "best and final" offer of $18.25 per share, including the following additional terms:

(i) Suspension of payment of all dividends through closing;
(ii) A $40 million termination fee;
(iii) No "majority of the minority" provision;
(iv) A no-shop provision with matching rights for Brookfield (with a fiduciary out); and
(v) Brookfield's ability to discuss post-closing employment with Rouse's management prior to signing the Merger Agreement.[55] The Committee met that same evening, decided to reject Brookfield's supposed "best and final" offer and authorized a counter-proposal of $18.50 per share with a "majority of the minority" provision and a commitment from Brookfield that it would not engage in pre-Merger discussions of employment with the Company's management.[56] It agreed to accept the no-shop provision, termination fee and the suspension of dividend payments if Brookfield accepted the other elements of the Committee's counter-proposal.[57]

         The Committee reconvened again later that evening after Brookfield rejected the Committee's latest counter-proposal. In response, the Committee lowered the ask to $18.25 but reiterated its insistence upon a "majority of the minority" provision.[58] Appreciating that the Merger Agreement would include a "no-shop" provision, the Committee also instructed Bank of America to contact the potentially interested parties that it had previously identified.[59]

         On February 10, the Committee met with its advisors again to discuss Rouse's existing take-over defenses and the adoption of a stockholder rights plan in the event of a hostile tender offer by Brookfield.[60] Later that day, Brookfield advised that it would accept the "majority of the minority" provision, but renewed its request to initiate post-Merger employment negotiations with management (especially Silberfein).[61] The Committee reconvened to discuss with its advisors Brookfield's request.[62] Silberfein indicated that he would be willing to resign if the Committee thought it necessary, but shared his view that "now was not the appropriate time for him to do so."[63] Given Silberfein's reluctance to resign from the Committee, Brookfield backed off its requests and, ultimately, no pre-Merger employment talks took place.[64]

         Following the parties' agreement in principle, their legal advisors exchanged several drafts of the necessary agreements.[65] In the midst of these discussions, Bank of America informed the Committee that it had contacted more than forty potential bidders and, of those, sixteen had signed confidentiality agreements.[66] Bank of America noted that

(i) many of the parties contacted indicated that they were not interested in the mall property sector in which the Company operated, (ii) a number of parties contacted indicated that they likely could not bid more than [Brookfield's] publicly announced initial purchase price of $17.00 per share and (iii) a number of the parties contacted indicated that they were concerned about investing resources to explore a strategic transaction with the Company given the large equity position that [Brookfield] already held in the Company.[67]

         In response specifically to the potential chilling effect of Brookfield's offer, Bank of America advised that "the Special Committee might be able to assuage concerns by informing [interested] parties, at the appropriate time, that it would consider reimbursing some or all of their expenses if they advanced to a second round of the process."[68] That measure was never approved.

         After further negotiations, the Committee met again on February 22 and learned that Brookfield had communicated that it would not vote its shares in favor of a superior proposal, that it refused Sidley's request to extend the standstill it had entered with the Company at the beginning of the negotiations[69] and that it wanted Rouse to reimburse Brookfield's expenses if the Merger was terminated due to a "naked no-vote."[70] The Committee instructed Sidley to inform Brookfield that it rejected Brookfield's request for expense reimbursement but would accept Brookfield's refusal to vote for a superior proposal and its refusal to extend the standstill if Brookfield agreed not to prohibit the Company from adopting a stockholder rights plan.[71]

         On February 24, Sidley informed the Committee that Brookfield objected to Rouse's adoption of a stockholder rights plan.[72] The Committee discussed the objection and scenarios in which Brookfield might purchase additional shares and the effects of such purchases.[73] During this same meeting, Bank of America presented an overview of its efforts to solicit interest from third parties.[74] Of the forty-three potentially interested parties contacted, twenty-nine had declined the opportunity to explore a transaction, four had not responded and, of the nine that had submitted an initial mark-up of the confidentiality agreement, only six had finalized and executed the agreement.[75] Of those six, only four had accessed the data room.[76]

         Following this presentation, the Committee received Bank of America's opinion that Brookfield's $18.25 per share offer "was fair, from a financial point of view" to nonaffiliated shareholders.[77] The Committee then unanimously voted to approve the Merger at $18.25 per share subject to Brookfield's agreement to a provision allowing the Company to adopt a stockholder rights plan between the signing and closing of the Merger.[78] Immediately thereafter, with Blidner, Clark and Kingston recused (as they had been throughout the process), the Board convened and unanimously voted to approve the Merger terms as negotiated and approved by the Committee.[79] After further discussions with Brookfield over the stockholder rights plan, the parties signed the Merger Agreement on February 25, 2016.[80] On June 23, 2016, 82.44% of Rouse's unaffiliated stockholders voted in favor of the Merger and the Merger closed on July 6, 2016.[81]

         E. The Merger Agreement

         The Merger Agreement, dated February 25, 2016, was among BSREP II Retail Pooling, LLC (the "Parent"), BSREP II Retail Holdings Corp. (the "Acquisition Sub"), both Brookfield affiliates, and Rouse, with the remaining Brookfield Defendants (except BAM) serving as guarantors.[82] Because Plaintiffs allege that the Merger was structured in a manner that further reveals Brookfield's control over Rouse, I highlight the key elements of the Merger below.

         1. The Merger Structure

         The Merger consisted of two phases. During the first phase, the Brookfield affiliates with Rouse ownership stakes would exchange their common stock for newly created shares of Series I preferred stock (the "Exchange").[83] During the second phase (the period between the signing and closing of the Merger), the Parent could cause Rouse to consummate certain transactions (the "Requested Transactions"). Specifically, it could, in its sole discretion, upon reasonable notice to the Company (but at least five business days prior to the Exchange Closing Date), [] require the Company to:

• sell or cause to be sold any amount (including all or substantially all) of the capital stock, shares of beneficial interests, partnership interests or limited liability interests owned, directly or indirectly, by the Company in one or more subsidiaries to any person at a price (not less than reasonably equivalent value) and on terms as designated by Parent;
• sell or cause to be sold any (including all or substantially all) of the assets of the Company or one or more subsidiaries to any person at a price (not less than reasonably equivalent value) and on terms as designated by Parent;
• contribute any of the assets of the Company or one or more subsidiaries designated by Parent to the capital of any subsidiary;
• declare and/or pay any dividends or other distributions to holders of Company Shares (including the Closing Dividend); and
• take any other action requested by Parent.[84]

         The Merger Agreement further provided, however, that

the consummation of the Requested Transactions shall be conditioned upon the consummation of the Exchange, none of the Requested Transactions will delay or prevent the completion of the Merger, neither the Company nor any subsidiary will be required to take any action in contravention of any laws or organizational documents of the Company or such subsidiary, the Requested Transactions (or the inability to complete the Requested Transactions) will not affect or modify in any respect the obligations of Parent and Acquisition Sub under the Merger Agreement, including payment of the transaction consideration, and neither the Company nor any subsidiary will be required to take any action that would adversely affect the classification of the Company as a REIT. If the Merger Agreement is terminated, Parent will reimburse the Company for all reasonable out-of-pocket costs incurred by the Company in connection with any actions taken in connection with the Requested Transactions and Parent will indemnify and hold harmless the Board, the Company, its subsidiaries and their affiliates and representatives from and against any and all liabilities, losses, damages, claims, costs, expenses, interest, awards, judgments and penalties suffered or incurred by them in connection with or as a result of taking such actions in connection with the Requested Transactions.[85]

Following this second phase, the Acquisition Sub would then merge into Rouse with Rouse being the surviving company.[86]

         2. The Transaction Price

         According to the Complaint, the Merger consideration grossly undervalued the Company.[87] It is alleged that Brookfield's offer came at a time when Rouse's stock price was significantly depressed. It is also alleged that, at the time of the offer, Rouse's Board was aware that the Company had completed the prior quarter and fiscal year with "quite good" results.[88] These results were not released to the public until February 29, 2016, after the announcement of the Merger.[89]

         3. The Deal Protections

         The Merger Agreement included certain deal protections, including a no-solicitation provision, matching rights and a termination fee.[90] The no-solicitation provision prevented the Company from soliciting potential inquiries from third parties, disclosing non-public information to interested parties and endorsing or recommending unsolicited proposals (except under limited circumstances). It also required the Company to terminate ongoing discussions with potential acquirers.[91]The matching right limited the Board's ability to entertain new bids. It allowed the Board to consider only those bids that were likely to lead to a superior proposal and gave Brookfield the right to access information about the competing proposal and to match the proposal within four days.[92] Finally, the Merger Agreement included a $40 million termination fee that was triggered if the Committee agreed to an alternative transaction.[93]

         F. The Retention Plan

         During the course of the negotiations with Brookfield, the Committee recognized that it might lose certain senior executives after Brookfield's offer was announced. It was concerned that these departures might be disruptive to ongoing operations and to a transition following a merger.[94] Accordingly, members of the Committee and Brookfield contacted Silberfein in late January 2016 to discuss these concerns.[95] At the suggestion of the Committee, Silberfein prepared a proposal for an executive retention plan. That plan provided that each of four designated executives (including Silberfein) would be eligible to receive significant cash retention awards based on a percentage of their 2015 salaries and target performance bonuses.[96]

         The payments were to be made in two 50% installments. The first installment would be paid "on the earlier of (i) a determination by the Committee that it has terminated the process of considering and responding to the Brookfield Offer and any related process to explore strategic alternatives thereto . . . and (ii) the Closing [of the Merger]." The second would be paid six months thereafter.[97] After discussing the Retention Plan with an independent consultant, the Committee (with Silberfein recused) unanimously approved it on January 29.[98]

         G. Procedural Posture

         In their original complaint, Plaintiffs made no allegations regarding deficient disclosures relating to the Merger. They did, however, seek to enjoin the closing of the Merger before the vote based on a flawed sales process. The Court declined to consider that motion on an expedited schedule prior to the stockholder vote, principally on the ground that Plaintiffs had not identified any prospect that a superior bid would be forthcoming if an injunction was entered.[99]

         In their post-closing Complaint, Plaintiffs plead three counts: Count I alleges that the Brookfield Defendants breached their fiduciary duties as controlling stockholders; Count II alleges that the Individual Defendants breached their fiduciary duties as members of the Committee; and Count III alleges that the Brookfield Defendants aided and abetted the Individual Defendants in their breaches of fiduciary duties. Both the Brookfield Defendants and the Individual Defendants have moved for dismissal pursuant to Court of Chancery Rule 12(b)(6). The Brookfield Defendants argue that Plaintiffs have failed adequately to plead either that Brookfield was a controller that owed fiduciary duties to the minority stockholders (Count I) or that Brookfield aided and abetted the Individual Defendants in breaching their fiduciary duties (Count III). All Defendants argue that Count II must be dismissed under Corwin since the Merger was approved by a majority of the unaffiliated Rouse stockholders in a fully-informed, uncoerced vote.

         II. ANALYSIS

         Under Court of Chancery Rule 12(b)(6), a complaint must be dismissed if the plaintiff would be unable to recover under "any reasonably conceivable set of circumstances susceptible of proof" based on the facts as pled in the complaint.[100]In considering a motion to dismiss, the court must accept as true all well-pled allegations in the complaint and draw all reasonable inferences from those facts in plaintiff's favor.[101] The court need not accept, however, conclusory allegations that lack factual support or "accept every strained interpretation of the allegations proposed by the plaintiff."[102]

         A. Brookfield is not a Controller

         Under Corwin, the business judgment rule applies to transactions where no controlling shareholder is involved and "a majority of the Company's disinterested shareholders approves the transaction with a fully informed, uncoerced vote."[103] "The rationale of this line of cases is simple-where holders of a majority of stock vote to evince their determination that the transaction is in the corporate best interest, there is little utility in a judicial second-guessing of that determination by the owners of the entity."[104] What logically follows from that acknowledgement, however, is that the Court can only give deference to a stockholder vote when that vote truly represents the stockholders' independent determination of the transaction's merits. Thus, at the pleading stage, Corwin cannot protect a board's determination to recommend a transaction when it is reasonably conceivable that a conflicted controller may have influenced the board and stockholder decisions to approve the transaction.[105] Why? Because our law recognizes that "controller transactions are inherently coercive, " and that a transaction with a controller "cannot, therefore, be ratified by a vote of the unaffiliated majority."[106] "[T]he concern is that fear of controller retribution in the face of a thwarted transaction may overbear a determination of best corporate interest by the unaffiliated majority."[107]

         Plaintiffs allege that Brookfield was a conflicted controller. Thus, the Corwin analysis must be deferred until that allegation is addressed. Under Delaware law, a stockholder is a controller only if he "(1) owns more than 50% of the voting power of a corporation or (2) owns less than 50% of the voting power of the corporation but exercises control over the business affairs of the corporation."[108] Plaintiffs acknowledge that Brookfield's Rouse holdings sum up to 33.5%. Thus, Plaintiffs must adequately plead Brookfield's controller status under the "actual control" test.

         A "minority blockholder" like Brookfield "is not considered to be a controlling stockholder unless it exercises such formidable voting and managerial power that, as a practical matter, it is no differently situated than if it had majority voting control."[109] Its "power must be so potent that independent directors cannot freely exercise their judgment, fearing retribution from the controlling minority blockholder."[110] Given that the "controlling stockholder" designation for a minority blockholder imposes upon that stockholder fiduciary duties where none otherwise would exist, our courts generally recognize that demonstrating the kind of control required to elevate a minority blockholder to controller status is "not easy."[111]

         It is true, as Plaintiffs are quick to point out, that the controller question is often fact-intensive and, therefore, not always suitable for resolution on a motion to dismiss.[112] But even at the pleading stage, the facts pled in the complaint must, "if true, imply actual control."[113] If such facts are lacking in the complaint, then the control question can be determined as a matter of law on a motion to dismiss.[114]

         When attempting to plead that a minority blockholder is the controlling stockholder of the corporation, a plaintiff may take either (or both) of two pathways. He can plead facts supporting a reasonable inference that the blockholder: (1) actually dominated and controlled the corporation, its board or the deciding committee with respect to the challenged transaction[115]; or (2) actually dominated and controlled the majority of the board generally.[116] In the first instance, the controller's presence is hard to ignore because he has injected himself as "dominator" into the board's process while it considers the transaction and is, in that sense, actually "in the board room." In the latter circumstance, the controller's presence may be more of a "looming" nature manifested by the board's awareness of his ability to make changes at the board level or to push other coercive levers should he be displeased with the board's performance or decision making. When the controller is "looming" but not directly interfering, even though he is not actually "in the board room, " as a practical matter, he might as well be sitting at the head of the board room table.[117]

         Plaintiffs argue they have well-pled that Brookfield controlled Rouse's process with respect to the Merger and controlled Rouse's business affairs generally. I disagree.

         1. Brookfield did not actually control the Committee in considering the Merger

         The Complaint did allege that Brookfield controlled Rouse during the negotiations leading up to the Merger.[118] Those allegations, however, were hardly mentioned in Plaintiffs' briefing or at oral argument, apparently to make room for Plaintiffs' showcase argument that Brookfield controlled Rouse's business affairs generally.[119] Nevertheless, I address the sufficiency of Plaintiffs' allegations regarding Brookfield's purported role in Rouse's sale process as originally pled.

         Plaintiffs allege that Brookfield dominated and controlled Rouse's Committee during Merger negotiations in two respects. First, they allege that Silberfein and Hegarty lacked independence from Brookfield and that their presence on the Committee tainted the process. Second, they point to circumstantial evidence that allegedly reveals the Committee "tilted the playing field" in Brookfield's favor. Neither allegation is well-pled.

         a. Brookfield did not exert actual control over the Committee through Silberfein and Hegarty

         As noted, the Committee comprised five directors. Of the five, Plaintiffs challenge the independence of only two, Silberfein and Hegarty. While I question whether Plaintiffs' pled facts support their contention that these two Board members lacked independence from Brookfield, even if that inference could be drawn, the lack of independence of two of the five Committee members cannot transform Brookfield from minority blockholder to controlling stockholder. Plaintiffs still must plead facts that allow a reasonable inference that Brookfield "dominate[d] the corporate decision-making process."[120] Plaintiffs' conclusory allegations land far from this mark.

         Under our law, it is presumed that a director will base his decision "on the corporate merits of the subject matter before the board rather than extraneous considerations or influence."[121] In order to overcome that presumption in the controller context, the plaintiff must plead facts that support a reasonable inference that "the director[] [is] either beholden to the [] shareholder or so under its influence that [his] discretion is sterilized."[122] This Complaint does no such thing.

         It is alleged that Silberfein lacked independence from Brookfield because Brookfield wanted to discuss post-Merger employment with Silberfein throughout its negotiations with the Committee. That argument might carry some weight if the Committee had actually acceded to Brookfield's persistent requests to speak with Silberfein, or if Silberfein had approached Brookfield without the Committee's permission.[123] But Silberfein never discussed employment opportunities with Brookfield.[124] Indeed, as it turns out, Silberfein resigned as Rouse's CEO immediately following the Merger.

         Plaintiffs' allegation that Silberfein was beholden to Brookfield because a Brookfield designee sat on the Board's compensation committee likewise has no discernable effect on the "reasonably conceivable" scale. In this regard, Plaintiffs seem content to ignore that the compensation committee comprised three members, two of whom were unquestionably independent from Brookfield. Thus, Brookfield had no ability to dictate the terms of Silberfein's compensation. Moreover, Plaintiffs' generalized allegations based on Silberfein's compensation as CEO are precisely the type of conclusory allegations that cannot, as a matter of law, support the inference that Silberfein would "favor the fortunes of [Brookfield] over those of a company in which he holds substantial equity and has served as [CEO] for its entire existence as a publicly-held entity."[125]

         Finally, Plaintiffs' allegation that Silberfein's endorsement of the Retention Plan somehow reveals his lack of independence from Brookfield ignores the terms of that plan and its clear purpose. The Retention Plan was conceived by the Committee as a means to keep key executives at Rouse after it was announced that the Company was in merger discussions. The idea was to minimize the risk that Rouse would lose members of its management team during negotiations and then fail to close a deal with a merger partner. Importantly, the executives who were to receive payments under the Retention Plan were entitled to receive them whether or not the Merger was consummated.[126] Under these circumstances, it is not reasonably conceivable that the Retention Plan "sterilized" Silberfein's directorial discretion.[127]

         As for Hegarty, the allegations attacking his independence fail as a matter of law. Plaintiffs allege that Hegarty cannot be independent of Brookfield because he was designated to serve on the Rouse Board by Brookfield. Our case law is clear, however, that the appointment of a director onto the board, even by the controlling stockholder, is insufficient to call into question the independence of that director.[128]Likewise, Hegarty's prior position on the board of Brookfield Office is insufficient in and of itself to raise a reasonable inference that he cannot objectively evaluate a transaction with Brookfield; indeed, Plaintiffs have not even attempted to plead how those supposed ties were in any way material.[129] Finally, the fact that Hegarty was kept off a Brookfield Office committee that considered a prior transaction with BPY (assuming that is a fact; Defendants vigorously dispute that it is) does not support an inference that Hegarty lacked independence from Brookfield in connection with the Merger. At most, the allegation suggests that, at the time of the other transaction, Hegarty was deemed at some level not to be independent of BPY. That does not bear on his independence from Brookfield as a Rouse director years later in a completely separate setting.

         The focus on Silberfein's and Hegarty's independence, or lack thereof, is ultimately more academic than practical because Plaintiffs have failed to plead that Brookfield dominated or controlled Rouse's "corporate decision-making process"[130] or that the remaining Committee members were in any way compromised.[131] This second step is crucial, as Vice Chancellor Glasscock explained in Sciabacucchi:[132]

it does not necessarily follow that an interested party also controls directors, simply because they lack independence. Lack of independence focuses on the director, and whether she has a conflict in the exercise of her duty on behalf of her corporation. Consideration of controller status focuses on the alleged controller, and whether it effectively controls the board of directors so that it also controls disposition of the interests of the unaffiliated stockholders . . . .[133]

         That pleading, with respect to Brookfield's control over Silberfein, Hegarty or any of the other Committee members, is missing here.

         b. The Committee did not "tilt the playing field"

         At oral argument, Plaintiffs urged me to conclude from purported circumstantial evidence that the Committee "tilted the playing field" in favor of Brookfield in a manner that supports the inference that the Committee must have been controlled by Brookfield.[134] At this stage, however, I am bound by the allegations in the Complaint.[135] And the allegations of a tilted playing field in the Complaint are weak.

         Before addressing Plaintiffs' arguments, it is helpful to reset the table on which Plaintiffs' arguments regarding Brookfield's control over Rouse's sales process must be addressed. Immediately upon receipt of Brookfield's unsolicited proposal, the three Brookfield directors recused themselves from "all discussions of the Board relating to . . . the Merger, " and thereafter did not participate in the vote on the Merger.[136] The Committee, established at the very outset of the negotiations with Brookfield, was comprised of non-Brookfield directors who were charged with "all the Board's power and authority with respect to the [Brookfield] proposal and any alternatives thereto."[137] Specifically, as permitted by Rouse's Bylaws, the Committee was given "sole discretion" to respond to Brookfield's offer as it saw fit, including the "power and authority to evaluate, accept, reject and/or negotiate the proposal, explore and solicit other proposals and/or explore, evaluate and effect alternatives to the [Brookfield] proposal, and to cause [Rouse] to take any and all corporate and other actions, and/or enter into any agreements with [Brookfield] or third parties, and/or adopt any measures, in response to or in connection with the [Brookfield] proposal."[138]

         In keeping with its mandate, the Committee negotiated hard with Brookfield through several rounds. It rebuffed Brookfield's efforts to negotiate post-Merger employment with Silberfein, pushed for and achieved a majority of the minority voting condition despite real resistance from Brookfield and negotiated a significant increase in the Merger consideration. During the course of these negotiations, Brookfield never once threatened Rouse in any manner or sought to undermine the Committee's authority. There were no strong-arm tactics, no threats of a hostile tender offer, no attempts to block the Committee from hiring advisors, no suggestions that the Committee's pursuit of its broad mandate (including to say no or pursue other strategic alternatives) would provoke a response from Brookfield and no attempts to interfere with or influence the stockholder vote.[139]

         Notwithstanding the Board's steps to neutralize any Brookfield influence, and to bargain with Brookfield, Plaintiffs argue that Brookfield dominated and controlled the Committee and its process, as revealed by the fact that: (1) the Committee comprised directors who have served on the Board since the Spin-Off[140]; (2) the Committee hired conflicted advisors[141]; (3) the Committee included "[a]t least two members" (Silberfein and Hegarty) who had "disabling conflicts . . . [that] tainted the entire" process[142]; (4) the Committee asked Silberfein to design a Retention Plan that would motivate him "to get the deal with [] Brookfield [] done as quickly as possible"[143]; (5) the Committee agreed to an unfairly structured Merger[144]; (6) the Committee agreed to "onerous deal protection devices . . . that dissuaded any rational third party from offering Rouse a better deal"[145]; and (7) Brookfield refused to support any third-party topping bid although it knew its presence as bidder "prevented" other bidders from surfacing.[146] As discussed below, none of these arguments is persuasive.[147]

         First, as for the notion that Brookfield controlled the process because the Committee was comprised of members who may have been placed on the Board by a Brookfield affiliate, as noted, our law is clear that "a director's independence is not compromised simply by virtue of being nominated to a board by an interested stockholder."[148] Moreover, the Complaint does not contain a single allegation of any conflict affecting the other Committee members-specifically, Messrs. Haley, Kruth, and Mullen.

         Second, as discussed in more detail below, Plaintiffs allegations of conflict directed towards Sidley and Bank of America are misguided. There were no disabling conflicts, and certainly none that would suggest that Brookfield exercised actual control over the Committee through the Committee's advisors.

         Third, as discussed above, the Complaint fails to support a reasonable inference that Silberfein and Hegarty lacked independence. More to the point, the Complaint contains no allegations that Brookfield was able to exploit Silberfein's or Hegarty's positions on the Committee to achieve a more favorable outcome or to exert undue influence on the other Committee members.

         Fourth, the Retention Plan designed by Silberfein provided for him to be paid whether or not Rouse entered into the transaction with Brookfield. Thus, by the terms of the plan, Silberfein was no more motivated to close with Brookfield than he was to terminate negotiations with Brookfield and look elsewhere for a deal.

         Fifth, the fact that the Merger structure allowed for certain Requested Transactions to be completed pre-closing does not indicate Brookfield's control. The two-phase structure of the Merger simply allowed Brookfield to make certain operational decisions at Rouse during the time between signing and closing of the Merger, while ensuring that any consequences of Brookfield's decisions would not be imposed upon Rouse should the closing not occur.

         Sixth, the deal protections to which the Committee agreed were considered in light of, inter alia, Rouse's previous failed attempts to sell, the lack of interested parties at the proposed price and the practical realities of Brookfield's significant equity position. The Committee negotiated vigorously in an attempt to exclude those provisions it disfavored and to include those provisions (such as the "majority of the minority" provision) that the Committee deemed necessary. Those negotiations do not support a reasonable inference that Brookfield controlled the Committee.

         Finally, the structural elements of Brookfield's proposal and bargaining positions do not reveal control; they simply reveal self-interest and the practical reality of its 33.5% stake in Rouse. It is "well established" in our law that "a non-majority shareholder [can] act in its self-interest, " and the fact it has done so "is not particularly probative of whether the large shareholder exercises actual control over the business and affairs of the corporation."[149] As for the argument that Brookfield's "presence" as a bidder somehow evinces its status as controller, I confess that I do not follow Plaintiffs' reasoning here. Aside from alleging generally that none of the 43 other potential bidders contacted by Bank of America decided to make a bid, Plaintiffs have alleged nothing to suggest that Brookfield did anything to influence those decisions. Moreover, if "presence" alone were enough to infer that a minority blockholder was a controller, then that inference would follow every blockholder who sought to acquire the corporation in which he holds shares, even if he, in fact, did not otherwise attempt to influence the board or interfere with other potential bids. That is not our law.

         2. Brookfield does not actually control Rouse generally

         According to Plaintiffs, even if Brookfield's control of Rouse cannot be inferred from the manner in which the negotiations leading to the Merger unfolded, or in the terms of the Merger itself, Brookfield's general control over Rouse can be inferred from: (1) its significant ownership interest in (and prior majority ownership of) Rouse; (2) the fact that the Board saw the need to create the Committee upon receiving Brookfield's proposal, and the Committee, in turn, saw the need to insist upon a "majority of the minority" condition; (3) the disclosure in Rouse's 2014 Form 10-K to the effect that Brookfield was a "substantial stockholder" that "may exert influence over [Rouse]"; and (4) the fact that Rouse has engaged in prior "questionable" transactions with Brookfield.[150] I take up each contention in turn after briefly reiterating the standards by which the Court must evaluate Plaintiffs' allegations of actual control.

         In In re PNB, when addressing the issue of actual control, the court asked whether the plaintiff had pled, "as a practical matter, [that the alleged controller] was no differently situated than if it had majority voting control."[151] In Paramount, the Supreme Court observed that evidence of a controlling stockholder's general control over the board should reveal that the stockholder can:

(a) elect directors; (b) cause a break-up of the corporation; (c) merge it with another company; (d) cash-out the public stockholders; (e) amend the certificate of incorporation; (f) sell all or substantially all of the corporate assets; or (g) otherwise alter materially the nature ...

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