That's A Lot Of Pineapples — Delaware Court Of Chancery Holds Dole Executives Personally Liable For $148 Million In Damages From Breaches Of Fiduciary Duty And Fraud In Going-Private Transaction: Lessons For Deal Lawyers

In re Dole Food Co., Inc. Stockholder Litigation,1 the Delaware Court of Chancery held two directors of Dole Food Company, one of whom was Dole's controlling stockholder, jointly and severally liable for $148 million in damages in connection with a going-private transaction by the controlling stockholder. In reaching his decision, Vice Chancellor Laster applied the entire fairness standard of review — even though Dole had standard exculpatory provisions in its charter protecting officers and directors and had apparently adopted the procedural safeguards for going-private transactions enumerated by the Court of Chancery in In re MFW Shareholder Litigation2 and affirmed by the Delaware Supreme Court — because the evidence showed that the defendants, through their fraudulent actions, prevented the transaction from emulating a true arm's-length deal.

In a detailed post-trial opinion, Vice Chancellor Laster found that David Murdock — Dole's controlling stockholder, board chairman, and chief executive officer — and Michael Carter — Dole's president, chief operating officer, general counsel, director, and Murdock's "right-hand man" — acted intentionally and in bad faith and breached their duty of loyalty in taking the company private. The Court determined that, under the circumstances, even if the stockholders received an "arguably fair price," the stockholders were entitled to a "fairer price" designed to eliminate the ability of the defendants to profit from their breaches of the duty of loyalty. Vice Chancellor Laster therefore determined that the going-private transaction, which was valued at $13.50 per share of Dole stock, deprived the Dole stockholders of $2.74 in value per share, or approximately $148 million in aggregate damages. As the Court noted in determining that Murdock and Carter were liable, "[a]lthough facially large, the award is conservative relative to what the evidence could support."

In 2003, Murdock took Dole private in a leveraged buyout. Subsequently, in 2009, Dole needed access to the public capital markets to refinance its debt and Murdock reluctantly took Dole public again. In so doing, Murdock remained Dole's largest stockholder, controlling approximately 40% of the Company. Murdock's ongoing dissatisfaction with "the public company model" was apparent to others at Dole, and he "regularly considered the possibility of taking [Dole] private again." In order to do so, according to the Court, Murdock orchestrated a scheme...