Alan Kahn v. Kevin McCarthy, et al., C.A. No. 4054 (Del. Ch. Sept. 24, 2008) (C. Chandler)

The Court of Chancery held that plaintiff was not entitled to a temporary restraining order prohibiting defendants from proceeding with a merger because he failed to show a probability of success on the merits of his claim that additional disclosure regarding the Department of Treasury’s Troubled Asset Relief Program was material to stockholders. Plaintiff is a stockholder of defendant PFF Bancorp, Inc. (PFF), a diversified financial services company that holds a portfolio of mortgages. In light of the financial crisis of 2007 and early 2008, PFF’s mortgage portfolios declined. PFF’s board of directors determined that a merger with FBOP Corporation was the best alternative for PFF and its stockholders. The United States Treasury recently announced the creation of a Troubled Asset Relief Program, where the Federal Government would purchase certain mortgage assets held by financial institutions. The Court recognized that details of the Relief Program are still uncertain and that it was unclear when (or if) Congress would approve the Program. Plaintiff claimed that PFF’s assets had a higher value after the announcement of the Relief Program than that reflected in the proxy statement, that the Board breached their fiduciary duties by failing to update the proxy statement to reflect the proposed Relief Program, and that the Board had a duty to delay the stockholder vote until the proxy statement had been amended to reflect the alleged change in value. The Court disagreed and found that the Board presented PFF stockholders with adequate disclosures in the proxy statement. The Court reiterated the fact that the proposed Relief Program was incomplete and that Congress had not approved the plan not decided on the contents, and as such the Board was not required to make calculations on “speculative” stock value increases at that time. Because of the speculative nature of the proposed Relief Program, any further disclosure would have been merely conjectural. Accordingly, the Court held that plaintiff would not prevail on the merits of his claim and denied the motion for a temporary restraining order.

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