Opinion
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
APPEAL from a judgment of the Superior Court of Los Angeles County. Carolyn B. Kuhl, Judge, Ct. Nos. BC338786, BC338945, BC339083
Brad Greenspan, in pro. per.; Irell & Manella, Gregory R. Smith, Daniel P. Lefler, John Hueston, Banjamin T. Wang; Baker Marquart Crone & Hawxhurst, Ryan G. Baker and Jaime W. Marquart for Plaintiff and Appellant Brad Greenspan.
Coughlin Stoia Geller Rudman & Robbins, Darren J. Robbins, Randall J. Baron, Kevin K. Green and Stephen J. Oddo for Plaintiff and Appellant Ron Sheppard.
Kreindler & Kreindler, Gretchen M. Nelson, Mark I. Labaton, Marc S. Moller; Law Offices of George A. Shohet and George A. Shohet for Plaintiffs and Appellants John Friedmann et al.
Hogan & Hartson, Richard L. Stone, Julie A. Shepard and Elizabeth A. Moriarty for Defendants and Respondents Intermix Media, Inc., et al.
Orrick, Herrington & Sutcliffe, Michael D. Torpey, James N. Kramer, Stephen M. Knaster and Teodora E. Manolova for Defendants and Respondents Vantage Point Venture Partners et al.
Latham & Watkins, Pamela S. Palmer, Paul H. Dawes, Andrew M. Farthing and Rebecca M. Couto for Defendants and Respondents Richard Rosenblatt et al.
Skadden, Arps, Slate, Meagher & Flom, Eric S. Waxman and Marina V. Bogorad for Defendant and Respondent Intermix Media, Inc.
DOI TODD, J.
In consolidated appeals, plaintiffs and appellants John Friedmann, Patty Pierce and Ron Sheppard, and plaintiff and appellant Brad Greenspan appeal from judgments entered against them following the trial court’s orders sustaining demurrers without leave to amend brought by defendants and respondents Intermix Media, Inc. (Intermix), Richard Rosenblatt, Brett Brewer, Daniel Mosher, Lawrence Moreau, James Quandt, William Woodward, Jeffrey Edell, VantagePoint Venture Partners IV (Q), L.P. and related entities, David Carlick, Andrew Sheehan, Alan Salzman and Richard Harroch. Appellants brought an individual and proposed class action alleging breach of fiduciary duty and other tort claims stemming from News Corporation’s acquisition of Intermix. The trial court ruled that the shareholders’ ratification of the acquisition vitiated the breach of fiduciary duty claims because there had been adequate disclosure of all material facts. It also found that Brad Greenspan’s individual claims relating to his employment were time-barred.
We affirm. The allegations of the complaints and judicially-noticed documents demonstrate that the shareholders’ approval of the acquisition was fully informed. The shareholders’ ratification eliminated all challenges to the acquisition except on the ground of waste, which they have not alleged. Further, the applicable statute of limitations barred Greenspan’s individual claim for tortuous interference with prospective economic advantage.
FACTUAL AND PROCEDURAL BACKGROUND
On appeal from a judgment of dismissal following a demurrer sustained without leave to amend, we assume the truth of all well pleaded facts, as well as those that are judicially noticeable. (Howard Jarvis Taxpayers Assn. v. City of La Habra (2001) 25 Cal.4th 809, 814; Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)
The Parties.
Intermix was an interactive entertainment company that operated approximately 30 Web sites on the Internet. It owned and operated several online retailers selling items including collectibles, consumer electronics, music related products and nutritional and fitness related products. It also delivered entertainment related and community oriented content through a network of Web sites and e-mail newsletters that served subscribers. The company’s “‘crown jewel’” was MySpace, a social networking network allowing users to create their own online community through web profiles, blogs, instant messaging, e-mail, music downloads, photo galleries, classified listings and chatrooms.
John Friedmann, Patty Pierce and Ron Sheppard (shareholder appellants) were Intermix shareholders.
Brad Greenspan (Greenspan) founded eUniverse, Inc. in April 1999; the company changed its name to Intermix Media, Inc. in May 2004 and incorporated in Delaware in July 2004. Greenspan served as eUniverse’s chairman of the board of directors (chair) from April 1999 to October 2003 and as its chief executive officer (CEO) from August 2000 to October 2003. He continued to serve as a member of eUniverse’s board of directors until December 2003.
We sometimes refer to the shareholder appellants and Greenspan collectively as appellants.
Richard Rosenblatt (Rosenblatt) succeeded Greenspan as Intermix’s chair and CEO from February 2004 to September 2005. At all relevant times, Brett Brewer (Brewer) was president of Intermix and a member of its board of directors. The remaining members of Intermix’s board of directors were Daniel Mosher, Lawrence Moreau, James Quandt, William Woodward, David Carlick (Carlick) and Andrew Sheehan (Sheehan). Carlick and Sheehan were the managing directors of several investment entities—VP Alpha Holdings IV, L.L.C., VantagePoint Venture Partners IV (Q), L.P., VantagePoint Venture Associates IV, L.L.C., VantagePoint Venture Partners IV, L.P. and VantagePoint Venture Partners IV Principals Fund, L.P. (sometimes collectively VantagePoint).
We occasionally refer to these eight individuals collectively as the board. Greenspan alone alleged claims against former board member Jeffrey Edell and Intermix general counsel Christopher Lipp.
Greenspan alone also alleged claims against VantagePoint managing director Alan Salzman and VantagePoint senior advisor Richard Harroch.
Intermix’s Legal Problems.
Intermix (then eUniverse) began trading on the NASDAQ SmallCap Index in April 2000. Although the company was profitable on an annual basis beginning in fiscal year 2002 and was the most frequented entertainment network on the Internet by June 2002, it faced legal difficulties in 2003. On May 6, 2003, as a result of accounting errors Intermix announced its intent to restate its quarterly financial results for the quarters ending June 30, September 30 and December 31, 2002. Following this announcement, the NASDAQ suspended trading of Intermix stock and subsequently delisted the company from the NASDAQ exchange. The Securities and Exchange Commission (SEC) also initiated an informal investigation of Intermix and several shareholders filed lawsuits in federal court alleging claims based on Intermix’s filing of false and misleading financial statements. The SEC terminated its investigation in October 2004 without any enforcement action.
Shortly thereafter, in December 2004, the Attorney General for the State of New York initiated a formal investigation into Intermix’s practice of surreptitiously foisting “adware” and “spyware” onto the computers of consumers who visited certain Intermix Web sites. Intermix immediately retained counsel to represent it in connection with the investigation. It did not disclose the New York Attorney General investigation to the public until April 12, 2005 when it filed a Form 8-K with the SEC which notified the public of the investigation and that the New York Attorney General had threatened to file a civil suit seeking monetary and injunctive relief. While the undisclosed investigation was pending, both Intermix’s president and VantagePoint sold significant amounts of stock. In the month following disclosure, Intermix’s stock price fell from $8.25 per share to $3.20 per share. During this period at least three suitors expressed interest in Intermix. In June 2005, Intermix agreed to pay $7.5 million to settle the potential claims by the New York Attorney General.
VantagePoint Investment.
During the summer of 2003, Intermix needed to obtain additional financing; its efforts to attract financing were hindered by problems stemming from its restatement of financial results and the SEC investigation. In July 2003, Greenspan, on behalf of Intermix, reached an agreement with venture capital firm VantagePoint to obtain additional financing. In the first phase of the transaction, VantagePoint agreed to loan Intermix $2 million at a set rate of interest and to pay off a $500,000 promissory note in exchange for an option to purchase shares of Intermix common and preferred stock owned by another investor. Phase one closed in July 2003. At that time, Greenspan discussed with VantagePoint his desire to transition away from day-to-day responsibilities as CEO and focus on “big-picture” issues as the board chair, as well as his desire to participate in the development and sale of several businesses, including MySpace. Also at the same time, the parties signed a term sheet relating to the second phase of the transaction, which gave VantagePoint the right to make an additional $8 million preferred stock investment in Intermix at $1.50 per share and which gave Intermix an additional $20 million line of credit to be used in future merger and acquisition transactions.
Simultaneously, Greenspan voluntarily reduced his salary, forfeited his bonus and deferred his salary on the basis of his belief that he had reached an understanding with the board’s compensation committee that he would receive an equity interest in Intermix businesses being developed for sale. He did not obtain a written agreement reflecting this understanding.
During September and October 2003, Greenspan began efforts to finalize the second phase of the transaction. VantagePoint informed him that it did not intend to provide a traditional line of credit but would only consider extending capital at its sole discretion in exchange for equity in Intermix. This proposal was problematic for several reasons: VantagePoint’s desire to complete the second phase in a single transaction could have breached the NASDAQ’s change of control requirement and jeopardized Intermix’s ability to become relisted on the NASDAQ exchange; Intermix stock had begun trading on the OTC Bulletin Board at over $2 per share, making the $1.50 offer less attractive; and Intermix still desired a line of credit.
Greenspan searched for alternative financing and ultimately arranged for several of Intermix’s institutional investors to invest $2.5 million at a price of $1.85 per share and to assist Intermix in obtaining additional financing at favorable terms. On October 16, 2003, the board voted unanimously for a resolution approving completion of the proposed transaction, referred to as “common stock financing.” The board also approved a plan to invite VantagePoint to participate in the common stock financing and Greenspan subsequently told VantagePoint it was welcome to invest, but only in accordance with the common stock financing terms.
According to Greenspan, contrary to the board’s direction, certain Intermix directors and Intermix’s general counsel conspired with VantagePoint to accept its proposed financing instead of the common stock financing. In furtherance of this conspiracy, VantagePoint prepared a fraudulent letter dated October 27, 2003 threatening to sue Intermix if it did not complete the second phase of the VantagePoint transaction as opposed to the common stock financing. The board met that day to consider the letter, at which time several individuals who allegedly conspired with VantagePoint threatened to resign as officers and directors unless Greenspan stepped down as chair and CEO. They did so to garner board support for Greenspan’s removal and the consummation of the VantagePoint financing. Furthermore, resignation of the officers and directors would have jeopardized the common stock financing by creating a disclosable event.
Ultimately, the board approved the VantagePoint financing at that meeting. Pursuant to that transaction, VantagePoint invested $8 million in exchange for 5,333,333 shares of Series C preferred stock at $1.50 per share. It also provided a $4 million line of credit; for each $1 million advanced to Intermix it was required to grant 250,000 five-year warrants to buy Series C preferred stock at $2 per share. VantagePoint also received the ability to block certain transactions, including mergers, and two of its managing directors joined Intermix’s board, thereby receiving stock options and other valuable consideration. Greenspan resigned as chair and CEO of Intermix a few days after the board approved the transaction and resigned from the board in December 2003.
In February 2004, the board appointed Rosenblatt as the Intermix CEO and he received an option to buy 2 million shares of Intermix stock at $1.83 per share.
In February 2005, Greenspan filed a shareholder derivative action alleging breach of fiduciary duty and violation of Business and Professions Code section 17200; he later dismissed the action.
News Corporation’s Acquisition of Intermix.
On February 11, 2005, Intermix sold an interest in MySpace to venture capital firm RedPoint Ventures for $11.5 million. Following the sale, Intermix retained a 53 percent interest in MySpace as well as the right to purchase the remaining minority interest for $69 million at any time before February 11, 2006 on the condition that it must have received a bona fide offer by a third party to acquire more than 50 percent of its stock or assets.
Also in February 2005, the board formed a “Transactions Committee” to evaluate potential acquisitions of other businesses, explore the possibility of raising additional capital and evaluate the potential sale of Intermix to a third party. The committee was comprised of board members Rosenblatt, Sheehan and Quandt. In April 2005, Rosenblatt met with investment banking firm Montgomery & Co., LLC (Montgomery), who suggested that Intermix explore a possible sale of the company or one or more of its business units. In April and May 2005, Intermix met with several potential suitors and signed confidentiality agreements with three of them. Any interested suitor withdrew, however, after the New York Attorney General investigation was disclosed and Intermix’s stock price dropped.
On June 9, 2005, shortly before Intermix announced its settlement with the New York Attorney General, Montgomery advised the board that News Corporation (News Corp.) had expressed an interest in acquiring all or part of Intermix. On June 22, 2005, after Intermix announced the settlement, News Corp. signed a confidentiality agreement in order to engage in acquisition discussions with and receive confidential information about the company. The next day, following a meeting between Rosenblatt and News Corp. confirming that it would commence due diligence, Rosenblatt sent an e-mail to Sheehan stating: “Fox dili starting Monday. Name ur next kid rich. No deal unless I stay long term. remember your vesting promise.”
According to appellants, the Intermix board focused on the News Corp. deal for reasons of personal gain and not to maximize shareholder value. In this regard, the board failed to canvass the market for potential alternative buyers, initiate an auction, pursue other options such as spinning off MySpace, contact the suitors who had expressed interest in the company during April and May 2005, or hire an investment bank to provide independent financial advice.
On July 1, 2005, investment bank Thomas Weisel Partners (Weisel) approached Rosenblatt, urging him to consider an offer from a company identified as “Company D,” which Greenspan alleged was Viacom, Inc. (Viacom). After Weisel again contacted Rosenblatt on July 6, 2005 to inform him that Company D was interested in conducting due diligence, Rosenblatt and Montgomery agreed to avoid “testing the market” in order to pursue the News Corp. transaction. An e-mail from Rosenblatt to Michael Montgomery that same day stated: “‘Get lang [Mike Lang of News Corp.] to 12 and ill get vantage. Just spoke w him . . . he wants to test the market and I’m advising against it . . . .’” Also on July 6, 2005, Rosenblatt confirmed that he had obtained approval from Chris DeWolfe, the CEO of MySpace, to enter into a deal with Fox (a News Corp. subsidiary) at $12 per share.
As a result of VantagePoint’s previous investment in Intermix, it owned approximately 23.4 percent of the voting shares of stock in the form of Series B, Series C and Series C-1 preferred convertible stock. On July 10, 2005, News Corp. provided Rosenblatt and Sheehan with a schedule setting forth the price per share calculations that News Corp. would offer; the schedule outlined the various classes of stock and specified that VantagePoint’s preferred stock would receive a liquidation preference price in the case of a merger.
Rosenblatt met with Rupert Murdoch and Peter Chernin of News Corp. on July 12, 2005, at which time News Corp. offered an acquisition price of $12 per share for common stock on the condition that the acquisition documents be executed by July 17, 2005. Shortly after receiving the offer, Intermix retained Montgomery and Weisel to write fairness opinions. In confirming the retention, Montgomery wrote to Sheehan stating “‘we will decide to write a fairness opinion. Our agreement was that this would be the “love.”’” Meanwhile, Company D contacted Rosenblatt again to express interest in bidding for Intermix. But Rosenblatt and Sheehan never gave Company D the opportunity to present an offer by cutting the process short and quickly agreeing to a deal with News Corp.
On July 18, 2005, the board voted to accept News Corp.’s offer and to exercise the option to purchase the outstanding minority interest in MySpace. The following day, Intermix publicly announced its acceptance of News Corp.’s offer, filing a Form 8-K with the SEC which stated that Intermix, News Corp. subsidiary Fox Interactive Media, Inc. (Fox), and Fox subsidiary Project Ivory Acquisition Corporation (Project Ivory) had entered into an agreement and plan of merger (merger agreement). According to the merger agreement, News Corp. would acquire Intermix for approximately $580 million in cash; Intermix would then be merged into Project Ivory and remain as a wholly owned Fox subsidiary. News Corp. would pay holders of common stock and Series A convertible preferred stock $12 per share. Holders of Series B convertible preferred stock would receive $14.60 per share, holders of Series C convertible preferred stock would receive $13.50 per share and holders of Series C-1 convertible preferred stock would receive $14 per share. The Weisel fairness opinion opined that the per share value of Intermix ranged between $10.50 and $19.51. Montgomery and Weisel each received a flat fee of $750,000 for their fairness opinions, as well as a “success fee” of 0.425 percent of the consideration received from News Corp. upon completion of the transaction.
The merger agreement contained a number of “deal protection devices,” including a “no solicitation covenant”—sometimes referred to as a “no-shop” or “no-talk” provision—which precluded Intermix from initiating or participating in acquisition discussions with a third party; a $25 million termination fee payable to Fox in the event Intermix terminated the merger agreement and entered into an acquisition with another suitor; and a “matching rights” provision. The merger agreement provided broad indemnification rights to Intermix’s outgoing officers and directors, resulting in an agreement that appellants characterized as “highly ‘unusual’ in its scope.” News Corp. and Fox also entered into a separate agreement with VantagePoint in which VantagePoint agreed to vote its shares in favor of the merger agreement.
On August 25, 2005, Intermix filed its merger proxy statement (proxy) with the SEC pursuant to Schedule 14A, in which it described the details of the transaction and set a special shareholder meeting on September 28, 2005, for the purpose of voting to approve or disapprove the proposed transaction. One day earlier, Greenspan filed his initial complaint for breach of fiduciary duty against Intermix officers and directors and VantagePoint. He alleged that the Intermix officers and directors entered into a conspiracy with VantagePoint to complete a financing plan that gave VantagePoint a controlling interest in Intermix and that, thereafter, VantagePoint seized on opportunities that benefitted it as a majority shareholder to the detriment of those with minority interests. He generally alleged that “[t]hrough the purchase and control of a majority of shares, each Defendant, breached his duty of care, loyalty, communication, candor, and confidentiality owed to Plaintiff, for the benefit of the majority shareholders.” On August 26 and 30, 2005, two of the shareholder appellants initiated separate proposed class action lawsuits against the Intermix board and VantagePoint, alleging a claim for breach of fiduciary duty in connection with the proposed News Corp. acquisition and seeking to enjoin the acquisition.
On September 23, 2005, Greenspan, who owned approximately 11 percent of Intermix’s shares, publicly announced an offer to purchase 50 percent of Intermix’s shares at $13.50 per share. Following this announcement, Intermix’s stock price rose 39 cents per share to $12.30. On September 25, 2005, the board rejected Greenspan’s proposal, but delayed the shareholder vote on the merger agreement for two days until September 30, 2005. When Intermix filed its Form 8-K on September 26, 2005 rejecting Greenspan’s offer, the stock price dropped back down to its earlier level.
Also on September 26, 2005, after it had permitted limited discovery, the trial court denied the shareholder appellants’ application for a temporary restraining order to delay the shareholder vote on the acquisition. On September 30, 2005, the Intermix shareholders voted to approve the merger agreement.
The Operative Pleadings and Trial Court Rulings.
In November 2005, the trial court ordered the matters filed by the shareholders consolidated, and the shareholder appellants filed a consolidated amended class action complaint (CAC) for breach of fiduciary duty in January 2006. Greenspan filed his amended complaint (GAC) in February 2006, alleging causes of action for tortuous interference with prospective economic advantage, statutory unfair competition, breach of fiduciary duty, aiding and abetting breach of fiduciary duty and indemnification.
Both the CAC and the GAC alleged that the board and VantagePoint had material conflicts of interest which caused them to act in their own interest at the expense of the Intermix shareholders. For example, VantagePoint received up to a 23 percent premium for its shares under the merger agreement and entered into an agreement with News Corp. to vote its shares—representing approximately 23 percent of the outstanding shares—in favor of the acquisition. All nonemployee board members financially benefitted from the merger agreement by receiving immediate vesting of their stock options pursuant to the change in control that resulted from their replacement as directors. Rosenblatt, who helped to negotiate the transaction, received personal benefits in the form of accelerated vesting of his stock options coupled with the promise of continued employment.
The CAC and the GAC alleged that the board breached its fiduciary duty by failing to maximize the amount received for Intermix’s shares and instead focusing on protecting itself from potential liability by negotiating a broad indemnification provision.
Appellants further alleged that the fairness opinions received from Montgomery and Weisel were flawed in several respects. The contingent nature of a portion of the fee paid to Montgomery and Weisel served as an incentive to opine that the acquisition was fair; both Montgomery and Weisel ignored information demonstrating significantly increased traffic on MySpace and that Intermix was on track to report net income for the first quarter of 2006 approximately 900 percent greater than in the first quarter of 2005; and Montgomery and Weisel ignored or did not apply the valuation metrics which showed that Intermix’s intrinsic value exceed that of IGN, a company News Corp. had recently acquired for approximately $650 million.
In addition, appellants alleged that the deal protection devices utilized in the merger agreement—including the “no-shop” and “no-talk” provision, the termination fees and the matching rights provision—“improperly tilted the playing field in favor of News Corp.” and prevented the board from taking steps to maximize shareholder value. The GAC further alleged that in complying with the deal protection devices the board breached its fiduciary duty and engaged in an unfair transaction process by failing to conduct an auction and failing to solicit or pursue other suitors. It further alleged the process was unfair by reason of the board’s failure to have a committee of disinterested board members evaluate the transaction and failure to retain an investment bank until the last minute.
Finally, the CAC and the GAC alleged that the proxy materials filed by Intermix omitted and/or misrepresented numerous material facts. Specifically, the board failed to disclose internal projections for MySpace’s future growth and failed to report My Space’s earnings and revenues separately, effectively hiding from shareholders that MySpace was experiencing significant growth. It failed to disclose material information relating to the fairness opinions, including the management projections and underlying assumptions on which Montgomery and Weisel relied and the criteria for selection of comparable companies and transaction. It failed fully to disclose the negotiations surrounding the indemnification provision, including that the board sought indemnification for known wrongs and that indemnification necessarily led to a lower purchase price. Lastly, it failed to disclose the strategic alternatives available to Intermix beyond acquisition and failed to disclose the level of preliminary indications of interest from potential suitors.
The directors and VantagePoint filed their demurrer to the CAC in February 2006. They asserted that, under Delaware law, the Intermix shareholders’ fully informed vote to approve the merger agreement extinguished any claim for breach of fiduciary duty. Alternatively, they argued that, irrespective of the shareholder vote, the CAC failed to state a cause of action for breach of fiduciary duty because it did not allege that the board’s decisions and actions were outside the range of reasonableness. In support of the demurrer, the directors sought judicial notice of the proxy and other documents filed with the SEC and the Delaware Secretary of State on behalf of Intermix.
The directors and VantagePoint filed a joint demurrer to the first and second causes of action of the GAC alleging tortuous interference with prospective economic advantage and a violation of Business and Professions Code section 17200, respectively. In support of their demurrer, they likewise sought judicial notice of certain pleadings, orders and SEC filings. VantagePoint separately demurred to the third through sixth causes of action in the GAC, and the directors joined in that demurrer.
Following a July 6, 2006 hearing on the demurrers, the trial court issued separate written opinions and orders for the CAC and the GAC, which were filed in October 2006. Addressing the CAC, the trial preliminarily indicated that while it took judicial notice of the proxy materials for the purpose of assessing the shareholder appellants’ disclosure claims, it had not relied on those materials for the truth of the matters stated therein. Applying the principle of shareholder ratification, the trial court ruled that “[b]ecause the disclosures to the stockholders were adequate and the stockholders ratified all of the terms of the merger, their ratification vitiates all claims for breach of fiduciary duty” as well as any claim for aiding and abetting a breach of fiduciary as alleged against VantagePoint. The trial court sustained the demurrer without leave to amend on the basis that the shareholder appellants had an opportunity to amend in filing the CAC and, in light of the arguments presented, the court had no reason to believe they could amend their complaint to state a viable claim.
With respect to the breach of fiduciary claims raised in the GAC, the trial court incorporated its ruling on the CAC. The trial court further ruled that the GAC’s first cause of action for tortious interference with prospective economic advantage was barred by the applicable two-year statute of limitations, as the claim accrued in December 2003 and was not brought until February 2006 and did not relate back to Greenspan’s August 2005 complaint. With respect to the GAC’s second cause of action for violation of Business and Professions Code section 17200, the trial court ruled that the requisite element of damages was lacking, as Greenspan failed to allege he was deprived of money or profits in which he had a vested interest. Accordingly, the trial court sustained the demurrer in its entirety without leave to amend.
Judgment was entered in November 2006 on the CAC and the GAC and these appeals followed. We thereafter consolidated the matters.
DISCUSSION
Appellants contend that the trial court erred in sustaining the demurrers without leave to amend as to their breach of fiduciary duty claims. Those claims fall within two general classes: The failure to seek the maximum value reasonably attainable for the Intermix shareholders pursuant to Revlon, Inc. v. MacAndrews & Forbes Holdings (Del.Supr. 1986) 506 A.2d 173, 182 (Revlon) and the invocation of unreasonable and disproportionate deal protection devices in violation of Unocal Corp. v. Mesa Petroleum Co. (Del.Supr. 1985) 493 A.2d 946, 955–956 (Unocal). We agree with the trial court that those claims were extinguished by the fully informed shareholder vote approving the merger agreement. We likewise conclude that the trial court properly exercised its discretion in denying further leave to amend.
Separately, Greenspan contends that the trial court erred in ruling that his claim for tortuous interference with prospective economic advantage did not relate back to his August 2005 breach of fiduciary duty claim. Because those claims were premised on different facts and different injuries arising from independent courses of conduct, we find no error.
I. Standard of Review and Application of Delaware Law.
The principles governing our review of an order sustaining a demurrer without leave to amend are well established. As we recently summarized in Social Services Payment Cases (Sept. 16, 2008, B200788) ___ Cal.App.4th ___ [2008 WL 4216022 at pp. *12–13]: “On appeal from a judgment of dismissal following an order sustaining a demurrer, we examine the complaint de novo in order to ascertain ‘whether it alleges facts sufficient to state a cause of action under any legal theory, such facts being assumed true for this purpose.’ (McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415.) We give the complaint a reasonable interpretation, reading it as a whole and viewing its parts in context. (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38; Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) We assume the truth of the properly pleaded factual allegations, facts that can be reasonably inferred from those pleaded and facts of which judicial notice can be taken. (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.) But we do not assume the truth of pleaded contentions and legal conclusions. (Moore v. Regents of University of California [1990]51 Cal.3d [120,] 125; Cochran v. Cochran (1997) 56 Cal.App.4th 1115, 1120.) And we may disregard allegations which are contrary to law or to a fact of which judicial notice may be taken. (Wolfe v. State Farm Fire & Casualty Ins. Co. (1996) 46 Cal.App.4th 554, 559–560.) [¶] We review the trial court’s denial of leave to amend for an abuse of discretion. (Blank v. Kirwan, supra, 39 Cal.3d at p. 318; Hernandez v. City of Pomona [1996] 49 Cal.App.4th [1492,] 1497.) ‘When a demurrer is sustained without leave to amend, we determine whether there is a reasonable probability that the defect can be cured by amendment. [Citation.]’ (V.C. v. Los Angeles Unified School Dist. (2006) 139 Cal.App.4th 499, 506.) Appellants bear the burden of demonstrating the trial court erred in sustaining the demurrer or abused its discretion in denying leave to amend. (Blank v. Kirwan, supra, at p. 318; V.C. v. Los Angeles Unified School Dist., supra, at pp. 506–507.)” (Social Services Payment Cases, supra, 2008 WL 4216022 at pp. *12–13.)
As the trial court did below, we apply Delaware law to the claims against Intermix’s board. (See Corp. Code, § 2116.) Corporations Code section 2116 is a codification of the “internal affairs doctrine,” “‘“a conflict of laws principle which recognizes that only one State should have the authority to regulate a corporation’s internal affairs—matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders—because otherwise a corporation could be faced with conflicting demands.” [Citation.] “States normally look to the State of a business’ incorporation for the law that provides the relevant corporate governance general standard of care.” [Citation.]’” (Friese v. Superior Court (2005) 134 Cal.App.4th 693, 706; see also State Farm Mutual Automobile Ins. Co. v. Superior Court (2003) 114 Cal.App.4th 434, 442 [“‘a corporation—except in the rarest situations—is organized under, and governed by, the law of a single jurisdiction, traditionally the corporate law of the State of its incorporation’”].) In our application of Delaware law, we are not confined to the citation of published cases but may also rely on unpublished authority. (Lebrilla v. Farmers Group, Inc. (2004) 119 Cal.App.4th 1070, 1077 [“Opinions from other jurisdictions can be cited without regard to their publication status”].)
II. The Trial Court Properly Sustained the Demurrers Without Leave to Amend as to the Breach of Fiduciary Duty Claims.
A. Shareholder Ratification.
Relying on the doctrine of shareholder ratification, the trial court ruled that the shareholders’ approval of the merger agreement extinguished all breach of fiduciary duty claims arising from the merger. As explained in Solomon v. Armstrong (Del.Ch. 1999) 747 A.2d 1098, 1115–1116, affd. (Del. 2000) 746 A.2d 277, the “effect of a fully-informed shareholder vote in favor of [a] particular transaction is to maintain the business judgment rule’s presumptions. To rebut those presumptions at the motion to dismiss stage the plaintiff must ‘allege facts showing that no person of ordinary sound business judgment could view the benefits received as a fair exchange for the consideration paid by the corporation,’ i.e., that the transaction was irrational or amounted to waste.” (Accord, Marciano v. Nakash (Del.Supr. 1987) 535 A.2d 400, 405, fn. 3 [“approval by fully-informed . . . disinterested stockholders . . . permits invocation of the business judgment rule and limits judicial review to issues of gift or waste with the burden of proof upon the party attacking the transaction”]; Harbor Finance Partners v. Huizenga (Del.Ch. 1999) 751 A.2d 879, 890 & fn. 37 [“the effect of untainted stockholder approval of [a] Merger is to invoke the protection of the business judgment rule and to insulate the Merger from all attacks other than on the ground of waste”]; In re Wheelabrator Tech. Shareholders Lit. (Del.Ch. 1995) 663 A.2d 1194, 1203 [same].)
In Orman v. Cullman (Del.Ch. 2002) 794 A.2d 5, the court outlined the basis of and reasons for application of the business judgment rule: “‘A cardinal precept of the General Corporation Law of the State of Delaware is that directors, rather than shareholders, manage the business and affairs of the corporation.’ The business judgment rule is a recognition of that statutory precept. The rule ‘is a presumption that in making a business decision the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company.’ Therefore, the judgment of a properly functioning board will not be second-guessed and ‘[a]bsent an abuse of discretion, that judgment will be respected by the courts.’ Because a board is presumed to have acted properly, ‘[t]he burden is on the party challenging the decision to establish facts rebutting the presumption.’” (Id. at pp. 19–20, fns. omitted.) In sum, “[t]he [business judgment] rule posits a powerful presumption in favor of actions taken by the directors in that a decision made by a loyal and informed board will not be overturned by the courts unless it cannot be ‘attributed to any rational business purpose.’ [Citations.]” (Cede & Co. v. Technicolor, Inc. (Del.Supr. 1993) 634 A.2d 345, 361.)
Delaware courts routinely apply the doctrine of shareholder ratification at the pleading stage to dismiss breach of fiduciary duty claims against corporate officers and directors. (See, e.g., In re General Motors (Hughes) Shareholder (Del. 2006) 897 A.2d 162, 167 [affirming dismissal of breach of loyalty claims on the ground of shareholder ratification]; Harbor Finance Partners v. Huizenga, supra, 751 A.2d at pp. 902–904 [granting motion to dismiss breach of fiduciary duty claims on the ground of shareholder ratification]; Solomon v. Armstrong, supra, 747 A.2d at p. 1127 [granting motion to dismiss claims for breach of fiduciary duty and breach of contract on the ground that shareholder ratification operated to employ application of the business judgment rule and the facts alleged did not overcome the presumptions of that rule].)
Appellants maintain the trial court erred in ruling that shareholder ratification vitiated their breach of fiduciary duty claims, asserting that their Revlon and Unocal claims remained subject to enhanced review notwithstanding the shareholder vote. (See generally Paramount Communications v. QVC Network (Del.Supr. 1993) 637 A.2d 34, 36, 45 [sale of control of company implicates enhanced judicial scrutiny of the board’s conduct under Revlon and Unocal].) They rely almost exclusively on In re Santa Fe Pac. Corp. Shareholder Lit. (Del.Supr. 1995) 669 A.2d 59 (Santa Fe). There, after Santa Fe Pacific Corporation had entered into a merger agreement with Burlington Northern, Inc., Union Pacific Corporation contacted Santa Fe to discuss its interest in a merger. Santa Fe expressed reservations on the basis of its contractual commitment to Burlington and the unlikelihood of governmental approval. (Id. at p. 63.) Undeterred, Union Pacific offered a higher per share price than the Burlington merger would have provided. The Santa Fe board of directors rejected the offer. Union Pacific thereafter commenced a tender offer for over one-half of Santa Fe’s outstanding shares. The Santa Fe board recommended that its shareholders not tender their shares and also announced a joint tender offer with Burlington for up to one-third of the outstanding shares. In addition, it renegotiated the merger agreement, adding a number of deal protection devices including a termination fee and repurchase program. (Id. at pp. 63–65.) Ultimately, the Santa Fee shareholders approved the merger agreement and certain shareholder plaintiffs filed suit. (Id. at p. 65.)
Although the Delaware Court of Chancery dismissed the complaint, it concluded that the claimed breaches under Revlon and Unocal were not extinguished by the fully-informed shareholder vote. The Delaware Supreme Court reached the same conclusion as to the effect of ratification, albeit on different grounds. It declined to categorize the claimed breaches as falling under Revlon and Unocal, expressly limiting its decision more specifically to “the duties of a Board when faced with a contest for corporate control . . . .” (Santa Fe, supra, 669 A.2d at p. 67.) Reasoning that under such circumstances the shareholders approving the merger are not necessarily ratifying the unilateral defensive measures designed to thwart the hostile offer, the court stated: “Permitting the vote of a majority of stockholders on a merger to remove from judicial scrutiny unilateral Board action in a contest for corporate control would frustrate the purposes underlying Revlon and Unocal. Board action which coerces stockholders to accede to a transaction to which they otherwise would not agree is problematic. [Citation.] Thus, enhanced judicial scrutiny of Board action is designed to assure that stockholders vote or decide to tender in an atmosphere free from undue coercion. [Citation.]” (Id. at p. 68.)
Contrary to appellants’ broad reading of Santa Fe as removing all Revlon and Unocal claims from the effect of a fully-informed shareholder vote, courts applying Santa Fe have confined the case to the hostile takeover context where a board’s responsive actions cannot necessarily be ratified by a shareholder vote. In In re Lukens Inc. Shareholders Litigation (Del.Ch. 1999) 757 A.2d 720, 737 (Lukens), the court expressly concluded that Santa Fe did not preclude a finding of ratification “where there was an active bidding process, no measures precluded any participant from bidding, and the merger agreement presented to stockholders represented the highest offer made by anyone.” (Lukens, supra, at p. 737.) There, the Lukens shareholders approved a merger with Bethlehem Steel Corporation, which had increased its initial offer price after Allegheny Ludlum Corporation made a competing bid. Before approval, however, Bethlehem and Allegheny allegedly began secret negotiations which ultimately resulted in the partial sale of Lukens’s operations from Bethlehem to Allegheny. (Id. at pp. 725–726.) The shareholder plaintiffs alleged that the Lukens board breached its fiduciary duty in multiple ways, including by failing to take steps to ensure that shareholders received the best price reasonably available, entering into a merger agreement containing measures to dissuade other bidders and failing to protect shareholders from collusion between competing bidders. (Id. at p. 727.)
The Lukens court reasoned that these allegations were unlike those in Santa Fe, as the claimed breaches did not relate to defensive measures that took effect well before and apart from the shareholder vote. Rather, the claims involved the board’s failure to protect against the Bethlehem-Allegheny deal, which allegedly deprived the shareholders from receiving the best price. Determining that shareholder ratification applied to such claims because they were part and parcel of the shareholder vote, the court explained that the Bethlehem-Allegheny “deal was well-known to the stockholders when they voted and was itself contingent on their approval of the Bethlehem merger proposal. In a very clear and real sense, the vote to approve the Bethlehem merger proposal represents a decision that it was better to approve that transaction (notwithstanding the known possibility that the ‘carve up’ deprived Lukens’s stockholders of some incremental value) than to reject the $30 proposal and either ‘do nothing’ or remarket the Company in a way that prevented collusion among bidders.” (Lukens, supra, 757 A.2d at p. 738.) Further distinguishing the case from Santa Fe, the court posed a rhetorical question, commenting that “one is prompted to ask what purpose would be served by a rule that allowed the Lukens stockholders both to approve the $30 proposal (knowing of the ‘carve up’) and to maintain an action against their directors for failing to do better.” (Ibid.)
Other courts have similarly distinguished Santa Fe to hold that shareholder ratification applies to preclude claims for breach of the fiduciary duty of care and loyalty against directors. (See In re GM Class H Shareholders Lit. (Del.Ch. 1999) 734 A.2d 611, 617 [“this is not a case in which the defendants are attempting to use the stockholder vote to insulate themselves from responsibility for decisions not directly at issue in the vote”]; Solomon v. Armstrong, supra, 747 A.2d at p. 1117 [“in the context of a duty of loyalty claim where plaintiff minority shareholders can state a claim of self-dealing at their expense, an informed shareholder ratification by the minority shifts the burden of proof of entire fairness to the plaintiff”].)
Recently, the court in Ryan v. Lyondell Chemical Co. (Del.Ch. July 29, 2008) [nonpub. opn.] 2008 WL 2923427 (Ryan) granted in part and denied in part a motion for summary judgment in a shareholder action challenging a merger on the grounds that the board failed to maximize shareholder value, agreed to unreasonable deal protection devices and failed to disclose all material information in the proxy. The Chancery Court declined to countenance the directors’ belatedly-raised ratification defense for two reasons. First, although the court determined that summary judgment was warranted on the shareholders’ duty to disclose claims, ruling that any nondisclosure was merely a breach of the duty of care subject to an exculpatory charter provision, it concluded that “the mere fact that the Board is absolved of liability for money damages resulting from the potential disclosure violation does not erase the harmful effects it may have had on the shareholder vote on the Merger; thus, it cannot be said that the shareholder vote was ‘fully informed’ for ratification purposes.” (Ryan, supra, 2008 WL 2923427 at p. *32, fn. 129.) Second, given its denial of summary judgment on certain Revlon claims, it analogized the circumstances to those in Santa Fe, reasoning that “the Board’s potential failure to discharge its fundamental Revlon duties in good faith prior to recommending and submitting the Merger to the shareholders may have undermined the voting process by depriving the shareholders of the assurance that the Board had diligently pursued the best transaction reasonably available to them. [Citation.]” (Ryan, supra, at p. *34, fn. 129.) Although appellants construe Ryan as extending Santa Fe to apply to the breaches of duty they alleged, we interpret Ryan as confirming the principle that shareholder ratification applies where the shareholders are fully informed of the challenged aspects of the transaction, but not where a board undertakes prior unilateral action that takes effect before any shareholder vote.
Accordingly, the question becomes whether the Intermix shareholders were fully informed at the time of their vote. If they were, their approval of the merger agreement would permit the board to invoke the business judgment rule thereby insulating the merger from all attacks except waste. (E.g., Marciano v. Nakash, supra, 535 A.2d at p. 405, fn. 3.)
B. The Shareholder Vote Was Fully Informed.
Directors of Delaware corporations owe a specific duty of disclosure when the corporation is seeking shareholder action. (Skeen v. Jo-Ann Stores, Inc. (Del.Supr. 2000) 750 A.2d 1170, 1172 (Skeen); Gradient OC Master v. NBC Universal, Inc. (Del.Ch. 2007) 930 A.2d 104, 127.) The scope of that duty is well established: “It requires that directors ‘disclose fully and fairly all material information within the board’s control. . . .’ Omitted facts are material ‘if there is a substantial likelihood that a reasonable stockholder would consider [them] important in deciding how to vote.’ Stated another way, there must be ‘a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable stockholder as having significantly altered the “total mix” of information made available.’” (Skeen, supra, at p. 1172, fns. omitted; accord, Loudon v. Archer-Daniels-Midland Co. (Del.Supr. 1997) 700 A.2d 135, 143 [“To prevail on a claim of material omission, therefore, a plaintiff must demonstrate a substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable stockholder”].) “Omitted facts are not material simply because they might be helpful.” (Skeen, supra, at p. 1174; see also Abrons v. Maree (Del.Ch. Sept. 20, 2006) [nonpub. opn.] 2006 WL 4782418 at p. *7 [“Consistent and redundant facts do not alter the total mix of information, nor are insignificant details and reasonable assumptions material”].)
We disagree with appellants’ contention that a determination of whether an alleged omission was material is inappropriate at the pleading stage. (See O’Malley v. Boris (Del.Supr. 1999) 742 A.2d 845, 850 [commenting that the determination of materiality is a mixed question of fact and law that generally cannot be resolved on the pleadings].) As the court observed in In re JCC Holding Co., Inc. (Del.Ch. 2003) 843 A.2d 713, 720, materiality may be determined from the face of the proxy statement: “Our law is replete with examples of situations when this court has dismissed disclosure claims on challenges to the sufficiency of the complaint because the court’s ability to consider the alleged omission or misdisclosure in the context of the entire proxy statement gave it a reliable basis from which to make a decision about materiality.” (See also Skeen, supra, 750 A.2d at p. 1174 [granting motion to dismiss complaint alleging board failed to disclose material financial information relating to a proposed merger, ruling “the basic financial data were disclosed and appellants failed to allege any facts indicating that the omitted information was material”].)
In evaluating whether the Intermix board disclosed all material information, the trial court properly took judicial notice of the proxy and related and supplemental documents filed with the SEC concerning the merger agreement. (Smiley v. Citibank (1995) 11 Cal.4th 138, 145, fn. 2 [proper to take judicial notice of documents from federal administrative agencies]; Salvaty v. Falcon Cable Television (1985) 165 Cal.App.3d 798, 800, fn. 1 [proper to take judicial notice of documents filed with state governmental entity, copies of which were attached to the complaint]; see also In re General Motors (Hughes) Shareholder, supra, 897 A.2d at p. 170 [in ruling on a motion to dismiss, court may consider hearsay in SEC filings to ascertain facts appropriate for judicial notice].) Moreover, it properly considered those documents together with the allegations of the CAC and the GAC in ruling on the demurrer. (E.g., StorMedia Inc. v. Superior Court (1999) 20 Cal.4th 449, 456–457, fn. 9; Groves v. Peterson (2002) 100 Cal.App.4th 659, 667.)
With these principles in mind, we address each of the alleged material omissions in turn.
1. MySpace’s performance.
Appellants alleged that the single most significant nondisclosure related to information about MySpace. Both the CAC and the GAC alleged that the board failed to disclose material information relating to MySpace’s financial performance and projected growth. The GAC summarized: “First, and most significantly, the Board refused to disclose material facts relating to the financial performance of the Company’s most important asset, MySpace. The Company did not separately report the revenues and earnings of MySpace in its SEC filings or otherwise. And it did not provide shareholders with its own internal projections for MySpace’s future growth. [¶] Upon information and belief, the Company insiders had access to past and projected revenues and earnings for MySpace and that information, if it had been disclosed, would have shown that MySpace’s revenues and earnings were increasing significantly in the period before the News Corporation transaction was announced and also in the period between the announcement and the shareholders’ approval of the transaction. [¶] The information relating to MySpace’s separate revenues and earnings was material because MySpace was the Company’s most significant asset and, upon information and belief, it was growing faster than the rest of the Company’s assets. By consolidating MySpace’s revenues and earnings with the rest of the Company’s financials, the Company effectively hid from shareholders the fact that MySpace was experiencing significant growth.” More specifically, the CAC alleged that the Board knew and failed to disclose that Intermix was on track to report that earnings for the first quarter of 2006 were approximately 900 percent greater than earnings in the first quarter of 2005, primarily due to the growth of MySpace.
The trial court ruled that the proxy materials disclosed all material information relating to MySpace’s financial performance, finding that the proxy emphasized the importance of MySpace and reflected the significant rise in earnings for the first quarter of 2006. It determined that any undisclosed material would not have significantly altered the total mix of information already available. We find no basis to disturb this determination.
The proxy described Intermix as a “new media” company with businesses grouped into two segments: the product marketing segment and the network segment, the latter identified as the “Intermix Network.” The proxy disclosed that the Intermix Network received over 30 million United States visitors each month, making it then among the most popular United States Internet destinations. It also described MySpace as “a favorite with online advertisers.” On the page entitled “Incorporation of Information by Reference,” the proxy incorporated by reference several documents previously filed with the SEC, including an annual report on Form 10-K and amendments for the year ended March 31, 2005, filed on June 29, 2005, and a quarterly report on Form10-Q for the quarter ended June 30, 2005, filed on August 15, 2005.
The documents incorporated by reference disclosed My Space’s growth as well as the significant increase in Intermix’s earnings. The Form 10-K described the businesses comprising the Intermix Network and, with respect to My Space, stated that Intermix retained a controlling interest in and was the owner and operator of “MySpace.com, the most popular social networking website on the Internet. . . . MySpace is one of the fastest growing community websites on the Internet with more than 20 million registered users as of June 2005. In May 2005, MySpace averaged over 70,000 new registered users per day, and served over 13 billion ad impressions.” The Form 10-K further reported that the Intermix Network revenues increased by 28 percent between fiscal year 2004 and 2005 to $30.5 million, stating: “The increase in revenues was primarily due to the growth of MySpace” in addition to an acquisition and higher advertising revenue. Addressing the first quarter of the 2006 fiscal year—the quarter ending June 30, 2005—the Form 10-Q reported that “network segment revenues increased by 106% to $12.7 million compared to the same quarter last year. The increase in revenues was primarily due to the growth of My Space, the acquisition of Focalex, and to increased sales of branded advertising.” Notably, the Form 10-Q also reported that Intermix’s net income for the quarter ending June 30, 2005 was $1,222,000, as compared to $130,000 in net income for the quarter ending June 30, 2004.
In view of the information provided in the proxy materials, we cannot conclude that the allegedly undisclosed facts were material omissions. On appeal, the focus of appellants’ complaint is that the proxy materials were inadequate because they failed to provide information about MySpace’s separate earnings, instead including that information as part of Intermix’s network segment business unit. Preliminarily, we observe that the proxy materials disclosed the central omission alleged—that Intermix’s net income for the first quarter of 2006 was approximately 900 percent greater than in the same period one year earlier. Moreover, the proxy materials repeatedly touted the increasing growth and popularity of MySpace and reflected the financial impact of that growth in its report of network segment revenues and income. Additionally, the proxy stated that one of the reasons the board was recommending the merger was the ability to purchase the minority equity interest in MySpace before expiration of the option.
We acknowledge that the district court reached a contrary conclusion in a similar case, Brown v. Brewer et al. CV 06-3731-GHK (JTLx), when it denied a motion to dismiss in part on the ground that allegations concerning the failure to include separate information about MySpace’s performance and projections adequately plead a material omission. The district court, however, relied solely on Ninth Circuit and Fourth Circuit authority. We express no opinion as to whether we would reach a different conclusion were we to rely on law outside the State of Delaware.
Appellants have not shown how information parsing out MySpace’s contribution to Intermix’s performance from the financial information already provided would have been important to them in deciding how to vote on the merger agreement. Appellants’ allegations are akin to those in Skeen, supra, 750 A.2d 1170, where the shareholder plaintiffs alleged that corporate directors failed to disclose sufficient material financial information to enable them to determine whether to approve a merger or seek appraisal rights. The allegedly omitted information included the “real reason” for the decision to sell the company, management projections of anticipated performance, more current financial information and prices discussed with other possible acquirors. (Id. at pp. 1173–1174.) Affirming the dismissal of the complaint, the court found that the shareholder plaintiffs failed to allege any disclosure deficiencies, stating: “To be actionable, there must be a substantial likelihood that the undisclosed information would significantly alter the total mix of information already provided. The complaint alleges no facts suggesting that the undisclosed information is inconsistent with, or otherwise significantly differs from, the disclosed information. Appellants merely allege that the added information would be helpful in valuing the company.” (Id. at p. 1174.) Here, too, while the undisclosed information about MySpace’s independent performance might have been helpful, it was neither inconsistent with nor significantly different from the information provided in the proxy materials. (See Globis Partners, L.P. v. Plumtree Software, Inc. (Del.Ch. Nov. 30, 2007) [nonpub. opn.] 2007 WL 4292024 at p. *16 [“Delaware law does not require stockholders be ‘given all the financial data they would need if they were making an independent determination of fair value,’” fn. omitted] (Globis Partners).) Moreover, the alleged omissions are unlike those in Zirn v. VLI Corp. (Del.Supr. 1996) 681 A.2d 1050, 1056–1057, where the proxy materials disclosed only one aspect of patent counsel’s opinion concerning the likelihood of reinstatement of the patent for the company’s most valuable asset. Characterizing the information provided as a partial disclosure, the court found that “[t]he failure accurately to convey the prospects for reinstatement was misleading in a material way, because it gave an unduly pessimistic assessment of VLI’s chances for success in the [Patent and Trademark Office]” and had a direct bearing on a shareholder’s ability to value the company accurately. (Id. at p. 1057.)
We are not troubled by the fact that the bulk of the disclosures relating to MySpace’s performance was contained in documents recently filed with the SEC and expressly incorporated by reference in the proxy. In Orman v. Cullman, supra, 794 A.2d at pp. 35–36, the court granted in part a motion to dismiss the plaintiff’s nondisclosure claims, ruling that the defendant adequately disclosed the terms of a consulting contract and one of the director’s roles on a compensation committee where that information was contained in documents expressly incorporated by reference into the proxy statement. There, the proxy statement contained virtually identical language to that in the proxy here, reciting “‘[t]he SEC allows the Company to “incorporate by reference” information into this proxy statement, which means that the Company can disclose important information by referring you to another document filed separately with the SEC. The following documents previously filed by the Company with the SEC are incorporated by reference in this proxy statement and are deemed to be a part hereof: (1) The Company’s Annual Report on Form 10-K and Form 10-K/A for the fiscal year ended November 27, 1999.’” (Id. at p. 35, fn. 100; see also In re Tele-Communications, Inc. Shareholders Litigation (Del.Ch. Dec. 21, 2005) [nonpub. opn.] 2005 WL 3642727 at p. *6 [noting that even if information regarding equity-related benefits possessed by officers and directors had been material, “the information plaintiffs seek is contained in sufficient detail in the 1999 Proxy Statement and the documents expressly incorporated therein, negating a disclosure violation”]; In re Western Nat. Corp. Shareholders Litigation (Del. Ch. May 22, 2000) [nonpub. opn.] 2000 WL 710192 at p. *28 [rejecting a claim that a proxy statement failed to disclose pending litigation, as “American General’s public filings, incorporated by reference into the Proxy Statement, plainly disclosed the existence of the litigation and further disclosed the fact that it did not believe that the litigation would have a material impact on its consolidated financial position”]; TCG Securities, Inc. v. Southern Union Co. (Del.Ch. Jan. 31, 1990) [nonpub. opn.] 1990 WL 7525 at p. *6 [finding information adequately disclosed where it was contained in a Form 10-K incorporated by reference into the proxy statement].)
Again, appellants’ authority is readily distinguishable. Reasoning that a material nondisclosure cannot be cured “‘by reason that it could be uncovered by an energetic shareholder reading an SEC filing,’” the court in ODS Technologies, L.P. v. Marshall (Del.Ch. 2003) 832 A.2d 1254, 1262, held that documents incorporated by reference into two-year-old unrelated SEC filings incorporated by reference into a proxy statement failed to provide adequate notice to shareholders. In Turner v. Bernstein (Del.Ch. 2000) 776 A.2d 530, 544–545, the court determined that the shareholder plaintiffs were denied access to material information where they had received only year-old financial statements informally, copies of press releases and telephone numbers to call for additional information. The court ruled that allowing corporate directors to satisfy their affirmative duty of disclosure through these means would “force their stockholders to ask a series of detailed questions to elicit the material facts.” (Id. at p. 544, fn. omitted.) And for obvious reasons, the court in Sealy Mattress Co. of N.J. v. Sealy, Inc. (Del.Ch. 1987) 532 A.2d 1324, 1340, ruled that disclosure deficiencies cannot be cured by providing information through discovery after litigation has been filed.
Appellants also contend that SEC filings incorporated by reference cannot be found to provide sufficient disclosure because they did not comport with Delaware’s “bundling” rule requiring that such filings be a part of the same mailing as the proxy statement. There is no such rule. Appellant’s entire analysis is taken from a comment in Wolf v. Assaf (Del.Ch. June 16, 1998) [nonpub. opn.] 1998 WL 326662 at page *4, footnote 13, where the court dismissed a nondisclosure claim on the ground that the plaintiff failed to plead there was an omission, reasoning “plaintiff’s admission that the Form 10-K was bundled with the proxy statement constitutes a bulletproof affirmative defense, viz., a complete rebuttal to any allegation that defendants omitted disclosure of the federal action.” No court has construed Wolf as imposing a bundling or mailing requirement for SEC filings incorporated by reference into a proxy statement.
Accordingly, appellants have failed to allege a material omission concerning MySpace’s individual financial performance, as recent SEC filings incorporated by reference into the proxy provided the earnings information claimed to be lacking and appellants failed to demonstrate how additional information would have altered the total mix of information already available.
2. Management projections.
In connection with their claims concerning the omission of information relating to both MySpace’s individual performance and the basis for the fairness opinions issued by Montgomery and Weisel, appellants alleged that the board failed to disclose its internal projections. In addition to the allegations in the GAC set forth above, the CAC alleged that the proxy materials omitted material information, including “the management projections for calendar years 2005 to 2009 and the assumptions underlying the projections which were used by Montgomery and Weisel as the bases for their discounted cash flow analyses in support of the fairness opinions.” The trial court ruled that the disclosures were adequate as a matter of law. We agree.
In addition to attaching the fairness opinions as exhibits, the proxy outlined the items reviewed and work undertaken by Montgomery and Weisel, including that they reviewed publicly available financial information regarding Intermix and News Corp.; reviewed financial forecasts and other forward-looking information prepared by management; discussed with management “concerning the business, past and current operations, financial condition and future prospects of Intermix”; prepared a discounted cash flow analysis of Intermix; reviewed the merger agreement and compared its financial terms with other stock price multiples of other comparable publicly traded companies and with other transactions deemed relevant; and performed other studies and analyses as deemed relevant. The proxy outlined Montgomery’s and Weisel’s discounted cash flow analyses, which yielded implied per share values ranging from $7.10 to $12.70 according to Montgomery and $10.50 to $19.51 according to Weisel. The proxy further set forth the comparable company and selected transaction analyses performed by Montgomery and Weisel, which yielded a similarly wide range of per share values, with $12 per share within the range of fairness.
In asserting that the omission of management projections was material, appellants rely on broad language in In re Pure Resources, Inc. S’holders Lit. (Del.Ch. 2002) 808 A.2d 421, 449 (Pure Resources), where the court endeavored to put to rest a perceived conflict between the summary of information held to be an adequate disclosure in Skeen, supra, 750 A.2d 1170 and the analytical work required to be disclosed in McMullin v. Beran (Del.Supr. 2000) 765 A.2d 910. The Pure Resources court stated: “[I]t is time that this ambivalence be resolved in favor of a firm statement that stockholders are entitled to a fair summary of the substantive work performed by the investment bankers upon whose advice the recommendations of their board as to how to vote on a merger or tender rely. I agree that our law should not encourage needless prolixity, but that concern cannot reasonably apply to investment bankers’ analyses, which usually address the most important issue to stockholders—the sufficiency of the consideration being offered to them for their shares in a merger or tender offer. Moreover, courts must be candid in acknowledging that the disclosure of the banker’s ‘fairness opinion’ alone and without more, provides stockholders with nothing other than a conclusion, qualified by a gauze of protective language designed to insulate the banker from liability.” (Pure Resources, supra, at p. 449.)
But in Pure Resources, the proxy materials did “not disclose any substantive portions of the work” of the investment banks and instead attached only their actual opinions. (Pure Resources, supra, 808 A.2d at p. 448.) Thus, the court premised its conclusion that the omission of the underlying information was material on the ground that “[t]he real informative value of the banker’s work is not in its bottom-line conclusion, but in the valuation analysis that buttresses that result.” (Id. at p. 449.) This conclusion was consistent with both Skeen, supra, 750 A.2d at page 1173, where the court held sufficient disclosure of the fairness opinion together with the company’s financial statements and other historical information, and McMullin v. Beran, supra, 765 A.2d at page 925 and footnote 75, where the court reaffirmed its holding in Skeen but ruled the failure to disclose “the information provided to Merrill Lynch and the valuation methodologies used by Merrill Lynch” was a material omission because the “Chemical shareholders could not determine from these materials what the intrinsic value of the shares was and why the proposed acquisition by Lyondell was preferable to other alternatives.”
Here, the proxy disclosed the valuation methodologies utilized by both Montgomery and Weisel which formed the bases for their fairness opinions. Appellants’ nondisclosure claim is limited to the content of the management projections which was one of the matters on which the investment banks relied. Citing the principle articulated in Pure Resources that shareholders are entitled to a “‘fair summary of the substantive work’” performed by the investment banks, the court in In re CheckFree Corporation Shareholders Litigation (Del.Ch. Nov. 1, 2007) [nonpub. opn.] 2007 WL 3262188 (CheckFree), ruled that a proxy statement’s failure to include management projections does not constitute a material omission. The court reasoned: “Here, the definitive proxy statement contains an adequate and fair summary of the work Goldman did to come to its fairness opinion. Over the course of seven pages, the proxy statement details the various sources upon which Goldman relied in coming to its conclusions, explains some of the assumptions and calculations management made to come to its estimates, notes exactly the comparable transactions and companies Goldman used, and describes or otherwise discloses management’s estimated earnings and estimated EBITDA for 2007 and 2008 and a range of earnings derived from management estimates for 2009. The proxy statement also explains that, in tandem with conveying its estimates, management discussed the particular risks it foresaw that might undercut those estimates. While there is no ‘checklist’ of the sorts of things that must be disclosed relating to an investment bank fairness opinion, I conclude that the disclosure in this case satisfies the Pure Resources standard.” (Id. at pp. *3–4, fn. omitted.)
The CheckFree court expressly distinguished In re Netsmart Tech. Shareholders Lit. (Del.Ch. 2007) 924 A.2d 171 (Netsmart), the one other case on which appellants rely. In Netsmart, the proxy materials disclosed portions of earlier management projections, but not those upon which the investment bank relied in preparing its fairness opinion. In finding the omission of the operative management projections material, the court relied on the principles governing partial disclosure and stated that “[o]nce a board broaches a topic in its disclosures, a duty attaches to provide information that is ‘materially complete and unbiased by the omission of material facts.’ For this reason, when a banker’s endorsement of the fairness of a transaction is touted to shareholders, the valuation methods used to arrive at that opinion as well as the key inputs and range of ultimate values generated by those analyses must also be fairly disclosed. Only providing some of that information is insufficient to fulfill the duty of providing a ‘fair summary of the substantive work performed by the investment bankers upon whose advice the recommendations of the [] board as to how to vote . . . rely.’” (Id. at pp. 203–204, fns. omitted.; see also CheckFree, supra, 2007 WL 3262188 at p. *4 [“Although the Netsmart Court did indeed require additional disclosure of certain management projections used to generate the discounted cash flow analysis conducted by the investment bank, the proxy in that case affirmatively disclosed an early version of some of management’s projections. Because management must give materially complete information ‘[o]nce a board broaches a topic in its disclosures,’ the Court held that further disclosure was required,” fn. omitted].)
We are persuaded that CheckFree applies here, as the proxy provided a fair summary of the work performed by Montgomery and Weisel and appellants have failed to allege how the inclusion of management projections would have been material to their decision to decide whether to vote for the merger. Indeed, the allegations here are no different than those in Globis Partners, supra, 2007 WL 4292024, where the plaintiff alleged material omissions in the proxy for its failure to disclose the discount rate, the basis for use of comparable companies and projections of future performance. (Id. at p. *12.) Relying in part on CheckFree,the court ruled that the claimed omissions were not actionable as a matter of law, stating: “Given the extensive disclosure of the critical features, purposes, and likely effects of the Merger, none of the omitted information could have been viewed by a reasonable shareholder as significantly altering the total mix of information made available to her. ‘[A] reasonable line has to be drawn or else disclosures in proxy solicitations will become so detailed and voluminous that they will no longer serve their purpose.’” (Globis Partners, supra, at p. *15, fn. omitted.) Moreover, the court noted that its analysis was not altered by the fact that financial advisors may have considered non-disclosed information. (Ibid.) In sum, we conclude that disclosure of management projections would not have significantly altered the total mix of information provided in the proxy. (Skeen, supra, 750 A.2d at pp. 1173–1174.)
3. Fairness opinions.
In addition to asserting that management projections should have been disclosed in connection with the fairness opinions, appellants alleged that the proxy inadequately disclosed Montgomery’s and Weisel’s fee by characterizing it as “customary.” But the proxy specifically described the fee payable to each investment bank as a success fee equal to .425 percent of the total consideration involved in the transaction consummated with News Corp. Delaware courts recognize such engagements as proper. (E.g., In re TOYS “R” US, Inc. (Del.Ch. 2005) 877 A.2d 975, 1005 & fn. 44; In re MONY Group Inc. Shareholder Lit. (Del.Ch. 2004) 852 A.2d 9, 22.) The authority upon which appellants rely is inapposite. Unlike the incomplete disclosures in Louisiana Mun. Police Ret. Sys. v. Crawford (Del.Ch. 2007) 918 A.2d 1172, 1190–1191, which did not include the contingent nature of the investment banker’s fee and hence omitted material information about the banker’s incentive, the proxy here fully disclosed the nature of the “success fee” payable to Montgomery and Weisel.
With respect to Montgomery, appellants further alleged that its bias toward the merger was undisclosed. Appellants cite a comment Montgomery made when it confirmed its retention that “‘we will decide to write a fairness opinion. Our agreement was that this would be the “love.”’” But again, appellants have not shown how this comment would have significantly altered the total mix of information already available, as it was neither inconsistent with nor different from information disclosed in the proxy. (Skeen, supra, 750 A.2d at p. 1174.) In discussing the background of the merger agreement, the proxy disclosed that Rosenblatt met with representatives of Montgomery in April 2005 to discuss the business and Intermix’s strategic opportunities and challenges. At that time, Montgomery suggested exploring financial alternatives, including “fundraising options and a possible sale of our company or one or more of our business units.” The proxy further disclosed that on June 9, 2005, Montgomery made a presentation to the board at which it stated that News Corp. had expressed interest in a transaction, proposed that News Corp. would be an attractive strategic partner and offered to facilitate a meeting between the board and News Corp. According to the proxy, Montgomery acted as a co-financial advisor to the board in connection with the merger agreement and was retained on July 12, 2005 to prepare a fairness opinion.
In view of the multiple disclosures outlining Montgomery’s involvement with and motivation to complete the merger agreement, we construe the “love” comment as “merely ‘helpful or cumulative’” information beyond the scope of the duty to disclose. (Globis Partners, supra, 2007 WL 4292024 at p. *11; see also In re Best Lock Corp. Litigation (Del.Ch. 2001) 845 A.2d 1057, 1072 [granting motion to dismiss claim asserting failure to disclose the lack of independence of an “‘independent financial advisor,’” where advisor’s current and past relationships and fee arrangement with company were disclosed and thus there was no basis to conclude that “further disclosure regarding the purported independence of [the advisor] (or lack thereof) would change the total mix of information available to the shareholders”].)
4. Alternatives to the News Corp. transaction.
The CAC alleged that the board’s material omissions included “the strategic alternatives available to the Company, other than the Acquisition, as presented to the Board of Directors by Montgomery on June 9, 2005; and [¶] the amount of the preliminary indications of interest received by the Company from other parties as referenced in the Proxy prior to its receipt of the News Corp. offer.” Evaluating the disclosure in both the proxy and the additional materials Intermix filed with the SEC in September 2005 in response to the shareholder appellants filing their action, the trial court concluded that the board disclosed sufficiently detailed information concerning the events leading up to the merger agreement, including any alternatives available to Intermix. Again, we agree.
With respect to the potential alternatives available before the News Corp. offer, the proxy materials and the CAC and the GAC summarized the events consistently. The proxy stated that in April and May 2005 a number of third parties approached Intermix to discuss the possibility of acquiring the company or one or more of its business units. In May 2005, Brewer and/or Rosenblatt met with representatives from suitors identified as Companies A, B and C, and Intermix entered into confidentiality agreements with each company. These discussions occurred at about the same time the New York Attorney General commenced its investigation, causing Intermix’s stock price to drop dramatically. According to the proxy, “None of Company A, Company B or Company C made any offers to acquire our company or any of our business units, and we ultimately terminated our discussions with each of those companies (as well as with certain other companies that had approached us) when it became clear that they would not be willing to offer more than a slight premium over our then current stock prices.”
The CAC similarly alleged: “In the spring of 2005, . . . . [s]everal parties expressed interest in pursuing an acquisition of our investment in Intermix. But the April 12, 2005 announcement that Spitzer was planning on filing suit against Intermix adversely affected the Company. The stock price dropped and interested suitors withdrew.” Likewise, the GAC alleged: “In April and May 2005, several companies . . . expressed an interest in acquiring all or a portion of the Company. [¶] . . . . In April and May, the Company met with several potential suitors and signed confidentiality agreements with three of them. These discussions apparently were suspended after the Spitzer investigation was finally disclosed to the public and the Company’s share price dropped.”
The proxy further disclosed that following the inception of negotiations with News Corp., Intermix representatives also met with representatives from Company D (identified as Viacom in the GAC). On July 7, 2005, Company D signed a confidentiality agreement and subsequently conducted due diligence. According to the proxy, although Company D conducted financial and operational due diligence meetings on July 14 and 15, 2005 and continued to express an interest in pursuing a transaction, “Company D did not, at that time or thereafter, submit to us or our representatives a formal or informal proposal regarding such a transaction or indicate any valuation at which Company D might be interested in completing a transaction.” When News Corp. began formalizing its offer on July 16 and 17, 2005, the board weighed the advisability of soliciting an offer from Company D against the possibility of jeopardizing the News Corp. offer; it determined it should continue discussions with Company D and direct Weisel—the investment bank that introduced Company D—to determine whether Company D was prepared to make a formal acquisition offer. The day before Intermix entered into the merger agreement with News Corp., Weisel told the board it had contacted Company D’s financial advisors to see whether Company D was in a position to make an offer and reported: “Company D remained interested and had indicated that it would move forward in an expeditious manner, however Company D was not then in a position to make a proposal but had scheduled a board meeting later that week to consider whether a proposal could be made.”
Subsequent disclosures contained in a Form 8-K filed on September 21, 2005, included information about Company D, providing that the board believed Company D had received sufficient information enabling it to make an acquisition offer but that Company had neither made an offer nor requested additional information following announcement of the News Corp. offer. A separate Form 8-K filed on September 26, 2005, disclosed the subsequent Greenspan offer as well as the board’s bases for continuing to recommend the News Corp. offer.
According to the CAC, the proxy was misleading to the extent it failed to disclose that Intermix—particularly Rosenblatt—was avoiding Company D by advising against testing the market and precluding Company D from making an offer. The CAC alleged that on or about July 14, 2005, Company D contacted Rosenblatt, stating: “We are coming with a bid early next week. We really want to be with you on this and hope to get in the ring for it (just saw Cinderella Man). Tried to call you, but didn’t get through.” The CAC further alleged that the board never gave Company D the opportunity to bid: “Despite promises from Company D that it would work expeditiously to make an offer after conducting due diligence and the fact that Company D indicated it might be ready to make an offer after its board meeting scheduled later in the week, the Individual Defendants precluded Company D from making an offer by cutting the process short and agreeing to the acquisition with News Corp. On Friday, July 15, 2005, as Company D was stating its intention to submit a bid imminently, Sheehan and Rosenblatt were avoiding Company D and were pressing forward with the News Corp. merger.” The GAC more summarily alleged: “Upon information and belief, . . . . Viacom expressed an interest in making a bid for the Company, but Company executives avoided good faith negotiations with Viacom.”
The CAC alternately alleges that July 14 and July 15, 2005 fell on a Friday. We take judicial notice of the fact that July 15, 2005 was a Friday.
Appellants contend that the proxy disclosures concerning alternative options were incomplete and misleading to the extent they failed to provide “the stockholders with an accurate, full, and fair characterization of those historic events.” (Arnold v. Society for Sav. Bancorp, Inc. (Del.Supr. 1994) 650 A.2d 1270, 1280.) But the proxy materials disclosed the historic events in the manner alleged in the CAC and the GAC. The proxy stated and appellants alleged that Company D never made a formal offer to acquire Intermix. Although appellants contend that the reasons therefor were undisclosed, the proxy disclosed that the board affirmatively determined to avoid soliciting an offer from Company D and instead decided to pursue the merger agreement with News Corp. and await a formal offer from Company D. The proxy plainly expressed the board’s preference for the News Corp. merger over any potential offer from Company D.
Under these circumstances, Delaware law does not require additional disclosures. As explained in Globis Partners, supra, 2007 WL 4292024, a full and fair characterization of historic events does not require that shareholders receive “a ‘play-by-play description of merger negotiations.’” (Id. at p. *17, fn. omitted.) For example, in McMillan v. Intercargo Corp. (Del.Ch. May 3, 1999) [nonpub. opn.] 1999 WL 288128 at page *11, the court found immaterial a proxy statement’s omission of the reasons why a board did not pursue an $11.50 per share proposal as opposed to the $12 per share deal to which the board ultimately accepted, explaining the board had no duty to pursue the lesser offer and “no reason has been shown why the Board should be required to disclose ‘all of the . . . bends and turns in the road’ which led to the final agreement.” (Accord, Alidina v. Internet.com Corp. (Del.Ch. Nov. 8, 2002, No. 17235-NC) 2002 WL 31584292 at pp. *9–10 [identity of potential buyer and terms of oral offer immaterial where negotiations never progressed to the letter of intent stage]; Krim v. ProNet, Inc. (Del.Ch. 1999) 744 A.2d 523, 528–529 [failure to confirm or deny discussions with other potential suitors and the details of such discussions if they did occur need not be disclosed].)
Here, the proxy disclosed that the board intended to pursue the News Corp. transaction despite expressions of interest from Company D. That in effecting this decision board members failed to return telephone calls or otherwise avoid Company D representatives was information that was neither inconsistent with nor significantly different from what was disclosed. (Skeen, supra, 750 A.2d at p. 1174.) The allegedly undisclosed information differs from that in Arnold v. Society for Sav. Bancorp., Inc., supra, 650 A.2d at pages 1279 to 1280, where the court characterized as a material omission a proxy statement’s failure to disclose the amount of a high bid resulting from an auction process, notwithstanding that the offer had contingencies, particularly when the contingent offer ultimately endorsed by the board was 37 percent less than the undisclosed offer. Because the allegedly omitted information here related to actions consistent with the board’s disclosed intent not to solicit an offer from Company D, appellants failed to state a claim that the proxy omitted material information relating to alternatives to the News Corp. merger. (See Lukens, supra, 757 A.2d at p. 736 [requiring disclosure of “every decision not to pursue another option would make proxy statements so voluminous that they would be practically useless,” fn. omitted].)
5. Indemnification.
The GAC alone claimed that the proxy failed to disclose material facts relating to indemnification, alleging: “News Corporation paid lower total consideration to the shareholders because it and its subsidiary had to incur the cost of indemnification and directors’ and officers’ liability insurance in the face of significant potential liability for the Company’s officers and directors. Although the Company disclosed the existence of indemnification, it did not fully disclose the negotiations between the Board and News Corporation over indemnification for known wrongs, such as the Greenspan derivative action, or that this indemnification, by definition, led to a lower price paid to shareholders.” The trial court ruled that all material facts regarding indemnification were disclosed. The proxy and the subsequent SEC filings disclosed that the existing corporate structure permitted the officers and directors to be indemnified to the fullest extent allowed under Delaware law, discussed all pending litigation and specified the extent of the indemnification agreed to by News Corp. Nothing further was required.
Although the trial court briefly discussed appellants’ Revlon and Unocal claims in terms of the adequacy of the disclosure of the facts relating to those claims, appellants did not allege nor do they contend on appeal that matters relating to the board’s alleged self-interest and deal protection devices were undisclosed in the proxy materials.
Under the heading “Interests of Our Directors and Executive Officers in the Merger,” the proxy explained “that members of our board of directors and our executive officers may have interests in the merger that differ from, or are in addition to, those of our other stockholders.” In addition to listing several matters relating to option vesting, compensation and continued employment, the proxy stated: “[O]ur directors and officers will continue to be indemnified for acts and omissions occurring at or prior to the effective time of the merger and will have the benefit of liability insurance for six years after completion of the merger . . . .” In addition, the Form 10-Q incorporated by reference into the proxy explained in detail the multiple pending legal proceedings, including the New York Attorney General investigation, that represented some of Intermix’s contingencies at the time of the merger. Finally, the supplemental materials filed with the SEC in September 2005 provided additional information relating to indemnification, stating in part that “Fox Interactive Media is required to maintain the indemnification provisions that are contained in our current organizational documents in the organizational documents of the surviving corporation for a period of six years following the effective time of the merger.” The same provisions applied to liability insurance. The supplemental disclosures further provided that News Corp. itself had also agreed to indemnify the officers and directors in accordance with the terms previously specified, as “News Corporation’s financial resources are likely to be greater than those of the surviving corporation.”
Notwithstanding this information, Greenspan contends that the disclosures were incomplete to the extent they failed to provide information about the negotiations leading up to indemnification and failed to explain that the officers’ and directors’ receipt of indemnification necessarily led to News Corp.’s offering a lower per share price. His allegations are premised primarily on a July 17, 2005 e-mail exchange between a News Corp. representative and Sheehan indicating that at that point News Corp. was unwilling to provide the indemnification requested.
Preliminarily, we observe that “the receipt of indemnification is not deemed to taint related director actions with a presumption of self-interest. That is because indemnification has become commonplace in corporate affairs, [citation] and because indemnification does not increase a director’s wealth. [Citation.]” (In re Sea-Land Corp. Shareholders Litigation (Del.Ch. 1993) 642 A.2d 792, 804.) As discussed above, we cannot conclude that a full and fair disclosure of the material facts relating to a commonplace feature of the transaction requires the shareholders to receive a play-by-play account of the merger negotiations. (E.g., Globis Partners, supra, 2007 WL 4292024 at p. *14, fn. omitted; McMillan v. Intercargo Corp., supra, 1999 WL 288128 at p. *9.) With respect to the second aspect of Greenspan’s claim concerning the effect of indemnification on the share price, the allegations in the GAC belie his assertion. The GAC alleged that on July 12, 2005 News Corp. offered to pay $12 per share to acquire Intermix. The GAC further alleged that on July 17, 2005 News Corp. was still refusing to accede to the board’s indemnification request. Necessarily, therefore, News Corp.’s $12 per share offer was unaffected by its subsequent decision to provide the requested indemnification. Our review of both the GAC and the proxy materials demonstrates that all material facts relating to indemnification were disclosed.
C. Effect of Shareholder Ratification and Leave to Amend.
The effect of shareholder ratification is the invocation of the business judgment rule, which insulates the merger agreement from all attacks other than on the ground of waste. (Harbor Finance Partners v. Huizenga, supra, 751 A.2d at p. 890; In re GM Class H Shareholders Lit., supra, 734 A.2d at p. 616; Marciano v. Nakash, supra, 535 A.2d at p. 405, fn. 3.) Appellants have not suggested either on appeal or below that they could amend the CAC or the GAC to allege waste. Accordingly, the shareholders’ fully informed vote approving the merger agreement extinguished the breach of fiduciary duty claims alleged in the CAC and the GAC. Moreover, as a matter of law, the absence of an underlying breach of fiduciary duty claim disposes of the aiding and abetting claims alleged against VantagePoint. (Malpiede v. Townson (Del.Supr. 2001) 780 A.2d 1075, 1096–1097 [explaining that the existence of a viable underlying claim for breach of fiduciary duty is a requisite element of an aiding and abetting claim]; see also Globis Partners, supra, 2007 WL 4292024 at p. *15 [dismissing aiding and abetting claim where complaint failed to state a claim for an underlying breach of fiduciary duty]; Weil v. Morgan Stanley DW Inc. (Del.Ch. 2005) 877 A.2d 1024, 1039 [same].)
In sustaining the demurrer without leave to amend as to the CAC, the trial court stated: “Plaintiffs have had the opportunity to amend, consolidating two law firms’ original efforts at complaints. In addition, the court has considered arguments made by Plaintiffs in their Opposition Brief, regardless of whether the Consolidated Amended Complaint clearly reflected the arguments. There is no reason to believe that Plaintiffs could amend the complaint so as to state [a] viable claim.” The trial court incorporated this reasoning into the order sustaining the demurrer to the GAC. Appellants assert that, at a minimum, the trial court abused its discretion in denying leave to amend.
A trial court has broad discretion in granting or denying leave to amend a complaint and its ruling will be upheld unless a manifest or gross abuse of discretion is shown. (Record v. Reason (1999) 73 Cal.App.4th 472, 486; Bedolla v. Logan & Frazer (1975) 52 Cal.App.3d 118, 135–136.) If there is a reasonable possibility that the complaint’s defect may be cured by amendment, the trial court has abused its discretion and we must reverse. (Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126.) The plaintiff bears the burden of showing the manner in which a complaint may be amended so as to change the legal effect of the pleading. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) “The assertion of an abstract right to amend does not satisfy this burden.” (Rakestraw v. California Physicians’ Service (2000) 81 Cal.App.4th 39, 43.) “The plaintiff must clearly and specifically set forth the ‘applicable substantive law’ [citation] and the legal basis for amendment, i.e., the elements of the cause of action and authority for it. Further, the plaintiff must set forth factual allegations that sufficiently state all required elements of that cause of action.” (Ibid.) But “[w]here the appellant offers no allegations to support the possibility of amendment and no legal authority showing the viability of new causes of action, there is no basis for finding the trial court abused its discretion when it sustained the demurrer without leave to amend. [Citations.]” (Id. at p. 44.)
Appellants initially contend that leave to amend is warranted because they had an inadequate opportunity to address the basis for the trial court’s ruling. We disagree. Appellants filed the CAC and the GAC after demurrers to the original Greenspan complaint had been filed by both Intermix and the board, and VantagePoint. Equally as significant, the CAC and the GAC were filed following the shareholder appellants’ request for a temporary restraining order, a proceeding for which they received expedited discovery during September 2005. A stipulation between the parties, signed by the trial court, outlined the scope of that discovery: “[F]ollowing discovery requests and negotiations between the parties Friedmann subsequently obtained discovery from Defendants of several thousand pages of documents, deposed Richard Rosenblatt and Andrew Sheehan and obtained expert analysis and opinions from two experts regarding the proposed merger transaction, process and terms.” Under these unique circumstances—where appellants filed their amended pleadings after receipt of two demurrers and after substantial discovery—we find no merit to their contention that they had an inadequate opportunity to address any legal or factual issues. These circumstances likewise distinguish this case from City of Stockholm v. Superior Court (2007) 42 Cal.4th 730, 747, where the court observed that leave to amend should be allowed liberally as a matter of fairness where the plaintiff has not yet had an opportunity to amend in response to a demurrer.
We have granted the shareholder appellants’ request to augment the record to include the reporters’ transcript of hearings that occurred on September 7 and 8, 2005, in connection with their application for a temporary restraining order.
Although Greenspan asserts no additional basis for his challenge to the trial court’s order, the shareholder appellants outline the supplementary facts they would add to their nondisclosure claims if permitted leave to amend. Their proposed allegations pertain to the efforts of the board, and Rosenblatt in particular, to avoid considering or pursuing transactions other than News Corp.; to the compensation received by MySpace executives two years after the merger was consummated; and to the hindsight assessment of the transaction as being a relative bargain for News Corp. These proposed additional “facts,” however, either were already before the trial court in the pleadings and the judicially-noticed materials, or have nothing to do with the conduct of Intermix’s board at the time of the merger. Because appellants have failed to meet their burden to how their proposed allegations would change the legal effect of their pleadings, we find no basis to disturb the trial court’s exercise of discretion in denying leave to amend. (See City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 459 [“where the nature of the plaintiff’s claim is clear, and under substantive law no liability exists, a court should deny leave to amend because no amendment could change the result”].)
III. The Trial Court Properly Sustained the Demurrer Without Leave to Amend as to Greenspan’s Individual Claims.
The first two causes of action in the GAC alleged tortuous interference with prospective economic advantage and statutory unfair competition, respectively. The gravamen of first cause of action was that the board and VantagePoint disrupted Greenspan’s relationship with Intermix, thereby depriving him of compensation and other benefits. In pertinent part, the GAC alleged: “[I]n 2003, plaintiff was forced out of his management position at the Company by Defendant VantagePoint, a venture capital firm, because he attempted to protect Company shareholders from a predatory and dilutive stock investment VantagePoint wanted to foist on the Company. VantagePoint conspired with the defendant Company officers and directors, who were hoping to keep their own jobs, to remove plaintiff just as he was negotiating a compensation package with the Company that would have rewarded him for his years of hard work and sacrifice.” With respect to the elements of the claim for tortuous interference with prospective economic advantage, the GAC alleged that Greenspan was in an existing business relationship with Intermix, which included “negotiations with the Company’s compensation committee for additional equity interests and other compensation; that the relationship had a high probability of future economic benefit to Greenspan; that defendants knew of this relationship and intentionally interfered with it; that Greenspan’s relationship was actually disturbed in that “[p]laintiff was unable to finalize negotiations for equity and other benefits”; and that Greenspan suffered injury by “failing to receive additional economic compensation at the time of the News Corporation merger for the equity interests that were agreed upon, or being finalized through negotiations, at the time of defendants’ action.”
The trial court sustained the demurrer without leave to amend as to the first cause of action in the GAC on the ground it was barred by the statute of limitations. Finding Greenspan’s claim governed by the two-year statute of limitations provided by Code of Civil Procedure section 339, subdivision (1), the trial court reasoned that the February 2006 GAC untimely alleged a claim stemming from Greenspan’s December 2003 termination. It further found that the claim did not relate back to Greenspan’s original August 2005 complaint, as Greenspan’s claims in that pleading related only to his injuries as a shareholder and therefore alleged different injuries arising from different offending instrumentalities. We find no basis to disturb this conclusion.
The trial court also sustained the demurrer without leave to amend as to the GAC’s second cause of action for violation of Business and Professions Code section 17200. Because Greenspan raises no challenge on appeal to that aspect of the ruling, we need not address it. (See generally Paterno v. State of California (1999) 74 Cal.App.4th 68, 106 [“An appellate court is not required to examine undeveloped claims, nor to make arguments for parties”]; In re Marriage of Nichols (1994) 27 Cal.App.4th 661, 672–673, fn. 3 [the appellant must present analysis and supporting authority in its opening brief or the contention is forfeited].)
Greenspan’s only challenge to the trial court’s ruling involves application of the “relation back” doctrine. He contends that his cause of action for tortuous interference with prospective economic advantage was timely because the allegations supporting the cause of action for breach of fiduciary duty in his original complaint can reasonably be interpreted to encompass that claim.
A new cause of action in an amended complaint is held to relate back to the earlier pleaded claims if the later cause of action (1) rests on the same general set of facts, (2) involves the same injury, and (3) refers to the same instrumentalities as the original complaint. (Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 408–409; Brumley v. FDCC California, Inc. (2007) 156 Cal.App.4th 312, 323.) For example, in Lee v. Bank of America (1994) 27 Cal.App.4th 197, 212–214, the court held that a complaint alleging wrongful termination did not relate back to an earlier complaint alleging wrongful demotion because the complaints alleged different injuries based on different actions by the plaintiff’s employer. And in Kim v. Regents of University of California (2000) 80 Cal.App.4th 160, 168–169, the court held that the plaintiff’s age discrimination claim did not relate back to her claims for breach of the implied covenant of good faith and fair dealing and violation of the Labor Code stemming from her termination. The court explained: “While there is just one employer and one termination, the wrongful conduct described in the discrimination claim does not arise out of the same set of facts that support Kim’s contractual and overtime claims. There was nothing in the first three pleadings concerning disparate treatment, intentional discrimination, Kim’s age or comments or actions related to her age—and no facts concerning replacement hires, let alone their relative ages.” (Id. at p. 169.)
Here, likewise, Greenspan’s first cause of action in the GAC did not involve the same facts, injury or instrumentality that formed the basis for his sole cause of action for breach of fiduciary duty alleged in his original complaint. Although Greenspan’s original complaint alleged by way of background some of the facts that formed the basis for his first cause of action in the GAC—including the VantagePoint conspiracy—the facts which formed the basis for his breach of fiduciary duty claim involved the News Corp. merger. Greenspan originally alleged: “Through the self-dealing manipulation of its majority shareholder position, VantagePoint damaged Plaintiff by turning his minority interest in a vibrant and growing company into a diminished cash payment, for the benefit of the majority. While VantagePoint used the power of their majority position to reap the most beneficial return from their shares, they did so by injuring Plaintiff, who was excluded from the majority’s benefit. [¶] Through the purchase and control of a majority of shares, each Defendant, breached his duty of care, loyalty, communication, candor, and confidentiality owed to Plaintiff, for the benefit of the majority shareholders. [¶] As a result of Defendants’ acts, Plaintiff suffered damages as a minority shareholder, including divestment from an ongoing and growing business for less than its fair market value.” The allegations in each of Greenspan’s pleadings demonstrate that his claims were based on different sets of facts; his original breach of fiduciary duty claim was premised on the News Corp. merger and his interference claim in the GAC was premised on his alleged termination. (See Lee v. Bank of America, supra, 27 Cal.App.4th at p. 214 [noting that a common motive on the part of the defendants to retaliate against the plaintiff was insufficient to show that the demotion and termination occurring one year apart arose from the same set of facts].)
Greenspan’s original complaint and the GAC also alleged different injuries. The original complaint alleged that Greenspan suffered injury in his capacity as a minority shareholder, while the GAC alleged that Greenspan suffered injury as the president of Intermix in the form of failing to conclude negotiations for and receive additional compensation. These allegations may be analogized to those in Quiroz v. Seventh Ave. Center (2006) 140 Cal.App.4th 1256, 1278, where the court concluded that a survivor claim, which the plaintiff pursued as the decedent’s successor in interest and which pleaded injury to the decedent, did not relate back to an earlier-filed wrongful death claim which pleaded only injury to the plaintiff in her capacity as the decedent’s heir. (See also Shelton v. Superior Court (1976) 56 Cal.App.3d 66, 79–81 [husband’s and wife’s claims for loss of consortium alleged a different injury and therefore did not relate back to complaint alleging husband’s and wife’s individual personal injuries resulting from an automobile accident].)
Finally, Greenspan’s pleadings did not refer to the same offending instrumentality. The original complaint alleged that Greenspan suffered injury by reason of his exclusion from the majority shareholders’ benefit in connection with the News Corp. merger, while the GAC’s first cause of action alleged that Greenspan suffered injury as a result of the disruption of his relationship with Intermix and the consequent deprivation of additional compensation. Under comparable circumstances—where injuries are caused at different times as a result of different actions—courts have refused to apply the relation back doctrine. (E.g., Newton v. County of Napa (1990) 217 Cal.App.3d 1551, 1565 [federal civil rights claim did not relate back to tort action where “the alleged causes of the respective injuries—negligent conduct by four public officials and adoption of a county-wide policy interfering with the integrity of family life—are not merely different but well removed in time, place, and factual context”]; Espinosa v. Superior Court (1988) 202 Cal.App.3d 409, 415 [amendment alleging that on May 10 a city’s agent took steps to intimidate a witness to officers’ beating and arresting the plaintiff on May 7 did not relate back to complaint for battery and false arrest premised on the May 7 incident, as “[t]he events of May 7 and May 10 do not involve the same accidents and injuries”]; Wiener v. Superior Court (1976) 58 Cal.App.3d 525, 529 [amendment alleging that a defamatory statement was published in a Huntington Beach newspaper on April 25 did not relate back to defamation claim based on an April 23 Los Angeles Times publication].) Indeed, the disruption of Greenspan’s employment relationship occurred in December 2003 and was completely independent from the subsequent acquisition of Intermix.
In sum, Greenspan’s cause of action for tortuous interference with prospective economic advantage first alleged in the GAC did not relate back to his claim for breach of fiduciary duty alleged in his original complaint. Greenspan’s authority does not dictate a different result, as two of the cases he cited involved amendments satisfying the relation-back elements. (See Wilson v. Bittick (1965) 63 Cal.2d 30, 38–39 [amendment alleging title to balance of property not in issue in earlier complaint related back where parties had litigated over the entire property for several years and the defendants conceded that the earlier complaint involved the entire property]; Hirsa v. Superior Court (1981) 118 Cal.App.3d 486, 489 [amendment adding a causes of action for negligent entrustment related back to a complaint alleging that negligent driving caused an automobile accident because the proposed amendment sought “recovery for the same accident and injuries as the original complaint”].) As aptly noted by the court McCauley v. Howard Jarvis Taxpayers Assn. (1998) 68 Cal.App.4th 1255, 1262, “acts leading to distinct injuries are not part of the ‘same general set of facts’ even though they may be part of the same ‘story.’” Under these circumstances, where the proposed amendment would be barred by the statute of limitations, the trial court properly acted within its discretion in sustaining the demurrer without leave to amend. (E.g., Yee v. Mobilehome Park Rental Review Bd. (1998) 62 Cal.App.4th 1409, 1429.)
The third case Greenspan cited, Honig v. Financial Corp. of America (1992) 6 Cal.App.4th 960, 966–967, is inapposite, as it involved an amendment based on events that occurred after the filing of the original complaint and therefore could not have been alleged in that pleading. Here, in contrast, the first cause of action in the GAC was premised on events that preceded those alleged in Greenspan’s original complaint.
DISPOSITION
The judgment is affirmed. Respondents are entitled to their costs on appeal.
We concur: BOREN, P. J., CHAVEZ, J.