Elizabeth Morrison v. Ray Berry

COURT OF CHANCERY
OF THE
SAM GLASSCOCK III STATE OF DELAWARE COURT OF CHANCERY COURTHOUSE
VICE CHANCELLOR 34 THE CIRCLE
GEORGETOWN, DELAWARE 19947

September 28, 2017

Joel E. Friedlander, Esquire Rudolf Koch, Esquire
Jeffrey M. Gorris, Esquire Rachel E. Horn, Esquire
Christopher P. Quinn, Esquire Matthew D. Perri, Esquire
Friedlander & Gorris, P.A. Ryan P. Durkin, Esquire
1201 North Market St., Suite 2200 Richards, Layton & Finger, P.A.
Wilmington, DE 19801 920 North King Street
Wilmington, DE 19801

John L. Reed, Esquire
Ethan H. Townsend, Esquire
DLA Piper LLP (US)
1201 North Market St., Suite 2100
Wilmington, DE 19801

Re: Elizabeth Morrison v. Ray Berry, et al.
Civil Action No. 12808-VCG

Dear Counsel:

The Plaintiff1 was a stockholder2 in The Fresh Market (the “Market” or the

1
All well-pled facts drawn from Plaintiff’s Verified Complaint (“Compl.”), together with the
reasonable inferences therefrom, are presumed true for purposes of evaluating Defendants’ motion
to dismiss. Cent. Mortgage Co. v. Morgan Stanley Mortgage Capital Holdings LLC, 27 A.3d 531,
536 (Del. 2011). However, I am not required to “draw unreasonable inferences in favor of the
non-moving party.” Price v. E.I. DuPont de Nemours & Co., 26 A.3d 162, 166 (Del. 2011).
Consideration of certain documents filed with the SEC are also appropriate in this case as they are
“both integral to and incorporated into the Plaintiff’s complaint.” New Jersey Carpenters Pension
Fund v. Infogroup, Inc., 2011 WL 4825888, at *2 n.1 (Del. Ch. Sept. 30, 2011). I note that the
Plaintiff alleges that certain portions of the Schedule 14D-9 are “false and misleading.” Compl. ¶
118.
2
Aff. & Verification of Elizabeth Morrison Pursuant to Ct. of Ch. R. 23(AA) and 3(AA) ¶ 2.
“Company”), a Delaware corporation owning a grocery store chain.3 The Market

was acquired by an entity controlled by a private equity firm, Apollo Management,

L.P. (“Apollo”).4 The founder of the Market, Ray Berry, rolled his equity ownership

in the Market into the acquirer as a part of the deal.5 At the time of the merger, Ray

Berry was a director of the Market.6 Together with his son,7 he owned a significant

block of Company stock, nearly ten percent of the outstanding common stock.8

Nearly eighty percent of the outstanding shares tendered into the merger.9 The

Plaintiff alleges a breach of fiduciary duty10 by the director defendants11 and that

Brett Berry aided and abetted that breach of fiduciary duty. 12

For reasons explained fully in a number of opinions of this Court and our

Supreme Court, this jurisdiction has determined that there is little utility in a judicial

review of a corporate merger in which an uncoerced and fully informed vote of the

common stockholders has ratified a decision of the directors that the merger is in the

3
Compl. ¶ 3.
4
Compl. ¶ 101; Transmittal Aff. of Christopher P. Quinn Ex. C.
5
Compl. ¶ 3.
6
Id. ¶ 3.
7
Defendant Brett Berry is a former CEO and a former Vice Chairman of the Company Board.
Compl. ¶¶ 1, 3.
8
Id. ¶¶ 3, 44.
9
Aff. of Rachel E. Horn in Support of the Dir. Defs.’ Mot. to Dismiss (“Horn Aff.”), Ex. N
(“Horn. Aff. Form 8-K”).
10
Compl. ¶¶ 134–40.
11
The director defendants include Richard A. Anicetti, Michael D. Casey, Jeffrey Naylor,
Richard Noll, Bob Sasser, Robert K. Shearer, Michael Tucci, Steven Tanger, and Jane
Thompson. Id. ¶¶ 24–33. Richard A. Anicetti was also the CEO at the relevant time. Compl. ¶
24.
12
Id. ¶¶ 142–46.

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stockholders’ best interest.13 This matter, to my mind, presents an exemplary case

of the utility of that ratification doctrine, as set forth in Corwin and Volcano. Here

there was no coercion applied to the stockholder vote.14 An insider and board

member, Berry,15 was in favor of a private equity takeover and, without initially

informing the other directors, spoke with potential equity investors.16 He favored

Apollo.17 Apollo, armed with the founder’s preliminary agreement to roll over his

equity, made an unsolicited offer for the Market.18 This offer put the Market in

play.19 Berry recused himself from consideration of a potential sale by the Board of

Directors,20 and waived notice of any meetings at which strategic alternatives would

be discussed.21 The remainder of the Board consisted of eight independent

directors.22 These directors created a special committee of three independent

13
See, e.g., Corwin v. KKR Fin. Hldgs. LLC, 125 A.3d 304, 306 (Del. 2015) (“For sound policy
reasons, Delaware corporate law has long been reluctant to second-guess the judgment of a
disinterested stockholder majority that determines that a transaction with a party other than a
controlling stockholder is in their best interests.”); In re Volcano Corp. Stockholder Litig., 143
A.3d 727, 747 (Del. Ch. 2016) (“[A]cceptance of a first-step tender offer by fully informed,
disinterested, uncoerced stockholders representing a majority of a corporation's outstanding
shares in a two-step merger . . . has the same cleansing effect under Corwin as a vote in favor of
a merger by a fully informed, disinterested, uncoerced stockholder majority.”).
14
Compl. ¶¶ 10, 122.
15
Unless otherwise indicated, “Berry” refers to Ray Berry and not his son, Brett Berry.
16
Compl. ¶¶ 40–41.
17
Id. ¶ 5.
18
Id. ¶ 6.
19
Id. ¶¶ 7, 11.
20
Id. ¶ 79.
21
Horn Aff. Ex. A at 18–19 (“Horn Aff. Sched. 14D-9.”).
22
Compl. ¶¶ 24–32; Horn. Aff Ex. C at 7.

3
directors to consider strategic alternatives;23 ultimately, the Company engaged in a

three-month auction24 by hiring J.P. Morgan Securities LLC (“J.P. Morgan”),25

soliciting thirty-two potential bidders,26 receiving five indications of interest,27 and

evaluating several offers.28 At the end of this five-month process, Apollo was the

successful bidder, and the Board, on recommendation of the special committee,

approved the tender offer described above.29 Because the majority of the shares were

tendered,30 (and because there are no allegations of waste) the only remaining

question is whether the vote was adequately informed so as to serve as a ratification

of the Board’s decision. I conclude that it was and that therefore this matter must be

dismissed.

The Plaintiff makes two broad arguments that the tender was uninformed. The

first, and easiest to deal with, involves the financial disclosures.31 The Board hired

J.P. Morgan to provide a fairness opinion on the Apollo offer.32 J.P. Morgan used

23
Compl. ¶ 53; Horn Aff. Sched. 14D-9 at 18.
24
Compl. ¶¶ 53, 84.
25
Id. ¶ 53.
26
Horn Aff. Sched. 14D-9 at 22.
27
Id.
28
See Compl. ¶¶ 84; Horn Aff. Sched. 14D-9 at 23.
29
Compl. ¶ 101; Horn. Aff. Form 8-K; Pl. Elizabeth Morrison's Answering Br. on Cross-
Motions for Consolidation & Appointment of Lead Pl. & Lead Counsel Ex. D at 2 (“Pl.’s Ans.
Br. Ex. D Sched. 14D-9 Amend. No. 5”).
30
Compl. ¶ 101; Horn. Aff. Form 8-K.
31
Compl. 126–27.
32
Id. ¶ 53.

4
management projections,33 engaged in a DCF analysis,34 and determined that the

purchase price was within the range of fairness, although marginally so.35 The

Plaintiff’s specific complaints of disclosure insufficiency are that the disclosures

provided the stockholders with insufficient information about the “conservative”

nature of management’s November 17, 2015 projections36 and failed to disclose that

sensitivities run on those projections by J.P. Morgan “included upside as well as

downside sensitivities.”37 However, nothing indicates that the management

projections38 or J.P. Morgan’s analysis39 are anything other than their best estimates,

which were adequately described.40

The Plaintiff relies more heavily on what she considers to be disclosure

violations concerning Berry’s role in the process.41 The disclosures describe the

33
Id. ¶ 73.
34
Id. ¶¶ 73, 97, 99.
35
Id. ¶¶ 20, 73, 107; Horn Aff. Sched. 14D-9 at 43.
36
Compl. ¶ 63, 126 (alleging that management’s “15% overall risk adjustment to the projections
. . . reflect[ed] the[ir] incentive[s]” from a “compensation package” rather than “different
initiatives receiving different risk weighting based on likelihood of achievability.”).
37
Id. ¶ 127 (stating that “revenue growth and EBITDA margin sensitivities reviewed at that
[December 1, 2015] Board meeting ranged from -3% to +1%”).
38
Horn Aff. Sched. 14D-9 at 46–48 (including a “summary of the unaudited prospective
financial information for the years 2016 through 2025 prepared by TFM’s management . . . based
on the information available to TFM’s management at the time the November 17 Management
Case was developed.”).
39
Pl.’s Ans. Br. Ex. D Sched. 14D-9 Amend. No. 5 at 4 (noting that the December 2015 Board
meeting discussed the receipt of “certain sensitivity information regarding different assumptions
as to revenue and gross margin in the event that TFM was not able to execute on its strategic
plan or the timing of certain initiatives contained in the strategic plan was later than anticipated”
and included financial projections for three additional scenarios); Horn Aff. Sched. 14D-9 at 46–
48.
40
Horn Aff. Sched. 14D-9 at 46–48.
41
Id. ¶¶ 119–21, 123–25, 128.

5
elaborate process through which the Board and its special committee and advisors

engaged in a wide-ranging auction process and go-shop period.42 According to the

Plaintiff, however, this very description is misleading because, in her view, the

apparent robustness of the auction was a sham.43 Berry had already made up his

mind that he wished Apollo to be the acquirer and only Apollo had a shot at winning

the auction.44 If that allegation were sufficiently supported by the pleadings, surely

the disclosures were flawed and inadequate to allow the vote to serve as a ratification

of the Defendants’ actions.

The problem with the Plaintiff’s argument is that the facts regarding Berry’s

involvement with Apollo were disclosed. The conclusion that the Plaintiff reaches—

that the auction was a sham—is not supported by the record. The Plaintiff argues

that Berry’s commitment to Apollo was far stronger than was disclosed to the Board,

the participants in the auction, or the stockholders.45 The firmness of his

commitment had a chilling effect on the other participants in the auction, according

42
Horn Aff. Sched. 14D-9 at 16–17 (engaging in a strategic review); Id. at 17 (retaining counsel
and reviewing fiduciary duties); Id. at 18 (forming a strategic transaction committee of
independent directors); Id. (retaining J.P. Morgan as a financial advisor); Id. at 21–22 (soliciting
thirty-two parties to submit bids in an auction run by the special committee); Id. at 22–23
(receiving and evaluating five indications of interest); Id. at 23–24 (evaluating a proposal for
exclusivity by Apollo and granting data room access to several parties); Id. at 27 (negotiating a
“go-shop” arrangement); Id. at 31 (requesting an increase in the offer price from Apollo); Id. at
33 (convening the Board, except for Ray Berry, to vote on the strategic committee
recommendation).
43
Compl. ¶ 117.
44
Id. ¶¶ 42, 117.
45
Id. ¶¶ 42, 46–49, 117.

6
to the Plaintiffs, and thus the auction was a mere pretense.46 But this is a non

sequitur: If the Board, the participants in the auction, and the stockholders were

uninformed of the true commitment between Berry and Apollo, that undisclosed fact

cannot have chilled the auction. In fact, a review of the SEC filings indicates that

Berry’s involvement with Apollo was disclosed to the stockholders.47 What is not

described is the gloss on those facts that the Plaintiff supplies. She complains that

the directors did not disclose that they had initially been lied to by Berry about his

involvement, a fact that the Plaintiff asserts must have been apparent to the directors

under the facts they did disclose.48 This is a self-defeating argument. To the extent

disclosed facts must have demonstrated Berry’s mendacity to the directors,49 it

46
Id. at 54, 88, 102, 120.
47
Horn Aff. Sched. 14D-9 at 16 (recusing Ray Berry from Board meetings and deliberations of
the Merger), 17–18 (discussing “three separate conversations” prior to October 2015 between
Ray Berry and Apollo and Ray Berry’s willingness to “consider an equity rollover” and that “he
would only participate in a transaction that was supported by the Board”), 18 (discussing a news
article stating that Ray Berry was “exploring a bid to take TFM private”), 20 (reaffirming
Apollo’s proposal in November 2015 for an all-cash transaction “together with Ray Berry and
Brett Berry” and that Ray Berry and Apollo had “engaged in one conversation” since October
20, 2015), 21 (confirming “that Mr. [Ray] Berry continued to be willing to discuss an equity
rollover with any potentially interested party that the Board selected as a winning bidder,” and
that “Mr. [Ray] Berry would agree to not engage in any discussion regarding an equity rollover
with any potentially interested party, including [Apollo], until authorized to do so by the
[Company]” and that Ray Berry “was not working exclusively with any one bidder”), 27
(determining that “rollover discussions should be permitted only after final bids had been
received” and when allowed by the Board), 30 (considering a request by J.P. Morgan to allow
J.P. Morgan to “discuss[] an equity rollover prior to announcement of a transaction”), 31
(reiterating Apollo’s “interest in speaking with members of the Berry family regarding a
potential equity rollover” and the strategic committee’s approval of such discussions if
“chaperoned by J.P. Morgan” and if “no specific price details would be shared . . . .”).
48
Compl. ¶ 124.
49
Id. ¶ 124 (“The omission is material not only in substance but also because it shows that Ray
Berry was lying to the Board, the Board was on notice that Ray Berry was lying to them and the

7
should have been equally clear to the stockholders themselves. More importantly,

whether Berry initially was forthcoming about his relationship with Apollo, I find

that his position as of the time of the auction process and go-shop—that is, at the

time material to stockholders—was adequately disclosed.

The Plaintiff argues that the Schedule 14D-9 “conceals the pressure on the

Board from activist stockholders to sell the Company” by failing to specifically

mention “a letter from Neuberger Berman, one of the Company’s significant

stockholders, expressing its view that the Board should consider selling the

Company.”50 However, the Board disclosed that the Company “could become the

subject of shareholder pressure and communications” if it didn’t “enhance

efficiency,”51 and in fact already “initiate[d] a comprehensive strategic review” and

“hir[ed] outside financial advisers” as recommended by Neuberger Berman. 52 I find

that this disclosure was adequate.

The only factual lacuna in the disclosures that comes close to materiality is

that Berry threatened to sell his shares on the market if a merger did not close.53 On

reflection, however, it is not clear to me how this would have affected the total mix

of information disclosed; certainly, it would not have made investors less likely to

Board did nothing to address it.”)
50
Id. ¶ 122; Horn. Aff. Ex. Q (“Neuberger Berman October 8, 2015 Letter”).
51
Horn Aff. Sched. 14D-9 at 18.
52
Neuberger Berman October 8, 2015 Letter at 2; see Compl. ¶¶ 53 (hiring J.P. Morgan), 58
(conducting strategic review).
53
Compl. ¶ 13.

8
tender if they knew that a large blockholder—the founder—was considering a sale

if the deal was not consummated. In short, Berry’s activities and his connection to

Apollo were adequately disclosed to stockholders deciding whether to tender their

shares. Unsurprisingly, those stockholders nonetheless accepted the merger by

overwhelmingly tendering in favor, given the large premium the merger payment

represented over the preannouncement trading price of the Market stock.54

Because an uncoerced tender of the majority of shares supported the merger

here, the Plaintiff’s pleading burden on this motion to dismiss, before I address

whether she has otherwise stated a claim, is to plead facts from which it is reasonably

conceivable that the potentially ratifying tender was materially uninformed. 55 The

Plaintiff pursued documents to bolster her pleading under Section 220, and her

position in this case was well briefed and well argued; nonetheless, I find this

pleading burden unmet. For that reason, the Defendants’ motion to dismiss is

granted.

54
The Plaintiff makes an argument in briefing that was not advanced at oral argument, that Berry
engaged in a long-term scheme in which he: 1) somehow caused the board, with its majority of
independent directors, to discharge the CEO, thereby accelerating a long-term decline in the
Market’s stock price, reducing the value of Berry’s block; then 2) several months later
approached private equity firms as part of a takeover scheme favorable to him because of the
depressed market price; after which he 3) then recused himself and watched the Board engage in
a five-month sales process, involving both equity and strategic investors, confident that the
acquirer which would further his interests, Apollo, would prevail. If true, Berry is the most ice-
cold killer gambler of whom I am aware. Even on a motion to dismiss, however, I am not
required to accept such a scenario, which I do not find to be reasonably conceivable. Pl.’s
Omnibus Br. in Opposition to Defendants’ Motions to Dismiss at 2, 32, 34.
55
In re Volcano Corp. Stockholder Litig., 143 A.3d at 747.

9
 To the extent the foregoing requires an Order to take effect, IT IS SO

ORDERED.

Sincerely,

/s/ Sam Glasscock III

Sam Glasscock III

10