In re Wheelabrator Technologies, Inc. Shareholders Litigation

Wheelabrator Technologies, Inc. (WTI) (defendant) developed and produced refuse-to-energy services. Waste Management, Inc. (Waste) provided waste-management services. In 1988, WTI and Waste entered into a transaction under which Waste came to own 22 percent of WTI's shares. Waste was WTI's largest stockholder as a result of this transaction. The two companies continued to discuss ways to work together, and in March 1990, Waste proposed a merger. The two companies negotiated a merger agreement, which was approved by WTI’s board of directors (defendants) and a majority of WTI shareholders other than Waste. Some WTI shareholders (plaintiffs) brought suit, claiming, among other things, that the board of directors breached their fiduciary duty of loyalty because a majority of the directors had a conflict of interest that prevented them from seeking or obtaining the best value for WTI's shareholders in the merger. The defendants filed a motion for summary judgment seeking dismissal of the plaintiffs' claims. The defendants argued that the fully informed shareholder vote approving the merger ratified the directors' negotiation and approval of the merger and thus extinguished the plaintiffs' breach-of-loyalty claim based on the directors' conduct. The plaintiffs opposed the motion. The plaintiffs argued, among other things, that the merger was an interested transaction that should be judged under the entire-fairness standard of review, and the only impact of the shareholder ratification was to shift the burden to the plaintiffs to prove that the merger was unfair to WTI.