Lewis v. Chrysler Corp.

The board of directors of Chrysler Corporation (defendant) adopted a poison pill (i.e., a shareholder-rights plan) in 1988 that would be triggered upon an acquiror’s ownership of 30 percent or more of Chrysler’s stock. In 1989, the board reduced the ownership threshold to 20 percent and added a flip-in feature to the poison pill. On December 14, 1990, the Chrysler board again amended the plan and issued a press release stating that Kirk Kerkorian had made unsolicited purchases that brought his Chrysler ownership to over 9 percent. The press release stated that the amendments were “intended to enhance the ability of Chrysler’s Board to act in the best interest of all the Company’s shareholders if someone should seek to obtain a position of control or substantial influence over Chrysler.” On December 19, 1990, Chrysler director Robert Lutz stated that it was prudent to amend the poison pill because Kerkorian possibly had hostile intentions towards Chrysler’s management. Harriet Lewis and a class of other Chrysler stockholders (the class) (plaintiffs) filed a class action against Chrysler for violations of § 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. The class alleged that the poison pill made takeovers financially prohibitive to protect the interests of Chrysler management, even if a takeover was in the shareholders’ best interests. The class alleged that Chrysler’s press release was misleading because it falsely indicated that the amendments were in the best interests of shareholders and failed to disclose that the amendments helped management entrench themselves. The class further alleged that Chrysler’s press release deceived shareholders regarding the meaning and impact of the poison-pill amendments and did not inform shareholders how much the poison-pill amendments would cost the shareholders in control premium in a possible hostile takeover. The district court dismissed the class action, and the class appealed.