Orman v. Cullman

General Cigar Holdings, Inc. (General Cigar) (defendant) was a public company that had 11 board members (defendants). Another company, Swedish Match AB, approached General Cigar about a cash-out merger. At that time, four General Cigar board members (the Cullman group) had leadership positions and controlling equity in General Cigar. A special committee consisting of non-Cullman-group board members negotiated the merger terms, and General Cigar’s full board approved them. Under the merger terms, all General Cigar stock not owned by the Cullman group would be bought out. After the merger, the Cullman group would have controlling equity, leadership positions, the ability to appoint a majority of the new entity’s board members, and attractive put-call options for their own stock. For the other directors, one owned a company that would receive $3.3 million from the merger, one had a $75,000 consulting agreement controlled by the Cullman group, two had long-standing business relationships with members of the Cullman group, one had a business relationship with an underwriter that benefited from the merger, and one would still be a director after the merger. The merger terms required approval from a majority of General Cigar’s publicly traded Class A stockholders. The Cullman group’s equity was mostly privately held Class B stock. Thus, the public stockholders, not the Cullman group, controlled the merger’s approval. Joseph Orman (plaintiff) owned Class A stock in General Cigar. Orman filed a class-action lawsuit against General Cigar and its board members. Among other claims, the lawsuit contained breach-of-the-duty-of-loyalty claims alleging that the board’s merger approval was invalid because a majority of the directors had not been both independent and disinterested. General Cigar and its board moved to dismiss the complaint.