Puma v. Marriott

Puma (plaintiff) filed a derivative claim challenging the fairness of a transaction entered into by Marriott Corporation (Marriott) in which Marriott acquired six corporations (property companies) principally owned by Marriott family members and others (Marriott Group), four of whom were Marriott directors, in exchange for shares of its common stock. The property companies owned or leased real property that Marriott either leased or subleased. Marriott’s directors felt that Marriott could avoid conflicts of interest by severing the related interests in the property companies. This feeling intensified once the New York Stock Exchange (NYSE) informed Marriott that it could list its stock on the NYSE if it did so. The desire to list Marriott stock on the NYSE and the belief that acquiring the property companies would benefit Marriott led Marriott’s remaining five directors (outside directors), who were prominent in legal, financial, or business affairs, but did not serve as Marriott officers or employees, to investigate the transaction. Although the Marriott family initially had no interest in the transaction because they wanted to maintain diversification and the additional Marriott stock would not substantially increase their ownership percentage, Marriott’s management officials and the outside directors persuaded them. The outside directors obtained appraisals of the property companies’ real estate from independent appraisers, as well as the advice of independent counsel, tax experts, and accountants. An independent firm of analysts valued Marriott’s stock based on information provided by Marriott’s officials who were not members of the Marriott Group. The outside directors unanimously approved the transaction at a board meeting. The shareholders, including Puma, approved of the transaction at an annual meeting. Puma sued the Marriott Group and the outside directors, less one director who passed away (defendants), arguing that the appraisers’ and analysts’ methods resulted in overvaluation of the property companies and undervaluation of the Marriott stock.