Tracinda Corp. v. DaimlerChrysler AG

In 1998, German-based Daimler-Benz AG (Daimler) and Michigan-based Chrysler Corporation (Chrysler) merged to form DaimlerChrysler AG (postmerger company) (defendant). The postmerger company was incorporated in Germany. The merger was accomplished pursuant to a business combination agreement (BCA), which described the merger as a merger of equals. Per the BCA, the postmerger company’s initial management board would, in general, be comprised of eight Chrysler designees, eight designees of Daimler’s automotive business, and two designees of Daimler’s nonautomotive business. In August 1998, Chrysler filed a proxy statement (proxy) with the Securities and Exchange Commission seeking shareholder approval for the merger. Among other things, the proxy described the merger as being a merger of equals (without defining the term) and described the initial composition of the postmerger company’s management board as set forth in the BCA. But the proxy also stated that (1) the postmerger company’s initial management structure was subject to change after the merger, (2) the management board members to be appointed by Chrysler and Daimler would be initial designees, and (3) the postmerger company’s shareholders or management or supervisory boards could change the postmerger company’s governance structure. Moreover, the BCA was silent regarding how long the postmerger company’s management board would conform to the BCA. Tracinda Corporation (Tracinda) (plaintiff) was Chrysler’s largest shareholder. Pursuant to a stockholder agreement (SHA) with Chrysler, Tracinda committed to vote for the merger. The SHA did not describe the merger as being one of equals and did not address the postmerger company’s governance structure, but the SHA did refer to the BCA. The composition of the postmerger company’s management board began to change approximately a year after the merger: the management board was reduced from 18 to 14 members, and Daimler designees occupied an ever-increasing majority of the seats on the management board. Tracinda sued the postmerger company and others for, among other things, violating § 14 of the Securities Exchange Act of 1934. According to Tracinda, the proxy’s claim that the merger would be one of equals was shown to be false or misleading by the postmanagement company’s changes to the management board. After a bench trial, the district court ruled that the proxy was not false or misleading. Tracinda appealed.