Friday, March 11, 2011

In re Terra Industries, Inc. (Balt. City Cir. Ct.)

Filed: July 14, 2010
Opinion by Judge Evelyn Omega Cannon

Held: An exculpatory clause in a corporation's charter holding directors harmless from personal liability to the corporation or shareholders to the fullest extent of the law is enforceable, and it justified entry of summary judgment in favor of defendant directors. Section 1-102 of the Corporations and Associations Article is expansive and applies to every Maryland corporation and to all their corporate acts.

Facts: CF, a competitor of Terra, made numerous attempts to acquire Terra through unsolicited bids. Terra rejected those offers. CF bought Terra stock on the open market, which allowed it three seats on Terra's Board of Directors. Terra later told CF that it was not for sale and CF withdrew its offer to acquire Terra and announced it was no longer pursuing the acquisition. Unbeknownst to CF, Terra was entertaining other potential interests in its acquisition. CF later made another offer to acquire Terra which was accepted by the Board and the two companies merged.

Before the Terra/CF merger, four actions were filed, two of which were Maryland cases and consolidated into this action, alleging, among other things, that the individual defendants breached fiduciary duties by approving the Terra/CF merger. Terra's charter contained a provision which provides: "To the fullest extent permitted by statutory or decisional law . . . no director or officer of the Corporation shall be personally liable to the Corporation or its stockholders for money damages."

Analysis: The court found that the exculpatory clause was applicable, Plaintiffs had not pled facts of active and deliberate dishonesty, and the exculpatory clause may form the basis for granting a motion for summary judgment. Both section 2-405.2 of the Corporations and Associations Article and section 5-418 of the Courts and Judicial Proceedings Article of the Maryland Code allow the charter of a corporation to include any provision expanding or limiting the liability of its directors and officers. The court also found that actions taken in the sale or merger of a corporation are "corporate acts" as contemplated by section 1-102 of the Corporations and Associations Article and discussed in Shenker v. Laureate Education, Inc., 411 Md. 317 (2009).

The full opinion is available in pdf.

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