On Appeal From the United States District Court For the District of Delaware. (D.C. Civil Action No. 97-cv-00586). District Judge: Hon. Kent Jordan.
The opinion of the court was delivered by: Stapleton, Circuit Judge
BEFORE: SLOVITER, ALDISERT and STAPLETON, Circuit Judges
The trustees of the MAFCO Litigation Trust ("plaintiffs")*fn1 appeal an order denying their motion for partial summary judgment against defendant Ronald O. Perelman and granting cross-motions for summary judgment in favor of defendants Perelman, MAFCO Holdings, Inc., MacAndrews & Forbes Holdings, Inc., Andrews Group, Incorporated, William C. Bevins, and Donald G. Drapkin. The District Court held that plaintiffs had failed to tender sufficient evidence to support a finding of a breach of fiduciary duty on the part of defendants. We will reverse in part, affirm in part, and remand for further proceedings.
Financier Ronald O. Perelman ("Perelman") was at all relevant times a director of Marvel Entertainment Co., Inc. ("Marvel"), and Chairman of Marvel's board. Through a chain of wholly-owned corporations (the "Marvel Holding Companies"), Perelman also owned a controlling interest in Marvel. The Marvel Holding Companies consisted of Mafco Holdings Inc. ("Mafco"), which owned 100% of MacAndrews & Forbes Holdings Inc. ("MacAndrews & Forbes"), which in turn owned 100% of Marvel III Holdings Inc. ("Marvel III"), which owned 100% of Marvel (Parent) Holdings Inc. ("Marvel Parent"), which owned 100% of Marvel Holdings Inc. ("Marvel Holdings"). Marvel Parent and Marvel Holdings together held 60% to 80% of Marvel's publicly traded, outstanding shares during the relevant period.
Bevins was a director and CEO of Marvel, a director of each of the Marvel Holding Companies, and Vice-Chairman of MacAndrews & Forbes. Drapkin was a director of Marvel, a director of each of the Marvel Holding Companies, and Vice-Chairman of MacAndrews & Forbes. Perelman, Bevins and Drapkin were three of the four members of the Executive Committee of the Marvel board. Perelman, Bevins and Drapkin also together comprised the entire board of each of the Marvel Holding Companies. Because the individual defendants hold these positions and Perelman's control of the Marvel Holding Companies is acknowledged, Perelman, Bevins, Drapkin and the Marvel Holding Companies in most instances are referred to collectively as "the defendants" in the following discussion.
During 1993 and 1994, the defendants caused the Marvel Holding Companies to issue three tranches of notes. The first tranche was issued by Marvel Holdings in April 1993 (the "Marvel Holdings Notes"). The second tranche was issued by Marvel Parent in October 1993 ("Marvel Parent Notes"). The third tranche was issued by Marvel III in February 1994 ("the Marvel III Notes", and collectively with the Marvel Holdings Notes and the Marvel Parent Notes, the "Notes"). All of the defendants' stock in Marvel was pledged as collateral for the Notes. The Notes were non-recourse debt.
The defendants received $553.5 million from the three issuances. None of the proceeds went to Marvel or were used for Marvel's benefit. The defendants used Marvel resources to market and sell the Notes. They caused Marvel's senior management, for example, to participate in "road shows" to market the Notes to potential investors. App. at 1593, 1603, 1840-65.
C. The Restrictions in the Note Indentures
In each of the Note Indentures, the issuing company commits itself to prevent Marvel from taking certain actions ("the restrictions"):
1. Restriction on issuing debt: Section 4.04 of each Indenture provides that, with the exception of seven categories of debt listed in the section, the issuing company "shall not permit Marvel or any Subsidiary of Marvel to issue, directly or indirectly, any debt, unless" a certain financial ratio is met.
2. Restriction on issuing equity: Section 4.04(c) of each Indenture provides that the issuing company "shall not permit Marvel to issue any preferred stock," except under specified circumstances;
3. Restriction on share ownership: Section 4.09(a) of each Indenture provides that the Marvel Holding Companies shall continue to hold a majority of Marvel's voting shares (i.e., restricting Marvel's ability to issue stock that might dilute Perelman's stake); and
4. Restriction on making "Restricted Payments": Section 4.05 of each Indenture provides that the issuing company "shall not permit" any of its subsidiaries (including, e.g., Marvel) to make Restricted Payments as defined by the Indenture (including dividends and stock buybacks).
The defendants' underwriter advised that these restrictions were "necessary to market the" Notes. App. at 1628.
Marvel filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on December 27, 1996. The Note holders have not been repaid.
E. The District Court Proceedings
Plaintiffs brought this action, claiming that the defendants breached their fiduciary duty to Marvel by agreeing to impose the restrictions of the Notes on Marvel. They sought "disgorgement" of the $558 million obtained by ...