Cinerama, Inc. v. Technicolor, Inc.

Today’s opinion completes a trilogy of decisions by this Court. The ease involves claims by the plaintiff-appellant, Cinerama, Inc. (“Cinerama”), against the directors of Technicolor, Inc. (“Technicolor”) and others. The issues presented relate to the sale of *1160 Technicolor to MaeAndrews & Forbes Group, Inc. (“MAF”) in a two-stage tender offer/merger transaction for $23 per share in cash. Cinerama was at all times the owner of 201,200 shares of the common stock of Technicolor, representing 4.405 percent of the total shares outstanding.

Cinerama did not tender its stock in the first stage of the MAF acquisition, which commenced on November 4,1982. Cinerama dissented from the second stage merger, which was completed on January 24, 1983. After dissenting, Cinerama petitioned the Court of Chancery in March 1983 for an appraisal of its shares pursuant to 8 Del.C. § 262. During pretrial discovery in the appraisal proceedings, certain deposition testimony caused Cinerama to believe that the directors of Technicolor had failed to comply with their fiduciary duties in connection with the sale of the company.

In January 1986, Cinerama filed a personal liability action in the Court of Chancery against Technicolor, seven of the nine members of the Technicolor board of directors at the time of the merger, MAF, Maeanfor and Ronald O. Perelman (“Perelman”). Perelman was MAF’s board chairman and controlling shareholder. Cinerama’s personal liability action alleged fraud, breach of fiduciary duty and unfair dealing. It included a claim for rescissory damages and other relief. 3

FIRST APPEAL

The defendants in the personal liability action filed a motion to dismiss on the ground that Cinerama had no standing to pursue such a claim after petitioning for an appraisal of its shares. The Court of Chancery denied the motion, but ruled that after discovery was completed, Cinerama would have to elect which cause of action it intended to pursue. See Cede & Co. v. Technicolor, Inc., Del.Ch., C.A. Nos. 7128, 8358, 1987 WL 4768 (Jan. 13, 1987). 4 Cinerama filed an interlocutory appeal to this Court. Cede & Co. v. Technicolor, Inc., Del.Supr., 542 A.2d 1182 (1988) (“Cede I”).

In Cede I, this Court held that the Court of Chancery had erred, as a matter of law, in requiring Cinerama to make an election of remedies before trial. We held that Cinerama was entitled to pursue concurrently, through trial, its appraisal action and its personal liability action. This Court then remanded the case to the Court of Chancery for a trial of those consolidated actions. Id. at 1192.

SECOND APPEAL

Following further discovery and an extended trial, the Court of Chancery announced its decision in the appraisal action first. In its “appraisal opinion” dated October 19, 1990, the Court of Chancery found the fair value of the dissenting shareholders’ Technicolor stock to be $21.60 per share as of the date of the merger, January 24, 1983. Cede & Co. v. Technicolor, Inc., Del.Ch., C.A. No. 7129, 1990 WL 161084 (Oct. 19, 1990).

In June 1991, the Court of Chancery issued its “personal liability opinion,” in which it found persuasive evidence that the defendant Technicolor directors had breached their fiduciary duties. Cinerama v. Technicolor, Inc., Del.Ch., C.A. No. 8358, 1991 WL 111134 (June 24, 1991). 5 Nevertheless, the Court of Chancery entered judgment for the defendants in the personal liability action. According to the Court of Chancery, even if the defendant directors had not exercised due care in approving the merger, Cinerama had failed to prove that it had been damaged. 6 Id. In reaching that conclusion, the *1161 Court of Chancery relied upon its valuation in its earlier appraisal opinion.

Cinerama appealed from the judgments entered in both the appraisal action and the personal liability action. Cede & Co. v. Technicolor, Inc., Del.Supr., 634 A.2d 345 (1993), on reargument, 636 A.2d 956 (1994) (“Cede II”). In the personal liability action, this Court affirmed in part, reversed in part, and remanded to the Court of Chancery for an application of the entire fairness standard to the challenged transaction, and to resolve certain additional issues relating to the duty of loyalty. Because of our determination in the personal liability action, this Court did not decide Cinerama’s appeal in the appraisal action.

THIS APPEAL

On remand, the Court of Chancery concluded that the defendants had met their burden of showing entire fairness, resolved the additional loyalty issues posited by this Court in Cede II, and entered judgment for the defendants. Cinerama, Inc. v. Technicolor, Inc., Del.Ch., C.A. No. 8358 (Oct. 6, 1994, revised Oct. 12, 1994, revised Oct. 18, 1994), reprinted in 20 Del.J.Corp.L. 277, 663 A.2d 1134 (1995) (hereinafter Cinerama, 663 A.2d 1134). Cinerama filed a notice of appeal on January 4, 1995. In this second post-trial appeal, Cinerama alleges that: (1) the Court of Chancery’s failure to follow the rulings of this Court in Cede I and Cede II violated the mandate rule, as well as the law of the case doctrine; (2) the Court of Chancery erred in relitigating the duty of care issues; (3) the Court of Chancery improperly imposed upon Cinerama the burden of proving entire fairness; (4) the director defendants failed to carry their burden of proving that the plan of merger was entirely fair; (5) the Court of Chancery improperly refused to accept this Court’s rejection of its reasonable person standard for determining the materiality of director conflicts and, under an appropriate test, a majority of the director defendants was burdened by material conflicts or otherwise lacked independence; (6) alternatively, the domination of the negotiation and consideration of the merger agreement by directors burdened by material conflicts was sufficient to establish a breach of the duty of loyalty; (7) alternatively, the failure of interested directors to disclose fully all material conflicts was sufficient to establish a breach of the duty of loyalty; (8) alternatively, director Fred R. Sullivan’s (“Sullivan”) bad faith disloyalty was of such material significance that his conduct alone was sufficient to establish a breach of the duty of loyalty; (9) the Court of Chancery failed to consider the purpose and intent of Article Tenth of the Technicolor charter; (10) the defendants violated the duty of disclosure by failing to inform the shareholders of director Arthur N. Ryan’s (“Ryan”) material self-interest; (11) the MAF defendants were liable to Cinerama as aiders and abetters of the director defendants’ breaches of fiduciary duty; (12) the Court of Chancery erred, as a matter of law, in holding that rescissory damages were not available; and (13) the Court of Chancery should have found all of the defendants jointly and severally liable to pay rescissory damages to Cinerama of $32.8 million as of October 7, 1988, with interest, as well as to reimburse Cinerama for counsel fees and expert witness costs.

This Court has concluded the Court of Chancery’s decision that the Technicolor sale was entirely fair to the shareholders and its judgment in favor of the defendants should be affirmed. Consequently, the questions framed by issues (12) and (13) above, and the Court of Chancery’s discussion and determinations regarding damages, are not relevant in this appeal. Accordingly, this Court will neither address nor decide any of the damage issues raised on appeal.

In the following opinion this Court: first, reviews certain general principles relating to the procedural and substantive aspects of the business judgment rule and the substantive entire fairness standard; second, reviews the purpose of the remand in Cede II and distinguishes the remand in this case from that in Smith v. Van Gorkom, Del.Supr., 488 A.2d 858 (1985); third, addresses the Court of *1162 Chancery’s resolutions of the loyalty issues this Court remanded for consideration in Cede II; fourth, examines the Court of Chancery’s conclusions concerning the substantive entire fairness of the sale of Technicolor to MAE according to the precepts articulated in Weinberger v. UOP, Inc., Del.Supr., 457 A.2d 701 (1983) and its progeny; and finally, affirms the Court of Chancery’s judgment in favor of the defendants, pursuant to this Court’s controlling and deferential standard of appellate review.

FACTS

The facts of this case are recited at length in this Court’s opinion following the first post-trial appeal. Cede II, 634 A.2d at 351-58. After our decision in Cede II, the parties stipulated to submit the remanded issues to the Court of Chancery without presenting any additional evidence. 7 Therefore, this Court will rely upon its prior recitation of the facts. The facts relevant to this appeal will be addressed in the opinion in the context of the issues that we have found to be disposi-tive.

BUSINESS JUDGMENT REBUTTED EVIDENTIARY BURDEN SHIFTS ENTIRE FAIRNESS STANDARD APPLIES

The business judgment rule “operates as both a procedural guide for litigants and a substantive rule of law.” Cede II, 634 A.2d at 360 (quoting Citron v. Fairchild Camera & Instrument Corp., Del.Supr., 569 A.2d 53, 64 (1989) (emphasis added)); see Unitrin, Inc. v. American Gen. Corp., Del.Supr., 651 A.2d 1361 (1995). As a procedural guide the business judgment presumption is a rule of evidence that places the initial burden of proof on the plaintiff. In Cede II, this Court described the rule’s evidentiary, or procedural, operation as follows:

If a shareholder plaintiff fails to meet this evidentiary burden, the business judgment rule attaches to protect corporate officers and directors and the decisions they make, and our courts will not second-guess these business judgments. See, e.g., [Citron v. Fairchild Camera & Instrument Corp., 569 A.2d at 64; Smith v. Van Gorkom, 488 A.2d at 872]; see also 8 Del.C. § 141(a). If the rule is rebutted, the burden shifts to the defendant directors, the proponents of the challenged transaction, to prove to the trier of fact the “entire fairness” of the transaction to the shareholder plaintiff. Nixon v. Blackwell, Del.Supr., 626 A.2d 1366, 1376 (1993); [Mills Acquisition Co. v. Macmillan, Inc., Del.Supr., 559 A.2d 1261 (1989)]; Weinberger v. UOP, Inc., Del.Supr., 457 A.2d 701, 710 (1983).

Cede II, 634 A.2d at 361.

Burden shifting does not create per se liability on the part of the directors. Id. at 371. Rather, it “is a procedure by which Delaware courts of equity determine under what standard of review director liability is to be judged.” Id. In remanding this case for review under the entire fairness standard, this Court expressly acknowledged that its holding in Cede II did not establish liability. Id.; accord Nixon v. Blackwell, Del.Supr., 626 A.2d 1366, 1381 (1993).

Where, as in this case, the presumption of the business judgment rule has been rebutted, the board of directors’ action is examined under the entire fairness standard. Unitrin, Inc. v. American Gen. Corp., 651 A.2d at 1371 n. 7 (collecting cases). This Court has described the dual aspects of entire fairness, as follows:

The concept of fairness has two basic aspects: fair dealing and fair price. The former embraces questions of when the transaction was timed, how it was initiated, structured, negotiated, disclosed to the directors, and how the approvals of the directors and the stockholders were obtained. The latter aspect of fairness relates to the economic and financial considerations of the proposed merger, including all relevant factors: assets, market value, earnings, future prospects, and any other elements that affect the intrinsic or inherent value of a company’s stock_ How *1163 ever, the test for fairness is not a bifurcated one as between fair dealing and price, All aspects of the issue must be examined as a whole since the question is one of entire fairness.

Weinberger v. UOP, Inc., 457 A.2d at 711. Thus, the entire fairness standard requires the board of directors to establish “to the court’s satisfaction that the transaction was the product of both fair dealing and fair price.” Cede II, 634 A.2d at 361. In this ease, because the contested action is the sale of a company, the “fair price” aspect of an entire fairness analysis requires the board of directors to demonstrate “that the price offered was the highest value reasonably available under the circumstances.” Id.

Because the decision that the procedural presumption of the business judgment rule has been rebutted does not establish substantive liability under the entire fairness standard, such a ruling does not necessarily present an insurmountable obstacle for a board of directors to overcome. Thus, an initial judicial determination that a given breach of a board’s fiduciary duties has rebutted the presumption of the business judgment rule does not preclude a subsequent judicial determination that the board action was entirely fair, and is, therefore, not outcome-determinative per se. 8 Id. at 371; accord Nixon v. Blackwell, 626 A.2d at 1381. To avoid substantive liability, notwithstanding the quantum of adverse evidence that has defeated the business judgment rule’s protective procedural presumption, the board will have to demonstrate entire fairness by presenting evidence of the cumulative manner by which it otherwise discharged all of its fiduciary duties.

Although the procedural decision to shift the evidentiary burden to the board of directors to show entire fairness does not create liability per se, the aspect of fair dealing to which Weinberger devoted the most attention — disclosure—has a unique position in a substantive entire fairness analysis. See, e.g., In re Tri-Star Pictures, Inc. Litig., Del.Supr., 634 A.2d 319, 331-32 (1993); Rosenblatt v. Getty Oil Co., Del.Supr., 493 A.2d 929, 937 (1985). A combination of the fiduciary duties of care and loyalty 9 gives rise to the requirement that “a director disclose to shareholders all material facts bearing upon a merger vote....” 10 Zirn v. VLI Corp., Del.Supr., 621 A.2d 773, 778 (1993). Moreover, in Delaware, “existing law and policy have evolved into a virtual per se rule of [awarding] damages for breach of the fiduciary duty of disclosure.” 11 In re Tri-Star Pictures, Inc. Litig., 634 A.2d at 333.

PURPOSE OF REMAND

Several of the contentions Cinerama raises in this appeal relate to the manner in which the Court of Chancery proceeded upon remand. According to Cinerama, the Court of Chancery disregarded this Court’s mandate and the law of the case. Therefore, it is appropriate to begin this opinion by setting forth why this matter was remanded to the Court of Chancery and what further action was contemplated by this Court.

In Cede II, this Court reiterated that a shareholder plaintiff challenging a board de- *1164 cisión has the initial burden of rebutting the presumption of the business judgment rule. Cede II, 634 A.2d at 361. This Court held that to rebut the presumption, a shareholder plaintiff assumes the burden of providing evidence that the board of directors, in reaching its challenged decision, breached any one of its triad of fiduciary duties: good faith, loyalty, or due care. Id. The issues presented on appeal in Cede II related to two of those fiduciary obligations: the duty of care and the duty of loyalty. Id. at 359. 12

In Cede II, this Court held that “the record evidence establishes that Cinerama met its burden of proof for overcoming the [business judgment] rule’s presumption of board duty of care in approving the sale of [Technicolor] to MAE.” Id. at 367. 13 This Court then specifically stated that, as a rule of evidence, “[b]urden shifting does not create per se liability on the part of the directors_” Id. at 371. Accordingly, this Court remanded the case to the Court of Chancery “with directions to apply the entire fairness standard of review to the challenged transaction.” Id.

With regard to the duty of loyalty, this Court stated that the following issues would require resolution on remand:

(1) the precise standard of proof required under the second part of the materiality standard ...; (2) the legitimacy of such a standard under Delaware law and the relevance of section 144(a); (3) the effect of the unanimity requirement in Technicolor’s charter on the duty of loyalty standard controlling this case; and (4) the consequence of an affirmance of the decision below finding no breach of the duty of disclosure on the question of director self-interest.

Id. at 366.

In this appeal, Cinerama argues that “under established principles of Delaware law, because a majority of the board bears the taint of self-interest or lack of independence, the director defendants lost the business judgment rule presumption of loyalty so that they were obligated to establish the entire fairness of the transaction even if they had not breached their duty of care.” That specific argument is, of course, academic because this Court did hold that the Technicol- or board of directors had lost that presumptive protection of the business judgment rule by breaching its duty of care and was, therefore, already required to demonstrate the entire fairness of the transaction. Id. at 361. From a procedural perspective, the breach of any one of the board’s fiduciary duties is enough to shift the burden of proof to the board to demonstrate entire fairness. Id.

Why were the loyalty issues remanded if their procedural relevance had become moot as a consequence of this Court’s holding that the business judgment rule’s presumption had been rebutted by a violation of the duty of care? In a given case, the Court of Chancery can, but is not required to, find that independent and adequate alternative breaches of fiduciary duty have rebutted the presumptive protection of the business judgment rule and, thus, mandate an entire fairness analysis. Nevertheless, or irrespective of the particular breach or breaches of fiduciary duty that constituted the basis for shifting the procedural burden of proof to the board, each of the fiduciary duties retains independent substantive significance in an entire fairness analysis. 14

Evidence regarding the manner in which the board otherwise discharged all three of its primary fiduciary duties has probative substantive significance throughout an entire fairness analysis, 15 and by necessity must *1165 permeate the analysis, for two reasons. First, since the evidence that defeated the procedural presumption of the business judgment rule does not establish liability per se, a substantive finding of entire fairness is only possible after examining and balancing the nature of the duty or duties the board breached vis-a-vis the manner in which the board properly discharged its other fiduciary duties. Second, the determination that a board has failed to demonstrate entire fairness will be the basis for a finding of substantive liability. The Court of Chancery must identify the breach or breaches of fiduciary duty upon which that liability will be predicated in the ratio decidendi of its determination that entire fairness has not been established. 16

Accordingly, this Court remanded the issues of loyalty to the Court of Chancery, even though the found breach of the duty of care had already procedurally mandated an entire fairness examination. See Cede II, 634 A.2d at 371; accord In re Tri-Star Pictures Inc. Litig., 634 A.2d at 333. The purpose for remanding Cinerama’s breach of loyalty contentions in this case was for the Court of Chancery to examine those issues within the substantive context of the fair dealing component of its entire fairness analysis. A determination that the Technicolor directors had breached the duty of loyalty in dealing with the shareholders might well have prevented a finding of entire fairness. 17

VAN GORKOM REMAND DISTINGUISHED

This Court’s instructions on remand in Cede II were not identical to those in Smith v. Van Gorkom, Del.Supr., 488 A.2d 858 (1985). In Cede II, this Court held that the directors’ breach of the duty of care had rebutted the presumption of the business *1166 judgment rule. Cede II, 634 A.2d at 371. However, in Cede II, this Court did not decide unresolved issues concerning Cinerama’s allegations that the directors had violated the duty of loyalty. Id. at 366. As to Cinerama’s disclosure claims, this Court affirmed the Court of Chancery’s rejection of Cinerama’s contentions. Id. at 373. Nevertheless, this Court raised additional questions, sua sponte, for the Court of Chancery to address on remand regarding whether the Technicolor board had violated its duty of disclosure, an obligation that has been characterized as a derivative of the duties of care and loyalty. Id.; see Zirn v. VLI Corp., Del.Supr., 621 A.2d 773 (1993); see also Arnold v. Society for Savings Bancorp, Inc., Del.Supr., 650 A.2d 1270 (1994). This Court remanded those issues for the Court of Chancery to address in the first instance, as part of its entire fairness analysis.

In Van Gorkom, this Court concluded that the board of directors’ failure to inform itself before recommending a merger to the stockholders constituted a breach of the fiduciary duty of care and rebutted the presumptive protection of the business judgment rule. Smith v. Van Gorkom, 488 A.2d at 893. In Van Gorkom, this Court also concluded that the directors had violated the duty of disclosure. This Court then held that the directors were liable for damages, since the record after trial reflected that the compound breaches of the duties of care and disclosure could not withstand an entire fairness analysis. 18 Id.; accord In re Tri-Star Pictures, Inc. Litig., Del.Supr. 634 A.2d 319 (1993). Consequently, because this Court had decided the substantive entire fairness issue adversely to the board in Van Gorkom, the only issue to remand was the amount of damages the Court of Chancery should assess in accordance with Weinberger.

Whereas in Van Gorkom liability was decided before remand, in this case, a condition precedent to a finding of liability was an adverse determination regarding entire fairness after remand. This explains this Court’s discussion in Cede II of Barnes v. Andrews, 298 F. 614, 616-18 (S.D.N.Y.1924). Cede II, 634 A.2d at 370-71. This Court rejected the proof of injury requirement in Barnes because:

To inject a requirement of proof of injury into the [business judgment] rule’s formulation for burden shifting purposes is to lose sight of the underlying purpose of the rule. Burden shifting does not create per se liability on the part of the directors; rather, it is a procedure by which Delaware courts of equity determine under what standard of review director liability is to be judged. To require proof of injury as a component of the proof necessary to rebut the business judgment presumption would be to convert the burden shifting process from a threshold determination of the appropriate standard of review to a dispositive adjudication on the merits.

Id. at 371.

Consequently, in Cede II this Court held that injury or damages becomes a proper focus only after a transaction is determined not to be entirely fair. Id. At that point, the measure of damages for any breach of fiduciary duty, under an entire fairness standard of review, is “not necessarily limited to the difference between the price offered and the ‘true’ value as determined under the appraisal proceedings. Under Weinberger, the [Court of Chancery] ‘may fashion any form of equitable and monetary relief as may be appropriate, including rescissory damages.’ ” Id. (emphasis added) (citation omitted). Thus, this Court concluded that “the tort principles of Barnes have no place in a business judgment rule standard of review analysis.” Id. at 370. 19

*1167 DUTY OF LOYALTY ISSUES ON REMAND

The Court of Chancery assiduously followed this Court’s mandate to address specific matters regarding the independence and disinterest of Technicolor’s board of directors. The Court of Chancery described its task as follows:

I now turn to an attempt to follow the Supreme Court’s directions with respect to the Technicolor board’s independence and disinterest.... First, I revisit the issue of what standard should be applied to determine whether an individual director is interested in a transaction. Next, I address the test determining whether the board as a whole has been tainted by the existence of one or more interested directors. Finally, I consider the effect, if any, the Technicolor’s charter provision requiring directorial unanimity has upon the duty of loyalty.

Cinerama, 663 A.2d at 1150. The manner in which each loyalty issue was resolved will be reviewed seriatim.

Materiality Standard and Legitimacy

This Court asked the Court of Chancery to resolve two issues relating to the “second part” 20 of the director interest materiality test: (1) the precise standard of proof required; and (2) the legitimacy of such a standard under Delaware law and the relevance of Section 144(a). Cede II, 634 A.2d at 366. The Court of Chancery began by acknowledging that this Court’s rejection of the objective “reasonable director” formulation required it to apply a different standard upon remand for determining when an individual director’s financial interest is material, before it addressed the remanded question of board independence. 21

The Court of Chancery reasoned that the logical alternative was a subjective “actual person” standard. We agree. The subjective standard is consistent with this Court’s observation, in Cede II, that requiring a shareholder plaintiff to show “the materiality of a director’s self-interest to the given director’s independence” was a “restatement of established Delaware law.” Id. at 363 (emphasis added).

The Court of Chancery stated that “[u]n-der such a test of materiality [it] would be required to determine not how or whether a reasonable person in the same or similar circumstances ... would be affected by a financial interest of the same sort as present in the ease, but whether this director in fact was or would likely be affected.” Cinerama, 663 A.2d at 1151. Thus, the “actual person” test requires an independent judicial determination regarding the materiality of the “given ” director’s self-interest. Applying the “actual person” test, the Court of Chan-ceiy examined the record for evidence that any of the allegedly conflicted directors had “some special characteristic that [made] him ... especially susceptible to or immune to opportunities for self-enrichment or ... evidence that [any of such directors] in fact behaved differently in this instance than one would expect a reasonable person in the same or similar circumstances to act.” Id. at 1151.

Cinerama contended on remand, and continues to contend in this appeal, that five of Technicolor’s nine directors were “disabled” by conflicts of interest. The Court of Chancery, however, found every director, except Sullivan, to be free of any material conflict:

I have already stated my conclusion that with the exception of Mr. Sullivan, and potentially Mr. Ryan, none of the other Technicolor directors labored under a conflict of interest which would have been material to a reasonable person. On this remand I further conclude here that there is no persuasive evidence that any of the directors were, in fact, materially influenced in their negotiations by any self-interest they may have had.

Id. at 1150.

The Court of Chanceiy concluded that, “with respect to each of the corporate directors treated in this court’s opinion; analy *1168 sis of actual interference with the directors’ good faith judgment seeking the shareholders’ best benefit does not produce a different result than does the ‘reasonable person’ analysis.” Id. at 1152 (emphasis added). Thus, after applying the enhanced scrutiny required by the subjective “actual person” standard, the Court of Chancery reached the same determinations regarding the materiality of the alleged individual director self-interests as it had previously by applying the objective “reasonable person” standard. 22 Id Those conclusions, as to each director, are supported by the record.

The Court of Chancery then addressed the remanded issue of board independence. The Court of Chancery framed the issue as follows:

Has the presence of the found material self-interest of one or more directors on the board that acted upon a transaction so infected or affected the deliberative process of the board as to disarm the board of its presumption of regularity and respect and cast upon the directors the burden (and the heightened risks ...) of the entire fairness form of judicial review.

Id. at 1153; see In re Tri-Star Pictures, Inc. Litig., Del.Supr., 634 A.2d 319 (1993); Rales v. Blasband, Del.Supr., 634 A.2d 927 (1993). The Court of Chancery assumed that if actual self-interest is present and affects a majority of directors approving a transaction, the entire fairness standard applies.

The Court of Chancery concluded that a material interest of “one or more directors less than a majority of those voting” would rebut the application of the business judgment rule if the plaintiff proved that “the interested director controls or dominates the board as a whole or [that] the interested director failfed] to disclose his interest in the transaction to the board and a reasonable board member would have regarded the existence of the material interest as a significant fact in the evaluation of the proposed transaction.” Cinerama, 663 A.2d at 1153. We hold that the Court of Chancery’s conclusion is correct, as a matter of law. Thus, we affirm its ruling on the effect of director material self-interest as it was related to the requirement of board independence.

The Court of Chancery then framed and answered the loyalty issues with respect to the procedural question of whether the evidentiary presumption of the business judgment rule had been rebutted and, therefore, the entire fairness standard applied. In this case, that particular question was moot because this Court had already held in Cede II that the entire fairness standard applied to the Technicolor sale. The Court of Chancery’s findings concerning loyalty, however, have probative value within the substantive entire fairness analysis. The Court of Chancery’s materiality formulation, as well as its application, are consistent with Delaware’s procedural and substantive law.

Technicolor Board Loyal

The Court of Chancery found as an ultimate fact regarding the issues of loyalty that “a large majority of the board of Technicolor was disinterested and independent with respect to this transaction and neither of those two directors found [Sullivan] or assumed [Ryan] to be interested, dominated or manipulated the process of board consider- *1169 ation. See Paramount Communications, Inc. v. QVC Network, Inc., Del.Supr., 637 A.2d 34 (1994).” 23 That finding must be affirmed as supported by the record. It is also the product of an orderly and logical deductive process. Levitt v. Bouvier, Del.Supr., 287 A.2d 671, 673 (1972); see also Rosenblatt v. Getty Oil Co., Del.Supr., 493 A.2d 929, 937 (1985).

Section 144(a)’s Relevance

In accordance with this Court’s mandate, the Court of Chancery then considered the relevance of 8 Del.C. § 144(a) to this case. The concern Section 144 addresses is self-dealing; for example, when a director deals directly with the corporation, or has a stake in or is an officer or director of a firm that deals with the corporation. See 8 Del.C. § 144(a); see also Cheff v. Mathes, Del.Supr., 199 A.2d 548, 554 (1964). Traditionally, the term “self-dealing” describes the “situation when a [corporate fiduciary] is on both sides of a transaction_” Sinclair Oil Corp. v. Levien, Del.Supr.,