Kahn v. Sullivan

This is an appeal from the approval of the settlement of one of three civil actions brought in the Court of Chancery by certain shareholders of Occidental Petroleum Corporation (“Occidental”). Each civil action challenged a decision by Occidental’s board of directors (the “Board”), through a special committee of Occidental’s outside directors (“the Special Committee”), to make a charitable donation. The purpose of the charitable donation was to construct and fund an art museum.

The shareholder plaintiffs in this litigation, 2 Joseph Sullivan and Alan Brody, agreed to a settlement of their class and derivative actions subject to the approval of the Court of Chancery. The settlement was authorized, on behalf of Occidental, by the Special Committee. The shareholder plaintiffs in the other two civil actions, 3 Alan R. Kahn (“Kahn”) and Barnett Stepak (“Stepak”), appeared in the Sullivan action and objected to the proposed settlement. California Public Employees Retirement System (“CalPERS”) was permitted to intervene as a shareholder plaintiff in the Kahn action and also appeared in opposition to the proposed settlement in the Sullivan action.

*51 On April 4, 1990, a settlement hearing was held in the Sullivan action by the Court of Chancery. In a memorandum opinion dated August 7, 1990, the Court of Chancery concluded that, under all of the circumstances, the terms of the settlement in the Sullivan action were fair and reasonable. It ordered that the settlement be approved. Kahn, CalPERS and Stepak (“the Objectors”) have each appealed from that decision and order by the Court of Chancery.

The Objectors contend that the Court of Chancery abused its discretion in approving the settlement in the Sullivan action. The Objectors’ first contention is that the Court of Chancery erred in holding that it was “highly probable” that the protection of the business judgment rule would successfully apply to the actions taken by the directors of Occidental who had been named as defendants. The Objectors’ second contention is that the Court of Chancery abused its discretion in finding that the shareholder plaintiffs’ claims of corporate waste were weak. Finally, the Objectors contend that the Court of Chancery abused its discretion in approving the settlement because the consideration for the settlement was inadequate in view of the strength of the claims which were being compromised.

The applicable standard of appellate review requires this Court to examine the record for an abuse of discretion by the Court of Chancery in approving the settlement. We have carefully reviewed the record and considered the Objectors’ contentions. We have concluded that the decision of the Court of Chancery must be affirmed.

Facts

Occidental is a Delaware corporation. According to the parties, Occidental has about 290 million shares of stock outstanding which are held by approximately 495 thousand shareholders. For the year ending December 31, 1988, Occidental had assets of approximately twenty billion dollars, operating revenues of twenty billion dollars and pre-tax earnings of $574 million. Its corporate headquarters are located in Los Angeles, California.

At the time of his death on December 10, 1990, Dr. Hammer was Occidental’s chief executive officer and the chairman of its board of directors. Since the early 1920’s, Dr. Hammer had been a serious art collector. When Dr. Hammer died, he personally and The Armand Hammer Foundation (the “Foundation”), owned three major collections of art (referred to in their entirety as “the Art Collection”). The Art Collection, valued at $300-$400 million included: “Five Centuries of Art,” more than 100 works by artists such as Rembrandt, Rubens, Renoir and Van Gogh; the Codex Hammer, a rare manuscript by Leonardo da Vinci; and the world’s most extensive private collection of paintings, lithographs and bronzes by the French satirist Honoré Daumier. See The Armand Hammer Collection (J. Walker 2d ed. 1982).

For many years, the Board has determined that it is in the best interest of Occidental to support and promote the acquisition and exhibition of the Art Collection. Through Occidental’s financial support and sponsorship, the Art Collection has been viewed by more than six million people in more than twenty-five American cities and at least eighteen foreign countries. The majority of those exhibitions have been in areas where Occidental has operations or was negotiating business contracts. Occidental’s Annual Reports to its shareholders have described the benefits and good will which it attributes to the financial support that Occidental has provided for the Art Collection.

Dr. Hammer enjoyed an ongoing relationship with the Los Angeles County Museum of Art (“LACMA”) for several decades. In 1968, Dr. Hammer agreed to donate a number of paintings to LACMA, as well as funds to purchase additional art. For approximately twenty years thereafter, Dr. Hammer both publicly and privately expressed his intention to donate the Art Collection to LACMA. However, Dr. Hammer and LACMA had never entered into a *52 binding agreement to that effect. Nevertheless, LACMA named one of its buildings the Frances and Armand Hammer Wing in recognition of Dr. Hammer’s gifts. 4

Occidental approved of Dr. Hammer’s decision to permanently display the Art Collection at LACMA. In fact, it made substantial financial contributions to facilitate that display. In 1982, for example, Occidental paid two million dollars to expand and refurbish the Hammer Wing at LAC-MA.

In 1987, Dr. Hammer presented Daniel N. Belin, Esquire (“Belin”), the president of LACMA’s Board of Trustees, with a thirty-nine page proposed agreement which set forth the terms upon which Dr. Hammer would permanently locate the Art Collection at LACMA. LACMA and Dr. Hammer tried, but were unable to reach a binding agreement. Consequently, Dr. Hammer concluded that he would make arrangements for the permanent display of the Art Collection at a location other than at LAC-MA. On January 8, 1988, Dr. Hammer wrote a letter to Belin which stated that he had “decided to create my own museum to house” the Art Collection.

On January 19, 1988, at a meeting of the executive committee of Occidental’s board of directors (“the Executive Committee”), Dr. Hammer proposed that Occidental, in conjunction with the Foundation, construct a museum for the Art Collection. After discussing Occidental’s history of identification with the Art Collection, the Executive Committee decided that it was in Occidental’s best interest to accept Dr. Hammer’s proposal. The Executive Committee approved the negotiation of arrangements for the preliminary design and construction of an art museum. 5 It would be located adjacent to Occidental’s headquarters, on the site of an existing parking garage used by Occidental for its employees. The Executive Committee also decided that once the art museum project was substantially defined, a final proposal would be presented to the Board or the Executive Committee for approval and authorization.

The art museum concept was announced publicly on January 21,1988. On February 11,1988, the Board approved the Executive Committee’s prior actions. Occidental informed its shareholders of the preliminary plan to construct The Armand Hammer Museum and Cultural Center of Art (“the Museum”) in its 1987 Annual Report. In accordance with the January 19, 1988 resolutions passed by the Executive Committee, construction of a new parking garage for Occidental began in the fall of 1988. The Board approved a construction bond on November 10, 1988.

On December 15, 1988, the Board was presented with a detailed plan for the Museum proposal. The Board approved the concept and authorized a complete study of the proposal. Following the December 15th Board meeting, the law firm of Dil-worth, Paxson, Kalish & Kauffman (“Dil-worth”) was retained by the Board to examine the Museum proposal and to prepare a memorandum addressing the issues relevant to the Board’s consideration of the proposal. 6 The law firm of Skadden, Arps, Slate, Meagher & Flom (“Skadden Arps”) was retained to represent the new legal entity which would be necessitated by the Museum proposal. Occidental’s public accountants, Arthur Andersen & Co. (“Arthur Andersen”), were also asked to examine the Museum proposal.

On or about February 6, 1989, ten days prior to the Board’s prescheduled February 16 meeting, Dilworth provided each member of the Board with a ninety-six page memorandum. It contained a definition of the Museum proposal and the anticipated magnitude of the proposed charitable donation by Occidental. It reviewed the authority of the Board to approve such a donation *53 and the reasonableness of the proposed donation. The Dilworth memorandum included an analysis of the donation’s effect on Occidental’s financial condition, the potential for good will and other benefits to Occidental, and a comparison of the proposed charitable contribution by Occidental to the charitable contributions of other corporations.

The advance distribution of the Dilworth memorandum was supplemented on February 10, 1989 by a tax opinion letter from Skadden Arps. That same day, the Board also received a consulting report from the Duncan Appraisal Corporation. The latter document addressed the option price for the Museum’s purchase of Occidental’s headquarters building, museum facility and parking garage in thirty years as contemplated by the Museum proposal.

During the February 16 Board meeting, a Dilworth representative personally presented the basis for that law firm’s analysis of the Museum proposal, as set forth in its February 6 written memorandum. The presentation reviewed again the directors’ standard of conduct in considering the Museum proposal, as well as the financial and tax consequences to Occidental as a result of the donation. Following the Dilworth presentation, the Board resolved to appoint the Special Committee, comprised of its eight independent and disinterested outside directors, to further review and to act upon the Museum proposal:

RESOLVED, that a special committee be, and hereby is appointed for the purpose of considering and acting on the Proposal (the “Special Committee”). A copy of the Proposal is attached hereto as Exhibit “A”;

FURTHER RESOLVED, that the Special Committee shall consist of the following directors of the Corporation: Senator Gore, Mr. Kluge, Mr. Krim, Mr. Nizer, Mr. Nolley, Dr. Piper, Mr. Syriani and Miss Tomich.

FURTHER RESOLVED, that the Special Committee shall have and is hereby granted full authority to consider, act on, approve and authorize the Proposal and the Special Committee’s action respecting the Proposal shall be deemed the action of the Board of Directors of the Corporation and shall bind the Corporation to the same extent as an action of the full Board of Directors.

The Board then adjourned to allow the Special Committee to meet.

The Special Committee consisted of individuals who collectively had approximately eighty years of service on Occidental’s board of directors. In alphabetical order, they are as follows: Albert Gore 7 ; John W. Kluge 8 ; Arthur B. Krim 9 ; Louis Nizer 10 ; George 0. Nolley 11 ; Dr. C. Erwin Piper 12 ; Aziz D. Syriani 13 ; and Rosemary Tomich 14 . Those Board members were not *54 officers of Occidental, and were not associated with the Museum or the Foundation.

On February 16, 1989, following the adjournment of the Board meeting, the Special Committee met to consider the proposal presented to the full Board for establishing the Museum. The Special Committee requested the representatives of Dilworth to attend the meeting to respond to any questions relating to its February 6, 1989 opinion letter and memorandum. The Special Committee also asked representatives from Skadden Arps and Arthur Andersen to attend its meeting to address questions concerning the proposed charitable contribution. 15

The minutes of the February 16, 1989 meeting of the Special Committee outline its consideration of the Museum proposal. Those minutes reflect that many questions were asked by members of the Special Committee and were answered by the representatives of Dilworth, Skadden Arps, or Arthur Andersen. As a result of its own extensive discussions, and in reliance upon the experts’ opinions, the Special Committee concluded that the establishment of the Museum, adjacent to Occidental’s corporate offices in Los Angeles, would provide benefits to Occidental for at least the thirty-year term of the lease. The Special Committee also concluded that the proposed museum would establish a new cultural landmark for the City of Los Angeles.

On February 16, 1989, the Special Committee unanimously approved the Museum proposal, subject to certain conditions. The proposal approved by the Special Committee included the following provisions:

(1) Occidental would construct a new museum building, renovate portions of four floors of its adjacent headquarters for use by the Museum, and construct a parking garage beneath the museum for its own use for a total cost of approximately $50 million.

(2) Occidental would lease the Museum building and the four floors of its headquarters to the Museum rent-free for a term of thirty years. Occidental would continue to pay the property taxes, and the Museum would pay the utilities and maintenance expenses;

(3) Occidental would purchase a thirty-year annuity at an estimated cost of $35.6 million to provide for the funding of the Museum’s operations during its initial years;

(4) Occidental would grant the Museum an irrevocable option to purchase the Museum building, the parking garage, and the Occidental headquarters building in thirty years for $55 million;

(5) Dr. Hammer and the Foundation would transfer the Art Collection entirely to the Museum;

(6) The Museum would be named for Dr. Hammer — The Armand Hammer Museum of Art and Cultural Center.

(7) Occidental would have representation on the board of directors of the Museum;

(8) Occidental would receive public recognition for its role in establishing the Museum, for example, by the naming of the courtyard, library, or auditorium for Occidental and Occidental would have the right to use the Museum, and be entitled to “corporate sponsor” rights.

The Special Committee’s unanimous approval of the proposal was subject to the following conditions:

(1) The incorporation of the Museum as a non-profit corporation under Delaware law;

(2) The determination by the Internal Revenue Service that the Museum would be a tax-exempt entity under the Internal Revenue Code;

(3) The receipt of supplementation of the February opinion letters to reflect tax issues discussed at the meeting, including the question of self-dealing; and

(4) The execution of the necessary documents relating to (a) the lease of the Museum facilities, (b) the Museum’s option to purchase Occidental’s headquarters, (c) Occidental’s lease-back rights if the option was exercised, and (d) *55 an agreement for the transfer of the Collection from the Foundation and Dr. Hammer to the Museum, including a full inventory of the art.

The Special Committee decided to present requests for expenditures to carry out the foregoing resolutions to the Board in the form of Authorization for Expenditures (“AFE’s”). The AFE’s proposed by the Special Committee were unanimously approved by the Board when it reconvened on February 16, 1989.

On April 25, 1989, Occidental reported the Special Committee’s approval of the Museum proposal to its shareholders in the proxy statement for its annual meeting to be held May 26, 1989. On May 2,1989, the first shareholder action (“the Kahn action”) was filed, challenging Occidental’s decision to establish and fund the Museum proposal. The Sullivan action was filed on May 9, 1989. 16 On May 12, 1989, Occidental issued a supplement to the proxy statement. 17 The Stepak action was commenced on May 31, 1989. 18

Settlement negotiations were entered into almost immediately between Occidental and the attorneys for the plaintiffs in the Sullivan action. The attorney for the plaintiffs in the Kahn action was invited to attend the settlement negotiations. After the parties to the Sullivan action were in substantial agreement, the attorney for the plaintiffs in the Kahn action said it was up to his clients whether to accept the settlement, but that he was not going to recommend it.

On June 3, 1989, the parties to the Sullivan action signed a Memorandum of Understanding that set forth a proposed settlement in general terms. The proposed settlement was subject to the right of the plaintiffs to engage in additional discovery to confirm the fairness and adequacy of the proposed settlement.

On June 9, 1989, the plaintiffs in the Kahn action moved for a preliminary injunction to enjoin the proposed settlement in the Sullivan action and also for expedited discovery. An order granting limited expedited discovery on the motion was entered over the defendants’ objection. The motion for a preliminary injunction was denied by the Court of Chancery on July 19, 1989.

In denying the motion for injunctive relief, the Court of Chancery found that Kahn would suffer no irreparable harm if a proposed settlement in Sullivan was subsequently finalized and submitted for approval since Kahn, as a stockholder of Occidental, would have the opportunity to appear and object to the settlement. The Court of Chancery also identified six issues to be addressed at any future settlement hearing:

(1) the failure of the Special Committee appointed by the directors of Occidental to hire its own counsel and advisors or even to formally approve the challenged acts; (2) the now worthlessness of a prior donation by Occidental to the Los Angeles County Museum; (3) the huge attorney fees which the parties have apparently decided to seek or not oppose; (4) the egocentric nature of some of Armand Hammer’s objections to the Los Angeles County Museum being the recipient of his donation; (5) the issue of who really owns the art; and (6) the lack of any direct substantial benefit to the stockholders.

On July 20, 1989, the Special Committee met to discuss the Museum proposal. At that time, the Special Committee was in *56 receipt of a number of documents required as a result of the conditions precedent it had imposed on February 16,1989 before it would finally approve the Museum proposal. Those documents included: the Certificate of Incorporation of The Armand Hammer Museum of Art and Cultural Center, Inc.; Internal Revenue Service correspondence; 19 opinion letters in draft form from Skadden Arps and Dilworth (later supplemented); a draft lease and option agreement; the Memorandum of Understanding in the Sullivan action; a list of the art works being transferred; and a proposed agreement for the transfer of the Collection to the Museum (“Transfer Agreement”). After reviewing the aforementioned documents and revising the Transfer Agreement, the Special Committee unanimously resolved that the conditions for approval, which it had imposed at their February 16, 1989 meeting, had been satisfied. The Special Committee then authorized Occidental to enter into the lease agreement 20 with the Museum and “to purchase a thirty-nine million dollar annuity, or other financial arrangement, for the benefit of the Museum, as contemplated by the proposal.”

At its July 20 meeting, the Special Committee also reviewed the July 19, 1989 decision and order of the Court of Chancery denying Kahn’s request for injunctive relief in the Sullivan action. In response to one of the concerns expressed by the Court of Chancery, the Special Committee resolved to retain independent Delaware counsel with no prior connection to Occidental or its officers. Thereafter, this independent counsel would advise the Special Committee with respect to the Museum proposal and the terms of any settlement of the shareholder litigation. The July 20 meeting of the Special Committee then adjourned.

On July 25, 1989, the Special Committee held a telephone conference to initially consider numerous law firms to serve as its independent counsel. The Special Committee reconvened by telephone on August 4, 1989. At that time it retained the law firm of Morris, James, Hitchens & Williams (“Morris James”) as its independent Delaware legal counsel. The Special Committee met with Grover C. Brown, Esquire (“Brown”) of Morris James on August 14, 1989 to discuss the shareholder actions that had been filed and the terms of the proposed settlement agreement in the Sullivan action. It met with Brown again on September 20, 1989, at which time it requested a revised Transfer Agreement, explained the basis for its prior actions, and resolved to continue proceeding as planned.

On October 6, 1989, Occidental’s Board of Directors, by unanimous written consent, delegated full authority to the Special Committee to settle the shareholder litigation filed in Delaware on Occidental’s behalf. Following this delegation of authority, Morris James submitted a written report to the Special Committee on the advisability of settlement. Additional questions from the Special Committee regarding the settlement were directed to Brown after a telephone meeting of the Special Committee on October 19, 1989.

The Special Committee met again on November 16, 1989. Prior to that meeting, the Special Committee received a draft of the Stipulation of Settlement of the Sullivan action, a revised Transfer Agreement in accordance with its September 20 request, and an abstract and analysis of the Transfer Agreement prepared by Morris James. At the meeting on November 16, all of these documents were discussed with Brown of Morris James. The form of a stipulation of settlement was approved unanimously by the Special Committee.

The parties to the Sullivan action presented the Court of Chancery with a fully executed Stipulation of Compromise, Settlement and Release agreement (“the Settlement”) on January 24, 1990. This agreement was only slightly changed from the June 3, 1989 Memorandum of Under *57 standing. The Settlement, inter alia, provided:

(1) The Museum building shall be named the “Occidental Petroleum Cultural Center Building” with the name displayed appropriately on the building.

(2) Occidental shall be treated as a corporate sponsor by the Museum for as long as the Museum occupies the building.

(3) Occidental’s contribution of the building shall be recognized by the Museum in public references to the facility.

(4) Three of Occidental’s directors shall serve on the Museum’s Board (or no less than one-third of the total Museum Board) with Occidental having the option to designate a fourth director.

(5) There shall be an immediate loan of substantially all of the art collections of Dr. Hammer to the Museum and there shall be an actual transfer of ownership of the collections upon Dr. Hammer’s death or the commencement of operation of the Museum — whichever later occurs.

(6) All future charitable contributions by Occidental .to any Hammer-affiliated charities shall be limited by the size of the dividends paid to Occidental’s common stockholders. At current dividend levels, Occidental’s annual contributions to Hammer-affiliated charities pursuant to this limitation could not exceed approximately three cents per share.

(7) Any amounts Occidental pays for construction of the Museum in excess of $50 million and any amounts paid to the Foundation upon Dr. Hammer’s death must be charged against the agreed ceiling on limitations to Hammer-affiliated charities.

(8) Occidental’s expenditures for the Museum construction shall not exceed $50 million, except that an additional $10 million may be expended through December 31, 1990 but only if such additional expenditures do not enlarge the scope of construction and if such expenditures are approved by the Special Committee. Amounts in excess of $50 million must be charged against the limitation on donations to Hammer-affiliated charities.

(9) Occidental shall be entitled to receive 50% of any consideration received in excess of a $55 million option price for the Museum property or 50% of any consideration the Museum receives from the assignment or transfer of its option or lease to a third party.

(10) Plaintiffs’ attorneys’ fees in the Sullivan action shall not exceed $1.4 million.

The Court of Chancery directed that for settlement purposes, the Sullivan action would be maintained as a stockholder derivative action and as a class action. The action was to be maintained by those plaintiffs, as representatives of the class who held Occidental common stock on April 6, 1989, and their successors in interest up to and including January 2, 1990, excluding the defendants and members of their immediate families. A settlement hearing was scheduled for April 4, 1990. 21 The Notice of Pendency of Class and Derivative Action, Proposed Settlement, Settlement Hearing and Right to Appear, was sent to all class members one month prior to the hearing.

In presenting their opposition, the Objectors relied upon the discovery which had been authorized prior to the 1990 hearing on the Settlement, as well as the discovery that had been taken with respect to their 1989 motion for a preliminary injunction. That discovery included answers to interrogatories and responses to requests for the production of documents. That discovery also included the depositions of Dr. Hammer; Daniel N. Belin; Senator Albert Gore, Sr., the acting Chairman of the Special Committee; Ronald Asquith, Vice President of Occidental with the responsibility of overseeing the construction of the park *58 ing garage and art museum facilities; and Hillary Gibson, the Director of Development of the Museum, who was responsible for raising funds for its continuing public support. In addition, William Prickett, Esquire (“Prickett”), counsel for Sullivan and Brody, was deposed twice, once in the Sullivan action and once in the Kahn action.

On April 4, 1990, the settlement hearing in the Sullivan action was held. 22 A number of shareholders appeared or wrote letters objecting to the Settlement. The Objectors argued that the decision of the Special Committee on February 16 to approve the charitable donation to fund the Museum proposal was neither informed nor deliberate and was not cured by any subsequent conduct. Therefore, the Objectors argued that the actions by the Special Committee were not entitled to the protection of the business judgment rule. The Objectors also argued that the charitable donation to the Museum proposal constituted a waste of Occidental’s corporate assets. Consequently, in view of the merits of the claims being compromised, the Objectors submitted that the benefits of the proposed Settlement in the Sullivan action were inadequate.

On August 7, 1990, the Court of Chancery found the Settlement to be reasonable under all of the circumstances. The Court of Chancery concluded that the claims asserted by the shareholder plaintiffs would likely be dismissed before or after trial. While noting its own displeasure with the Settlement, the Court of Chancery explained that its role in reviewing the proposed Settlement was restricted to determining in its own business judgment whether, on balance, the Settlement was reasonable. 23 The Court opined that although the benefit to be received from the Settlement was meager, it was adequate considering all the facts and circumstances.

Standard of Review

The Objectors argue that the Court of Chancery erroneously concluded that the Settlement was fair, reasonable and adequate to protect the interests of the shareholders of Occidental. “In analyzing such arguments, this Court has always been assiduous in distinguishing between the function and legal obligations imposed upon the Court of Chancery in initially reviewing a proposed settlement and the appropriate appellate standards by which this Court must subsequently examine such a decision.” Nottingham Partners v. Dana, Del.Supr., 564 A.2d 1089, 1101-02 (1989). Those separate and distinct legal principles are both well established. Id. at 1102 (citing Rome v. Archer, Del.Supr., 197 A.2d 49, 53-54 (1964); Polk v. Good, Del.Supr., 507 A.2d 531, 535-36 (1986)).

Delaware law, as a general proposition, favors the voluntary settlement of contested issues. Id. “However, the settlement of a class action is unique in that, ‘because of the fiduciary character of a class action, the Court of Chancery must *59 participate in the consummation of a settlement to the extent of determining its intrinsic fairness.’ ” Id. (quoting Rome v. Archer, 197 A.2d at 53). In determining the fairness of a settlement, the Court of Chancery is not required to afford the parties an opportunity to have a trial on the merits of the issues presented. Id. Nevertheless, the approval of a class action settlement by the Court of Chancery does require more than a cursory scrutiny of the issues presented. Id. The balance between these two extremes has been described as follows:

Under Rome, the [Court of Chancery’s] function is to consider the nature of the [plaintiff’s] claim, the possible defenses thereto, the legal and factual circumstances of the case, and then to apply its own business judgment in deciding whether the settlement is reasonable in light of these factors.

Polk v. Good, 507 A.2d at 535 (citing Rome v. Archer, 197 A.2d at 53). “If, in the light of these matters, the Court of Chancery approves the settlement as reasonable through the exercise of sound business judgment, its function as the so-called third party to the settlement has been discharged.” Nottingham Partners v. Dana, 564 A.2d at 1102 (quoting Rome v. Archer, 197 A.2d at 53-54).

In an appeal from the Court of Chancery, following the approval of a settlement of a class action, the function of this Court is more limited in its nature. Id.; see also Polk v. Good, 507 A.2d at 536. This Court does not review the record to determine the intrinsic fairness of the settlement in light of its own business judgment. Nottingham Partners v. Dana, 564 A.2d at 1102. This Court reviews the record “solely for the purpose of determining whether or not the Court of Chancery abused its discretion by the exercise of its business judgment.” Id. (citing Polk v. Good, 507 A.2d at 536).

Although the applicable standard of appellate review requires this Court to consider the entire record, “if the findings and conclusions of the trial judge are supported by the record and [are] the product of an orderly and logical deductive process, they will be accepted.” Id. (citing Levitt v. Bouvier, Del.Supr., 287 A.2d 671, 673 (1972)). Consequently, for this Court to set aside a settlement which has been found by the Court of Chancery to be fair and reasonable, the evidence in the record must be so strongly to the contrary that the approval of the settlement constituted an abuse of discretion. Id. (citing Rome v. Archer, 197 A.2d at 54).

Claims and Defenses

Initially, we will review the Court of Chancery’s examination of the nature of the shareholder plaintiffs’ claims and the possible defenses thereto, in the context of the legal and factual circumstances presented. The proponents of the Settlement argued that the business judgment rule could undoubtedly have been invoked successfully by the defendants as a complete defense to the shareholder plaintiffs’ claims. The business judgment rule “creates a presumption ‘that in making a business decision the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation.’ ” Polk v. Good, 507 A.2d at 536 (quoting Aronson v. Lewis, Del.Supr., 473 A.2d 805, 812 (1984)). The Objectors presented several alternative arguments in support of their contention that the shareholder plaintiffs would have been, able to rebut the defense based on the protection which the presumption of the business judgment rule provides. Each of those arguments was based, at least in part, upon this Court’s decision in Smith v. Van Gorkom, Del.Supr., 488 A.2d 858 (1985).

First, the Objectors submitted that the business judgment rule would probably not protect the actions of the Special Committee because the independence of the Special Committee was questionable. In support of that argument, the Objectors assert that at least four members of the Special Committee had close ties to Dr. Hammer and *60 personal business dealings with him. 24 After examining the record, the Court of Chancery found that the Objectors had not established any facts that the Special Committee had any self-interest in the transaction either from a personal financial interest or from a motive for entrenchment in office. See Grobow v. Perot, Del.Supr., 539 A.2d 180, 188 (1988). The Court of Chancery also concluded that there was no evidence in the record indicating that any of the members of the Special Committee were in fact dominated by Dr. Hammer or anyone else.

Second, in a related argument, the Objectors argued that the presumption of the business judgment rule would have been overcome because the Special Committee proceeded initially without retaining independent legal counsel. In fact, that was a concern identified by the Court of Chancery in its July 19, 1989 opinion. However, in approving the Settlement, the Court of Chancery noted that the Special Committee had retained independent counsel, and “subsequently, and for the first time, formally approved the challenged charitable contributions.” Thus, the Court of Chancery specifically found that the Special Committee had the advice of independent legal counsel before it finally approved the Museum proposal.

In this appeal, with respect to the aforementioned finding, the Objectors submit that the Court of Chancery’s eventual approval of the Settlement was based upon its mistaken belief that a major judicial concern, i.e., the failure of the Special Committee to retain independent counsel prior to its formal approval of the Museum proposal, had been rectified. In particular, the Objectors contend that the Special Committee formally approved the Museum proposal at its July 20,1989 meeting. The parties all agree that the Special Committee retained its independent legal counsel on August 4, 1989. Therefore, the Objectors argue that the Court of Chancery’s conclusion that the business judgment rule would apply was based upon an erroneous premise.

In response to that argument by the Objectors, the proponents of the Settlement submit the record reflects that the Special Committee reviewed and ratified all of its prior actions on September 20, 1989, after retaining independent legal counsel. Accordingly, the proponents of the Settlement contend that, whether the September 20, 1989 action by the Special Committee is characterized as the first final approval of the Museum proposal or as a re-approval of its action taken on July 20, 1989, the Special Committee’s ultimate decision to proceed with the Museum proposal was based upon the advice of independent counsel.

The Objectors’ third argument in the Court of Chancery, challenging the viability of the business judgment rule as a successful defense, was based upon Van Gor-kom and contended that the Special Committee and other directors were grossly negligent in failing to inform themselves of all material information reasonably available to them. 25 Thus, the Objectors argued that even if, arguendo, the Special Committee was itself independent and formally approved the Museum proposal after its retention of independent legal counsel, such approval would not have cured the Special Committee’s prior failure to exercise due care. The Court of Chancery found the record showed that the Special Committee had given due consideration to the Museum proposal and rejected the Objectors’ argument to the contrary. See generally Smith v. Van Gorkom, Del.Supr., 488 A.2d 858 (1985).

*61 The Court of Chancery carefully considered each of the Objectors’ arguments in response to the merits of the suggested business judgment rule defense. It concluded that if the Sullivan action proceeded, it was highly probable in deciding a motion to dismiss, a motion for summary judgment, or a post-trial motion, the actions of “the Special Committee would be protected by the presumption of propriety afforded by the business judgment rule.” Specifically, the Court of Chancery concluded that it would have been decided that the Special Committee, comprised of Occidental’s outside directors, was independent and made an informed decision to approve the charitable donation to the Museum proposal. These conclusions by the Court of Chancery are supported by the record and are the product of an orderly and logical deductive process. Barkan v. Amsted Industries Inc., Del.Supr., 567 A.2d 1279, 1284 (1989); Nottingham Partners v. Dana, 564 A.2d at 1102; Polk v. Good, 507 A.2d at 536; cf. Rome v. Archer, 197 A.2d at 54.

Following its analysis and conclusion that the business judgment rule would have been applicable to any judicial examination of the Special Committee’s actions, the Court of Chancery considered the shareholder plaintiffs’ claim that the Board and the Special Committee’s approval of the charitable donation to the Museum proposal constituted a waste of Occidental’s corporate assets. In doing so, it recognized that charitable donations by Delaware corporations are expressly authorized by 8 Del.C. § 122(9). It also recognized that although § 122(9) places no limitations on the size of a charitable corporate gift, that section has been construed “to authorize any reasonable corporate gift of a charitable or educational nature.” Theodora Holding Corp. v. Henderson, Del.Ch., 257 A.2d 398, 405 (1969). Thus, the Court of Chancery concluded that the test to be applied in examining the merits of a claim alleging corporate waste “is that of reasonableness, a test in which the provisions of the Internal Revenue Code pertaining to charitable gifts by corporations furnish a helpful guide.” Id. We agree with that conclusion.

The Objectors argued that Occidental’s charitable contribution to the Museum proposal was unreasonable and a waste of corporate assets because it was excessive. 26 The Court of Chancery