Civil Action No. 19133NC

Jesse A. Finkelstein
Catherine G. Dearlove
J. Travis Laster
Deborah Duskey
Richards, Layton & Finger, P.A.
One Rodney Square
P.O. Box 551
Wilmington, Delaware 19899 (302) 651-7700
Attorneys for the Defendants

Dated: March 18, 2002

TABLE OF CONTENTS

TABLE OF AUTHORITIES ......................................................................Click here

INTRODUCTION ..............................................................................................1

ARGUMENT ...................................................................................................2

As the answering brief makes clear, DeMarco filed this lawsuit because it disagrees with the Board's business judgment.¹ DeMarco thinks that the Board should not be pursuing the Turnaround Plan. DeMarco wants the Board to pursue DeMarco's Equal Opportunity Growing Dispensation Plan (the "EOGD") or sell the Company. DeMarco may be entitled to its opinion, but the fact that the Board has not pursued DeMarco's preferred policies does not give rise to a legal claim. See Brehm v. Eisner, Del. Supr., 746 A.2d 244, 263 (2000) (dismissing cause of action that was "basically a quarrel with the ... Board's judgment.").

Left without a cause of action, DeMarco attempts to shoehorn its allegations into more familiar legal frameworks. These efforts create perverse results. In a telling example, DeMarco tries to establish director self-interest by turning the business judgment rule on its head. Under DeMarco's regime, the fact that a director voted in favor of a particular course of action "compels the conclusion" that the director "can be deemed self-interested" in the result. (AB 29). DeMarco's other interpretations of Delaware law are equally strange.

For the most part, DeMarco ignores the authorities cited and arguments advanced in the Opening Brief. Delaware law treats these points as conceded. For the reasons that follow and as set forth in the Opening Brief, the Complaint should be dismissed with prejudice.

ARGUMENT

I. THE MOTION TO STRIKE SHOULD BE GRANTED.

The Complaint repeatedly demands that this Court order the Board to explore a sale of the Company. (See Compl. at 42-43, 47-48, 50). This relief should be stricken because granting it would force the Court to usurp the functions of the Board and embroil the Court in supervising complex corporate conduct on an ongoing basis. (OB 18-21). DeMarco and its counsel have admitted publicly that they are not entitled to such an order:

(Dkt. 12, Ex. F at 2).

DeMarco now claims its demand does not constitute "redundant, immaterial, impertinent or scandalous matter." (AB 10). The demand is immaterial because it cannot appropriately be granted. The demand is impertinent and scandalous because DeMarco and its counsel admit they cannot obtain it.

DeMarco's also claims it only wants an order compelling the Board "to study and explore, on an updated basis, the strategic options open to the Company." (AB 11). DeMarco claims this relief is "well-defined," minimizing it on the ground that "[b]oards, and investment bankers, routinely analyze situations such as that faced by Ocean Spray." (AB 14-15). In reality, this would require the Court to direct and oversee all of the steps necessary to explore strategic alternatives, including:

• Identifying, interviewing and hiring appropriate financial and legal advisors;

• Identifying a range of possible private and public processes, then considering the alternatives and selecting an appropriate exploratory process;
• Supervising and directing management and the financial and legal advisors as they pursue the exploratory process;
• Entering into confidentiality agreements, providing information to, and engaging in discussions with potentially interested parties;
• Receiving indications of interest or transaction proposals;
• Continuing the process as necessary to fully explore alternatives.

At some point, DeMarco would have the Court order the Board to stop and "fairly report to, and inform, the shareholders as to those options" that have been developed. (AB 11). DeMarco would have the Court monitor the Board's decisions at every stage, with DeMarco challenging any decision with which it disagrees. DeMarco even suggests that "[a] special master could be available to resolve disputes." (AB 15).

Despite DeMarco's claim that "[t]here is simply nothing unorthodox about the relief being sought," an order of this nature would be unprecedented. (AB 15). None of DeMarco's authorities supports it. The passage from the Restatement of Contracts merely suggests that a court should consider potential difficulties when granting injunctive relief. (See AB 13). The two cases from other jurisdictions involved specific enforcement of routine contracts. See City Stores Co. v. Ammerman, 266 F. Supp. 766, 778 (D.D.C. 1967) (enforcing contract written"with sufficient particularity ... to make design and approval of plaintiffs store a fairly simple matter"), affd, 394 F.2d 950 (D.C. Cir. 1968); Dover Shopping Ctr., Inc. v. Cushman's Sons, Inc., N.J. Super. App. Div., 164 A.2d 785, 790-91 (1960) (ordering bakery to conduct business under a particular name and with a specific employee in charge). The Delaware citations are inapposite. The court in Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., Del. Supr., 506 A.2d 173 (1985), granted a classic prohibitive injunction invalidating defensive measures. The court in Joseph v. Shell Oil Co., Del. Ch., 482 A.2d 335 (1984), "held [a tender offer] in abeyance until the defendant ...makes further disclosures to the tender offerees and cures certain deficiencies." Id at 338.

The relief DeMarco demands is inconsistent with the GCL, which imposes upon the board of directors the authority and obligation to direct and oversee the business and affairs of a Delaware corporation, as well as the duty to determine whether a merger or sale is in the best interests of the company and its stockholders. See 8 Del. C. §§ 141, 251, 271. The relief also conflicts with Delaware case law, which makes clear that the Court should not act as a "super-director." Brehm, 746 A.2d at 266; see Paramount Communications, Inc. v.Time Inc., Del. Supr., 571 A.2d 1140, 1150 (1989). The requested relief should be stricken.

II. THE COMPLAINT SHOULD BE DISMISSED WITH PREJUDICE.

The defendants also have moved to dismiss the Complaint pursuant to Court of Chancery Rules 12(b)(6) and 23.1. Under Rule 15(aaa), any dismissal of all or part of the Complaint should be with prejudice. DeMarco filed the Complaint on September 27, 2001, after Rule 15(aaa) was adopted. DeMarco has not filed an amended complaint or moved to amend. DeMarco has not argued that dismissal with prejudice would not be just.

III. COUNT I FAILS TO STATE A CLAIM.

In seeking dismissal of all or part of Count I, the defendants advance a series of

separate and independent arguments. DeMarco responds to only a few, conceding the rest.

In the Opening Brief, the defendants explain that because the Stockholder Merger Resolutions were precatory, they do not implicate the duty of disclosure that applies when formal stockholder action is sought. DeMarco misconstrues this argument:

(AB 17). The defendants argue nothing of the kind. Delaware law recognizes two species of the duty of disclosure. First, there is the "well-recognized proposition that directors of Delaware corporations are under a fiduciary duty to disclose fully and fairly all material information within the board's control when it seeks shareholder action." Zirn v. VLI Corp., Del. Supr., 681 A.2d 1050, 1056 (1996) (citation omitted). To state a claim for breach of this duty, a stockholder need only identify a material misstatement or omission in connection with stockholder action. See O'Reilly v.Transworld Healthcare, Inc., Del. Ch., 745 A.2d 902, 917 (1999). Second, there are "disclosure violations that implicate fiduciary duties in the broad sense but do not involve communications that contemplate stockholder action." Id.; see Malone v. Brincat, Del. Supr., 722 A.2d 5, 14 (1998).

O'Reilly, 745 A.2d at 917. Because of differences between the two duties of disclosure, it is essential to determine which disclosure framework applies to a given set of facts.

Count I asserts that the Individual Defendants breached the "duty to disclose material information when seeking shareholder action." (Compl. ¶(149; see id. ¶¶152, 154-56). This claim fails because the precatory Stockholder Merger Resolutions should not be deemed to constitute "stockholder action." Importantly, the defendants do not argue that the Board did not have any duty of disclosure. Rather, because the Stockholder Merger Resolutions were precatory, they did not implicate the duty of disclosure that applies when formal stockholder action is sought. Therefore, to the extent the disclosure violations alleged in Count I survive a motion to dismiss, they must do so under the more demanding standards applicable to a claim for breach of the generalized fiduciary duty of disclosure.

DeMarco cites federal cases for the proposition that a stockholder can obtain an injunction if there are disclosure violations in connection with an upcoming precatory resolution. (See AB 17-18). Here, there is no basis for injunctive relief, and the stockholder vote is long past. Outside the injunction context, a stockholder pressing a Rule 14(a) claim must establish not only materiality but also causation, culpability and damages. See 2 A.A. Sommer, Jr., Federal Securities Exchange Act of 1934 § 7.09[5], at 7-192 to 7-193 (2002). The elements of this claim parallel the elements of a claim for breach of the general fiduciary duty of disclosure, supporting the defendants' position.

In the Opening Brief, the defendants identify various disclosure violations alleged in the Complaint and explain why the specific allegations do not support a claim for relief. The Answering Brief fails to respond to a number of these arguments, including:

• The analysis of isolated statements allegedly made by Company management at the 2001 annual meeting. (See OB 27-28).

• That disclosure of inquiries from other companies is not required. (See OB 26).

• That the defendants provided all of the information about director nominees required by Delaware law. (See OB 26-27).

• The analysis of alleged predictions that Ocean Spray could accomplish a timely turnaround and that the price of cranberries would recover. (See OB 27-28).

• The insufficiency of Count I's conclusory and generalized allegations. (See OB 22).

By failing to address these arguments, DeMarco has conceded their validity. See, e.g., Harbor Fin. Partners Ltd. v. Butler, Del. Ch., C.A. Nos. 16334 & 16336, slip op. at 9 n.1, Lamb, V.C. (June 3, 1998) (noting that plaintiffs did not answer an argument set forth in defendants' opening brief and "thus, concede the point"), rev'd on other rounds, sub nom. Elliott Assocs., L.P. v. Avatex Corp., Del. Supr., 715 A.2d 843 (1998); Seagraves v. Urstadt Prop. Co., Inc., Del. Ch., C.A. No. 10307, slip op. at 12, Jacobs, V.C. (Apr. 1, 1996) ("Plaintiffs' failure to oppose the defendants' motion as to the remaining six disclosure claims merits their dismissal").

DeMarco also fails to respond meaningfully to another argument. Making certain disclosures demanded by the Complaint would have required self-flagellation. (OB 28). DeMarco's Answering Brief does not defend these allegations, quarreling instead (albeit without analysis) with this well-established principle of Delaware law. (AB 25). Any claim based on these allegations should be dismissed.

The principal claim that DeMarco defends in the Answering Brief is that the Board should have disclosed its reasons for not pursuing a merger in 1999 and the reports of four consultants. This information did not need to be disclosed.

As explained in the Opening Brief, this information related to possible strategic transactions that the Board determined not to pursue. Directors are not required to disclose details of strategic transactions that the board later decides to abandon. In re Santa Fe Pac. Corp. S'holder Litig. Del. Supr., 669 A.2d 59, 66-67 (1995). Similarly, a proxy statement does not need to explain "why the board chose not to take particular courses of action." In re Lukens Inc. S'holder Litig., Del. Ch., 757 A.2d 720, 736 (1999). Equally important, "shareholders have no right to require the board to make information available so as to promote a sale of the Company, if the board has not elected to pursue a sale of the company strategy." Abajian v. Kennedy, Del. Ch., C.A. No. 11425, slip op at 9 n.2, Allen, C. (Jan. 17, 1992). This Court has refused to order production of "due diligence" information that stockholders wanted to use to promote the sale of the company. Alliance Gaming Corp. v. Bally Gaming Int'l, Inc., Del. Ch., C.A. No. 14440, slip op. at 4, Jacobs, V.C. (Aug. 11, 1995).

In a footnote, DeMarco tries to distinguish these decisions as cases where "stockholders sought information on transactions that were not the subject of the resolution at issue." (AB 24 n.12). This misses the point. Santa Fe, Lukens, Abajian, and Alliance Gamin establish that when a board decides not to pursue a transaction, disclosure of material considered by the board is not required. DeMarco's proposal would create a contrary regime under which any stockholder could propose a precatory resolution and thereby force a company to disclose all of the information in its possession relating to that subject. Potential acquirors or competitors could use precatory resolutions to force disclosure of all manner of sensitive and confidential information. This is not and cannot be the law. Cf. In re Walt Disney Co. Derivative Litig., Del. Ch., 731 A.2d 342, 378 (1998) (refusing to adopt rule under which "if a subject was mentioned publicly, a board would have to disclose every detail that was discussed on that subject at its board meetings or risk liability for breach of the duty to disclose"), aff'd in part, rev'd in part on other grounds sub nom. Brehm v. Eisner, Del. Supr., 746 A.2d 244 (2000). The numerous cases DeMarco cites are inapposite. Each decision involved a transaction that was actually approved, pursued, and submitted to stockholders for a vote. (See AB 23).

Disclosure of the consultant reports also was not required because the reports were prepared in 1999 and stale by 2001. Both Frank v. Arnelle, Del. Supr., C.A. No. 424, 1998, Hartnett, J. (Jan. 2, 1999) (ORDER), and In re Brae Corp. S'holder Litig., Del. Ch., C.A. No. 11348, slip op. at  9-10, Chandler, V.C. (May 14,1991), support this analysis. DeMarco does not try to distinguish these cases, which are directly on point. Instead, DeMarco contends that Ocean Spray must keep its policies "under constant re-examination, certainly no less frequently than after each growing season," which apparently would require the Board continually to update its consultant reports. (AB 26). Such a claim "is not a disclosure claim," but rather a claim that the directors have "a fiduciary duty to obtain updated ... opinions." Sonet v. Plum Creek Timber Co., Del. Ch., C.A. No. 16931, slip op. at 29 n.53, Jacobs, V.C. (Mar. 18, 1999). The disclosure claim should be dismissed on that basis.

A claim under the novel duty of "constant re-examination" would fare no better. Delaware law does not recognize such a duty, and DeMarco fails to cite any case that would support it. One possible analogy would be to the decision whether or not to obtain an updated investment banker's opinion as to the fairness of a transaction at the time of closing. "[B]ring-down opinions are the exception, not the rule." In re Unocal Exploration Corp. S'holders Litig., Del. Ch., C.A. No. 12453, slip op. at 40, Lamb, V.C. (June 13, 2000), affd sub nom. Glassman v. Unocal Exploration Corp., Del. Supr., 777 A.2d 242 (2001). Delaware law generally does not require a board of directors to obtain an updated opinion.³The proposed duty of "constant re-examination" also contravenes the business judgment rule, because "just how much information prudence requires before a decision is made is itself a question that calls for informed [business] judgment." Citron v. Fairchild Camera and Instrument Corp., Del. Ch., C.A. No. 6085, slip op. at 49, Allen, C. (May 19, 1988), affd, Del. Supr., 569 A.2d 53 (1989); accord Solash v. Telex Corp., Del. Ch., C.A. Nos. 9518, 9525 & 9528, slip op. at 21-22, Allen, C. (Jan. 19, 1988) ("Whether the benefit of additional information is worth the cost--in terms of delay and in terms of alternate uses of time and money--is always a question that may legitimately be addressed by persons charged with decision-making responsibility").

³See Clements v. Rogers, Del. Ch., C.A. No. 15711, slip op. at  44 n.64, Strine, V.C. (Aug. 14, 2001) (granting summary judgment on claim that board should have obtained a "full-blown" re-examination of the fairness of a transaction); Emerald Partners v. Berlin, Del. Ch., C.A. No. 9700, slip op. at 67-68, Jacobs, V.C. (Feb. 7, 2001) (entering judgment for defendants on claim that updated fairness opinion should have been obtained), rev'd on other o unds, Del. Supr., 787 A.2d. 85 (2001); Ince & Co. v. Sil a Co m., Del. Ch., C.A. No. 10941, slip op. at 12-13, Chandler, V.C. (Feb. 7,1991) (dismissing claim that directors were obligated to obtain and disclose an updated fairness opinion); Lewis v. Leaseway Transp. Corp., Del. Ch., C.A. No. 8720, slip op. at 16, Chandler, V.C. (May 16, 1990) (same).

¹Defined terms not defined herein are used as defined in the defendants' opening brief. (Dkt. 11, the "Opening Brief'). Unreported decisions cited herein are attached hereto or found in the compendia filed previously with the Opening Brief or with the plaintiffs' answering brief. (See Dkt. 23, the "Answering Brief'). To assist the Court, the defendants have provided a chart of the various counts asserted in the Complaint, bases for dismissal, points in response, and points in reply, which is attached hereto as Exhibit A.

³See Clements v. Rogers, Del. Ch., C.A. No. 15711, slip op. at  44 n.64, Strine, V.C. (Aug. 14, 2001) (granting summary judgment on claim that board should have obtained a "full-blown" re-examination of the fairness of a transaction); Emerald Partners v. Berlin, Del. Ch., C.A. No. 9700, slip op. at 67-68, Jacobs, V.C. (Feb. 7, 2001) (entering judgment for defendants on claim that updated fairness opinion should have been obtained), rev'd on other o unds, Del. Supr., 787 A.2d. 85 (2001); Ince & Co. v. Sil a Co m., Del. Ch., C.A. No. 10941, slip op. at 12-13, Chandler, V.C. (Feb. 7,1991) (dismissing claim that directors were obligated to obtain and disclose an updated fairness opinion); Lewis v. Leaseway Transp. Corp., Del. Ch., C.A. No. 8720, slip op. at 16, Chandler, V.C. (May 16, 1990) (same).