The court began its analysis by recognizing the recent decision in MFW (see Legal Update, In re MFW: Delaware Court of Chancery Applies Business Judgment Rule to Controlling Stockholder Transaction). As the court here summarized, under MFW a controlling-stockholder transaction can be reviewed with the presumptions of the business judgment rule if:

However, if the controlling stockholder is not the buyer, but the transaction at issue involves a merger between a third party and a company with a controlling stockholder, then MFW does not apply. Even so, because of the possibility that the controlling stockholder will influence the outcome and negotiate better terms for himself than the minority stockholders, transactions with controlled target companies can be subject to review under entire fairness. To avoid entire fairness, the court in Hammons required that the transaction meet these conditions:

In essence, the procedural protections are the same; the distinction is that the transaction does not have to been offered upfront on the condition of the committee and minority approvals. Rather, it is sufficient if the conditions are introduced after negotiations with the buyer have begun.

The plaintiff argued that the transaction belonged to the MFW sphere, with the result that entire fairness would of necessity be the standard of review, given that the offer was not conditioned upfront on the two approvals. The plaintiff contended that Volgenau's "heavy influence" on the process, highlighted by his steering it away from strategic bidders at first, combined with his equity rollover, rendered the merger a controlling-stockholder transaction in which Volgenau stood on both sides of the deal.

The court rejected this argument. The court noted that under Frank v. Elgamal, the fact that a controlling stockholder receives a minority interest in the surviving company does not, in and of itself, equate to the stockholder standing on both sides of the merger. Similarly, the court in Hammons had already rejected the argument that a controlling stockholder's retention of an equity interest creates a "joint venture of some sort" or "recapitalization."

Because the transaction was reviewable under Hammons, the court examined whether the special committee was disinterested and independent and whether the vote was fully informed.

The plaintiff made a two-pronged challenge to discount the independence and disinterest of the special committee:

The plaintiff's strongest allegation was based on the special bonus that Klein demanded be paid to two charities with which he was affiliated. Although Klein's memo was written after the signing of the merger agreement, it revealed a certain expectation that his efforts would be rewarded on a personal and significant level, if (and only if) Klein could deliver a deal. The court took note of the decision in In re Tele-Communications, Inc. Shareholders Litigation, cited by the plaintiff, which held that compensation of a special committee member that is contingent on a certain outcome raises a triable issue of fact as to what the member expected to occur if the transaction were approved ( (Del. Ch. Dec. 21, 2005)). If, as the court explained, a special committee member believes that a significant bonus is likely to depend on completion of a deal, he may be reluctant to negotiate aggressively with the buyer. Although Klein was only one member of the committee, his predominant role in the negotiations made his independence particularly critical.

The court noted one distinction between this case and Tele-Communications, in that the Tele-Communications board approved a compensation plan for the special committee in advance. The SRA board, by contrast, never approved a plan upfront to compensate the special committee members on a contingent basis and ultimately did not grant Klein's bonus request. Nevertheless, the court concluded that this distinction, on its own, would have been insufficient to avoid a trial on the issue of the special committee's independence, since Klein's interest in the merger may still have been material to him.

To eventually rule on summary judgment that the bonus payments were immaterial, the court emphasized that Klein had requested that the payments be made to two charities, not to him personally. The court held that to find a material self-interest in the merger, the plaintiff would have had to give the court reason to believe that Klein would have personally benefited in some way from the donations to the charities, by way of any "backdoor remuneration, measured in dollars or accolades, for a donation made because of him." Finding no evidence that Klein sought the donations to "obtain accolades or enhance his prestige," the court concluded that there was no dispute of material fact over Klein's self-interest in the merger.

The plaintiff did not dispute that the merger was subject to a non-waivable majority-of-the-minority vote, but contended that SRA omitted material information from the proxy and made certain misleading disclosures, which rendered the vote less than fully informed. For example, the plaintiff argued that SRA should have explained in the proxy statement why one private equity bidder dropped out of the process at the last minute. The court rejected this argument, noting that that type of disclosure would have required delving into the "subjective beliefs, opinions and statements of a third party involved in the bidding process," which risks disclosure of "speculative, inaccurate and useless information."

The plaintiff also complained of the failure to disclosure the special bonus that was paid to Kirkland & Ellis. The court ruled that the plaintiff had failed to explain why Kirkland's discretionary compensation would have been material to a reasonable shareholder. In so doing, the court distinguished contingent payments made to legal advisors from those payable to a financial advisor. Because financial advisors opine on the fairness of a transaction, the shareholders ought to know of their interest in the transaction before deciding how to vote. "The reasons for disclosing a legal advisor's compensation," on the other hand, "are not as clear."