the lack of an active trading market

As explained below, I conclude that Kahn v. Lynch Communication Systems, Inc. 1 does not mandate application of the entire fairness standard of review in this case, notwithstanding any procedural protections that may have been used. Rather, the use of sufficient procedural protections for the minority stockholders could have resulted in application of the business judgment standard of review in this case. The procedures used here, however, were not sufficient to invoke business judgment review. Accordingly, the appropriate standard of review is entire

fairness. As explained below, defendants’ motions for summary judgment are granted in part and denied in part, and plaintiffs’ motion for summary judgment is granted in part and denied in part. I. BACKGROUND A. The Parties Defendant JQH was a Delaware corporation headquartered in Springfield, Missouri that engaged in the business of owning and managing hotels. JQH owned forty-four hotels and managed another fifteen. Most of the hotels were franchised under major trade names, such as Embassy Suites Hotels, Holiday Inn, and

1

638 A.2d 1110 (Del. 1994).

3

Marriott, and located in or near a stable “demand generator” such as a state capital, university, convention center, corporate headquarters, or office park. JQH was formed in 1994, and used the proceeds from its initial public stock offering to purchase an approximately 28% general partnership interest in John Q. Hammons Hotels, LP (“JQHLP”). Hammons owned the remaining 72% of JQHLP as its sole limited partner. JQH conducted its business operations through JQHLP. Ownership of JQH was held through two classes of stock. The Class A common stock was publicly traded and entitled to one vote per share. The Class B common stock was not publicly traded and was entitled to fifty votes per share. Hammons and his affiliates owned approximately 5% of the Class A common stock and all of the Class B common stock. Thus, Hammons had approximately 76% of the total vote in JQH, which in turn controlled JQHLP as its sole general partner. Plaintiffs Jolly Roger Fund, LP, Jolly Roger Offshore Fund, Ltd., and Lemon Bay Partners were purported owners of Class A common stock. The JQH Board of Directors (the “Board”) was composed of eight members at the time of the Merger. Hammons was Chairman of the Board and Chief Executive Officer. The other Board members were John E. Lopez-Ona, Daniel L. Earley, William J. Hart, David C. Sullivan, Donald H. Dempsey, James F. Moore, and Jacqueline A. Dowdy.

4

Defendants JQH Acquisition, LLC (“Acquisition”) and JQH Merger Corporation (“Merger Sub”) were formed to facilitate the Merger. Eilian is the principal of Acquisition. Merger Sub is a wholly owned subsidiary of Acquisition. B. The Company and Hammons Before the Merger The price of JQH Class A shares declined after the initial public offering at $16.50 per share, and, according to plaintiffs, eventually traded in the $4 to $7 range until sometime in 2004, when rumors of a possible merger first circulated. Plaintiffs suggest that low stock price could have resulted from the small number of publicly traded shares, the lack of an active trading market in those shares, the lack of any meaningful analyst coverage, and the lack of large institutional investors. Plaintiffs also contend that the shares were “burdened” by the presence of a large controlling stockholder, and that Hammons’s self-dealing depressed the price of the Class A shares. Hammons’s passion was, and is, developing hotels, and Hammons took pride in the quality of his hotels. Hammons was seen by many as a legend in the hotel business, as evidenced by his biography, They Call Him John Q.: A Hotel Legend. 2 It also appears, however, that the relationship between Hammons and the Board was, at least at times, tense.

2

Susan M. Drake, They Call Him John Q.: A Hotel Legend (2002).

5

Plaintiffs cite evidence and quote from Hammons’s biography for the proposition that Hammons only reluctantly sold shares in JQH to the public, that he disliked the procedural requirements associated with public stockholders and a board of directors, and that there was tension between Hammons and the Board. Indeed, Hammons and the Board had disagreements over the Board’s use of stock options as compensation and over the pace of hotel development.