Posts in Fiduciary Duty

Court of Chancery Dismisses Complaint Because a Creditor Erroneously Asserted Derivative Claims as Direct in the Hope of Escaping Bankruptcy Court Jurisdiction

Big Lot Stores, Inc. v. Bain Capital Fund VII, LLC, C.A. No. 1081-N, 2006 WL 846121 (Del. Ch. Mar. 28, 2006). In 2000, in a sponsored management buyout, a corporation sold a subsidiary business that operated a chain of toy stores (KB Toys) in exchange for $257.1 million in cash and a $45 million note due in 2010. In 2002, the new owners refinanced the business and distributed approximately $120 million to the buyout sponsor, affiliates, two officers and directors of the subsidiary that invested in the buyout, and others. In 2004, the KB Toys filed for Chapter 11 bankruptcy. Plaintiff Big Lots, Inc, an unsecured creditor and holder of the $45 million note, brought this action asserting direct claims of breach of fiduciary duties, fraud, and civil conspiracy. The plaintiff sought recovery for the amount due on the note and restitution for alleged unjust enrichment. The Court of Chancery dismissed the complaint namely because the claims were derivative in nature, not direct, and thus belong to the bankruptcy estate. More ›

Share

Court of Chancery Finds Breach of Oral Contract Regarding Executive Compensation and Breach of Fiduciary Duty for Failure of Such Compensation to Satisfy Entire Fairness Test

Carlson v. Hallinan, C.A. Nos. 19808, 19466, 2006 WL 771722 (Del. Ch. Mar. 21, 2006). This case involved a direct and derivative action arising out of a dispute between two men engaged in the business of making short term, unsecured loans. Plaintiffs asserted direct claims for breach of contract and derivative claims for breach of fiduciary duties. Specifically, plaintiffs alleged that defendant Hallinan breached an oral contract with plaintiffs by paying himself and another defendant executive compensation. Plaintiffs also asserted that the defendants breached fiduciary duties they owed nominal defendant CR Services Corp. by paying themselves an excessive amount of executive compensation. The Court of Chancery found, among other things, that Hallinan breached the oral contract with plaintiffs and defendants committed multiple breaches of their fiduciary duties to CR because they failed to meet the entire fairness standard regarding their compensation. More ›

Share

Court of Chancery Dismisses Derivative Action for Failure to Establish Demand Futility

Highland Legacy Ltd. v. Singer, C.A. No. 1566-N, 2006 WL 741939 (Del. Ch. Mar. 17, 2006). A large shareholder brought a derivative action alleging that the directors committed corporate waste by approving exorbitant fees to unqualified financial advisers. The defendants moved to dismiss the complaint under Court of Chancery Rule 23.1 for failure to allege with particularity facts establishing demand futility. The court's review of the complaint revealed that plaintiff did not allege with particularity facts from which the court could reasonably conclude that the majority of the directors were disabled from impartially considering a demand. The court therefore granted defendants' motion to dismiss under Rule 23.1. More ›

Share

District Court Denies Motion to Dismiss Declaratory Judgment Action for Lack of Jurisdiction and Failure to Allege a Controversy of Sufficient Immediacy

Shamrock Holdings of Ca., Inc. v. Arenson, C.A. No. 04-1335-SLR, 2006 U.S. Dist. LEXIS 9835 (D. Del. Mar. 14, 2006). Plaintiff Shamrock Holdings of Ca., Inc. ("Shamrock") was a Class A member of ALH Holdings, Inc. ("ALH"), a Delaware limited liability company, and the other plaintiffs were employees and/or members of ALH's Supervisory Board (the "Board"). In connection with the failure of ALH's business, and its investors' subsequent loss of their investments, plaintiffs filed an action in the Court of Chancery seeking a declaration that (i) they did not breach ALH's operating agreement; (ii) they did not breach their fiduciary duties as ALH employees, members or Board members; (iii) they had relied in good faith on the advice of experts and professionals in making their decisions; (iv) they were not liable to the defendants under the terms of a consulting agreement; and (v) they were entitled to advan More ›

Share

Court of Chancery Dismisses De Facto Dividend Claim Because Disguised as Improperly Pled Claim of Self-Dealing

Horbal v. Three Rivers Holdings, Inc., C.A. No. 1273-N, 2006 WL 668542 (Del. Ch. Mar. 10, 2006). Plaintiffs, founders of a Health Management Organization, alleged that their co-investors abused their positions by siphoning off tens of millions of dollars from the HMO in the form of disguised salaries and corporate perquisites; plaintiffs call these "de facto dividends." The Court of Chancery granted defendants' motion to dismiss because plaintiffs did not adequately allege self-dealing, the center of a de facto dividend claim. More ›

Share

District Court Dismisses Class Action Alleging Federal Securities Laws Violations and State Breach of Fiduciary Duty Claim

Hartman v. Pathmark Stores, Inc., C.A. No. 05-403-JJF, 2006 U.S. Dist. LEXIS 9349 (D. Del. Mar. 8, 2006). Plaintiff filed a class action complaint against defendants, alleging violations of Section 14(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and breach of the fiduciary duty of loyalty by the directors of Pathmark Stores, Inc. ("Pathmark") in connection with a transaction between Pathmark and The Yucaipa Companies, LLC ("Yucaipa"). Plaintiff also moved for appointment as lead plaintiff, with his counsel as lead counsel. Defendants moved to dismiss the complaint. More ›

Share

Court of Chancery Permits Third Complaint Amendment In Nigerian Judgment-Enforcement Action

Harry A. Akande v. Transamerica Airlines, Inc., et al., C.A. No. 1039-N, 2006 WL 587846 (Del. Ch. Feb. 28, 2006). This is a motion to amend the Complaint under Court of Chancery Rules 15(a) and 15(aaa) for the third time before the Court of Chancery, involving a foreign judgment enforcement action. Plaintiff sought to withdraw his petition for receivership and add factual predicates to various claims he made. In an earlier hearing, the Court of Chancery permitted plaintiff's motion for discovery and converted the defendants' motion for dismissal upon plaintiff's motion to one of summary judgment. More › Share

Court of Chancery Denies Motion For Expedited Preliminary Injunction Hearing For Lack of "Colorable Claim" Demonstrating Imminent Irreparable Harm

Madison Real Estate Immobbilien-Anlagegesellschaft Beschrankt Haftende KG v. GENO One Financial Place L.P. and GENO Auslandsimmobilien GmbH, No. Civ.A. No. 1928-N, 2006 WL 456779 (Del. Ch. Feb. 22, 2006). The plaintiff is a German entity organized under that country's laws, as is the second named German limited liability defendant. The latter party is also a general partner in the first defendant entity. The plaintiff was one of two bidders that made an unregulated tender offer for a part of the first-named defendant's Delaware limited partnership interest. Plaintiff filed a motion in the Court of Chancery for expedited injunction proceedings, seeking to enjoin the defendant's general partner from approving any transfer agreements related to the tender offers. More › Share

Court of Chancery Dismisses Caremark Claims But Retains Loyalty And Fraud Counts

Canadian Commercial Workers Industry Pension Plan v. Eric Alden, et al., C.A. No. 1184-N, 2006 WL 456786 (Del. Ch. Feb. 22, 2006). In this derivative action brought against four former directors and officers of Case Financial, Inc., the nominal defendant, the two remaining defendants moved to dismiss after two others settled. Plaintiff alleged breach of loyalty, breach of the Caremark duty of oversight, corporate waste and common law fraud. The Court of Chancery partly granted the motions. More › Share

Court of Chancery Denies Dismissal Despite Three-Year Failure To Diligently Prosecute Class Action

In re Cencom Cable Income Partners, L.P., C.A. No. 14634-NC, 2006 WL 452775 (Del. Ch. Feb. 16, 2006). This Court of Chancery action arose out of a breach of fiduciary duty claim filed on Oct. 20, 1995. Defendants unsuccessfully moved to dismiss for failure to prosecute under Court of Chancery Rule 41. More › Share

District Court Grants Motion to Strike Jury Demand in Breach of Fiduciary Duty Action

Cantor v. Perelman, C.A. No. 97-586-KAJ, 2006 WL 318666 (D. Del. Feb. 10, 2006). Plaintiffs alleged that defendants Perelman, Bevins and Drapkin, all of whom were directors of Marvel Entertainment Company ("Marvel") and were the only directors of each of Marvel's five holding companies, breached their fiduciary duties by causing Marvel and its holding companies to issue three tranches of notes, for which they received $553.3 million in proceeds and pledged all of their stock in Marvel as collateral. Plaintiffs alleged that none of the proceeds of the loan went to Marvel or were used for its benefit. Marvel was unable to repay the notes and subsequently filed for bankruptcy protection. Plaintiffs named Marvel's remaining directors as defendants and claimed that they aided and abetted Perelman, Bevins and Drapkin in breaching their fiduciary duties. Plaintiffs also alleged that the defendants artificially inflated Marvel's earnings by booking the fees resulting from various licensing agreements as income at the time the licensing agreements were executed, but never collecting the fees and writing them off. Plaintiffs sought a jury trial, which defendants opposed. More › Share

Court of Chancery Accepts Fiduciary Status Through Partnership Interest-Assignment And Appraises Interest's Value

Ramunno v. Capano, et al., C.A. No. 18798-NC, 2006 WL 375541 (Del. Ch. Feb. 10, 2006). This is a fiduciary claim based action to appraise the fair value of real property brought by the trustee of four trusts that held a 12.1% interest in that property held by the defendant entity and its two majority interest holders, after that entity's merger into a new Delaware limited partnership. More › Share

Court of Chancery Denies Defendants' Demand For Intercontinental Depositions Approving Videoconferencing Under R.30(b) And Limits Number Of Deponents

Unisuper Ltd., et al. v. News Corporation, et al., C.A. No. 1699-N, 2006 WL 375433 (Del. Ch. Feb. 09, 2006). Defendants filed cross-motions requiring depositions of thirteen named plaintiffs' under Ch. Ct. R. 30(b)(6) in either Delaware or New York. Plaintiffs filed motions for protective orders, to limit the numbers of deponents and contended depositions could occur outside the United States via videoconferencing. The plaintiffs' Australian company had reincorporated in Delaware. Plaintiff sought equitable relief requesting its shareholders to be permitted to vote on a poison pill's extension. The court treated this matter as a representative one, rather than an individual shareholder suit. More › Share

Court of Chancery Grants Expedited Injunction Proceedings In Interested Merger's Disclosure Claim

In re Serena Software, Inc. S'holders Litig., C.A. No. 1777-N, 2006 WL 375599 (Del. Ch. Feb. 09, 2006). This is a motion for expedited proceedings for a preliminary injunction pertaining to certain disclosure claims not made public in SEC-filed proxy statements soliciting shareholder vote for an agreement for sale of the corporation at $24 per share. Class actions were earlier filed in the Delaware Court of Chancery and California's Superior Court challenging the sale transaction as a director-interested one. More › Share

Court Of Chancery Dismisses Complaint For R. 23.1 Failure Despite Corporation's Inadequate "Internal Controls" Attracting $50 million Fine

Stone, et al. v. Ritter, et al., C.A. No. 1570-N, 2006 WL 302558 (Del. Ch. Jan. 26, 2006). This matter involved an attempt to institute a derivative proceeding against fifteen current and former director defendants of AmSouth Bancorporation for alleged failures of fiduciary duties through insufficient internal control systems to guard against statutory violations under the Bank Secrecy Act and the Anti-Money Laundering Regulations. The defendants filed a motion to dismiss and it was granted by the court for insufficiency of pleading under Chancery Court Rule 23.1. On November 6, 2006, the Delaware Supreme Court affirmed this decision. More › Share