Posts in Fiduciary Duty

Court Of Chancery Explains When To Expedite Disclosure Claims

Nguyen v. Barrett, C.A. 11511-VCG (September 28, 2016)

This decision is helpful in clarifying that claims alleging disclosure violations in a proxy statement need to be pressed before a merger closes. After the merger, those claims are for damages and all the hurdles for such a claim, such as the director exculpation provisions in most charters, will usually defeat the claim absent bad faith.

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Court Of Chancery Again Explains Scope Of The Corwin Doctrine

Larkin v Shah, C.A. 10918-VCS (August 25, 2016)

This is one of two recent Court of Chancery decisions explaining that the Corwin case really does mean that there is an “irrebuttable business judgment rule” that bars challenges to a merger approved by a majority of the fully-informed, disinterested and uncoerced stockholders, in the absence of the deal involving a controlling stockholder who suffers from a conflict in the merger.   More ›

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Court of Chancery Explains Tolling Law In Fiduciary Duty Case

AM General Holdings LLC v. The Renco Group, C.A. 7639-VCS (August 22, 2016)

In addition to explaining the seldom-used doctrines of mutual, running accounts and continuing wrongs as exceptions to the running of the statute of limitations, this decision is important for its review of when a claim of breach of duty may be tolled. A plaintiff cannot simply stand by without using means available to her to monitor her investment and then claim her case was tolled.  While it is still possible to show a claim was inherently unknowable or that the plaintiff justifiably relied on a fiduciary to not seek information, the more sophisticated the plaintiff the less those exceptions to the running of the statute of limitations will apply.

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Court Of Chancery Dismisses Merger Litigation Under The Corwin Doctrine

City of Miami General Employees and Sanitation Employees Retirement Trust v. Comstock, C.A. 9980-CB (August 24, 2016), affirmed March 23, 2017

This decision applies the Corwin doctrine to dismiss a suit attacking a merger that received stockholder approval. It explains that approval by a fully-informed, uncoerced majority of disinterested and independent stockholders invokes the business judgment rule standard of review – leaving waste as the only grounds to attack the transaction. Interestingly, the decision still examined whether the plaintiffs had alleged a basis for entire fairness review.  Here, those allegations concerned whether a majority of the directors were either self-interested in the transaction or were manipulated by improper conduct.

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Court Of Chancery Reviews Corporate Opportunity Doctrine Where Derivative Claim Eliminated By Merger

In Re Riverstone National Inc. Stockholder Litigation, C.A. 9796-VCG (July 28, 2016)

This is an excellent explanation of the corporate opportunity doctrine’s four elements, under which directors may be liable for taking a business opportunity that: (1) the corporation is financially able to take for itself; (2) is within its line of business; (3) would have been of interest to the corporation; and (4) presents a conflict of interest to the directors. More ›

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Court of Chancery Explains Bad Faith Test

In Re Chelsea Therapeutics International Ltd. Stockholders Litigation, C.A. 9640-VCG (May 20, 2016)

This decision deals with when the actions of directors may be considered to be in bad faith, at least when there is no self-interest involved and the directors are properly informed before taking the time to decide what to do. The short answer is that the “too stupid to be in good faith” test applies to see if their decision is in bad faith.

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Court Of Chancery Explains When A Minority Stockholder May Have Actual Control Over A Deal

Calesa Associates, L.P. v. American Capital Ltd., C.A. 10557-VCG (February 29, 2016)

This is another in a series of decisions dealing with the allegation that a minority stockholder controlled a deal through its control of a majority of the board of directors. Its analysis of when such control is present is very helpful. It also points out that there is a Section 228 violation when stockholders are asked to sign stockholder consents without being provided with all the documents needed to understand what that consent includes.

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Court Of Chancery Explains When Disclosures Required Absent A Stockholder Vote

Doppelt v. Windstream Holdings Inc., C.A. 10629-VCN (February 5, 2016)

This is an interesting decision for two reasons. First, it explains when directors might have a duty to cause the company to make disclosures to the stockholders about transactions that do not require the stockholders’ vote.  Briefly, when a transaction not requiring a stockholders vote is so related to a transaction requiring their vote that the two matters are tied together, then the stockholders are entitled to be fully informed about both matters. More ›

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Court Of Chancery Explains The Continuing Wrong Doctrine

REDUS Peninsula Millsboro LLC v. Mayer, C.A. No. 8835-VCN (July 13, 2015)

It is settled law that a cause of action accrues when the wrong is committed, not when its effects continue to be felt in the future. But as this decision makes clear, that is not always the case. When additional wrongdoing adds to the injury, the action accrues with each wrongful act.

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Court Of Chancery Declines To Second Guess On Compensation

Friedman v. Dolan, C.A. No. 9425-VCP (June 30, 2015)

This is another in the line of decisions that goes back at least as far as the Disney case where the Delaware Court of Chancery declines to upset the compensation awarded to officers and directors.  More ›

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Supreme Court Clarifies When Independent Directors May Be Dismissed From Case

In re Cornerstone Therapeutics Inc. Stockholder Litigation, No. 564, 2014 (May 14, 2015)

This important Supreme Court decision clarifies when independent, disinterested directors may be dismissed from litigation, even when an interested transaction is under attack. When the complaint only alleges a breach of the duty of care by the independent disinterested directors, they should be dismissed when the company has a director exculpation provision in its certificate of incorporation.  This applies even if the transaction itself will be reviewed under the entire fairness standard. Thus, the Court’s prior decisions in the Emerald Partners case that some thought prohibited dismissal of the independent disinterested directors in such circumstances is now clarified.

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Court Of Chancery Explains How To Overcome Claim Of Subjective Good Faith

In Re: El Paso Pipeline Partners L.P. Derivative Litigation, C.A. 7141-VCL (April 20, 2015)

Limited partnership agreements often only require that the general partner act with subjective good faith in doing a deal with a parent entity. That is because the standard seems an easy one to meet. But as this decision shows all too well, even that lax standard has its limits and ignoring objective evidence of unfairness will expose the GP to liability. This decision shows how to use the evidence of past transactions to establish the objective unfairness of a newer deal.  Hence, it is a tale of how not to act.

The opinion is also interesting for the way it explains the duties of a fiduciary in valuing a proposal. Just because the deal is accretive from a cash flow or EPS prospective does not make it fair. That is an important point to remember.

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Court Of Chancery Examines Trust Exculpation Limits

Mennen v. Wilmington Trust Co., C.A. 8432-ML (December 8, 2014) Trust documents frequently provide that the trustee is not liable for any mistakes made in good faith. This decision examines how far that exculpation goes with respect to some very bad investment decisions. Not far enough in this case. It also shows that untruthful testimony, besides being just plain wrong, also has a way of really hurting that witness's case. Share

Court Of Chancery Explains Bad Faith Claim

In Re Novell Shareholders Litigation, C.A. 6032-VCN (November 25, 2014) When does a board act in bad faith so as to not be entitled to exculpation under a corporate charter? As this decision explains, mere mistakes in complicated negotiations do not come close to supporting a bad faith claim. Share

Court Of Chancery Upholds Novel Fiduciary Breach Case

Lee v. Pincus, C.A. 8458-CB (November 14, 2014) This decision holds that the waiver of a lockup in favor of 4 directors may constitute a breach of their fiduciary duties to the other stockholders who were subject to the lockup and whose shares could only be sold later at a reduced market price. There is no prior case dealing with this set of facts. The key point is that the directors secured a benefit for themselves that was not available to the class of stockholders who remained subject to the lockup and who presumably would have sold their stock before the price declined had they been able to do so. This leaves open some interesting damages issues. Share