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Allegations of Accounting Schemes and Material Misstatements Survive Motion to Dismiss

Posted In Fiduciary Duty

Collins & Aikman Corp. v. Stockman, Civ. No. 07-265-SLR-LPS (D. Del. May 20, 2009)

Magistrate Judge Leonard P. Stark considered the plaintiffs’ state law claims of breach of fiduciary duty and denied the defendants’ motion to dismiss these claims against certain individual defendants. The complaint alleged that the individual defendants, each of whom were directors or officers of Collins & Aikman, owed “fiduciary duties of loyalty, good faith and care to the Company” and breached those duties “by orchestrating, encouraging or utilizing various accounting schemes . . . which materially misstated the financial condition of the Company.”  The Court rejected the defendants’ argument that, with regard to the duty of care claims, C&A’s § 102(b)(7) exculpatory provision eliminated or limited personal liability.  The Court took judicial notice of the exculpatory provision and found it inapplicable as the complaint alleged facts implicating breaches beyond that of due care.