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Showing 249 posts in Fiduciary Duty.

Chancery Finds LLC Managers Liable for Self-Dealing Scheme Depleting Nearly All Investment Capital

Posted In Chancery, Fiduciary Duty


Stone & Paper Investors, LLC v. Blanch, C.A. No. 2018-0394-PAF (Del. Ch. July 30, 2021)
This post-trial opinion involves a particularly egregious set of facts. Two LLC managers were accused of breaching their contractual and fiduciary duties and of fraudulently inducing the plaintiff, Stone & Paper, to invest $3.5 million in the company, Clovis Holdings, in connection with a series of self-dealing transactions wherein the managers paid themselves large sums of money in the form of salary and purported “loans” without receiving the required approvals for interested transactions.  More ›

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Chancery Addresses Whether LLC Agreement Modified or Eliminated Fiduciary Duties

Posted In Chancery, Fiduciary Duty, LLCs/LLPs


In Re Cadira Group Holdings, LLC Litigation, Consolidated C.A. No. 2018-0616-JRS (Del. Ch. July 12, 2021)
The Delaware Limited Liability Company Act provides that “the fiduciary duties of a member, manager, or other person that is a party to or bound by a limited liability company agreement may be expanded or restricted or eliminated by provisions in the limited liability company agreement.” Yet to eliminate fiduciary duties, Delaware law requires that the intent to do so must be “plain and unambiguous.” More ›

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Chancery Upholds Well-Pled Claims Relating to Former Fiduciaries’ Retention of Derivative Arbitration Award

Posted In Chancery, Fiduciary Duty


Optimiscorp v. Atkins, C.A. No. 2020-0183-MTZ (Del. Ch. July 15, 2021)
In Optimiscorp, the Court upheld claims against former directors and officers of plaintiff Optimiscorp arising out of the defendants’ failure to turn over to the company an approximately $7 million derivative arbitration award. As part of a long-standing and acrimonious legal battle between warring factions of the company’s board of directors, defendants previously had brought a lawsuit in Delaware on behalf of the company asserting that the company’s sitting directors and former outside counsel had breached their fiduciary duties and engaged in legal malpractice. Stipulating to dismissal of the Delaware complaint, the parties pursued the matter in arbitration and the arbitrator ultimately found the outside counsel liable, issued an award, and ordered the payment of attorneys’ fees and costs. The financially struggling company received notice of the award and proceeded to make strategic business decisions in expectation of receiving the funds. However, asserting that certain shareholders who were accused of wrongdoing were not entitled to a pro rata portion of the award, the defendants declined to turn the award over to the company. As a result, the company was forced to take out short-term loans with unfavorable terms and faced other negative consequences. More ›

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Chancery Upholds Fiduciary Duty Claims Arising Out Of Deal Involving an Alleged Control Group That Included Non-Stockholders and a Sale Process Managed By a Disinterested and Independent Special Committee


In re Pattern Energy Grp. Inc. Stockholders Litig., C.A. No. 2020-0357-MTZ (Del. Ch. May 6, 2021)
This decision mostly denying a motion to dismiss examines several important issues in post-closing M&A fiduciary duty litigation relevant to stating a claim and overcoming an otherwise claim-cleansing stockholder vote under the Corwin doctrine. These include what it takes to adequately plead the existence of a control group, a fraud-on-the-board theory, a bad faith breach of fiduciary duty by admittedly disinterested and independent directors charged with managing a sale process and overseeing potential conflicts, and claims against individual officers. Core to the plaintiff’s well-pled complaint in this action were allegations that the committee and certain officers favored a buyer preferred by a private equity fund, which, among other things, formed the company, controlled its upstream supplier, and held significant contractual consent rights.  More ›

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Chancery Denies Claim Arising Out of Controller’s Announced Intention to Oppose a Transaction Unfavorable to His Interests

Posted In Chancery, Fiduciary Duty, M&A


RCS Creditor Trust v. Schorsch et al., C.A. No: 2017-0178-SG (Del. Ch. Mar. 18, 2021)
Controlling shareholders of a Delaware corporation owe fiduciaries duties, but those duties do not require controllers to sacrifice contract rights or to vote altruistically. In the Court of Chancery’s recent decision in RCS Creditor Trust v. Schorsch et al., the Court affirmed this proposition, holding that where a special committee and its review process were otherwise independent, a controlling shareholder did not breach his fiduciary duties or improperly influence the committee by sharing how he planned to vote in connection with two proposed, competing transactions. More ›

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Chancery Holds Prior Rulings in Appraisal and Securities Litigation Do Not Bar New Columbia Pipeline Fiduciary Duty Action

Posted In Chancery, Fiduciary Duty, M&A


In re Columbia Pipeline Group, Inc. Merger Litigation, C.A. No. 2018-0484-JTL (Del. Ch. Mar. 1, 2021)
Certain judicial doctrines, including collateral estoppel and stare decisis, promote efficiency and finality by barring the re-litigation of factual and legal issues. For these doctrines to apply, however, there must be overlap between the parties, the claims or the legal posture. This case demonstrates that, without such overlap, courts will permit subsequent claims even when the underlying transaction has already been the subject of significant prior litigation. More ›

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Chancery Dismisses Derivative Breach of Contract Claim Against Directors for Alleged Violations of Certificate of Incorporation

Posted In Breach of Contract, Chancery, Fiduciary Duty

Lacey v. Mota-Velasco, C.A. No. 2019-0312-SG (Del. Ch. Feb. 11, 2021)

A corporate charter represents a contractual agreement between the corporation and its stockholders. In Lacey, the Court of Chancery addressed whether a breach of contract claim for damages based on an alleged violation of a provision in the certificate of incorporation could be brought derivatively against director defendants. More ›

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Chancery Sustains Claims Against CBS Fiduciaries Concerning CBS-Viacom Merger, While Questioning the Viability of “Holder” Claims Under Delaware Law

Posted In Chancery, Fiduciary Duty, M&A

In re CBS Corp. S’holder Class & Deriv. Litig., C.A. No. 2020-0111-JRS (Del. Ch. Jan. 27, 2021)

This decision is one of several by the Delaware Court of Chancery arising out of efforts to merge CBS Corporation and Viacom by the companies’ controlling stockholder—National Amusements, Inc., controlled by Shari Redstone. Recently, in In re Viacom Inc. Stockholders Litigation, 2020 WL 7711128 (Del. Ch. Dec. 29, 2020), the Court upheld claims by the Viacom stockholders against Viacom fiduciaries arising out of the CBS-Viacom merger. This decision is the flipside of that same coin, with the Court upholding claims by the CBS stockholders against CBS fiduciaries, including special transaction committee members, arising out of the same merger. More ›

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Chancery Sustains Claims Against Target’s CEO, Target’s Financial Advisor, and Acquirer for Allegedly Covertly Steering Merger Bidding Process

Posted In Chancery, Controlling Stockholder, Fiduciary Duty, M&A

Firefighters’ Pension System of The City of Kansas City, Missouri Trust v. Presidio, Inc., C.A. No. 2019-0839-JTL (Del. Ch. Jan. 29, 2021)

Presidio illustrates potential pitfalls for parties in the M&A process, including executives managing personal interests in potential post-transaction employment while negotiating a deal, financial advisors with future business interests in mind while controlling competitive offer information, and acquirers potentially aware of a bidding process being steered in their direction. More ›

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Chancery Dismisses Stockholder’s Claim that Directors Provided Materially-Deficient Notice of their Intent to Use Equity Bonus Plan to Reward Past Performance

Posted In Chancery, Disclosure Claims, Fiduciary Duty

Pascal v. Czerwinski, C.A. No. 2020-0320-SG (Del. Ch. Dec. 16, 2020)

This decision concerned a motion to dismiss a stockholder’s direct claim that Director-Defendants breached their duties by providing a materially-deficient proxy statement advocating adoption of an equity incentive plan (“EIP”) that ultimately allowed Defendants to award themselves bonuses. As a result of the alleged deficiencies, Plaintiffs sought invalidation of the entire EIP. More ›

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Plaintiff’s Failure to Plead Demand Futility Leads to Dismissal of Caremark Claims Against MoneyGram Directors

Posted In Caremark, Chancery, Demand Futility, Fiduciary Duty

Richardson v. Clark, C.A. No. 2019-1015-SG (Del. Ch. Dec. 31, 2020)
Under Court of Chancery Rule 23.1, a derivative plaintiff’s must make a demand on the corporation’s board of directors unless the plaintiff can plead particular facts to establish that demand was excused. Although demand may be excused where a majority of the board faces a substantial likelihood of personal liability, merely alleging wrongdoing by the corporation’s directors will not suffice. More ›

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Chancery Sustains Complaint for Breach of Fiduciary Duty against Viacom Controllers

Posted In Chancery, Controlling Stockholder, Fiduciary Duty, M&A

In re Viacom Inc. Stockholders Litig., C.A. No. 2019-0948-JRS (Del. Ch. Dec. 29, 2020), as corrected (Dec. 30, 2020)

This case exemplifies that the Court of Chancery will review a transaction under the entire fairness standard where a controller receives a non-ratable benefit and the controller fails to condition the transaction on the approval of a special committee and of a majority of the disinterested minority stockholders. Plaintiffs, minority stockholders of Viacom International (“Viacom”), sued Shari Redstone, her corporate entities (together with Ms. Redstone, the “Controllers”), and Viacom directors that were allegedly loyal to Ms. Redstone. Ms. Redstone indirectly controls both Viacom and CBS Corporation (“CBS”). Among other things, the plaintiffs contended that the Controllers breached their fiduciary duties in causing the merger between Viacom and CBS on terms beneficial to the Controllers but detrimental to Viacom’s public stockholders.   More ›

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Chancery Confirms that, Without More, Threat of Proxy Contest from Activist Investor is Insufficient to Render Director Defendants Conflicted in Sale Transaction

Posted In Chancery, Fiduciary Duty, M&A

Rudd v. Brown, C.A. No. 2019-0775 MTZ (Del. Ch. Sept. 11, 2020)

The Court of Chancery recently confirmed that the threat of a proxy contest from an activist investor alone was insufficient to render director defendants conflicted in a post-closing challenge to a sale of the company. Here, an activist investor that acquired a significant stake in the corporation expressed dissatisfaction with the board of directors for not exploring a potential sale of the company. Thereafter, the company announced that it would explore strategic alternatives. The company then entered into a cooperation agreement permitting the investor to appoint three members of the nine member board in exchange for not mounting a proxy fight. The strategic process resulted in a sale to a financial acquirer. The plaintiff then brought suit against the company’s board of directors and an officer alleging that that board’s acceptance of an inadequate offer was motivated by self-interest to avoid a proxy contest. More ›

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Chancery Upholds Class Claims Alleging Breaches of Fiduciary Duty in Alleged Controlling Stockholder’s Tender Offer

Posted In Chancery, Class Actions, Controlling Stockholder, Fiduciary Duty

In re Coty Inc. Stockholder Litigation, C.A. No. 2019-0336-AGB (Del. Ch. Aug. 17, 2020)  

JAB Holding Company S.à.r.l. and its affiliates (together “JAB”) completed a partial tender offer (the “Tender Offer”) for shares of Coty Inc. (“Coty”) on April 25, 2019, increasing its ownership stake from 40% to 60% of the outstanding Coty shares. At the time of the Tender Offer, Coty had a nine-member board of directors – four directors affiliated with JAB (the “JAB Directors”) and five individual directors (the “Individual Directors”). Pierre Laubies, the CEO of Coty, was one of the Individual Directors. Although Laubies was the only Individual Director with a management position at Coty, he, like all of the Individual Directors, had professional ties to JAB and its officers, with Laubies having formerly served as CEO of a JAB affiliate.  More ›

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Chancery Dismisses Claim for Breach of Fiduciary Duty Where Parties’ Commercial Relationship Was One of Ordinary Care

Posted In Chancery, Fiduciary Duty

Nieves v. Insight Building Co., LLC, C.A. No. 2019-0464-SG (Del. Ch. Aug. 4, 2020)

The Court of Chancery used an unlikely vehicle — a dispute over stormwater drainage — to further explain the limits of common law fiduciary duties. Plaintiffs/Homeowners experienced drainage issues and brought several claims against their builder, as well as the developer (“Developer”) from which the builder had purchased lots. One such claim was that Developer had breached a fiduciary duty to Homeowners, even though Plaintiffs did not purchase their lots directly from Developer or otherwise have a contractual or commercial relationship with Developer. Plaintiffs/Homeowners alleged Developer “owes a common law fiduciary duty … because Plaintiffs reposed a special trust in and reliance on the judgment of the developer.” (internal citations omitted.) More ›

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