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Showing 258 posts in Fiduciary Duty.

Chancery Finds AT&T Failed to Satisfy Entire Fairness Review in a Freeze-Out of Minority Partners in Local Spectrum Partnership

Posted In Chancery, Entire Fairness, Fiduciary Duty, Partnerships


In re Cellular Telephone P’ship Litig., Coordinated C.A. No. 6885-VCL (Del. Ch. Mar. 9, 2022)
A controller that stands on both sides of a freeze-out transaction has the burden to prove that its acquisition was entirely fair to minority partners in terms of the acquisition’s process and price. The freeze-out of minority partners at an opportune time for the controller may not satisfy entire fairness review. More ›

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Chancery Sustains Fiduciary Duty Claims Arising From Option Grants At Pandemic-Low Price

Posted In Chancery, Controlling Stockholder, Fiduciary Duty


Knight v. Miller, C.A. No. 2021-0581-SG (Del. Ch. Apr. 27, 2022)
In mid-March 2020, at a time when the COVID-19 pandemic caused the corporation’s stock price to trade at a periodic low, the corporation’s compensation committee awarded stock options to themselves and other directors and officers. Addressing the defendants’ motion to dismiss, the Court reasoned that the circumstances did not support an inference of bad faith. Nevertheless, because the compensation committee members received options and thus were personally interested in determining their terms, such claims were subject to entire fairness review. Similarly, option grants to certain directors who together also were the corporation’s controlling stockholders would be subject to entire fairness review as involving non-ratable benefits to a controller. The Court rejected, however, the stockholder-plaintiffs’ theory that certain officer-defendants breached their fiduciary duty of loyalty by receiving the awards. Surveying prior cases, the Court reasoned that to sustain such a claim, the circumstances would have to be such that the recipient acted with scienter (i.e., in “bad faith”) by receiving the compensation at-issue. Finally, given that the awards potentially resulted from breaches of fiduciary duty by the director-defendants, the Court sustained at the pleading stage a claim that all recipients were unjustly enriched. 

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Chancery Upholds Claims Against Controller’s Family Member

Posted In Chancery, Controlling Stockholder, Fiduciary Duty


In re Straight Path Communications Inc. Consol. Stockholder Litig., C.A. No. 2017-0486-SG (Del. Ch. Feb. 17, 2022)
This summary judgment decision arose out of a transaction involving the company Straight Path.  Straight Path’s controller had sold company assets to another company controlled by his family, IDT, for an allegedly inadequate price.  One of the assets was an indemnification claim against IDT, which used to be Straight Path’s parent company, for indemnification rights arising following Straight Path’s spin-off.  Straight Path thereafter was sold to Verizon, eliminating derivative standing for the company’s stockholders to challenge derivatively the asset sale to IDT.  Straight Path’s controller allegedly leveraged his control to wrest that indemnification claim from the company’s stockholders prior to the Verizon transaction.  Stockholders brought direct claims against the family members and an affiliated trust in this action.  Their claims previously survived dismissal, and in this decision their claims survived summary judgment.  More ›

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Chancery Dismisses Complaint Against LLC Directors Based on Specific Terms of the Operating Agreement and Laches

Posted In Chancery, Fiduciary Duty, Laches, LLCs


Erisman v. Zaitsev, C.A. No. 2020-0903-JRS (Del. Ch. Dec. 29, 2021)
Under Delaware law, parties to limited liability company agreements have the freedom to alter or eliminate fiduciary duties, and to eliminate liability for breaches of contractual and fiduciary duties. Here, the Court of Chancery dismissed LLC members’ complaint because, among other reasons, the Operating Agreement (i) replaced default common law fiduciary duties with a contractual standard that limited director liability to claims in which directors did not rely on the terms of the Operating Agreement in good faith; and (ii) it further provided that the directors were not liable for money damages unless they failed to act in good faith, engaged in intentional misconduct or a knowing violation of the law, derived an improper personal benefit, or breached their duty of loyalty to the company. More ›

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Chancery Revived a Dismissed Claim after Discovery Revealed a Desire for Liquidity that Resulted in a Divergent Interest in M&A Sale Process

Posted In Chancery, Fiduciary Duty, M&A


In re Mindbody, Inc., S’holder Litig., Cons. C.A. No. 2019-0442-KSJM (Del. Ch. Dec. 9, 2021)
A desire for liquidity can result in a divergent interest sufficient to plead fiduciary duty claims against a defendant protected by an exculpatory charter provision. More ›

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Chancery Sustains Claims for Controlling Stockholders’ Breach of Fiduciary Duties, But Dismisses Claim to Void Transaction under DGCL Section 205

Posted In Chancery, DGCL, Fiduciary Duty, Forum Selection Provisions


Amgine Techs. (US), Inc. v. Miller, C.A. No. 2020-0537-JRS (Del. Ch. Nov. 29, 2021)

This case involves the Court of Chancery’s consideration of various Rule 12 arguments for dismissal advanced by defendants – alleged controlling stockholders who assigned certain of the corporation’s intellectual property to another entity they owned, and who allegedly caused the corporation to enter into a stockholders’ agreement that gave them preferential terms. More ›

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Chancery Dismisses Breach of Fiduciary Duty Claims Involving Bio-Tech Company Developing a COVID-19 Vaccine

Posted In Chancery, Fiduciary Duty


In re Vaxart, Inc. Stockholder Litigation, Consol. C.A. No. 2020-0767-PAF (Del. Ch. Nov. 30, 2021)
Plaintiffs challenged amendments to warrant agreements between Vaxart and its former controlling stockholder, Armistice, alleging that the board intentionally withheld information significantly affecting the company’s share price, which permitted Armistice to engage in insider trading in violation of the board’s and Armistice’s fiduciary duties. Defendants moved to dismiss for failure to state a claim and for failure to make demand on the board. The Court granted the motion in part and dismissed derivative claims against Armistice and the board, finding that plaintiffs had failed to establish that Armistice was a controller and (relatedly) that demand on the Vaxart board would be futile.  More ›

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Delaware Court of Chancery Upholds Incumbent Directors’ Decision not to Excuse Stockholders’ Non-Compliance with Advance Notice Bylaw

Posted In Advance Notice Bylaws, Chancery, Fiduciary Duty

Previously posted on Business Law Today

Rosenbaum v. CytoDyn Inc., 2021 WL 4775410 (Del. Ch. Oct. 13, 2021)
The Delaware Court of Chancery recently upheld incumbents’ decision not to include insurgent director nominees on the ballot due to their failure to comply with an advance notice bylaw. For months, the director nominees and certain affiliated stockholders were aware of the requirements of the bylaw, which had been adopted on a clear day. On the eve of the deadline, they submitted a deficient notice that failed to disclose (i) the supporters of the nominees or their proposals, and (ii) the fact one nominee recently tried to have the corporation purchase his separate business, and that he may do so again. The court reasoned that, had the stockholders proceeded sooner, and submitted a deficient notice with “ample time” before the deadline, then directors exercising their fiduciary duties may have had to work with the dissidents to address the deficiencies. Id. at *17. As it stood, however, the incumbents’ decision to enforce the bylaw did not evince “manipulative conduct” in violation of the incumbents’ fiduciary duties. See id. at *14-17. 

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Chancery Denies Motion to Dismiss in Part Because Certain Discussions Between CEO and Acquirer Were not Disclosed in Proxy When Other Similar Communications Were

Posted In Chancery, Disclosure Claims, Fiduciary Duty, M&A


Teamsters Local 237 Additional Security Benefit Fund v. Caruso, C.A. No. 2020-0620-PAF (Del. Ch. Aug. 31, 2021)
Under Revlon, a director must focus on obtaining a transaction that provides the maximum value for stockholders in a sale of control. In addition, when directors solicit stockholder approval, they must disclose fairly and fully all material information. More ›

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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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