Chancery Dismisses Claims Against Controller and its Affiliates Based on Group Pleading and Vague, General Allegations of Claims for Breach of Fiduciary Duty
Bocock v. Innovate Corp., C.A. No. 2021-0224-PAF (Del. Ch. Oct. 28, 2022)
A holding company acquired a controlling stake in an owner/operator of low-power television stations via a stock purchase agreement. The controller then designated certain of its own affiliates’ officers and directors as officers and directors of the acquired company. More than three years later, stockholders and option holders filed a complaint alleging that the controller, its affiliates, and the officers and directors had conspired to loot the company by usurping corporate opportunities, transferring assets for insufficient consideration, and entering into agreements that drained value from the company. The claims included breach of fiduciary duty, corporate waste, aiding and abetting, conspiracy, and tortious interference.
The Court of Chancery sustained certain claims for which the elements were adequately pled but dismissed most of the claims in the complaint. Dismissing fiduciary claims against several individual defendants, the Court explained that group pleading is insufficient to support fiduciary duty claims and that, instead, a pleading must be specific as to each individual, including dates of fiduciary status and specific acts taken. The Court also dismissed corporate opportunity claims due to vague and generalized allegations of unspecified opportunities having been usurped at unspecified times, as well as claims alleging that entering into various agreements constituted breaches of fiduciary duty because plaintiffs had not explained their terms or attached the agreements to the complaint and thus the Court could not evaluate their terms. The Court further dismissed conspiracy and aiding and abetting claims against alleged fiduciaries, explaining that fiduciaries’ conduct relates to claims for breaches of fiduciary duties themselves. The Court dismissed option holders’ claims for tortious interference, reasoning that the complaint lacked allegations of a breach of contract, and mere ownership of stock options is insufficient to show a bona fide expectancy required to support a claim for tortious interference with prospective business relationships. Dismissing other claims on the basis of laches, the Court found that plaintiffs had been on inquiry notice of transactions that occurred more than three years prior to the filing of the complaint. The Court reasoned that a plaintiff is on inquiry notice when the information underlying its claim is readily available to a reasonably prudent stockholder, which here included a public FCC filing that did not require burdensome cross-referencing or additional analysis.Share