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Chancery Dismisses DGCL Breaches Styled as Fiduciary Duty Claims

Sykes v. Touchstream Technologies Inc., C.A. No. 2022-0861-SG (Del. Ch. March 27, 2024)
The Delaware General Corporation Law (“DGCL”), certificates of incorporation, and bylaws together constitute multi-party contracts among the directors, officers, and stockholders of the corporation. As parties to those contracts, stockholders have direct standing to sue for their enforcement. Here, alongside several other claims, plaintiffs attempted to fashion claims based on the board’s purported violation of sections of the DGCL as a breach of fiduciary duty. Specifically, plaintiffs alleged that the company’s directors had breached their fiduciary duties through violations of Section 211 of the DGCL for failing to hold an annual meeting and Section 220 of the DGCL for failing to produce books and records. The Court found that, in styling the claims as a breach of fiduciary duty, plaintiffs had improperly attempted to “bootstrap a fiduciary claim out of a legal claim.” The Court further noted that plaintiffs could have attempted to vindicate their statutory rights via claims for breach of the DGCL. But, because it was framed as a breach of fiduciary duty, plaintiffs failed to state a claim. Accordingly, the Court dismissed the plaintiffs' breach of fiduciary duty claims.

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