Delaware Business Litigation Report

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

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.

Among other things, the Court of Chancery rejected the defendants’ laches arguments, reasoning that factual development was necessary to determine which entity owned the intellectual property, which jurisdiction’s law applied and when the statute of limitation began to run. The Court also held that a Canada forum selection clause in the stockholders’ agreement did not extend to fiduciary duty claims arising from the transaction. The Court reasoned that the fiduciary duties had not been created by the agreement and would exist in the absence of the agreement. The Court also found that the forum selection clause did not apply to an unjust enrichment claim, which is based on the absence of an agreement. The Court further rejected defendants’ arguments that other parties to the stockholders’ agreement were necessary parties, because the Court conceivably could fashion relief against the defendants without rescinding the agreement or otherwise affecting non-parties’ contract rights. Finally, the Court dismissed the plaintiff’s claim under Section 205 of the Delaware General Corporation Law to void the stockholders’ agreement. The Court reasoned that Section 205 was not meant “to act as an eraser in the hands of the judge to extirpate allegedly void or voidable corporate acts” or a vehicle for plenary claims based on breach-of-fiduciary duty allegations or alleged fraud. Rather, Section 205 is a remedial statute to cure technical defects in corporate acts. 

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