Delaware Business Litigation Report

Court Dismisses Minority Stockholder's Claims Challenging Her Termination as President and CEO

Dweck v. Nassar, C.A. No. 1353-N, 2005 WL 3272363 (Del. Ch. Nov. 23, 2005). Plaintiff alleged that she and Defendant orally agreed as co-founders that corporation would have a four-member board of directors and that each party would appoint two directors. Plaintiff alleged that this agreement was later reduced to written drafts but never finalized or signed. Plaintiff further alleged that Defendant, who owned 52.5% of the corporation's outstanding stock, breached this agreement and his fiduciary duties when he terminated Plaintiff as CEO and President, installed his unqualified nephew in her stead, and added a fifth member to the board. Plaintiff also sought appointment of custodian under 8 Del.C. -226, suggesting that the company's board, when properly constituted with two directors per side, would be deadlocked. Defendant moved for partial judgment on the pleadings.

The court dismissed Plaintiff's claims relating to the purported stockholder's agreement on the ground that 8 Del.C. -218(c) requires agreements "between two or more stockholders" to be "in writing and signed by the parties thereto" to be enforceable. Nor could Plaintiff have reasonably relied, the court stated, on drafts that were never signed. Because there was no enforceable stockholders agreement, the court found that Defendant had the right based on his majority interest to control the size and composition of the company's board. As a result, the court noted that there was no risk of deadlock and dismissed Plaintiff's request for a custodian. The court also found that Plaintiff's allegations of wrongdoing in connection with her termination as President and CEO were insufficient to support a fiduciary duty claim. Specifically, the court noted that fiduciary duties are not implicated when the issue involves the rights of a minority stockholder qua employee under an employment contract. The court was unwilling, however, to dismiss Plaintiff's claim that Defendant breached his fiduciary duty in appointing his nephew in Plaintiff's stead. The court explained that as much as that decision may ultimately be shown to have been properly motivated, Defendant was not entitled to judgment on the pleadings with respect that claim.

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