Delaware Business Litigation Report

Court of Chancery Dismisses Caremark Claims But Retains Loyalty And Fraud Counts

Canadian Commercial Workers Industry Pension Plan v. Eric Alden, et al., C.A. No. 1184-N, 2006 WL 456786 (Del. Ch. Feb. 22, 2006). In this derivative action brought against four former directors and officers of Case Financial, Inc., the nominal defendant, the two remaining defendants moved to dismiss after two others settled. Plaintiff alleged breach of loyalty, breach of the Caremark duty of oversight, corporate waste and common law fraud. The Court of Chancery partly granted the motions. This litigation ensued from an asset purchase agreement involving substantially all the assets of Case Financial's predecessor and the acquirer, Asia Web. Post-acquisition, Asia Web changed its name to Case Financial. The loyalty claims pertained to the alleged issue of stock options to defendant-Alden in breach of his contract with the defendants' board, his self-dealing by use of its resources to operate his business and transfer of the pre-acquired entity's funds to an Alden-interested entity. The allegations against defendant-Bibicoff included his alleged usurpation of corporate opportunity by his self-dealing acts of funding his interested-entity and payment of bonuses to management. The oversight claims alleged consistent failure to follow Case Financial's internal policies. The fraud claims alleged that the defendants provided materially inaccurate financial statements to the acquiror and non-disclosure of the acquired company's lender's request for a fraud audit. Defendant-Alden moved to dismiss for insufficiency of the Caremark claims citing 8 Del. C. §102(b)(7), that a mutually signed release extinguished all state and federal claims against him and that the plaintiff was an inadequate derivative representative under R.23.1. Defendant-Bibicoff moved to dismiss citing Case Financial's inadequate investigation into the merits of the claims brought against him, for failure to state a Caremark claim and fraud for lack of personal jurisdiction under 10 Del. C. § 3114. The Court dismissed the claims with prejudice against both defendants for the failure to state either a Caremark claim or a claim for fraud and loyalty. Authored by: Raj Srivatsan 302-888 6831 rsrivatsan@morrisjames.com Share