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Court Of Chancery Explains When Control Makes Dilution Claim Direct

Posted In Fiduciary Duty
In Re Nine Systems Corporation Shareholders Litigation, C.A. 3940-VCN (September 4, 2014) Whether a plaintiff's claim is direct or derivative is often a critical issue. It has now been established that when a controlling stockholder issues equity to himself at an unfair price, the resultant dilution claim is a direct one. This decision explains how to prove that a group of stockholders constitutes a control group and when interested directors as a majority of the board also may be considered to be a control group so as to make a dilution claim a direct claim. It is also interesting for its conclusion that, although the process used was not fair, the price was fair and only attorney fees may be awarded to the plaintiffs,