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Court of Chancery Extends Time To Sue

Posted In Fiduciary Duty

In Re Tyson Foods, Inc., C.A. No. 1106-N (Del. Ch. February 6, 2007).

The Court of Chancery applies a three year statute of limitations to claims asserting breach of fiduciary duty. However, there are several theories that extend that time, such as for fraudulent concealment of the facts that would provide notice of the claim. This decision explains those theories in a comprehensive way. Moreover, the decision applies this law to the detailed facts presented in this case. That is useful as it is not always easy to understand when the Court will extend the time to sue.

This decision illustrates the point that deciding when the three years to sue has expired is a fact intensive inquiry. Such facts as the disclosure of a transaction in SEC filings need to be reviewed carefully. Even disclosure may not be enough when the disclosure is incomplete.

The practice pointer that this opinion provides is that it may be better to expand the disclosures of transactions with directors to start the statute of limitations running. A transaction that seems unremarkable when it occurs may later lead to litigation when the facts that develop later make it seem objectionable. Stock options are an example. The problem is only made worse when the disclosures seem misleading in hindsight.

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