Court of Chancery Grants Partial Summary Judgment with Respect to Claims that Former Controlling Stockholder Extracted Excess Compensation from Acquirer in Exchange for Supporting Merger
Crescent/Mach I Partnership, L.P. v. Turner, C.A. No. 17455-NC, 2005 WL 3618279 (Del. Ch. Dec. 23, 2005).
Former stockholders who were cashed out in connection with merger sued the corporation's former controlling stockholder and the acquirer for breach of fiduciary duty and aiding and abetting breach of fiduciary duty, respectively. Plaintiffs complained of numerous side deals, allegedly negotiated by the controlling stockholder. Plaintiffs also complained that the controlling stockholder breached his fiduciary duty by supplying growth projections that he knew to be unduly pessimistic and inconsistent with management's view. Defendants moved for summary judgment, which the court granted in part and denied in part.
The court dismissed Plaintiffs' claims against the former controlling stockholder alleging that he extracted excess compensation for his benefit as the price of going along with the merger because (1) there was no evidence that he conditioned his assent to the merger on any specific consideration and (2) the side deals that he received did not materially affect the merger price. The court also dismissed Plaintiffs' aiding-and-abetting claim because there were no facts in the record establishing that the acquirer was a knowing participant in any effort by the controlling stockholder to abuse his fiduciary obligations. The court did find, however, that Plaintiffs' claim alleging that the controlling stockholder supplied inaccurate growth projections had at least arguable record support. Accordingly, the court denied Defendants' motion with respect to that claim.