Court of Chancery Grants Plaintiff's Motion To Amend Derivative Complaint Against Director-Defendants For Insider Trading
Zimmerman v. Braddock, C.A. No. 18473-NC, 2005 WL 2266566 (Del. Ch. Sept. 8, 2005).
Plaintiff, a shareholder of priceline.com, Inc., moved for leave to amend his derivative complaint against directors of Priceline based upon three defendants' alleged insider trading and misappropriation of confidential information. Defendants argued amendment would be futile.
Plaintiff sued directors of Priceline for breaches of fiduciary duty, alleging that three directors engaged in insider trading of Priceline stock and misappropriated confidential information of Priceline. After the Court dismissed the Amended Complaint for failure to plead facts showing demand futility, Plaintiff moved for leave to file a Second Amended Complaint. Defendants argued that amendment would be futile pursuant to Court of Chancery Rule 23.1 and failed to state a claim for insider trading pursuant to Court of Chancery Rule 12(b)(6).
First, the Court held that Plaintiff adequately alleged that demand would be futile because a majority of the Priceline board was interested in the disputed transaction. Plaintiff made out a prima facie
case that three directors of the eleven-member board had sold Priceline stock with the benefit of Priceline's adverse material, confidential information. The Court also concluded that these three directors, who held 48% of Priceline's common stock, controlled the affairs of the company. Three of the remaining directors were subject to domination by the selling directors. Second, the Court held that Plaintiff stated a claim for breach of fiduciary duty for insider trading and misappropriation of confidential information.
Subsequently, the Court granted the Defendants' motion for certification of an interlocutory appeal of this order. Zimmerman v. Braddock
, C.A. No. 18473, 2005 WL 2622698 (Del. Ch. Oct. 6, 2005). http://courts.delaware.gov/opinions/(shflcr452r1gon3zewev0555)/download.aspx?ID=67350
NOTE; On September 12, 2006 the Delaware Supreme Court reversed this decision.