Court of Chancery Partially Grants Motion For Summary Judgment Based Upon Plaintiffs' Lack Of Standing To Bring Derivative Claims As Result Of Merger
Gentile v. Rossette, C.A. No. 20213-NC, 2005 WL 2810683 (Del. Ch. Oct. 20, 2005).
Plaintiffs, former shareholders of SinglePoint Financial, Inc. which merged into a subsidiary of Cofiniti, Inc., alleged that two former directors of SinglePoint breached their fiduciary duties in connection with the issuance of a large number of shares to one of the defendants and the merger. Defendants moved for summary judgment.
SinglePoint depended upon majority shareholder and director Defendant Pasquale Rossette for cash infusions. Rossette and SinglePoint's CEO and other director authorized the issuance of a number of shares to Rossette in order to convert Rossette's debt into equity. As a result of this debt conversion, Rossette's equity ownership increased from 61.19% to 93.49%. After the conversion, Rossette negotiated with Cofiniti to acquire SinglePoint. In order to secure Rossette's approval of the merger, Cofiniti offered Rossette certain benefits other stockholders did not receive, including a put agreement. The Information Statement circulated to SinglePoint shareholders failed to disclose that Rossette conditioned his approval of the merger on his receipt of the put agreement. Defendants moved for summary judgment on the grounds that Plaintiffs' claims were derivative, not direct, and Plaintiffs lacked standing as a result of the merger. Defendants also argued that Plaintiffs' fiduciary duty claims failed as a matter of law.
The Court granted the Defendants' motion for summary judgment on Plaintiffs' claims relating to the debt conversion, holding that a dilution claim, absent harm to voting rights, is a derivative claim. The Court denied the Defendants' motion for summary judgment on Plaintiffs' claims relating to the merger, holding there was a genuine issue of material fact as to whether the put agreement resulted in an unfair price to the remaining stockholders. The Court also held that Defendants did not establish as a matter of law that Plaintiffs' fiduciary duty claims failed.
Subsequently, the Court granted the Plaintiffs' motion for certification of an interlocutory appeal of this decision. Gentile v. Rossette
, C.A. No. 20213-NC, 2005 WL 3272361 (Del. Ch. Nov. 21, 2005). http://courts.delaware.gov/opinions/(shflcr452r1gon3zewev0555)/download.aspx?ID=68810