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Court of Chancery Upholds Conspiracy Theory

Allied Capital Corporation v. GC-Sun Holdings, LP, C.A. No. 1954-N (Del. Ch. November 22, 2006).

This is the first decision that applies the law of civil conspiracy in the context of a parent and its subsidiaries. While there is authority that entities under common control cannot be held to have conspired together, that is not now the law of Delaware. This holding is particularly important in the way it may be applied to deal with coordinated conduct by related entities. The implications include that civil conspiracy may take the place of other legal theories, such as veil piercing, that previously were used to hold parent entities responsible for the wrongful conduct of their subsidiaries.

The civil conspiracy must involve scienter in assisting the wrongful conduct. This will limit the scope of this theory, but its utility is that when a conspiracy is proved, all the members are liable for the acts of their co-conspirators. Thus, a parent entity may be sued for what the subsidiary has done.

This decision also provides guidance on when the duty to act in good faith may be used to supplement contractual provisions. Consistent with the current trend in such matters, the decision holds that the duty of good faith performance does not apply when the contract terms are clear in what is required



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