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Court Of Chancery Allocates Fault In Breach Of Loyalty Case

Posted In Fiduciary Duty
In re Rural/Metro Corporation Stockholders Litigation, C.A. 6350-VCL (October 10, 2014) In a precedent-setting opinion, the Court of Chancery has allocated damages among some directors and one of their advisers in a breach of fiduciary duty case. This decision has big implications on how breach of duty cases are tried in the Court of Chancery. First, the Court held that a contribution claim by one defendant against other defendants requires joint liability, not just joint culpability. Hence, if some directors are exculpated by a Section 102(b)(7) clause, they cannot be held to contribute to a damages award even if they are negligent. Conversely, if they violated their duty of loyalty (a claim outside of 102(b)(7) protection), they may be held liable to contribute. Second, the Court held that an unclean hands defense may also bar a contribution claim under the right circumstances. While there are many other aspects of this decision that warrant close reading, it will affect most directly how defenses line up in cases going to trial.