Delaware Business Litigation Report

Delaware Supreme Court Upholds Insider Trading Remedy

Kahn v Kolberg Kravis Roberts & Co. L.P., No.  436, 2010 (June 20, 2011)

One of the more important fiduciary duties in Delaware corporate law is not to trade on insider information.  A complaint alleging that you did is known as a Brophy claim for the decision that announced it over 60 years ago.  Recently, Brophy was thought to have been watered down by a requirement that the company actually suffer harm from the trading involved.  That would occur, for example, if the company is in the market to buy back its own stock in competition with the insider.

Well, the Supreme Court announced in this decision that it will not permit any chipping away at the Brophy rule.  It is not necessary to show harm to bring such a claim.  Rather, preserving the sanctity of fiduciary duties under Delaware law warrants permitting recovery of any profits made by the disloyal fiduciary, even if not at the company's expense.

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