Delaware Court Of Chancery Ruling Provides a Cautionary Tale for Investment Fund Directors Seeking to Monetize Their Investment
Delaware Court Of Chancery Ruling Provides a Cautionary Tale for Investment Fund Directors Seeking to Monetize Their Investment
By Jill B. Louis and Ernest L. Simons
In The Frederick Hsu Living Trust v. ODN Holding Corp., et al., one of the founders of ODN Holding Corporation (the “Company”) filed suit against the controlling stockholder, the board and certain officers of the Company for cash redemptions of preferred stock allegedly made in violation of statutory and common law instead of using the Company’s cash to maximize the value of the Company for the long term benefit of all stockholders. The Delaware Court of Chancery granted defendants’ motions to dismiss claims of waste and unlawful redemption. However, the Court of Chancery denied defendants’ motions to dismiss claims of breach of fiduciary duty, aiding and abetting a breach of fiduciary duty, and unjust enrichment finding that the allegations of the Plaintiff supported a reasonable inference that the entire fairness standard would apply and that individual defendants may have acted in bad faith.