Breach of Fiduciary Duty – Page 12

Chancery Court Dismisses Derivative Breach of Fiduciary Duty Claims as Improperly Pled and the Requests for Declaratory Judgment as Not Ripe

Oct 14 2016

In Chester County Employees’ Retirement Fund v. New Residential Investment Corp., No. 11058-VCMR (Del. Ch. Oct. 7, 2016), the Court of Chancery granted the motion to dismiss brought by defendants (the members of the board of directors of New Residential Corp. (“New Residential”), its manager, the manager’s owner, and its controlling stockholder: (i) for an improperly pled derivative claim (with leave to replead) brought against the defendants for breach of fiduciary duty by the plaintiff, a stockholder of New Residential, (ii) for plaintiff’s failure to sufficiently plead futility in demanding that the board of New Residential bring the derivative suit, and (iii) as to declaratory judgments sought by plaintiff with respect to the Defendants’ liability under certain documents as not being ripe (with leave to replead).

Directors Trigger Entire Fairness Review by Approving Merger to Extinguish Potential Liability for Derivative Claims

Aug 12 2016

By Lisa Stark and Claire White

In In Re Riverstone National, Inc. Stockholder Litigation, C.A. No. 9796-VCG (July 28, 2016), the Delaware Court of Chancery held that a board’s approval of a merger agreement containing a release of claims against the directors and entered into while a potential derivative suit for usurpation of corporate opportunity was threatened against such directors warranted entire fairness review.

Chancery Court Dismisses Only Certain Counterclaims Against Baseball’s Derek Jeter

Jul 27 2016

By: Merrick Hatcher and Joshua Haft

In a mixed ruling, the Chancery Court denied, in part, baseball legend Derek Jeter’s motion to dismiss claims that he breached his fiduciary duty as a director of undergarment manufacturer RevolutionWear, that he violated the implied covenant of good faith and fair dealing, and that he fraudulently induced a contract with RevolutionWear and fraudulently concealed restrictions in his endorsement contract with Nike that precluded Jeter from fulfilling his promise to allow RevolutionWear to announce his role as a founder, substantial owner, and director.

Chancery Court Enforces Good Faith Standard of Care in Limited Partnership Agreement

By Eric Feldman and Priya Chadha

In Brinckerhoff v. Enbridge Energy Co., Inc., et al., C.A. No. 11314-VCS (April 29, 2016), the Delaware Court of Chancery reiterated its adherence to the principle stated in the Delaware Revised Uniform Limited Partnership Act (“DRULPA”) of giving “maximum effect to the principle of freedom of contract and to the enforceability of partnership agreements” as well as to the ability under DRULPA of parties to a limited partnership agreement to define their respective standards of care and scope of duties and liabilities, including to eliminate default fiduciary duties, and dismissed the plaintiff’s claims.

Directors’ Failure to Consider Speculative Projections in Recommending Tender Offer to Stockholders Insufficient to Plead a Claim for Breach of the Duty of Loyalty Based on Bad Faith

Jun 22 2016

By: Michelle McCreer y Repp and Benjamin Ken dall

In In re Chelsea Therapeutics International Ltd. Stockholders Litigation, Consol. C.A. No. 9640-VCG (Del. Ch. May 20, 2016), the Delaware Chancery Court held that Plaintiffs, who alleged bad faith on the part of corporate directors based on a failure to adequately take into account speculative financial projections in evaluating the adequateness of an acquisition offer, had failed to state a claim on which relief could be granted.

Court of Chancery Affirms That Minority Stockholder May Be Controlling Stockholder

Mar 12 2016

By David Forney and Eric Taylor

In Calesa Associates, L.P, et. al v. American Capital, Ltd., et. al, C.A. No. 10557-VCG (Del. Ch. February 29, 2016) (Glascock, V.C.), the Delaware Court of Chancery denied (with one minor exception) a 12(b)(6) motion to dismiss for failure to state a claim in a direct suit brought by stockholders of Halt Medical, Inc. (“Halt”) alleging breaches of fiduciary duties by an alleged controlling stockholder, American Capital, Ltd., a publicly traded private equity firm, and several of its affiliates (collectively, “American Capital”), and certain of Halt’s directors. The fiduciary duty claims relate to a recapitalization transaction (denominated by the Plaintiffs as a “squeeze-out merger”) that the plaintiffs claimed disproportionately benefitted American Capital and certain of Halt’s directors allegedly controlled by American Capital at the expense of Halt’s other stockholders. The Plaintiffs argued that, through a complex series of premeditated transactions and control of Halt’s Board, American Capital chocked off Halt’s capital needs and then restructured Halt pursuant to a transaction resulting in a “squeeze out” of the minority stockholders.

The Court found that the plaintiff stockholders alleged facts sufficient to support a reasonable inference that American Capital was Halt’s controlling stockholder because of its control over the Halt Board, despite its 26% equity ownership stake. In reaching the decision, the Court reaffirmed that majority equity ownership is not the sole test, and that “control” exercised by a significant minority stockholder, even when the stockholder is exercising contractual blocking rights negotiated in prior equity transactions, is enough to characterize the non-majority stockholder as a controller for purposes of determining that the “entire fairness” standard, and not the business judgment rule, governs the board’s fiduciary duties and the controller’s actions.

Chancery Court Denies Motions for Summary Judgment in Case Brought by Minority Stockholders against Controlling Stockholders for Diversion of Equity as a Result of Breach of Duties

Mar 11 2016

By Whitney Smith and Kevin Szu-Tu

In Fotta v. Morgan, C.A. No. 8230-VCG (Feb. 29, 2016), Vice Chancellor Glasscock denied cross motions for summary judgment and granted a motion to dismiss for failure to comply with Rule 23.1. After determining that factual issues remained as to causes of action brought by certain stockholders of First Orion Corp. for waste, breach of fiduciary duty, and statutory claims, the Court of Chancery was unable to determine whether a significant creditor to nominal defendant First Orion Corp. used its control over the board of directors to divert equity to itself in breach of duties owed to the common stockholders.

Court of Chancery Dismisses Breach of Fiduciary Duty Claim as Duplicative of Breach of Contract Claim

Mar 04 2016

By Scott Waxman and Zack Sager

In CIM Urban Lending GP, LLC v. Cantor Commercial Real Estate Sponsor, L.P., the Delaware Court of Chancery dismissed a breach of fiduciary duty claim against a general partner of a Delaware limited partnership because there was no independent factual basis for the breach of fiduciary duty claim apart from the plaintiffs’ breach of contract claim.

Chancery Court Tosses Complaint For Lacking Foundational Facts Available To Plaintiffs-Stockholders Under Delaware General Corporation Law § 220

Feb 19 2016

By Annette Becker and Max E. Kaplan

In Thermopylae Capital Partners, L.P. v. Simbol, Inc. C.A. No. 10619-VGC (Jan. 29, 2016), Vice Chancellor Glasscock granted defendants’ motion to dismiss, with prejudice. After attempting to unravel the allegations in plaintiffs’ pleadings as to a dilution claim, the Court of Chancery held that the complaint’s omission of pertinent facts tested the limits of “reasonable conceivability” by requiring the Court to speculate as the fundamental facts necessary for plaintiffs to prevail—facts available to plaintiffs under Delaware General Corporation Law § 220.

Plaintiffs—stockholders and former management of defendant Simbol, Inc. (“Simbol”)—claimed that Simbol’s board of directors, executives, and certain defendants-stockholders diluted plaintiffs’ shares in the corporation as part of an elaborate “scheme” to usurp corporate control for the benefit of defendants-stockholders Mohr Davidow Ventures (“MDV”) and Itochu Corporation (“Itochu”). By so doing, defendants purportedly breached their fiduciary duties to minority stockholders, causing them direct harm.

Chancery Court Allows Breach of Fiduciary Duty Claims to Proceed Against Board of Directors of Windstream Holdings, Inc.

Feb 18 2016

By: Eric Freedman and Makda Goitom

In Doppelt v. Windstream Holdings, Inc., No. 10629-VCN (Del. Ch. Feb. 5, 2016), the Delaware Court of Chancery denied a motion to dismiss claims brought by plaintiff stockholders against a Windstream Holdings Inc.’s board of directors for breach of fiduciary duty, finding that the plaintiffs’ allegations were reasonably conceivable and that the director liability exculpation provision in the corporation’s certificate of incorporation would not clearly preclude liability on the part of the board of directors. The Chancery Court granted defendants’ motion to dismiss as to plaintiffs’ claim for rescission and claim against the corporation for breach of fiduciary duty.

Catagory:Breach of Fiduciary Duty