Fiduciary Duty – Page 10 – Delaware Docket

Gassis v. Corkery, C.A. No. 8868-VCG (Del. Ch. May 28, 2014)

May 29 2014

In Gassis v. Corkery, Civil Action No. 8868, Bishop Macram Max Gassis challenged his removal as Chairman of the Board and as a director of the Bishop Gassis Sudan Relief Fund, Inc., a Delaware charitable nonstock corporation (the “Fund”) dedicated to helping the people of southern Sudan. The Bishop also challenged the previous removal of two directors from the Fund’s board and the elections of two directors who replaced them.

Bishop Gassis’ removal at a 2013 board meeting came after years of friction with other board members, who contended that the Bishop was difficult to work with, negatively interacted with the Fund’s beneficiaries in Sudan, spent extravagantly on travels, invested in suspicious projects, and acted as though he had a personal interest in the Fund’s assets. These board members further argued that a provision of the Fund’s bylaws providing that the Bishop “shall serve [as Chairman of the Board] until his retirement or resignation” required him to be removed from the board upon his retirement as a Catholic Bishop, which was to occur on his seventy-fifth birthday on September 21, 2013.

Third Point LLC v. Ruprecht, C.A. No. 9469-VCP (May 2, 2014) (Parsons, V.C.)

May 05 2014

By David Bernstein and Meredith Laitner

On May 2, 2014, the Delaware Chancery Court issued its decision in Third Point LLC v. Ruprecht, C.A. No. 9469-VCP (May 2, 2014) (Parsons, V.C.), denying plaintiffs’ motion for a preliminary injunction which, if granted, would have delayed the Sotheby’s annual stockholder meeting until the court could determine whether the members of the Sotheby’s Board violated their fiduciary duties by adopting a “poison pill” rights plan that would be triggered if anybody acquired 10% of Sotheby’s outstanding shares, except that a Schedule 13G filer (which must be a passive investor) could acquire up to 20%. Third Point had accumulated 9.6% of Sotheby’s stock and had nominated three candidates, including Third Point’s CEO, Daniel Loeb, for election to the Sotheby’s Board. Third Point had asked that it be permitted to acquire up to 20% of Sotheby’s shares, but the Sotheby’s Board denied the request. Third Point claimed in the lawsuit that this adoption of the poison pill rights plan and refusal to grant the requested waiver was an impermissible effort by the Sotheby’s Board to obtain an advantage in the proxy contest.

Third Point had commenced the lawsuit in March 2014 after a series of acrimonious public and private communications in which Loeb had referred to what he claimed was Sotheby’s deteriorating competitive position with regard to Christie’s, accused Sotheby’s of having “a sleepy board and overpaid executive team,” said he intended to replace the CEO of Sotheby’s, and told people inside and outside of Sotheby’s that he would shortly be running Sotheby’s. In return, Sotheby’s had publicly listed what it viewed as Loeb’s failed efforts to remake companies after it got footholds on their boards.

Kahn et. al. v. M&F Worldwide Corp. et. al., No. 334, 2013

Mar 18 2014

By Kristy Harlan and Porter Sesnon

In a much anticipated decision, on March 14, 2014 the Delaware Supreme Court sitting en banc unanimously affirmed then-Chancellor Strine’s decision in In re MFW Shareholders Litigation to dismiss a stockholder lawsuit related to the 2011 acquisition of M&F Worldwide Corp. (“MFW”) by its controlling stockholder, MacAndrews & Forbes Holdings, Inc. (“Holdings”). In upholding the dismissal, the Delaware Supreme Court confirmed that the business judgment standard of review, rather than an “entire fairness” standard of review, applies to controlling-party buyouts where the transaction is conditioned ab initio upon both: (1) the approval of an independent, adequately-empowered special committee that meets its duty of care and (2) the un-coerced, informed vote of a majority of the minority stockholders.

In May 2011, Holdings, which owned 43.4% of MFW’s common stock, began to explore the possibility of taking MFW private. In June 2011, Holdings delivered a written proposal to purchase the MFW shares not already owned by Holdings for $24 per share in cash, representing a premium to the prior day’s closing price of $16.96. Holdings’ proposal expressly stated that it would be subject to approval by a special committee of MFW’s board made up of independent directors, and included a non-waivable condition that a majority of the minority of stockholders approve the transaction.

Blaustein, et al. v. Lord Baltimore Capital Corp., et al., No. 272 (Del. January 21, 2014)

Jan 29 2014

By Greg Hidalgo and Claire White

In this en banc decision, the Supreme Court affirmed the grant of summary judgment by the Chancery Court in favor of the defendants, and dismissed claims by the minority shareholder of a closely-held corporation for breach of fiduciary duty and the implied covenant of good faith and fair dealing in connection with the shareholder’s repeated requests for the corporation to repurchase her stock pursuant to a Shareholder’s Agreement. The Supreme Court confirmed that the protections afforded to minority shareholders in a closely-held corporation under Delaware common law are the same as those owed to shareholders in a publicly-held corporation, and held that directors of a closely-held corporation do not owe any special fiduciary duty to a minority shareholder to repurchase stock on favorable terms, or at all. In particular, the Supreme Court rejected the minority shareholder’s argument that she was entitled to a vote of the disinterested (or “non-conflicted”) members of the Board of Directors on her repurchase proposals. Citing Nixon v. Blackwell, the Court emphasized that a minority shareholder should rely on contractual protections to provide liquidity for the investor’s shares, and noted that the relevant provision of the Shareholders’ Agreement granted the corporation discretion as to whether to engage in a repurchase transaction, and as to price. The Supreme Court also held that the Chancery Court correctly concluded that there was no implied covenant to negotiate, in good-faith, a stock purchase price, relying on the express terms of the Shareholders’ Agreement as evidence that the parties had bargained for a permissive stock repurchase provision.

Blaustein v. Lord Baltimore Capital Corp

Touch of Italy Salumeria & Pasticceria, LLC, et al. v. Louis Bascio, et al., C.A. No 8602 (January 13, 2014) (Glasscock, V.C.)

Jan 15 2014

By Eric Feldman and Eric Taylor

Touch of Italy Salumeria & Pasticceria, LLC, et al. v. Louis Bascio, et al. is about the members of a Delaware limited liability company, Touch of Italy Salumeria & Pasticceria, LLC (the “Company”), suing a former member of the Company seeking injunctive and monetary relief after the former member withdrew from the Company in accordance with the terms of its limited liability company agreement (the “LLC Agreement”) and opened a competing business on the same street as the Company a mere ten weeks later. Emphasizing that limited liability companies are explicitly contractual relationships, the Court of Chancery dismissed the action because the LLC Agreement permitted any member to withdraw from the Company by giving written notice of the decision to withdraw to the other members, at which time the remaining members would have 60 days to elect to purchase the withdrawing member’s interest in the Company. The LLC Agreement did not contain a covenant not to compete following withdrawal. Adding to the plaintiffs’ ire was the fact that the withdrawing member allegedly lied about his intentions after withdrawal, saying that he was planning to move to Pennsylvania and perhaps open a new business there. The remaining members of the Company said that, had they known of his true intentions, they would have objected. However, the Court of Chancery noted that the plaintiffs’ lacked the means to object in any legally effective way and interpreted the complaint as “an attempt to achieve a result–restraint on post-withdrawal competition–that the members could have but chose not to forestall by contract.” The Court of Chancery emphasized that it must enforce LLC agreements as written, in this case allowing a member of the Company to withdraw and open a competing business because the LLC Agreement contained no restriction on doing so.

Touch of Italy v. Louis Bascio

Touch of Italy Salumeria & Pasticceria, LLC, et al. v. Louis Bascio, et al., C.A. No 8602 (January 13, 2014) (Glasscock, V.C.)

Jan 15 2014

By Eric Feldman and Eric Taylor

Touch of Italy v. Louis Bascio

Catagory:Fiduciary Duty