Recent Delaware Corporate and Alternative Entity Decisions
Posted : July 15th, 2010Lingo v. Lingo, No 713, 2009, Steele, J. (Del. Supr. June 10, 2010).
This Delaware Supreme Court opinion affirms the Court of Chancery’s judgment in ordering restitution from appellee daughter, and requiring her to return funds she misappropriated while acting as her mother’s attorney-in-fact, to the mother’s estate. In 2002, the mother created a new will that disinherited the son and named the daughter as the sole beneficiary and attorney-in-fact. As attorney-in-fact, the daughter took advantage of her mother’s diminished mental capacity and breached her fiduciary duties by engaging in self-dealing transactions. Due to the daughter’s breach, appellant son requested that: 1.) the daughter return all misappropriated funds to a testamentary trust established by the parents instead of the mother’s estate to which he was longer a beneficiary; and 2.) to have equitable forfeiture and a decrease of inheritance imposed on the daughter. In refusing to impose the requested remedy, the Supreme Court noted, “Delaware courts have long recognized that restitution is the appropriate remedy . . . to redress a breach of fiduciary duty where a part is unjustly enriched at the expense of another.” Further, because the son was disinherited, imposing equitable forfeiture against the daughter would conflict with the mother’s clearly expressed testamentary intent.
Gentile v. Rossette, C.A. No. 20213-VCN, Noble, V.C. (Del. Ch. May 28, 2010).
Plaintiffs, former minority shareholders (“FMS”) of SinglePoint Financial, Inc. (“SinglePoint”) alleged that the defendants, majority shareholder and director, P. David Rossette (“Rossette”), and director Douglas W. Bachelor (“Bachelor”) breached their fiduciary duties by approving a debt conversion transaction (“Debt Conversion”) which improperly diluted the FMS’ voting and economic rights. The Court found that the entire fairness standard applied to the Debt Conversion because, “Rossette was able to orchestrate the pricing component for his benefit . . . a classic example of self-dealing by a controlling stockholder.” Consequently, the court held that both the process and price of the Debt Conversion was unfair, noting that “Rossette set the conversion with limited or no pushback from Bachelor, who was in no position to bargain effectively on behalf of the minority stockholders.” As for the price, the Court relied most notably on “Rosette’s persistent willingness . . . to pour his ultimately limited resources into the Company,” in concluding that SinglePoint’s stock was worth considerably more than the $ 0.05 per share Rossette determined. Accordingly, the Court awarded damages equal to the difference between what the Court found as the fair value of the shares ($ 0.40) and the $ 0.05 conversion rate. Further, the Court held that Bachelor was entitled to the protection of SinglePoint’s exculpatory provision adopted under 8 Del. C. s 102(b)(7) because despite approving of the Debt Conversion, he had not acted disloyally and his conduct was not in bad faith
Fletcher International, Ltd. v. ION Geophysical Corp., C.A. No. 5109-VCP, Parsons, V.C. (Del. Ch. May 28, 2010).
Fletcher, the owner of all outstanding Series D Preferred Stock at ION Geophysical Corp. (“ION”), filed a motion for partial summary judgment with regard to ION’s issuance of a convertible promissory note through a subsidiary. Plaintiff claimed that the issuance of this note without his permission violated the terms under the Certificate of Rights and Preferences which stipulated that he had a right to consent to issuances of a security by a subsidiary. Fletcher also claimed that Director Defendants breached their fiduciary duty of loyalty by failing to disclose all material facts concerning the note and provide a timely and meaningful vote on its issuance. In its decision, the Court found that the note issued by ION was indeed a security under the Certificate and that the issuance of the note without Fletcher’s consent violated his contractual rights. The Court, however, dismissed the breach of fiduciary duty claim because it was based on a contract violation that could be remedied through the breach of contract claim. In reaching this conclusion, the court noted that unless fiduciary duty claims are “based on duties and rights not provided for by contract, a plaintiff cannot maintain both contractual and fiduciary duty claims arising out of the same alleged wrongdoing.”
Baca v. Insight Enter., C.A. No. 5105-VCL, Laster, V.C. (Del. Ch. June 3, 2010).
Baca, a shareholder of Insight Enterprises Inc. (“Insight”), brought action in Delaware Chancery Court after Insight rejected his requests to inspect books and records of the company pursuant to Section 220. Months prior to the request, Baca filed a derivative action in Federal Court seeking damages for harms resulting from misstatements made in the financial reports of Insight. The Court found that he could not establish a proper purpose for his Section 220 demand. Citing King v. Verifone Holding, Inc., the Court noted that a stockholder does not act with a proper purpose when he or she uses Section 220 to investigate matters already at issue in a plenary derivative action. Because Baca filed a derivative action before the Section 220 request, and the request covered matters at issue in the derivative action, he did not have a proper purpose for seeking books and records.
Cambridge North Point LLC v. Boston and Maine Corp., C.A. No. 3451-VCS, Strine, V.C. (Del. Ch. June 17, 2010).
This case involved the enforceability of a settlement agreement between Boston and Maine Corporation (“B&M”) and Cambridge North Point (“Cambridge”). B&M claimed that the settlement agreement was unenforceable based on theories of misrepresentation and unilateral mistake. Specifically, Defendants argued that Cambridge quietly revised the settlement agreement between drafts and Defendants signed the agreement believing different terms had been memorialized. The court ultimately rejected B&M’s claims and required the agreement be enforced in full. Specifically, the Court found that Cambridge did not make any misrepresentations due to the fact that the revisions that Cambridge offered were clearly available for B&M to read and examine. Additionally, B&M failed to produce evidence showing that Cambridge knew or should have known that B&M was mistaken and the Court noted that both each side had lawyers participating in negotiations and the various iterations of the draft settlement were in available for review. As a result, the Court mandated that B&M pay $3.5 million as stipulated in the settlement agreement, fulfill additional obligations under the contract, and pay damages for certain breaches of the agreement.
100 South Rockland Falls Road, P. O. Box 4175, Wilmington, DE 19807 - (302) 576 - 9600
Sitemap | Our Team | Home
Nothing in this website is intended to create an attorney-client relationship. The contents of this website and any publications included in this website should not be deemed legal advice, and you should not rely on any part of this website as legal advice related to your particular circumstances. The contents are provided for informational purposes only. If you have questions about the contents of the website, please contact us.