Topic: Stock Transfer

Chancery Court Finds That Stockholders Have Standing For Direct Suit Relating To Unique Claims For Breach Of Fiduciary Duties

By: David L. Forney and Calvin D. Kennedy

In In re Straight Path Communications Inc. Consol. S’holder Litig., C.A. No. 2017-0486-SG (Del. Ch. June 25, 2018), the Court of Chancery, denied a motion to dismiss, finding that the transfer of an indemnification claim to the controller of a company was “sufficiently intertwined” with the company’s sale for the stockholders to make the Plaintiff’s claim a direct claim instead of a derivative claim.  The Court stated that when a controller uses his control to extract a special benefit in a sale, at the expense of the consideration to the stockholders, both the injury and the recovery run directly in favor of the former stockholders. The Court also found that, the controller’s actions related to the purchase of the indemnification claim and other assets from the company for “a manifestly unfair price” were sufficient to state a viable claim for breach of fiduciary duties.

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Court of Chancery Denies Motion To Dismiss Claim Alleging Breach of Fiduciary Duty Involving Option Grants to Directors and Voting Agreement

By: Cartwright Bibee and Ernest Simons

In Williams v. Ji, C.A. No. 12729-VCMR (Del. Ch. June 28, 2017), the Delaware Court of Chancery denied Defendants’ motion to dismiss, holding that the option and warrant grants and voting agreements in question were subject to entire fairness and that the Defendant directors had not carried their burden at that stage. The Defendants also moved to stay in favor of an earlier filed case in the Court, but the motion was denied as moot because the earlier filed case had settled.

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CHANCERY COURT EXPLAINS STANDING FOR FIDUCIARY CLAIMS WHEN A STOCKHOLDER IS SQUEEZED OUT

By: Holly Hatfield and Michael Bill

In I.A.T.S.E. Local No. One Pension Fund v. General Electric Company, et al., No. 11893-VCG (Del. Ch. Ct. December 6, 2016), the Delaware Court of Chancery, denied defendants’ motion to dismiss and held that a breach of fiduciary duty claim is personal and does not adhere to the stock of the company where the transaction at issue severs the relationship between the stockholder and the entity.

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