Friday, November 22, 2013

Malone v. Brincat case brief

Malone v. Brincat case brief summary
722 A.2d 5 (1998)


CASE SYNOPSIS
Appellant individual shareholders and members of a class sought review from the order of the Court of Chancery of the State of Delaware, in and for New Castle County that dismissed their complaint for breach of fiduciary duty in overstating the financial condition of the company with prejudice against appellee corporate directors and accountants for failure to state a claim under Del. Ch. Ct. R. 12(b)(6).

CASE FACTS
Based on corporate financial statements that had overstated the earnings of the corporation, appellant individual shareholders and members of a class brought an action alleging breach of fiduciary duty by appellee corporate directors. The trial court dismissed the action with prejudice for failure to state a claim under Del. Ch. Ct. R. 12(b)(6) on the basis that appellees had no fiduciary duty and federal securities law had applied.

DISCUSSION
  • Appellants sought review and the court affirmed and held that dismissal of appellant's claim for breach of fiduciary duty against appellee corporate directors for overstating the financial condition of the company was proper in the absence of allegations stating a derivative action or a cause of action with a suitable remedy. 
  • However, the court held that the dismissal should have been without prejudice so that appellant's could refile an amended complaint because federal law had not preempted a shareholder action, although appellant's duty of disclosure had to be linked to shareholder action.
CONCLUSION
The court affirmed dismissal of appellant shareholders and members of a class' claim for breach of fiduciary duty against appellee corporate directors for overstating the financial condition of the company in the absence of allegations stating a derivative action or a cause of action with a suitable remedy. However, the court held that the dismissal should have been without prejudice so that appellant's could refile an amended complaint.

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