Friday, November 22, 2013

Thorpe v. CERBCO, Inc. case brief

Thorpe v. CERBCO, Inc. case brief summary
676 A.2d 436 (1996)

CASE SYNOPSIS
Plaintiff shareholder challenged the decision of the Court of Chancery of the State of Delaware in and for New Castle County, which held in their derivative suit, that although defendant controlling shareholders breached their duty of loyalty they had the right underDel. Code Ann. tit. 8, § 271 to veto any transaction which company would have entered into which constituted the sale of all or substantially all of the assets of the corporation.

CASE FACTS
Controlling shareholders in the corporation negotiated to sell their stock a buyer interested in buying stock from corporation. Controlling shareholders did not inform corporation's directors of buyer's interest in corporation stock, but did inform corporation of their agreement. The chancery court held that a shareholder was entitled to vote entirely in his or her own self-interest. Shareholder appealed.

DISCUSSION

  • The court rejected the fairness standard, finding the corporate opportunity doctrine was a better framework for addressing controlling shareholders' duties as directors. 
  • Del. Code Ann. title 8, § 271 rights were ultimately responsible for the nonconsummation of the transaction. 
  • Even if controlling shareholders had behaved faithfully to their duties to corporation, they still could have rightfully vetoed a sale of substantially all of corporation's assets under § 271. 
  • Thus, the § 271 rights, not the breach, were the proximate cause of the nonconsummation of the transaction. 
  • Accordingly, transactional damages were inappropriate, but controlling shareholders were liable for damages incidental to their breach of duty. 
  • Specifically they were liable to corporation.
CONCLUSION
The court affirmed in part, reversed in part and remanded.


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