Delaware Supreme Court Affirms Delaware Court Of Chancery’s Dismissal Of Fiduciary Duty Breach Claims, Finding Non-Exculpated Claim Inadequately Pled
03/20/2018On March 15, 2018, the Supreme Court of Delaware affirmed the Delaware Court of Chancery’s dismissal of a putative stockholder class action asserting claims for breach of fiduciary duty and quasi-appraisal against the directors of Kreisler Manufacturing Corporation (“Kreisler”) in connection with Kreisler’s sale to Arlington Capital Partners (“Arlington”). Kahn v. Stern, No. 393, 2017 (Del. March 15, 2018). As discussed in our post regarding that decision, plaintiffs argued that merger consideration was improperly diverted into payments for two management directors. In a short order, the Delaware Supreme Court affirmed the dismissal on the basis that the pled facts did not support a rational inference that these payments were improperly diverted. Kahn v. Stern, C.A. No. 12498-VCG (Del. Ch. Aug. 28, 2017). However, the Supreme Court expressed its disagreement with the Court of Chancery’s opinion “to the extent” that it “suggests that it is an invariable requirement that a plaintiff plead facts suggesting that a majority of the board committed a non-exculpated breach of its fiduciary duties in cases where Revlon duties are applicable, but the transaction has closed and the plaintiff seeks post-closing damages.” The Court noted that Revlon duties remain applicable notwithstanding an exculpatory charter provision even though directors may only be held liable for a non-exculpated breach of those duties. The Supreme Court also indicated its disagreement “to the extent that the Court of Chancery’s decision might be read as suggesting that a plaintiff in this context must plead facts that rule out any possibility other than bad faith, rather than just pleading facts that support a rational inference of bad faith.” The Court’s comments leave open the question whether the Court simply wanted to confine the holding to the pleading at hand or was in fact stepping back from a more expansive reading of Corwin.