Friday, September 19, 2014

The Corporation of Itself Owes No Fiduciary Duties

The Corporation of Itself Owes No Fiduciary Duties


      In a recent decision rendered by the Delaware Chancery Court (Vice-Chancellor Glasscock), there was rejected the suggestion that the corporation itself owes fiduciary obligations to the shareholders. Buttonwood Tree Value Partners, L.P. v. R. L. Holcomb & Co., Inc., Civil Action No. 9250-VCG, 2014 WL 3954987 (Del. Ch. Aug. 7, 2014).
      This case arose out of a self-tender by Polk & Co. for the small minority of shares that were not held by the Polk family stockholders. Ultimately, the plaintiff shareholders would sell their shares for approximately $810 each. About six-months after that redemption there was declared a special cash dividend of $240per share, and just over 2 years later the company was sold at a price of $10,675 per share. Suit was brought, it being alleged that the plaintiffs were misled as to the value of the company when they sold their shares at $810 each. As well, the plaintiffs alleged that R. L. Polk & Co., the corporation itself, reached a fiduciary duty to the shareholders.
      It was this claim was dismissed by the Chancery Court. Specifically, as described by the Chancery Court:
The Plaintiffs allege that Polk, a Delaware corporation, “failed to meet its disclosure obligations under Delaware law as set forth in Eisenberg v. Chicago Milwaukee Corp. ... and Joseph v. Shell Oil Company ... by depriving Plaintiffs and other members of the Class of all material facts needed to determine how to respond to the Self–Tender, and specifically of the true value of their Polk stock.”
….  Although the Plaintiffs have not elaborated on what law set forth in these two cases supports their disclosure claims against Polk, neither of these cases demonstrates that Delaware corporations owe a fiduciary duty of disclosure to their stockholders in connection with a tender offer.
In fact, under settled Delaware law, “[f]iduciary duties are owed by the directors and officers to the corporation and its stockholders.” In other words, a corporation does not owe fiduciary duties to its stockholders. Thus, to the extent the Plaintiffs allege that Polk as a corporate entity breached its fiduciary duties in connection with its purported failure to meet its disclosure obligations, Count II must fail.   2014 WL 3954987, *4.


      In that no fiduciary duty was owed, there could not be a breach thereof.

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