When do controlling stockholders, exercising their voting power or selling stock, owe fiduciary duties to a Delaware corporation and its minority stockholders? This thorny question in corporate law may have a new answer following a new landmark decision by the Delaware Court of Chancery.
On January 24, 2024, the Court of Chancery of the State of Delaware (Vice Chancellor Laster) issued a Post-Trial Opinion[1] finding that Edward Lampert (Lampert), former controlling stockholder of Sears Hometown and Outlet Stores, Inc. (the Company), had violated his fiduciary duties as controlling stockholder in the course of negotiating his purchase of the outstanding equity of the Company from the minority stockholders in a 2019 take-private sale. Although the concept that a controlling stockholder may owe fiduciary duties to minority stockholders is not a new one, with this opinion, the court introduced a new framework that will help determine when fiduciary duties are owed by a controlling stockholder and better define the boundaries of such fiduciary duties going forward.
In particular, the court held for the first time that even when exercising voting power, a controlling stockholder has fiduciary duties not to harm the corporation either intentionally or through grossly negligent action. In the voting context, however, the controlling stockholder need not meet the same standard as a director to show that it affirmatively acted to promote the best interests of the corporation. The Chancery Court further held that even though Lampert did not violate his fiduciary duties through his exercise of voting power to adopt certain bylaw amendments and remove certain directors from the board, he separately violated those fiduciary duties by subsequently negotiating an unfair price for a conflicted take-private transaction with the Company.
Footnotes
[1] In re: Sears Hometown and Outlet Stores, Inc. S'holder Litig., C.A. No. 2019-0798-JTL (Del. Ch. Jan. 24, 2024).
[2] Id. p. 50
[3] Id. p. 52
[4] Id. p. 60
[5] Id. p . 69
[6] Id. p . 71
[7] Id. p . 73
[8] Id. p . 104
[9] Id. p. 112
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