Chancery Examines Cornerstone Standard for Establishing Non-Exculpated Fiduciary Duty Claims

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In Re BGC Partners, Inc. Derivative Litigation, Consol. C.A. No. 2018-0722-LWW (Del. Ch. Sep. 20, 2021)

A director protected by an exculpatory provision is entitled to dismissal in a breach of fiduciary duty action unless the plaintiff advances a non-exculpated claim. Under In re Cornerstone Therapeutics Inc. Shareholder Litigation, 115 A.3d 1173 (Del. 2015), to establish a non-exculpated claim plaintiff must show that a director: (1) “harbored self-interest adverse to the stockholders’ interests”; (2) “acted to advance the self-interest of an interested party from whom they could not be presumed to act independently”; or (3) “acted in bad faith.” This decision explains Cornerstone’s second prong.

The case involves BGC’s acquisition of one entity, Berkeley Point, from another entity allegedly controlled by BGC’s controller. According to the plaintiffs, the controller caused BGC to overpay for Berkeley Point because his interest in Berkeley Point exceeded his interest in BGC. The plaintiffs asserted breach of fiduciary duty claims against the controller, his purported entities, and three outside directors of BGC that served on the special committee charged with considering the transaction. After discovery, the defendants moved for summary judgment for failure to plead demand futility and for failure to state a non-exculpated claim against the directors.

The court denied the motion as to demand futility. Although the court concluded that one of the three directors could have independently considered a demand, disputes of fact remained as to the independence of the remaining two based on financial or personal ties to BGC’s controller.

The court did, however, dismiss the claims against two of the directors. Although often referred to as the “independence” prong, the court explained that Cornerstone’s second prong requires a showing not only that the director lacked independence from the interested party but also that the director acted to advance the interested party’s self-interest. Because of this dual requirement, the court’s conclusions about the directors’ independence in the demand futility context were not determinative of the Cornerstone analysis.

Applying this framework, the court concluded that the independent director was entitled to dismissal. Likewise, the court also dismissed the claims against one of the two potentially non-independent directors. Even though there were questions of fact about his independence, the plaintiffs identified no evidence that he individually took actions to further the controller’s interest. The other potentially non-independent director, however, could not be dismissed from the action because there were genuine disputes of fact regarding both his independence and his conduct. The court, therefore, denied summary judgment as to that director.

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