Pena v. MacArthur Grp. Inc., C.A. No. 2023-0412-MTZ (Del. Ch. Oct. 1, 2025)
Corporate fiduciaries, like officers, directors or controlling stockholders, face potential liability for breach of the duty of loyalty, where they direct a corporation toward an unfair transaction from which they derive a personal, material non-ratable benefit.
Here, the alleged non-ratable benefit was reduced liability for breaches of fiduciary duty resulting from the merger of a corporation into a limited liability company with no fiduciary duties. Specifically, the plaintiff alleged the corporation’s controller (also the CEO) and CFO had used the corporation’s funds for personal reasons and, to avoid liability, directed a merger into a limited liability company whose governing agreement waived all fiduciary duties. On the defendants’ motion to dismiss, the Court found the plaintiff had stated a claim for breach of fiduciary duty based on a non-ratable benefit from the waiver of fiduciary duties in the surviving limited liability company.
Reviewing the Delaware Supreme Court’s decision in Maffei v. Palkon (discussed here) and other pertinent decisions, the Court explained that a materiality determination in this context encompasses temporality (i.e., whether the litigation risk was diminished prospectively or retroactively), maturity (i.e., whether the litigation risk was inchoate, threatened, or actualized), and scope (i.e.,to what extent the duty of loyalty was waived post-transaction). In doing so, the Court noted that a material benefit would arise from a waiver of liability that is “both retroactive and prospective, enacted in the shadow of actual litigation, and waives the duty of loyalty to the point of excusing intentional misconduct.” On the other hand, it would not be material, if the waiver of liability is “prospective, enacted on a clear day, and leaves the duty of loyalty undisturbed.”
Ultimately, the Court found that these factors indicated that both the CEO-controller and CFO received a material non-ratable benefit. While the waiver was only for prospective liability, it eliminated claims based on all fiduciary duties (including the duty of loyalty). When it was enacted, the CEO-controller and CFO allegedly were both contemplating continued disloyal acts (specifically, payments from the company for a life insurance policy that benefited the controller’s wife). Accordingly, the entire fairness standard applied to claims against the CEO-controller and CFO, and the claims survived the motion to dismiss.
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