Sciabacucchi v. Liberty Broadband Corporation, C.A. No. 11418-VCG (Del. Ch. July 26, 2018)

This is the second notable decision arising out of litigation involving Charter Communication’s equity issuance to its largest stockholder, Liberty Broadband, in connection with other transactions.

In the first decision, the Court found a stockholder vote was structured so that approval of lucrative acquisitions coerced approval for the equity issuance to Liberty Broadband and a related transaction, negating potential stockholder ratification under Corwin.   

In this decision, the Court clarifies the nature of a dilution claim and addresses the significance of Gentile, a decision recognizing a species of dual-natured claims, which the Delaware Supreme Court recently addressed in El Paso.  Adhering to post-El Paso Court of Chancery precedent, this decision holds that a dilution claim is always a derivative claim unless the transaction involves benefiting a controlling stockholder.  Thus, a dilution claim not involving a controller is one subject to Delaware’s pre-suit demand on the board requirement and a potential Rule 23.1 motion at the dismissal stage.  Here, the dilution claim was derivative.  But, the stockholder-plaintiff did successfully plead that demand on the board would have been futile and that the transaction was subject to rigorous entire fairness review.  Accordingly, the suit goes forward.