[co-author: Aubrey Morin]

Tueza v. Lindon, C.A. No. 2022-0130-SG (Del. Ch. Apr. 27, 2023)

Because controlling stockholders of Delaware corporations owe fiduciary duties to both the corporation and to its minority stockholders, the Court of Chancery will subject a transaction involving the company to entire fairness review if a controller receives a non-ratable benefit from a transaction. This case confronts a more nuanced question: Does entire fairness apply if the non-ratable benefit goes not to the controller but to a separate entity controlled by the controller's controllers?

A plaintiff stockholder brought various claims, including breach of fiduciary duty, challenging a merger agreement. The controlling stockholder was a trust whose trustees also controlled an LLC, which was the company's largest creditor and allegedly received a non-ratable benefit from the transaction. Defendants moved to dismiss based in part upon the fact that the trust (the controller) did not receive the non-ratable benefit.

The Court rejected this argument. Because the trust and the LLC were controlled by the same trustees, along with the merger consideration's asymmetrical distribution, it was reasonably conceivable that the trust or its trustees derived a non-ratable benefit from the consideration paid to the LLC. Therefore, the Court permitted the claims against the trust, the trustees, and the LLC to move forward.