IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
RCS CREDITOR TRUST, )
)
Plaintiff, )
)
v. ) C.A. No. 2017-0178-SG
)
)
NICHOLAS S. SCHORSCH; EDWARD )
M. WEIL, JR.; WILLIAM KAHANE; )
PETER M. BUDKO; RCAP HOLDINGS )
LLC; AR CAPITAL, LLC; AR )
GLOBAL INVESTMENTS, LLC; )
AMERICAN REALTY CAPITAL )
RETAIL ADVISOR, LLC; AMERICAN )
FINANCE ADVISORS, LLC; )
AMERICAN REALTY CAPITAL )
HEALTHCARE III ADVISORS, LLC; )
AMERICAN REALTY CAPITAL )
HOSPITALITY ADVISORS, LLC; )
NEW YORK CITY ADVISORS, LLC; )
GLOBAL NET LEASE ADVISORS, )
LLC; AMERICAN REALTY CAPITAL )
HEALTHCARE II ADVISORS, LLC; )
NEW YORK RECOVERY ADVISORS, )
LLC; and BDCA ADVISER, LLC )
)
Defendants. )
MEMORANDUM OPINION
Date Submitted: February 8, 2021
Date Decided: March 18, 2021
Philip Trainer, Jr. and Marie M. Degnan, of ASHBY & GEDDES, Wilmington,
Delaware; OF COUNSEL: John P. Coffey, Gregory A. Horowitz, Jeffrey S.
Trachtman, and Leah S. Friedman, of KRAMER LEVIN NAFTALIS & FRANKEL
LLP, New York, New York, Attorneys for Plaintiff RCS Creditor Trust.
Daniel A. Mason, of PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP,
Wilmington, Delaware; OF COUNSEL: Allan J. Arffa and Gregory F. Laufer of
PAULL, WEISS, RIFKIND, WHARTON & GARRISON LLP, New York, New
York, Attorneys for Defendants Nicholas S. Schorsch; Edward M. Weil, Jr.;
William Kahane; Peter M. Budko; RCAP Holdings LLC; AR Capital, LLC; AR
Global Investments, LLC; American Realty Capital Retail Advisor, LLC; American
Finance Advisors, LLC; American Realty Capital Healthcare III Advisors, LLC;
American Realty Capital Hospitality Advisors, LLC; New York City Advisors, LLC;
Global Net Lease Advisors, LLC; American Realty Capital Healthcare II Advisors,
LLC; New York Recovery Advisors, LLC; and BDCA Adviser, LLC.
GLASSCOCK, Vice Chancellor
2
This matter involves breach of duty actions brought against a corporate
controller and his affiliates, on behalf of the creditors of RCS Capital Corporation.
That entity is bankrupt; the Plaintiff is a creditor trust. The Defendants have
moved for summary judgment. A two-week trial looms in the immediate future.
This brief and inelegant Memorandum Opinion grants the Defendants’ Motion
with respect to one of the three discrete claims brought by the trust—the others
remain for trial. My reasoning is below.
I. BACKGROUND 1
The Plaintiff, RCS Creditor Trust, is a creditor trust that “has been assigned
certain claims and causes of action” held by creditors of the now-bankrupt company,
RCS Capital Corporation (“RCAP”).2 The Defendants are RCAP’s former
controller, Nicholas S. Schorsch (“Schorsch”), and his affiliates. Schorsch
controlled RCAP through his ownership (through an entity called RCAP Holdings
LLC (“Holdings”)) of one share of Class B Common Stock, which held 50% plus
one share of the voting interests in RCAP (the “Voting B Share”).3 A diagram of
the relationships between the related parties and non-parties in this action is
presented on the following page as Figure I.
1
I base the facts for this summary judgment ruling on the evidence submitted under affidavit with
the parties’ papers as well as the parties’ pleadings where undisputed facts are involved.
2
Compl. ¶ 14; Answer ¶ 14.
3
The ARC Parties’ Opening Br. in Supp. of Their Mot. for Summ. J. 23, Dkt. No. 431 [hereinafter
“MSJ OB”]; Pl.’s Answering Br. in Opp’n To The ARC Parties[’] Mot. for Summ. J. 23, Dkt. No.
454 [hereinafter “MSJ AB”].
3
The Plaintiff alleges that the Defendants either breached their fiduciary duties
or aided and abetted such a breach in connection with three sets of factual
allegations: the so-called “core claim,” the “Cole claim,” and the “Apollo claim.”4
The Defendants have moved for summary judgment on all three of these claims. In
this Memorandum Opinion, I deny the Motion for Summary Judgment (the
“Motion”) as to the Cole claim, grant the Motion as to the Apollo claim, and reserve
judgment on the core claim.
4
MSJ OB 3, 7; MSJ AB 42, 67, 69.
4
II. THE COLE CLAIM
The Cole claim arises out of a failed deal between RCAP with American
Realty Capital Properties, Inc. (the “Cole Parent”). The Cole Parent owned Cole
Capital (“Cole”), a prominent distributor of real-estate investment trusts (“REITs”).
In 2014, RCAP, which was in the business of providing services to REITs, including
distribution services, sought to acquire Cole.5 Schorsch sat on both the RCAP board
of directors (the “Board”) and on the Cole Parent board of directors.6 The parties
agree that Schorsch recused himself from Board votes relating to a transaction with
Cole. 7
During RCAP’s negotiations with the Cole Parent, the Cole Parent’s Audit
Committee learned of potential misconduct regarding its—not Cole’s—accounting
and initiated an investigation.8 The parties dispute what information Schorsch knew
at the time regarding the investigation.9 However, the parties agree that the Cole
Parent did not disclose any information regarding the investigation to RCAP.10
RCAP’s board voted in favor of the Cole transaction on September 30, 2014.11
5
MSJ OB 27; MSJ AB 32.
6
MSJ OB 27; MSJ AB 32.
7
MSJ OB 27–28; MSJ AB 32–33; Pre-Trial Stipulation ¶ 71, Dkt. No. 522.
8
MSJ OB 28; MSJ AB 33.
9
Compare MSJ OB 63, with MSJ AB 33.
10
See MSJ OB 28; MSJ AB 33.
11
MSJ OB 28; MSJ AB 33.
6
On October 29, 2014, the Cole Parent publicly disclosed the results of its
internal investigation and committed to restating its financial statements.12 The
Defendants note, and the Plaintiff did not dispute in either its briefing or at oral
argument,13 that the misstatements that necessitated the restatements “did not relate
in any way to the Cole Capital businesses that RCAP had contracted to purchase.”14
Regardless, RCAP’s board decided that it no longer wished to consummate the Cole
Transaction and terminated the deal.15 In response, the Cole Parent sued RCAP and
RCAP settled that litigation for $60 million. 16
The Plaintiff argues that Schorsch knew of the investigation prior to RCAP’s
signing of the Cole transaction, owed RCAP a fiduciary duty to disclose the
existence of the investigation, and that he failed to do so, thus breaching his fiduciary
duties to RCAP and causing it to incur a $60 million loss. 17 The Defendants argue
that Schorsch did not know enough about the substance of the investigation or about
the Cole Parent’s accounting issues to disclose it to RCAP. 18 Relevant to the
determination of the Cole claim are, among other things: what Schorsch knew; when
he knew the information that he did know; what he did or did not do regarding what
12
MSJ OB 29; MSJ AB 33.
13
See MSJ AB 33–35; 2-8-21 Tr. of Oral Arg. on the ARC Parties’ Mot. for Summ. J. 78–81, Dkt.
No. 510.
14
MSJ OB 29.
15
MSJ OB 29; MSJ AB 35.
16
MSJ OB 29; MSJ AB 35.
17
See MSJ AB 67.
18
MSJ OB 63.
7
he knew; and what involvement he had at RCAP after he knew material information,
if he did know it.19 Those are all factual determinations that are better addressed
with the benefit of trial. 20 Accordingly, the Defendants’ Motion for Summary
Judgment on the Cole claim is denied.
III. THE APOLLO CLAIM
The Apollo claim arises out of RCAP’s 2015 negotiation of a deal with Apollo
Global Management, LLC (“Apollo”) to the exclusion of a deal with Centerbridge
Capital Partners III, L.P. (“Centerbridge”), allegedly at Schorsch’s bidding. Neither
deal, I note, was consummated. 21
A. Background
In January 2015, after the failure of the aforementioned Cole transaction, the
Board believed that RCAP needed financing. To that end, it decided to “evaluate
alternatives and potentially take action with respect to the Company’s wholesale
business.” 22 On January 23, 2015, the Chairman of the Board, Mark Auerbach
(“Auerbach”), informed the Board that “he believed that it was possible that Apollo
19
This is not meant to be an exhaustive, and should not be read as a preclusive, list of factual issues
regarding this cause of action.
20
Indeed, the Defendants offer Schorsch’s deposition testimony in support of their position that
he “did not learn about” the Cole Parent’s “accounting issues or the substance of [its] internal
investigation before . . . October 1, 2014.” MSJ OB 63. Whether such testimony is credible is
best determined at trial.
21
Transmittal Decl. Pursuant to 10 Del. C. § 3927 of Daniel A. Mason in Supp. of the ARC Parties’
Opening Br. in Supp. of Their Mot. for Summ. J. [hereinafter “MSJ OB Exs.”], Ex. 78, at -87507,
Dkt. No. 432; Pre-Trial Stipulation ¶ 87, Dkt. No. 522.
22
MSJ OB Exs., Ex. 77, at -78768.
8
Global Management might make a proposal to acquire [RCAP’s wholesale
distribution] business and that it was possible that Nicholas Schorsch or an affiliate
of his may be a participant in a proposed transaction or related transaction.”23 Given
Schorsch’s control over RCAP, the Board voted to establish a special committee of
independent directors (the “Special Committee”) to consider the potential Apollo
transaction and “any alternatives available to the Company other than the Proposed
[Apollo] Transaction.” 24 Auerbach was designated the Chairman of the Special
Committee. 25
Initially, the terms of the proposed Apollo transaction were that Apollo would
transact with both RCAP and another Schorsch-affiliated entity, AR Capital, LLC
(“AR Capital”).26 Apollo would separately purchase both RCAP’s wholesale
distribution business, which provided distribution services for REITs, and a majority
stake in AR Capital, with the latter contingent on the former. 27 As the Apollo
transaction was being negotiated, however, RCAP received other overtures,
including, on June 18, 2015, one from Ladenburg Thalmann (“Ladenburg”) and one
from Centerbridge. 28 The Special Committee considered whether to engage with
Ladenburg, but had concerns due to the lack of a written proposal, Ladenburg’s
23
Id. Schorsch did not attend this Board meeting.
24
Id. at -78769.
25
Id.
26
MSJ OB 30; MSJ AB 38.
27
MSJ OB 30; MSJ AB 38; MSJ OB Exs., Ex. 92, at § 5.2(k).
28
MSJ OB Exs., Ex. 78, at -87482.
9
status as a major client, and “the nature of the previous discussions being with
respect to a stock-for-stock merger, which would not address the Company’s short-
term needs.” 29 Despite these concerns, the Special Committee still authorized its
financial advisor to engage with Ladenburg to see whether it could address RCAP’s
short-term financial needs. 30
The proposed Centerbridge deal involved, among other things: (1) a potential
$300-350 million investment in “convertible preferred stock”; (2) a rework of
RCAP’s management arrangement (the “Services Agreement”)—because, in
addition to being controlled by Schorsch, RCAP was also managed by a Schorsch-
affiliated entity called RCS Capital Management, LLC (the “Manager”); and (3) a
surrender of Schorsch’s Voting B Share—i.e., his controlling stake.31 The last two
proposals, of course, would require Schorsch’s consent because they implicated
rights held by entities he controlled. The proposed Centerbridge deal also
contemplated that debt financing related to the deal, as well as “a portion of the funds
from the Potential [Centerbridge] Transaction, would be used to repay the
Company’s current secured credit facilities, including . . . the Series B preferred
stock held by Luxor [Capital Group, LP]” 32 (“Luxor”), RCAP’s second largest
29
Id.
30
Id. at -87482, -87483.
31
MSJ OB Exs., Ex. 80; see MSJ OB 31.
32
MSJ OB Exs., Ex. 80.
10
stockholder after its controller. Centerbridge also noted that it saw value in
converting “the Series C convertible preferred stock held by Luxor into common
stock.”33
On June 27, 2015, “[t]he Special Committee unanimously agreed . . . to
terminate further negotiations with Apollo and to refer Apollo to the Special
Committee’s counterproposal, which was distributed to them on June 18, 2015,
should Apollo desire to reengage the Company in further discussions regarding a
potential transaction.” 34 Talks, however, did not actually end; on July 1, 2015, the
Special Committee again discussed Apollo’s proposed terms. 35 And Auerbach, who
was also the Special Committee Chairman, informed the Special Committee of
discussions he had had with Apollo on June 30.36 The Special Committee also
unanimously authorized Auerbach to continue engaging with both Apollo and
Centerbridge, and to discuss the two proposals with Schorsch. 37
By July 14, 2015, the Special Committee was considering three potential
transactions: the Apollo deal, the Centerbridge deal, and a Ladenburg deal.38 The
Special Committee came to
33
Id.
34
MSJ OB Exs., Ex. 78, at -87489.
35
Id. at -87490.
36
Id.
37
Id. at -87491.
38
Id. at -87496. Although the potential for a Ladenburg deal was discussed, as well as some key
terms that might go into such a deal, any Ladenburg deal does not appear to have progressed nearly
as far as either the Centerbridge or Apollo potential transactions.
11
a general consensus as to the superiority of the Centerbridge transaction
if it were doable given its requirement that the Company’s controlling
shareholder surrender the control created by the [Voting B Share] and
otherwise support the transaction. One director suggested that the
Special Committee should pursue the proposed transaction with
Centerbridge and potentially consider a subsequent strategic
partnership with Apollo. 39
The Special Committee continued to discuss, in particular, the potential
Centerbridge and Apollo transactions throughout July, including “the Centerbridge
proposal’s requirement that the Company redeem [the Voting B Share] and
terminate the Services Agreement [with the Manager], both of which would require
the approval of Mr. Schorsch.”40 The Special Committee also discussed, only a
week later,
issues related to the ability of the Company to redeem the [Voting B
Share], and whether Mr. Schorsch would be willing to clarify and
explicitly agree as to the Company having such a redemption right and
to agree to limit his ability to vote the [Voting B Share] in the interim,
as required by the Centerbridge proposal. They also discussed Apollo’s
proposed treatment of the [Voting B Share]. 41
On July 23, 2015, Auerbach informed the other Special Committee members
that Apollo’s most recent term sheet was their final offer, which prompted discussion
comparing the potential Centerbridge and Apollo transactions.42 The Special
Committee then “discussed the key objectives any transaction should seek to
39
Id. at -87497.
40
Id. at -87499.
41
Id. at -87501.
42
Id. at -87502.
12
accomplish, including the desirability for a prompt infusion of capital and a plan to
address concerns regarding management, and the reasons why it would be beneficial
to be in a position to announce a transaction by August 6, 2015.”43 When discussing
“the ability to enter into a transaction with either Centerbridge or Apollo by August
6, 2015,” however,
Mr. Auerbach informed the Special Committee that Mr. Schorsch
would not agree to any transaction with Centerbridge, given the extent
of the dilution to existing shareholders that would result and his
unwillingness to agree to give up the [Voting B Share] or its rights or
to terminate the Company’s Services Agreement with [the Manager]
(and certain other parties) in connection with the Centerbridge
proposal.44
The Special Committee “then discussed the uncertainties surrounding the
Company’s existing contractual rights related to the ability in the future to redeem
the [Voting B Share], as well as how [it] would be dealt with under the terms of each
of the Apollo and Centerbridge proposals.” The Special Committee concluded this
meeting by “unanimously determin[ing] to send the Apollo and Centerbridge term
sheets to the other members of the Board for their review and comment.” 45
Three days later, on July 26, Auerbach informed the Special Committee that
(a) Apollo had requested an exclusivity agreement and (b) Centerbridge was asking
for $2 million for expense reimbursement and $4 million for a break-up fee, absent
43
Id. at -87503.
44
Id.
45
Id.
13
which terms Centerbridge would cease diligence.46 While the Special Committee
discussed whether to agree to Centerbridge’s demands, Auerbach noted that
Schorsch “had reiterated his prior statements that he would not agree to a deal with
Centerbridge, who had insisted on certain actions by Mr. Schorsch . . . be taken as
part of any transaction, thus giving Mr. Schorsch the ability to block any such
transaction.”47 After more discussion of both the Apollo and Centerbridge
transactions, however, the Special Committee unanimously rejected both an
exclusivity agreement with Apollo and the requests by Centerbridge for further
expense reimbursement and a break-up fee arrangement—the latter, because of
“Schorsch’s intention not to agree to a transaction with Centerbridge (which required
his agreement to limit the use of the [Voting B Share] and to terminate the Services
Agreement [with the Manager].” 48
On August 3, Auerbach informed the Special Committee that “a series of
negotiations . . . had taken place earlier in the day between himself, on behalf of the
Special Committee, Luxor, Apollo, Centerbridge[,] and Nicholas Schorsch.”49
However, “Schorsch and Centerbridge could not reach an agreement with respect to
46
Id. at -87505.
47
Id.
48
Id. at -87506.
49
Id. at -87507.
14
the treatment of the [Voting B Share] and that, as a result, Centerbridge would not
be participating in an investment in the Company.”50
On August 5, two days after Centerbridge withdrew and one day before the
Special Committee’s self-imposed goal of announcing a transaction by August 6
expired, RCAP’s CFO “advised the Special Committee that, absent a prompt
infusion of capital, the Company might soon be unable to continue to meet its
obligations.”51 After being advised by its financial advisor and its legal counsel, the
Special Committee then unanimously approved a recommendation that RCAP enter
into the proposed transaction with Apollo. 52 The terms of that transaction, which no
longer included Apollo purchasing an interest in AR Capital, would include (a) the
termination of the Services Agreement with the Manager, in exchange for a release
of all claims against the Manager and affiliated entities (the “Release Agreement”),
(b) a sale of preferred stock to Apollo, and (c) a sale of more preferred stock to
Luxor. 53 While the Release Agreement was executed, the balance of the deal was
never consummated. 54
The Release Agreement, which binds AR Capital, Schorsch, other members
of the Board (who, together with Schorsch, are defined as the “ARC Principals”),
50
Id.
51
Id. at -87508.
52
Id. at -87511.
53
Id. at -87512, -87513, -787515.
54
Pre-Trial Stipulation ¶ 87, Dkt. No. 522.
15
RCAP, Holdings, and Luxor, was executed on November 8, 2015. 55 It provides that
RCAP
does hereby unequivocally release and discharge AR Capital, and the
ARC Principals and any of their former and current subsidiaries, equity
holders, controlling persons, directors, officers, employees, agents,
[and] affiliates . . . from any and all past, present, or future liabilities,
actions, claims or damages of any kind or nature . . . apparent or not
apparent, foreseen or unforeseen, matured or not matured . . . from the
beginning of time until the date of execution of this Agreement, that in
any way . . . arises from or out of, are based upon, or are in connection
with or relate in any way to or involve, directly or indirectly, any of the
actions, transactions, occurrences, statements, representations,
misrepresentations, omissions, allegations, facts . . . or any other
matters . . . based on . . . the Transaction Documents and the transactions
contemplated by the Transaction Documents . . . . 56
The “Transaction Documents” are defined to include an agreement
between Apollo and AR Capital, an agreement between Apollo and the ARC
Principals, and the agreement between Apollo and RCAP that was approved
by the Board on August 6, 2015. 57
B. Analysis
The Plaintiff summarizes the Apollo claim with the allegation that the
Defendants “[r]efuse[d] [t]o [a]llow RCAP [t]o [p]ursue [a]ny [d]eal [b]esides the
Apollo Transaction” and threatened the Special Committee into rejecting the
55
MSJ OB Exs., Ex. 96.
56
Id. at -652738.
57
Id. at -652737, -652738.
16
Centerbridge transaction. 58 In other words, the Defendants caused RCAP to lose the
potential Centerbridge deal, theoretically damaging RCAP. It is important to note
that this claim does not address the unconsummated Apollo deal itself, where
Schorsch conceivably would have stood on both sides. Instead, the claim is that
Schorsch acted to quash the Centerbridge deal. In their Motion for Summary
Judgment, the Defendants argue that the Apollo claim has been released by the
Release Agreement, and, further, that the Defendants did not refuse to allow RCAP
to pursue other deals.59
To be entitled to summary judgment, the Defendants must first “establish that
no material question of fact exists and they are entitled to relief as a matter of law.”60
Once they have made “a prima facie showing, with reasonable certitude” that no
material question of fact exists, the burden shifts to the non-moving party, the
Plaintiff, “to come forward with further evidence to demonstrate that there is a
genuine issue of fact on the question.”61 If the Plaintiff discharges this burden, the
Defendants “must then demonstrate that the [Plaintiff’s] evidence is legally
58
MSJ AB 38. The Complaint’s breach of fiduciary duty count against the Defendants with
regards to the Apollo transaction are that the Defendants “us[ed] their control to prohibit the
Special Committee of independent directors from pursuing a potential restructuring transaction
with a counterparty other than Apollo.” Pl.’s Verified Compl. For Breach of Fiducary Duties ¶
129, Dkt. No. 1.
59
MSJ OB 66–68.
60
Weinberger v. Rio Grande Indus., Inc., 519 A.2d 116, 119 (Del. Ch. 1986).
61
Alcott v. Hyman, 208 A.2d 501, 506–507 (Del. 1965).
17
insufficient to establish their claim.” 62 Further, because this is the Defendants’
motion, I “must view the evidence in the light most favorable to the” Plaintiff.63
The Defendants point to record evidence that they did not exert control over
the Special Committee or independent directors in order to prevent them from
exercising their business judgement on behalf of RCAP with regard to the
Centerbridge or Apollo transactions. The Defendants, in their Opening Brief, note
that the Board created a special committee of independent directors in light of
Schorsch’s controller status, which committee was charged with analyzing the
Apollo deal and soliciting alternatives.64 After Auerbach reported to the Special
Committee that Schorsch would not consent to Centerbridge’s terms, the Special
Committee nonetheless “unanimously agreed not to authorize execution of an
exclusivity agreement with Apollo.”65 In further support of the committee’s
independence, the Defendants cite66 to Special Committee minutes that show the
Special Committee being informed of Schorsch’s position and, at the conclusion of
that same meeting, “unanimously determin[ing] to send the Apollo and the
Centerbridge term sheets to the other members of the Board for their review and
62
Mehan v. Travelers Ins. Co., 1988 WL 62793, at *1 (Del. Ch. June 16, 1988).
63
In re El Paso Pipeline Partners, L.P. Deriv. Litig., 2014 WL 2641304, at *1 (Del. Ch. June 12,
2014).
64
MSJ OB 30; MSJ OB Exs., Ex. 77.
65
MSJ OB 31 (quoting MSJ OB Exs., Ex. 78, at -87506).
66
See MSJ OB 31.
18
comment.”67 The Defendants also note that the Special Committee engaged with
“various potential investment sources, including Apollo and Centerbridge[,]”68 and
also cite to Special Committee minutes that show that the Special Committee also
engaged with Ladenburg Thalmann. 69 Given that (a) the Special Committee
considered a potential transaction with Ladenburg as well as Centerbridge and
Apollo and (b) the Special Committee continued to consider the Centerbridge deal—
even refusing an exclusivity arrangement with Apollo—after Schorsch’s stated
opposition to the Centerbridge deal, the Plaintiff must come forward with some
indicia the Defendants exerted control over the Special Committee with respect to
its consideration of these transactions. 70
The Plaintiff’s Answering Brief presents only one factual allegation in
rebuttal regarding the Defendants’ actions: that Schorsch allegedly “threatened” the
Special Committee by telling Auerbach that he would not give up his Voting B Share
or approve the termination of the Services Agreement in connection with the
Centerbridge deal. 71 Of course, if a controller uses her voting control to bully
directors, she has thereby assumed fiduciary duties. Such a threat robs the directors
of the opportunity to put their business judgment on behalf of the entity over their
67
MSJ OB Exs., Ex. 78, at -87503 (emphasis added).
68
MSJ OB 68.
69
E.g., MSJ OB Exs., Ex. 78, at -87482.
70
See Alcott v. Hyman, 208 A.2d 501, 507 (Del. 1965).
71
See MSJ AB 40, 69.
19
own—now threatened—interests. Here, however, the Plaintiff points to no record
evidence that supports the existence of such a threat. The “threat” alluded to here is
simply a statement that Schorsch would vote his stock in his business interest, in not
giving up his contractual rights and majority ownership in order to approve the
Centerbridge deal. This is not a threat to the independence of the Special Committee;
it is simply a business decision that Schorsch communicated to the committee. A
stockholder does not forfeit the right to exercise contract rights or to vote her stock
merely by being a controller. 72 There is no duty for a controller to sacrifice on behalf
of the company.73 Given that the evidence of record cited by the parties at this
Summary Judgment phase shows that the Special Committee acted independently
within its business judgment, and that Schorsch and the other Defendants did nothing
but inform the committee that Schorsch would vote against what he perceived as a
personally unfavorable deal, there simply are no factual questions for trial, and I
conclude that the Defendants are entitled to summary judgment in their favor.
72
Ford v. VMware, Inc., 2017 WL 1684089, at *15 (Del. Ch. May 2, 2017) (“Delaware courts
consistently have held that a controlling stockholder’s fiduciary duty does not constrain its ability
to vote its shares.”).
73
“Delaware law does not . . . impose on controlling stockholders a duty to engage in self-sacrifice
for the benefit of minority shareholders. . . . As Chancellor Allen aptly wrote in Thorpe v.
CERBCO, Inc., ‘[c]ontrolling shareholders, while not allowed to use their control over corporate
property or processes to exploit the minority, are not required to act altruistically towards them.’”
In re Synthes, Inc. S’holder Litig., 50 A.3d 1022, 1040–41 (Del. Ch. 2012) (citing Thorpe v.
CERBCO, Inc., 1993 WL 443406, at *7 (Del. Ch. Oct. 29, 1993)).
20
Given this decision, I need not consider the applicability of the Release
Agreement here.
IV. THE CORE CLAIM
Upon reviewing the parties’ briefing, I believe that the resolution of the core
claim would benefit from the creation of a trial record.74 Accordingly, I will consider
the summary judgment briefing on the core claim as part of the pre-trial briefing.
V. CONCLUSION
For the forgoing reasons, the Defendants’ Motion for Summary Judgment is
denied in part and granted in part. The parties should submit a form of order
consistent with this Memorandum Opinion.
74
“[T]he court may, in its discretion, deny summary judgment if it decides upon a preliminary
examination of the facts presented that it is desirable to inquire into and develop the facts more
thoroughly at trial in order to clarify the law or its application.” In re Energy Transfer Equity L.P.
Unitholder Litig., 2017 WL 782495, at *9 (Del. Ch. Feb. 28, 2017) (quoting In re El Paso Pipeline
Partners, L.P. Deriv. Litig., 2014 WL 2768782, at *9 (Del. Ch. June 12, 2014)).
21