Case demonstrates difficulty of proving breach of fiduciary claims
Choosing to purchase stock in a corporation or start a business with a new partner does not always go as smoothly as some people might like. Depending on the circumstances, a variety of issues might arise, but one common claim, made by shareholders and business partners alike, is breach of fiduciary duty. The concept is quite simple: certain individuals – including members of corporations’ boards of directors, managing partners of partnerships and managing members of limited liability companies – have a duty to act with their businesses’ best interests. In reality, these sorts of claims sometimes present exceedingly complex legal and financial issues.
The Delaware Court of Chancery recently granted a motion for summary judgment for the defendants in In re Answers Corp. Shareholders Litigation, a case where shareholders alleged that the board of directors breached their fiduciary duties in approving a merger. The case demonstrates how difficult it can be for plaintiffs to prevail in these sorts of cases.
In early 2010, AFCV Holdings approached the Answers Corporation, a publicly traded search and social media company, and expressed interest in a merger. Toward the end of the year, AFCV made an offer to acquire Answers for $7.50 to $8.25 per share. The Answers board negotiated the offer price up to $10.25 per share, but also continued to explore other alternatives.
While negotiations were ongoing, Answers announced that its earnings for the fourth quarter had exceeded analyst expectations. In early 2011, the finance committee of Answers’ board recommended that the company attempt to renegotiate the $10.25 per share purchase price. AFCV made a final offer of $10.50 per share and the board, which the board unanimously accepted.
Shortly thereafter, several Answers shareholders filed suit against the company, alleging that the board breached its fiduciary duties to shareholders. Specifically, they claimed that the board had not done enough to find another purchaser for the company and did not act in shareholders’ best interests after it became clear that the initial AFCV offer was too low.
In granting the defendants’ motion for summary judgment, the court found that a disinterested majority of the board had approved the transaction. In order for the plaintiffs’ suit to continue, they would have had to have demonstrated either that the board acted in bad faith or that it had been controlled by an interested party. The defendants showed that they had considered offers from a number of other companies and that AFCV’s offer was the only credible one.
In cases involving a possible breach of fiduciary duties, it is important to speak to an experienced business law attorney. A business law attorney can evaluate your case and help you determine which steps to take next.