Summary
recognizing that "past benefits conferred by [the allegedly dominating director], or conferred as the result of [that director's] position with Ply Gem, may establish an obligation or debt (a sense of 'owingness') upon which a reasonable doubt as to a director's loyalty to a corporation may be premised"
Summary of this case from Voigt v. MetcalfOpinion
C.A. No. 15779-NC
Submitted: July 18, 2001
Decided: September 28, 2001
Joseph A. Rosenthal, Esquire, ROSENTHAL, MONHAIT, GROSS GODDESS, P.A.
Alan J. Stone, Esquire, MORRIS, NICHOLS, ARSHT TUNNELL
Kevin G. Abrams, Esquire, RICHARDS, LAYTON FINGER
Dear Counsel:
Defendants have moved for reargument of the Court's Order denying their motion to dismiss under Court of Chancery Rule 12(b)(6). They offer three contentions in support of their motion. First, they argue that the Court failed to address their argument that the Amended Complaint does not state a claim for breach of the duty of care. Second, they assert that the Court unreasonably inferred doubts as to the loyalty of the directors and then ignored allegations of the Amended Complaint that controverted any inferences in favor of Plaintiffs' claim that the directors lacked independence from the alleged domination by Defendant Silverman. Third, Defendants suggest that the Court failed to consider certain materials beyond the scope of the Amended Complaint. For the reasons that follow, the motion is denied.
In re Ply Gem Indus., Inc. S'holders Litig., Del. Ch., Consolidated C.A. No. 15779, Noble, V.C. (June 26, 2001).
A motion for reargument under Court of Chancery Rule 59(f) presents the following question: did the Court misapprehend a material fact or rule of law? The issue is not whether Plaintiffs appear to have a strong case; to the contrary, it is whether Plaintiffs' Amended Complaint can survive the analysis required by McMullin in evaluating the motion to dismiss. At the core of Defendants' motion for reargument is a fundamental disagreement about the scope of the inferences that may be drawn by the Court from the Amended Complaint. I will now turn to each of the issues raised by the Defendants.
Gentile v. Singlepoint Fin., Inc., Del. Ch., C.A. No. 17755, mem. op. at 1, Lamb, V.C. (Feb. 9, 2001); State of Wisconsin Inv. Bd. v. Peerless Sys. Corp., Del. Ch., C.A. No. 17637, mem. op. at 2-3, Chandler, C. (Jan. 5, 2001).
McMullin v. Beran, Del. Supr., 765 A.2d 910 (2000).
1. Duty of Care.
In kind words, Defendants, in essence, assert that the Court directed all of its efforts to the question of whether a defense under 8 Del. C. § 102(b)(7) operated to preclude the assertion of a due care claim when it should have also addressed the more fundamental question of whether the Amended Complaint even stated a due care claim. The Amended Complaint, however, may fairly be read as stating a duty of care claim based on the allegations of the directors' abdication to Mr. Silverman of responsibility for negotiations with Nortek (and Hicks, Muse) and the accompanying failure to make themselves adequately informed about the negotiations. Thus, Plaintiffs sufficiently allege that the directors' decisions in approving the Nortek transaction and the related transactions (claimed to have conferred extraordinary benefits upon Mr. Silverman) were not the product of informed decision making, but instead resulted from the gross negligence of the directors.
"In the corporate context, `[d]irector liability for breaching the duty of care' is predicated upon concepts of gross negligence." Malpiede v. Townson, Del. Supr., No. 80, 2000, at 37, Veasey, C.J. (2000), quoting McMullin v. Beran, 765 A.2d at 821, quoting Aronson v. Lewis, Del. Supr., 473 A.2d 805, 812 (1984).
2. Duty of Loyalty.
In attacking the Court's conclusion that Plaintiffs' claim of breach of the duty of loyalty survives a motion to dismiss, Defendants seize upon the Court's observation that there is no allegation of post-merger benefit to the directors (other than Mr. Silverman). It is not essential for Plaintiffs to allege that future benefits would be conferred upon the directors by Mr. Silverman. Instead, past benefits conferred by Mr. Silverman, or conferred as the result of Mr. Silverman's position with Ply Gem, may establish an obligation or debt (a sense of "owingness") upon which a reasonable doubt as to a director's loyalty to a corporation may be premised. Before Parnes v. Bally Entertainment Corp., Plaintiffs' claims most likely would have been classified as derivative and, thus, the Plaintiffs would have lost standing to assert those claims upon consummation of the merger. Thus, the paucity of authority sustaining similar claims based solely on pre-merger benefits to the directors should not be surprising.
See In re New Valley Corp. Derivative Litig., Del. Ch., C.A. No. 17649, mem. op. at 19, Chandler, C. (Jan. 11, 2001) ("current or past business, personal, and employment relationships" (emphasis added)).
722 A.2d 1243 (1999).
3. Beyond the Amended Complaint.
Defendants argue that the Court should have looked beyond the Amended Complaint to consider, inter alia, Plaintiffs' pleadings in another court and other public filings. The policy arguments which Defendants invoke are not without merit. However, Malpiede v. Townson, which confirms this Court's ability, under certain conditions, to consider a defense under 8 Del. C. § 102(b)(7) on a motion to dismiss, makes clear that other efforts to reach beyond the Plaintiffs' Amended Complaint (or those materials incorporated in the Amended Complaint) would have been imprudent.
Defendants' Motion for Reargument, at 9 n. 6.
Malpiede v. Townson, at 23-27.
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Defendants also assert that a carefully targeted preliminary discovery plan is warranted. I am unwilling to structure discovery based on less than two pages of memoranda from both sides combined. As with discovery issues in general, I ask that the parties first confer among themselves to determine if they can agree upon a focused and targeted discovery plan as Defendants may propose. If they cannot, Defendants are entitled to make an appropriate application to the Court. Discovery in directors liability actions, as with other litigation, can be costly and burdensome. There are instances where targeted discovery can lead to a more efficient allocation of resources. In this matter, for example, if Defendants believe that limited discovery can lead to a summary resolution of Plaintiffs' duty of loyalty claim, then their defense under 8 Del. C. § 102(b)(7) might resolve the duty of care claim and, thus, this action.IT IS SO ORDERED.