Dilution Claim is Derivative
In Gentile v. Rossette, et al., download pdf file, the Chancery Court discussed the differences between derivative claims and direct claims in connection with a merger where dilution is alleged. The court determined that the claims of dilution were derivative in nature and dismissed those claims on summary judgment. Factual issues prevented summary judgment on the remaining claims involving special consideration granted to the president and chairman, which benefits were not shared by other shareholders in the merger. The court ruled that ratification by ¬? of an independent board was not enough to validate a self-interested transaction. Moreover, ratification by a majority of the minority "independent shareholders" did not validate the transaction due to the inadequate disclosure given to shareholders prior to the vote. Lastly, the court observed that the exculpation defense based on Section 102(b)(7) of the DGCL was unavailing due to issues of good faith and loyalty. Thus, where, as here, there are not merely issues of due care alone, summary judgment based on 102(b(7) is not appropriate .
