No Right of Minority in Delaware to Put Shares to Corporation

Blaustein v. Lord Baltimore Capital Corp., No. 272, 2013 (Del. Jan. 21, 2014).
Issue Addressed: Whether the common law imposes any duty on directors of closely held corporations to consider buying out minority stockholders. Short Answer: No

Short Highlights

This Delaware Supreme Court decision affirmed several basic principles that have been long established in Delaware. The general statements of the law almost form a syllogism to defeat the claims in this case.

  • The directors of a closely help corporation have no general fiduciary duty to repurchase the stock of a minority stockholder.
  • An investor must rely on contractual protections if liquidity is a matter of concern. The Shareholders’ Agremeent in this case gave no such unequivocal protection.
  • The stockholder in this case had no right to the formation of an independent committee of the board to negotiate to buy her shares.
In addition, the high court rejected the claims of demand futility due to the failure to establish the lack of independence of the board–beyond mere conclusory allegations. For example, the mere assertion of a control group or majority ownership does not suffice. Nor is enough to allege that a board member was appointed by a majority owner.
Also, the well traveled path of dismissal of a claim for breach of the implied covenant of good faith and fair dealing was followed by the court in rejecting a claim that the Shareholders’ Agreement should be read to require a right to put the shares to the corporation or negotiate for their sale to the company. See footnote 23.

For additional background details, the Court of Chancery opinion that was affirmed was highlighted on these pages.