A recent Delaware Court of Chancery decision is noteworthy for its deep dive into the doctrinal underpinnings of the various aspects of fiduciary duties, as well as the difference between the standard of conduct and the standard of review. But my favorite part of the opinion is its discussion of the nuances of duty of candor. Slip op. at 65-70. This core duty receives less attention in most corporate decisions than the other aspects of fiduciary duty. In Leo Investments Hong Kong Limited v. Tomales Bay Capital Anduril III, L.P., C.A. No 2022-0175-JTL (Del. Ch. June 30, 2025), the Court determined that even though there was a breach of the fiduciary duty of candor, because no damages were proven, the court awarded nominal damages of $1.

Key Point

The real damage done to the defendant was reputational harm based on the Court’s finding, and I paraphrase, that the defendant fund manager was not forthright with his investment partner. The court even went so far as to suggest, and I paraphrase, that because of his “callous” conduct in this case future investors should “think twice” about future investments with the defendant fund manager. Slip op. at 59. Ouch.

Even though the decision has only been out for about a week or so, already two leading corporate law professors have written insightful and scholarly analyses of the opinion, with reference to their prior writings, as well as links to the scholarship of Professors Lyman Johnson and Ed Rock, and in particular the extent they discuss the role of Delaware courts in publishing detailed morality tales or parables, as a teaching tool and to provide guidance to fiduciaries and their lawyers. This opinion is an example of such a parable.

Moreover, as in this case, when there is public shaming of the person who breached fiduciary duties, and even if, as here, meaningful damages were not awarded, the public criticism may have more of an impact on the defendant involved in this case who might suffer more long term negative consequences from the opprobrium in this opinion as compared to the court merely awarding damages of a monetary nature, which some of the wealthier among us may consider a cost of doing business.

Key Background Facts

The key facts of this case involve a fund manager who solicited investments to buy stock in SpaceX. The fund manager knew that SpaceX was unlikely to accept investments from investors based in mainland China, for reasons including its sensitive government contracts involving national security. The fund manager accepted the investment from a publicly traded company based in mainland China knowing that that investor would have to make disclosures about the investment having a connection with SpaceX. But the fund manager was not candid with the investor about SpaceX being unlikely to accept a Chinese investor because the fund manager wanted to get the money for his fund.

Once SpaceX found out about the Chinese investor, they prohibited the fund from buying SpaceX stock. The fund manager essentially refunded the $50 million investment which caused negative publicity for the Chinese investor in light of the prior announcement by the Chinese investor that they would invest in SpaceX—and a resultant drop in stock price for the publicly traded investor based in mainland China.

Highlights

A lengthy law review article could be written on the analysis of why the fiduciary duty of loyalty, good faith, and care were not breached in this case and why.

But the most memorable aspect of the case for purposes of this short blog post is the analysis of the duty of candor once communication with a beneficiary was initiated. Slip op at 65-70.

As indicated above, another noteworthy aspect of this decision is the award of nominal damages for breach of the duty of candor, even though no measurable monetary damages were proven, based in part on the contractual right of the fund manager to redeem or return the investment, which was refunded within a very short time after the investment was received.

As discussed by Professor Ann Lipton and Professor Stephen Bainbridge, the public shaming aspect of this opinion, which undoubtedly will make the fund manager involved suffer reputational harm, is a theme that both professors comment on extensively in connection with their description of the role of Delaware courts as moral arbiters of sorts who provide guidance to those whose conduct as managers of Delaware entities is subject to the enforcement of fiduciary duties by Delaware courts. The good professors describe some Delaware court decisions as cautionary tales and a “teaching moment” with examples of “what not to do” as a fiduciary governed by Delaware law.

Dan Kahan was an early proponent of the benefits of shaming, but according to Professor Bainbridge has recently changed his perspective on the matter.

There is much to digest in this opinion and much more to comment on, but this short overview should whet the appetite of those who need to know the latest iteration of Delaware corporate law on this topic.

As the Editor-in-Chief of the National Law Review‘s publication called the Delaware Corporate and Commercial Law Monitor, I’m pleased to share the Fifth Edition that has now been published. (My role for this relatively new publication will be in addition to my full-time practice and maintaining this blog–now in it’s 20th year–as well as upholding my rich family life and participation in various religious, cultural, professional and community organizations.)

The Delaware Corporate and Commercial Law Monitor curates articles from many commentators around the country. Topics include the lawsuits filed to challenge the recent amendments to Sections 144 and 220 of the DGCL as well as the usual fare of more generic Delaware decisions on corporate and commercial litigation.

A recent Delaware Court of Chancery opinion is useful for its analysis of whether the notice provisions for the exercise a redemption right for warrants was in compliance with the terms of the applicable agreement. In Bruce Kaye as Trustee of the Bruce Kaye Revocable Trust v. Fantasea Resorts Group, Inc., C.A. No. 2024-0179-KSJM (Del. Ch. April 17, 2025), the court rejected the attempt of the company to deny redemption rights based on their argument that the notice provisions of the applicable agreement were not strictly met.

Key Point

There are certain general principles discussed in this opinion that may be helpful broadly in an analysis of whether notice provisions were complied with—and whether failure to comply strictly with a notice provision can preclude the exercise of certain rights. See Slip op. at 13-16.

But the particular requirements and specific wording in the notice provision involved in this case may limit the applicability of this analysis, somewhat at least, to the agreement at issue. Nonetheless, the analysis of notice provisions generally is noteworthy.

Postscript

The court described the well-known objective theory of contracts in Delaware. See Slip op. at 8. It also rejected an argument based on the implied covenant of good faith and fair dealing which was unnecessary to address based on the breach of contract finding.  See Slip at 16.

Frank Reynolds, who has been covering Delaware corporate decisions for various national publications for over 40 years, prepared this article.

The Delaware Supreme Court recently ruled that the Court of Chancery should have revived a derivative suit over a stock sale by a major Kraft Heinz Co. investor after learning the action had been wrongly dismissed because of the long-hidden consultant role of a pivotal food giant director in Erste Asset Mgmt GmbH v. Hees, et al., Del. Supr., No. 374, 2024 (June 9, 2025)

A unanimous high court found that when plaintiff shareholder Erste Asset Management GmbH sought to reinstate its suit via a procedural request for relief from judgment, the trial court should have applied Chancery Rule 60(b)(3) more broadly to include key misrepresentations that defrauded other litigants – not just the court.

 “Although Rule 60(b)(3) applies only in rare circumstances, the rule’s plain language and Delaware precedent establish that it extends beyond a fraud on the court and applies when fraud between the parties prevents the defrauded party from fairly and adequately presenting its case,” the Court wrote. “Erste has pleaded such a claim, and the court therefore erred in dismissing the action.”

The high court opinion provides an important update on the application of Rule 60 in the Delaware courts, rejecting the Court of Chancery’s decision that new information regarding director John Cahill’s consultancy income was not “newly discovered” evidence under the rule because Erste could have learned about the information with reasonable diligence.

Background

Erste’s suit challenged a stock sale by 3G Capital Inc, a significant minority shareholder of Kraft Heinz with three seats on its board. According to the court record of the trial, before the period about which the suit was filed, Kraft Heinz director John Cahill had also been a compensation consultant who reported to the CEO, but he allegedly dropped that  role before the applicable date for the derivative action and he was therefore found able to objectively review the merit of the suit as part of a six-person board majority.

One and a half years after Chancery dismissed and closed the case–because it failed to show that a majority of the board lacked objectivity or independence–the 3G defendants admitted Cahill’s paid advisor roll had continued, but the court barred Erste’s move to refile claims, and Erste appealed.

The high court noted that Kraft Heinz’s proxy statements for 2021–2023 continued to incorrectly describe Cahill as a “former consultant.” But all that had changed was that Kraft switched his compensation from cash to stock grants–until Cahill’s hidden role was publicly revealed.

Fraud on litigants too

Chancery’s decision cited Kraft’s argument that it had not used false claims to win the demand futility ruling, but it was not necessary for Erste to prove the hiding of Cahill’s role was a fraud on the court, the high court explained.  “By its plain terms, Rule 60(b)(3) covers both intrinsic and extrinsic fraud and obviates the muddied distinction between the two concepts’ effect on the litigation.”

The Court ruled that: “A party cannot make a false public disclosure outside litigation that the other side relies on in its allegations in the complaint, repeat those false representations in court, obtain a final ruling based on those false representations, and then argue that those false representations were entirely outside the judicial process and that the defrauded party is to blame for relying on them.”

Remanded for a redo

The Delaware Supreme Court remanded two counts of the suit to Chancery:

Count One was remanded for new proceedings to determine how the demand futility would apply and whether new evidence of Cahill’s advisor role tipped the balance in plaintiff’s favor.

Count Two was remanded to reconsider the claim that some Kraft Heinz directors breached their duty of loyalty because they knew all along that disclosures made about Cahill’s role were intentionally false and didn’t correct them.

The Supreme Court decided to remand because “at a minimum, the motion practice is likely to clarify issues regarding causation and damages.”

A recent Delaware Court of Chancery decision is a treasure trove of fundamental principles applicable to corporate litigation. In Ban v. Manheim, C.A. No.2022-0768-JTL (Del. Ch. May 19, 2025), the 60-plus page post-trial opinion applies an exemplary legal analysis to a complex web of entities controlled by one person, to explain why the valuation of a minority interest failed the entire fairness test—and what the applicable measure of damages requires in the form of a remedy.

Basic Facts

For the benefit of busy lawyers, this is only an extreme precis with bullet points to allow interested readers to determine if they want to review the extensive facts and thorough legal analysis more carefully in order to gain a fuller understanding of the nuances involved.

The essential facts involve a controller who attempted to amend the applicable agreements to provide for a call right and a redemption right that purported to allow him to force-out minority owners at an unfairly low price. The call is referred to in the opinion as the WestCo Call. See Slip op. at 14. The redemption right is referred to as the DVRC Redemption. See Slip op. at 16.

Legal Analysis

  • The court begins by explaining that DGCL § 202(b) bars the restriction of shares without the consent of the shareholder. For this reason the attempted restrictions via a bylaw amendment on shares was a statutorily invalid act. The court emphasized that DGCL § 109, which provides for authority to amend bylaws does not supersede the condition to imposing a restriction on shares in Section 202(b). See Slip op. at 21-22.
  • The court restates the well-settled principle that the fiduciary duty of a controlling shareholder applies when that controller attempts to amend bylaws. See Slip op. at 25.
  • The court provides the reasons why the entire fairness standard applies to self-interested transactions generally. Slip op. at 31.
  • In a footnote that extends for about three pages, the court regales the reader with an analysis regarding the materiality of “non-imminent risk,” and questions the “intuition” in the recent Delaware Supreme Court TripAdvisor decision in this context, and in light of the stated purposes of the recently passed SB 21 which sought to minimize non-imminent litigation risk. See footnotes 62 and 89. See also footnote 89.
  • The court does an  deep dive to dissect the entire fairness standard. See Slip op. 35-39.
  • The court acknowledges the primacy of contract but clarifies when it does not bar a fiduciary duty claim. Professor Berle’s venerable twice-testing principle can serve as one example of an exception to that preemption doctrine. See Slip op. at 42-46 and footnote 100.
  • The court reminds us that equity allows for flexibility to remedy a breach of the duty of loyalty such that mathematical certainty is not required in proving damages in that context.
  • A memorable elucidation of the differences between fair market value and fair value is presented. The court observes that it is not limited in awarding fair market value (which includes discounts like marketability) when a controller takes away equity interests of a minority owner. See Slip op. at 56.
  • A fiduciary can be forced to disgorge profit resulting from a breach of fiduciary duty, even if the gain did not come at the beneficiary’s expense in certain circumstances. See Slip op. at 57-60.
  • The court makes the noteworthy distinction between the measure of damages in an appraisal case as compared to the damages analysis when a breach of fiduciary duty claim is involved. See Slip op. at 60.
  • One of the many treasures in this opinion is the analysis of the competing expert opinions on valuation and how the court finds fault with the experts for both parties. The court selects the parts of each opinion that the court finds reliable, and discards those to which the court does not give any weight.
  • Essential reading for any litigant relying on experts is the court’s explanation about the limitation on what additional information an expert may appropriately rely on in rebuttal reports or supplemental expert reports. See Slip op. at 60-68.

A law review article authored by a Vice Chancellor of the Delaware Court of Chancery that chronicles nine eras of Delaware court decisions on Delaware corporate law, from the State’s founding in 1776 through the present, is featured on the Harvard Law School Corporate Governance blog (where yours truly has published several articles over the years.)

The article focuses on three areas of the law: controller transactions; third-party mergers and acquisitions; and derivative actions. Must reading for those interested in the nuances of Delaware corporate law.

The inestimable Professor Bainbridge, one the country’s leading corporate law scholars, has done a deep dive into the issues presented by a recent filing in Illinois for corporate records of a Delaware corporation. The good professor has written three articles on the issues raised, such as the internal affairs doctrine. Despite the oddity of the suit being filed in Illinois, the article still provides insights for those grappling with DGCL Section 220 claims in light of the recent changes enacted via SB 21.

The Delaware Supreme Court provides useful clarification regarding when a fraudulent concealment claim tolls the statute of limitations for indemnification claims, in LGM Holdings, LLC v. Gideon Schurder, et al., Del. Supr., No. 314, 2024 (April 22, 2025).

Background

In this post-closing dispute involving claims of intentional breach of representations and warranties in an acquisition agreement as well as fraudulent concealment, the court considered evidence of wrongdoing the sellers found after closing and in connection with an investigation by the FDA and the United States DOJ.

The post-closing investigation was the basis for claims that triggered indemnification. After the investigation, a separate letter agreement between the parties imposed caps on indemnification–but only for certain claims related to the government investigation.

Key Legal Principles

The high court explained that when contract interpretation is at issue, the trial court may not grant a motion to dismiss when there is more than one reasonable interpretation. See Slip op. at 16, 20-21.

The Supreme Court also instructed that when additional support for a key argument made at the trial level is presented for the first time on appeal, that additional support is not waived even if not presented to the trial court. Slip op. at 20.

The court addressed when fraudulent concealment will–or will not–toll the statute of limitations. The court’s analysis should be reviewed in its entirety but a few highlights include the following:

  • Under the doctrine of fraudulent concealment, the statute of limitations can be disregarded, like “stopping a clock,” when a defendant has fraudulently concealed from a plaintiff facts necessary to put the plaintiff on notice of the truth.
  • Specifically, a plaintiff must allege “an affirmative act of actual artifice” by the defendant that either prevented the plaintiff from being aware of material facts or led the plaintiff away from the truth. Slip op. at 22.
  • The statute of limitations begins to run when the plaintiff is objectively aware of the facts giving rise to the wrong, i.e., on inquiry notice. Slip op. at 23.
  • The tolling stops on the date the plaintiff was put on inquiry notice of the claim—if the plaintiff successfully proves fraudulent concealment. Slip at 25. The trial court erred when it instead held that the plaintiff was put on inquiry notice such that the plaintiff had sufficient time to file a claim. Id.
  • Partial disclosure of facts in a misleading or incomplete way can rise to the level of the requisite actual artifice. Slip op. at 26.

As Editor-in-Chief of the Delaware Corporate and Commercial Law Monitor published by The National Law Review, the Fourth Edition, I am happy to announce, was recently released. This new exercise in scholarship is in addition to my blog and my ongoing full-time practice, etc.

For my most recent ethics column for The Bencher, now in its 25th year, I highlighted a recent Delaware Court of Chancery decision on the duty of anyone involved in potential or pending litigation to preserve relevant evidence, including electronic data such as emails and text messages, in order to avoid penalties for spoliation. I previously discussed that Facebook decision on these pages.

The current column was co-authored with my colleague Aimee Czachorowski and is available at this link, courtesy of the American Inns of Court, publisher of The Bencher.