N.K.S. Distributors, Inc. v. Tigani, Cons. No. 4640-VCP (Del. Ch. May 28, 2010), read opinion here. See prior Chancery decision in this case highlighted here.
This decision provides a useful discussion of the elements of a claim for tortious interference with prospective business relations, which was dismissed along with a claim for an alleged breach of the implied covenant and good faith and fair dealing.
Civil Conspiracy Claim Between Creditor Bank and Major Shareholder
However, the only part of this 23-page decision that I will focus on in this short overview is the refusal of the Court to dismiss a claim of civil conspiracy alleged against Wilmington Trust Company (WTC) and another shareholder of N.K.S. Distributors, the closely-held company involved.
The Court reviewed the familiar elements of a claim for civil conspiracy, including the requirement of “knowing participation”, citing recent caselaw in footnote 27 for that showing of scienter. Other aspects of a civil conspiracy claim recognized by the Court were the reminder that it is not an independent cause of action but rather requires an underlying wrongful act such as a tort or statutory violation. See also footnote 29 (noting that a breach of contract is not the type of an underlying wrong that can give rise to a civil conspiracy claim).
Moreover, the importance of a civil conspiracy claim is that is provides a means to hold liable those that are not a direct party to the underlying wrong, and where a conspiracy is found, each conspirator is jointly and severally liable for the acts of co-conspirators committed in furtherance of the conspiracy.
In this case, the Court reasoned that it would not dismiss the claim of civil conspiracy against the bank (WTC) and the other major shareholder (referred to as Bob due to common last names), because it was at least “conceivable” that the plaintiff, Chris (a shareholder forced out of management), could show that WTC: “knowingly entered into a confederation with Bob and N.K.S. in the Fall of 2008 to unlawfully remove Chris from N.K.S. It is also conceivable that Chris may show that Bob and N.K.S. acted either unlawfully or for an unlawful purpose in furtherance of that conspiracy." In such a situation, if proven, WTC would be liable to the same degree as its co-conspirators, even though WTC itself had not committed an unlawful act in furtherance of the conspiracy.
This is so, notwithstanding the Court’s separate conclusion that WTC was entitled to enforce its rights as a creditor to foreclose on property due to default. Importantly however the other shareholder, Bob, who was alleged to have acted in concert with WTC, was not entitled to use WTC to assist him in breaching his fiduciary duties.
There are many other factual details that form the background for this opinion, but for present purposes the civil conspiracy aspect of the opinion is the only one that I want to highlight for this short blog post due to its potential relevance generally in business litigation cases.