Search results for: Brola

Over the last 21 years that I have been writing this blog I have often posted about an annual corporate law seminar in New Orleans called the Tulane Corporate Law Institute, that I am attending again this year. Started by the late great Delaware Supreme Court Justice Andrew G.T. Moore over 30 years ago, it now brings lawyers from around the country to discuss recent developments in corporate law and related legal updates.

Of course, my highlights from the seminar focus in this brief blog post on developments in Delaware law over the last year. Some of the speakers on this key topic include members of the Delaware Supreme Court as well as the Court of Chancery.

A panel of Delaware practitioners and the Chief Justice of the Delaware Supreme Court provided a presentation called Delaware Developments. Among other topics, they discussed the two recent Delaware Supreme Court decisions involving Elon Musk‘s compensation as well as a separate case involving claims against Tesla directors. One panelist predicted that if SB 21 had been in place, the compensation case against Musk would have been dismissed at the trial court level.

The moderator of this panel on Delaware Developments, Bill Lafferty of the Morris Nichols firm in Delaware, graciously allowed me to link in this blog post to the exemplary PowerPoint prepared for their panel, and a link to the cases they discussed. The written materials, available to attendees in electronic format, are a treasure trove of scholarly and practical data useful to practitioners.

In addition to the Musk and the Tesla decisions, the panel discussed recent decisions involving Brophy claims, Caremark claims, as well as the recent rulings in Brola/Credit Glory–which was “limited” in some sense by the later decision in the eXp case. They also addressed problems with use of AI in court filings with something less than due care.

Other key Delaware corporate decisions were discussed, some of which were included in my 21st Annual Review of Key Delaware Corporate and Commercial Decisions. Reasonable lawyers can debate which cases should be included in the list of top cases over the last year–beyond the obvious ones. I do not recall any suggestions for inclusion to the necessarily subjective list that I prepare each year.

Other panelists, including a member of the Court of Chancery, discussed shareholder activism. Another panel presentation on tomorrow’s schedule is titled “Hot Topics in M&A Practice”.

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

The Delaware Court of Chancery recently barred Credit Glory Inc.‘s president from bringing breach of fiduciary duty claims against an ex-officer/director of their credit aid company based on the same ‘” abhorrent” sexual harassment conduct that caused his termination and $1.8 million in judgments against him and the company in New York courts. Brola v. Lundgren, C.A. No. 2024-1108-LWW (Del. Ch.  Dec. 1, 2025).

UPDATE: The Chancellor issued a decision in a recent case that substantially disagreed with the reasoning in this opinion. See, e.g., article on The D&O Diary about the eXp World Holdings case.

The court in the Brola matter dismissed plaintiff Alex Brola’s derivative suit, finding it seeks to extract a second recovery “this time under the expansive theory of fiduciary duty”. Brola argued that ex-officer/director Christopher Lundgren’s actions were selfish, illegal, and thus a breach of the duty of loyalty. 

But “Delaware law does not reach so far. The defendant’s misconduct was interpersonal, not a matter of corporate internal affairs,” the vice chancellor ruled.  “After the New York court provided a remedy through the employment laws, this court cannot—and should not—supply a second one.”

Corporate law specialists will want to examine the court’s differentiation between the duty of officers and supervisors, the reasoning for its conclusion that plaintiff Brola cannot rely on Court of Chancery Rules 12(b)(2), 12(b)(6), and 23.1.12, and why  the complaint fails to plead demand futility or damages.

Background

According to the record, Lundgren misused his positions as director, Vice President and Secretary of a Delaware-chartered credit repair assistance company based in New York to victimize two female employees so intensely that they resigned and successfully brought actions before the Equal Employment Opportunity Commission and lawsuits in New York state court against both him and Credit Glory.

CGI founder Brola then brought a derivative action in Delaware to recover the economic damage that Lundgren’s allegedly disloyal conduct caused to the closely held company. Lundgren moved to dismiss on procedural and jurisdictional grounds.  The court found Brola failed to carry his burden on both requirements.

Jurisdiction’s two bedrock requirements:

  • statutory basis for service of process.

Because Brola claims that Lundgren breached the duty of loyalty he owed to Credit Glory as an “officer and director,” the second clause of Section 3114(a) is satisfied, the court said. 

  •  requisite ‘minimum contacts’ with the forum:

Whether the alleged abuse of power states a claim for breach of fiduciary duty, rather than a personal issue, is a merits question, like the issue of whether  Lundgren’s alleged use of his corporate seat to carry out the challenged acts satisfies due process, the court found.

Demand futility

The vice chancellor ruled that, “The core issue is whether corporate law can be broadened to encompass interpersonal workplace disputes. It cannot.” That’s because, “Delaware law governs internal affairs—the discretionary management of business assets, oversight of enterprise-level risks, and fulfillment of the fiduciary promise,” she wrote.

She explained that fiduciary duty, “guards against self-dealing, conflicted transactions,” and bad faith conduct comprises both “fiduciary conduct motivated by an actual intent to do harm” and “intentional dereliction of duty.”  She said that doctrine is “exacting, but narrow.”

This ruling distinguished the recent Chancery decision in McDonald’s, highlighted on these pages. That opinion found, under different facts, a breach of fiduciary duty related to a more pervasive sexual harassment set of circumstances–but one cannot ignore the obvious tension between the two cases.

In the instant decision, the court held that Brola distorts the meaning of bad faith beyond recognition, wrongly seeking to transform it into a “general morality code” that includes every instance when “an officer engages in unlawful harassment,” the court warned, concluding that Lundgren’s deplorable actions were taken as a supervisor—not a corporate officer.

“The legal system worked as intended,” the vice chancellor concluded.  “Equity must not sanction collateral litigation that exposes victims to unwanted scrutiny in the service of a corporate recovery and attorneys’ fees.“

Much commentary has been published about this important decision in the short time since it was issued. See, e.g., Professor Bainbridge’s extensive insights at this link.