July 06, 2018

MONTH-IN-BRIEF: Corporations, LLCs & Partnerships

Lawrence A. Goldman, Tarik Haskins

Corporate Law

Delaware Court of Chancery Addresses Damages Flowing from Breach of Duty of Loyalty

By Lawrence A. Goldman, Gibbons P.C.

In CertiSign Holding, Inc. v. Kulikovsky, decided June 7, 2018, the Delaware Court of Chancery affirmed its long-standing definition of the corporate duty of loyalty, found conduct constituting a breach of such duty, and, using the court’s equitable powers, fashioned a remedy for breach of the duty. The defendant had declined to sign documents required in order to rectify prior defective corporate acts uncovered in the course of preparing for a potential sale transaction. The defendant admitted that his refusal was motivated by personal reasons. First, the court reiterated that scrupulous observance of the duty of loyalty demands a corporate officer and director “not only affirmatively to protect the interests of the corporation committed to his charge, but also to refrain from doing anything that would work injury to the corporation.” Second, the court found that the defendant’s jeopardizing the corporation’s existence and operations in order to obtain leverage to advance his personal agenda was the “quintessential breach of the duty of loyalty.” Third, in addressing the matter of a remedy, the court observed that equitable principles justified a loosening of normally stringent requirements of causation and damages in the case of a breach of the duty of loyalty, and allowed the plaintiff corporation to recover costs and expenses incidental to the litigation required to correct the defective corporate actions that occurred due to the defendant’s refusal to sign corrective documents.

Tarik Haskins

Partner; Morris, Nichols, Arsht & Tunnell LLP

Tarik is a partner in the Commercial Law Counseling Group. His practice covers a range of commercial transactions including mergers and acquisitions, secured financings, joint ventures, and business counseling.

Lawrence A. Goldman

Counsel, Gibbons P.C.

Larry, a member of the Corporate Department of Gibbons P.C., counsels middle market and smaller public company clients on a broad array of corporate and transactional matters, focusing on mergers and acquisitions (domestic and cross-border); capital formation and finance; governance; private placements and securities law compliance; distressed business restructuring and the corporate aspects of bankruptcy reorganization; and the organization and governance of joint ventures. He has substantial experience representing audit committees and other special board committees in corporate governance and internal investigation matters. He is a frequent speaker nationally on corporate matters, with a particular emphasis on the organization and operation of businesses as limited liability companies or other alternative entities. He is the author of The New Jersey Limited Liability Company Forms and Practice Manual and has been engaged as an expert witness on alternative entity governance and other corporate issues in litigation arising from transactional matters. Larry is a graduate of Colgate University, Boston University School of Law, and New York University School of Law (LL.M Taxation).