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MONTH-IN-BRIEF (Jun 2018)

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.

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