It is not uncommon for the Court of Chancery to find that a fiduciary duty was breached, but to award only nominal damages or no damages as a result of such breach. This is so because damages are not an element of a claim for breach of fiduciary duty under Delaware law. Rather, the elements are that 1) a fiduciary duty exists, and 2) such duty was breached. This was demonstrated in the recent decision of The Ravenswood Investment Company LP v. The Estate of Bassett S. Winmill, C.A. No. 3730-VCS (Del. Ch. Mar. 21, 2018).
In this case, plaintiff brought derivative claims on behalf of Winmill & Co., Incorporated (“Company”) against its board, alleging they breached their fiduciary duties by 1) granting overly generous stock options to themselves, and 2) causing the Company both to forgo audits of the Company’s financials and to stop disseminating information to the Company’s stockholders in retaliation for Plaintiff’s assertion of its inspection rights pursuant to 8 Del. C. § 220.
Because the defendant directors stood on both sides of the disputed transaction, the Court found that it was subject to the entire fairness test. Under the entire fairness test, a defendant must establish both fair dealing and fair price in connection with the challenged transaction. The court found that the board failed the entire fairness test, and the individual defendants breached their fiduciary duty of loyalty.
Despite finding breaches, however, the Court only awarded nominal damages. Although a breach of fiduciary duty occurred, the burden remains upon plaintiff to prove actual damages or that an equitable remedy would be appropriate. Vice Chancellor Laster noted that although the Court has broad discretion in fashioning such remedies, it “cannot create what does not exist in the evidentiary record, and cannot reach beyond that record when it finds the evidence lacking.” (Slip op. at 3.) Accordingly, the Court awarded nominal damages to plaintiff, although leaving the door open for attorneys’ fees to be recovered, which would be considered separately.
Carl D. Neff is a partner with the law firm of Fox Rothschild LLP. Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at firstname.lastname@example.org.