In a recent decision by the Delaware Court of Chancery, In re Straight Path Commc’ns Inc. Consol. S’holder Litig., Civil Action No. 2017-0486-SG (Del. Ch. Nov. 20, 20107), Vice Chancellor Glasscock stayed consideration of a pre-merger complaint brought by a stockholder, alleging claims that the controlling shareholder obtained a side deal at the expense of the corporation.  Because the deal had not yet consummated, plaintiff stockholder only sought monetary damages, while not opposing the closing of the merger.  Plaintiff asserted both direct claims for the side deal, as well as derivative claims alleging harm to the corporation.

Defendant corporation moved to dismiss the complaint, among other reasons asserting that the action was premature.  Given that the deal had not yet closed, the Court stayed consideration of the matter.  If the merger goes through, the Court held that the direct claims would then be ripe, and the derivative claims would be mooted.  If the merger fails, then the only permissible claim would be a derivative one belonging to the company arising from the side deal transaction with its controlling shareholder.

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 cneff@foxrothschild.com.