Delaware Chancery Court Reaffirms Standard for Classifying a Minority Stockholder as a Controlling Stockholder: The Court Rejects Argument That Minority Stockholder Was a Controlling Stockholder and Dismisses Breach of Fiduciary Duty Claims

Sullivan & Cromwell LLP - January 6, 2020
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In a December 30 decision, the Delaware Court of Chancery in In Re Essendant, Inc. Stockholder Litigation, No. 2018-0789 (Del. Ch. Dec. 30, 2019), held that plaintiffs, a putative class of target Essendant’s stockholders, failed to plead facts sufficient to show that buyer Sycamore Partners (“Sycamore”), a private equity firm, was a controlling stockholder. In so holding, the Chancery Court dismissed plaintiffs’ claims that Sycamore breached an alleged fiduciary duty to Essendant stockholders by pressuring the Essendant Board to accept Sycamore’s inadequate offer and that the Board aided and abetted such a breach. In addition, the Court dismissed plaintiffs’ claims that the Essendant Board breached its duty of loyalty by accepting Sycamore’s offer because they failed to plead facts sufficient to show that the Board was “dominated and controlled by Sycamore”—a minority stockholder. The Court of Chancery’s decision reaffirms well-established Delaware law that a minority stockholder is a controlling stockholder only if it “exercises control over the business affairs of the corporation” such that “as a practical matter, it [is] no differently situated than if it had majority voting control.”