No Damages for Delay in Seating Designee to Universal American Board

Bloomberg BNA’s Corporate Law & Accountability Report is available on the Corporate Law Resource Center. This news service keeps corporate practitioners informed of legal developments of...

By Michael Greene

June 17 — The company did not breach an agreement entitling a large shareholder to designate a director to the Universal American Corp. board when it delayed seating the designee until he signed a confidentiality agreement that restricted his choice of counsel, according to a June 17 Delaware Chancery Court ruling.

Vice Chancellor Sam Glasscock III dismissed the lawsuit because Universal did not waive its right to refuse designation once its board “in faithful discharge of its fiduciary duties” recognized a conflict.

Continuing Litigation

After a merger closed in which Partner Healthcare Solutions Holdings L.P. agreed to sell its subsidiary, Universal filed a lawsuit alleging claims for fraud in connection with the sale.

As a result of the merger, Partners became entitled to designate a director. However, after an initial designee resigned, Universal conditioned the seating of the successor designee upon the signing of confidentiality agreement that prohibited him from choosing the same law firms that were representing Partners.

The parties eventually agreed to the seating upon counsel setting up an ethical wall. However, Partners continued pursuing litigation against Universal alleging damages for not immediately seating its designee.

No Breach of Agreement

However, Vice Chancellor Glasscock found that there was no underlying breach of the board seat agreement.

Specifically, he concluded that Universal had not waived its right to refuse seating the designee if there was a conflict of interest.

“Put simply, the conflict between [the designee's] right to counsel of his choosing, and the Board's fiduciary interest in protecting confidential information from conflicted counsel, does not ‘relate to' the Merger Agreement and the conflict waiver embodied in that Agreement is applicable here,” he wrote.

He further concluded that awarding attorney's fees under a bad faith exception was not warranted because Universal's board was responding to legitimate concerns.

To contact the reporter on this story: Michael Greene in Washington at

To contact the editor responsible for this story: Ryan Tuck at

The opinion is available at