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Dec. 11 — Minority investors in a start-up media streaming company now known as Nine Systems Corp. aren't entitled to damages as a result of a control group of stockholders breaching their fiduciary duties by conducting a self-interested recapitalization of the company, the Delaware Supreme Court ruled Dec. 11.
At issue was a September 2014 decision in which the Delaware Chancery Court found that the recapitalization was implemented at a fair price, but conducted through an unfair process. Despite finding that the transaction wasn't entirely fair, the chancery court declined to award the plaintiffs monetary damages because it concluded that any harm based upon the alleged lost opportunity to invest was too speculative.
In a two-page order, the state's high court affirmed the lower court's decision in the “hotly contested matter” without providing a detailed reasoning.
The litigation stemmed from a 2002 recapitalization, which increased the ownership interests of three controlling stockholders in the company.
After the company sold itself to Akamai Technologies Inc. for $175 million four years later, various minority investors filed a lawsuit contending that the transaction was not entirely fair because it expropriated their economic and voting rights in the company.
In his September 2014 decision, Vice Chancellor John W. Noble found that the transaction wasn't entirely fair because of the “grossly inadequate process employed by the Defendants.” Despite declining to award damages in the decision, the court allowed the plaintiffs to file a petition to determine whether the shifting of attorneys' fees and costs was warranted.
Subsequently, the chancery court in a May 7 decision awarded the plaintiffs $2 million in attorneys' fees and expenses.
On appeal, the plaintiffs argued that the chancery court erred in refusing to disgorge the defendants' $118.6 million in profits secured through the transaction or to order them at a minimum to pay rescissory damages.
However, the Supreme Court disagreed. Instead, the high court found no error of law or abuse of discretion in the lower court's decision.
To contact the reporter on this story: Michael Greene in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Yin Wilczek at email@example.com
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