| Delaware does not have a cause of action for | | | | they could not anticipate at the outset of the venture, |
| oppression per se, but it does offer relief for minority | | | | and that even the best and most extensive |
| shareholder oppression-like claims applying other legal | | | | shareholders' agreements cannot address all of the |
| principles. Thus, oppression-like claims must be carefully | | | | many varied and creative ways that the majority can |
| pleaded in Delaware. | | | | use its power to unfairly harm the minority. |
| Since court's in other states are likely to apply | | | | Nevertheless, many of the claims falling under the |
| Delaware law to oppression-like claims to companies | | | | general category of shareholders' oppression can be |
| organized in Delaware, vigilance must also be | | | | brought under Delaware law using other legal principles |
| exercised in pleading claims relating to Delaware | | | | accepted in that State. |
| corporations in non-Delaware courts. Some courts | | | | The entire fairness doctrine, mentioned above, is one |
| outside of Delaware, such as the Southern District of | | | | of these. Itis an exception to the business judgment |
| New York and the Northern District of Illinois, have | | | | rule, which would ordinarily protect directors' actions |
| upheld causes of action for shareholder oppression | | | | from judicial scrutiny, and creates a framework for |
| under Delaware law, while others, such as the District | | | | granting minority shareholders relief when directors act |
| of New Jersey, have dismissed oppression claims for | | | | in their own self-interest. Thus, when a minority |
| failure to state a claim under Delaware law. | | | | shareholder shows that directors stand on both sides |
| Nixon v. Blackwell, 626 A.2d 1366 (Del. 1993), is a | | | | of a transaction or will derive a special benefit from |
| Delaware case that often cited for the proposition that | | | | the transaction, i.e. there is a conflict of interest that |
| Delaware does have a shareholder oppression | | | | produces a benefit that the other shareholders don't |
| remedy, and also for the proposition that it does not. | | | | generally share, then the directors or those in control |
| The case states that "[t]he entire fairness test, | | | | will be required to prove both fair dealing and fair price, |
| correctly applied and articulated, is the proper judicial | | | | a demanding standard. The entire fairness analysis |
| approach" to deciding claims brought by minority | | | | essentially mandates judicial scrutiny of a transaction |
| shareholders against those in control of the | | | | or action. |
| corporation. Thus, some conclude that oppression | | | | Delaware recognizes that controlling shareholders |
| claims may be pursued under the entire fairness | | | | have fiduciary duties to their fellow shareholders. |
| doctrine. | | | | "[W]hen a shareholder presumes to exercise control |
| However, Nixon v. Blackwell also, contains language | | | | over a corporation, to direct its actions, that |
| that seems to indicate otherwise: | | | | shareholder assumes a fiduciary duty of the same |
| A stockholder who bargains for stock in a closely-held | | | | kind as that owed by a director." Sterling v. Mayflower |
| corporation and who pays for those shares... can | | | | Hotel Corp 93 A.2d 107, 109-10 (Del. 1952). Thus, many |
| make a business judgment whether to buy into such a | | | | types of conduct that would give rise to oppression |
| minority position, and if so on what terms. One could | | | | claims in other jurisdictions would also support breach |
| bargain for definitive provisions of self-ordering | | | | of fiduciary duty claims in Delaware. |
| permitted to a Delaware corporation through the | | | | Controlling shareholders can be held liable in Delaware, |
| certificate of incorporation or by-laws by reason of the | | | | when they: |
| provisions in [Delaware law, and] in addition to such | | | | - cause the corporation to issue additional shares to |
| mechanisms... [such as] elaborate earnings tests, | | | | the controlling shareholder at an inadequate price; |
| buy-out provisions, voting trusts, or other voting | | | | - reduce the economic value of the minority's shares |
| agreements. The tools of good corporate practice are | | | | disproportionately or impinge on their voting rights; |
| designed to give a purchasing minority stockholder the | | | | - engage in a course of dealing designed to force the |
| opportunity to bargain for protection before parting | | | | minority out at below fair market value for their shares; |
| with consideration. | | | | or |
| This lack of sympathy for minority shareholders who | | | | - sell their controlling interest to a buyer without |
| have not bargained for written protections of their | | | | adequate due diligence to assure that he was not a |
| rights fails to recognize that minority shareholders | | | | corporate looter or fraudster. |
| often find themselves in the minority due to factors | | | | |