Amy Simmerman and Julia Reigel are partners and Nate Emeritz is of counsel at Wilson Sonsini Goodrich & Rosati. This post is based on a WSGR memorandum by Ms. Simmerman, Ms. Reigel, Mr. Emeritz, John Aguirre and Ryan Greecher, and is part of the Delaware law series; links to other posts in the series are available here.
The Delaware Court of Chancery issued a post-trial decision determining that a director who refused to cooperate in remediating flaws in the company’s capital structure breached his fiduciary duty of loyalty and owed damages to the corporation. The opinion is particularly important because of that holding. However, the opinion is equally important because of the court’s emphasis on the importance of complying with technical rules under Delaware law when issuing equity and the need to document the board’s decision to issue equity. Finally, the case highlights the ongoing use of provisions of the Delaware corporate statute that allow for the ratification and validation of defective corporate acts—and the reality that some of the most fraught uses of those provisions can occur in the context of disputes among founders and board members.
