Holger Spamann is Professor of Law at Harvard Law School. This post is part of the Delaware law series; links to other posts in the series are available here.
In his recent PLX decision, Delaware’s Vice-Chancellor (VC) Travis Laster refused to award monetary recovery on the grounds that plaintiffs did not carry their burden of proof on damages. [1] In this short comment, I argue that the burden of proof should not have been on the plaintiffs: once VC Laster found a breach of fiduciary duty, the internal logic of Delaware law demands that burden of proof shift to the defendants.
In PLX, VC Laster held activist hedge fund Potomac Capital Partners II, L.P. liable for aiding and abetting the breach by its principal, Eric Singer, of his fiduciary duty to Potomac’s portfolio company, PLX Technology Inc. Singer had joined PLX’s board on Potomac’s slate and oversaw its sale to Avago as chair of its “Strategic Alternatives Special Committee.” VC Laster took issue with various aspects of Singer’s behavior, above all that Singer withheld from his fellow PLX board members information about Avago’s intentions that he received from PLX’s investment banker after joining the PLX board, but long before start of the sale process with Avago. [2] Reasonable people may disagree as to whether this sale process was truly “flawed from a fiduciary standpoint,” as VC Laster found the plaintiffs to have proven. [3] I take no position on this question. The point I want to make concerns what follows a finding of a fiduciary breach: who should bear the burden of proof on damages? My argument is that in the rare case where a plaintiff can prove a violation of fiduciary duty, the internal logic of Delaware law demands that the burden on damages shift to the defendant.
