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Keywords

contractplaintiffdefendantpleafiduciarycorporation
contractplaintifftrialpleacorporation

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Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031

Facts

Patrick Tooley and Kevin Lewis, former minority stockholders of Donaldson, Lufkin & Jenrette, Inc. (DLJ), alleged that the board of directors breached their fiduciary duties by agreeing to a 22-day delay in closing a proposed merger with Credit Suisse Group. The plaintiffs claimed that this delay harmed them due to the lost time-value of the cash paid for their shares. The Court of Chancery dismissed the complaint, stating that the claims were derivative and that the plaintiffs lost standing when they tendered their shares in connection with the merger.

Plaintiffs contend that the delay harmed them due to the lost time-value of the cash paid for their shares.

Issue

Whether the stockholders' claims were derivative or direct, and whether they had standing to bring the claims after tendering their shares.

The issue of whether stockholders' claims were derivative or direct turned solely on who suffered the alleged harm and who would receive the benefit of any recovery or other remedy.

Rule

The determination of whether a claim is derivative or direct depends on who suffered the alleged harm and who would benefit from any recovery. A direct claim must demonstrate an injury independent of any injury to the corporation.

The analysis must be based solely on the following questions: Who suffered the alleged harm—the corporation or the suing stockholder individually—and who would receive the benefit of the recovery or other remedy?

Analysis

The court analyzed the nature of the claims and determined that the plaintiffs did not have a direct claim because they had no separate contractual right to the alleged lost time-value of money. The court found that the claims were derivative, as the alleged harm affected all DLJ shareholders equally and did not assert any individual rights that had been violated.

The trial court analyzed the complaint and correctly concluded that it does not claim that the plaintiffs have any rights that have been injured.

Conclusion

The court affirmed the dismissal of the complaint but reversed the dismissal with prejudice, allowing the plaintiffs to replead their claims if warranted.

We affirm the judgment of the Court of Chancery dismissing the complaint, although on a different ground from that decided by the Court of Chancery.

Who won?

Defendants prevailed in the case because the court found that the plaintiffs did not have a valid claim, as their claims were deemed derivative and they lost standing upon tendering their shares.

The Court of Chancery properly found on the facts pleaded that the plaintiffs have no separate contractual right to the alleged lost time-value of money arising out of extensions in the closing of a tender offer.

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