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Keywords

plaintiffappealfiduciarycorporationfiduciary dutybreach of fiduciary duty

fiduciarycorporationfiduciary dutyappellant

Related Cases

Walton v. Morgan Stanley & Co. Inc., 623 F.2d 796

Facts

In 1977, Kennecott Copper Corporation hired Morgan Stanley to find a company to acquire, which included Olinkraft. Olinkraft's management provided Morgan Stanley with confidential earnings projections, instructing that the information was to be used solely for the Kennecott bid. Although Kennecott did not proceed with the bid, Morgan Stanley purchased Olinkraft shares for its own account and later disclosed the confidential information to Johns-Manville, which subsequently made a higher offer for Olinkraft. After the board of Olinkraft refused to act on a demand for accountability from Morgan Stanley, the shareholders filed a derivative suit.

The allegations of appellants' complaint, which we must accept as true in testing the propriety of the dismissal of the complaint, state the following: In 1977, Kennecott Copper Corporation engaged Morgan Stanley, the investment banking and financial advisory concern, to find a company that Kennecott could acquire.

Issue

Did Morgan Stanley breach a fiduciary duty to Olinkraft by using confidential information obtained from the company to profit from stock purchases?

The court needed to resolve whether Morgan Stanley breached a fiduciary duty to Olinkraft by using confidential information obtained from the company to profit from stock purchases.

Rule

Under Delaware law, a breach of fiduciary duty is actionable irrespective of injury to the corporation, but a fiduciary relationship must exist between the parties for such a claim to be valid.

Under Delaware law, no right of action lay against the advisory concern, which used confidential information to buy target's stock for its own account.

Analysis

The court found that Morgan Stanley and Olinkraft dealt at arm's length, as Morgan Stanley was engaged by Kennecott and not by Olinkraft. The court concluded that the mere receipt of confidential information did not create a fiduciary duty, and since there was no evidence of an extraordinary relationship or agreement between the parties, the plaintiffs failed to establish a claim for breach of fiduciary duty.

Morgan Stanley and Olinkraft dealt at arm's length. Morgan Stanley's client was Kennecott, and its task was to obtain information with which to advise Kennecott.

Conclusion

The Court of Appeals affirmed the district court's dismissal of the complaint, concluding that the plaintiffs failed to state a claim upon which relief could be granted.

Affirmed.

Who won?

Morgan Stanley prevailed in the case because the court found that it did not owe a fiduciary duty to Olinkraft and acted at arm's length in its dealings.

Morgan Stanley has not defended the district court's rationale for dismissing appellants' complaint. Instead, Morgan Stanley argues that, far from a standing in a fiduciary relationship to Olinkraft, it represented first Kennecott and then Johns-Manville 'under circumstances that clearly placed it in an arm's length position regarding Olinkraft.'

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