In an en banc decision, the Delaware Supreme Court recently provided guidance on analyzing the proper price a beneficiary must pay to recover shares obtained by a fiduciary in violation of the corporate opportunity doctrine. In so doing, the court held that a fiduciary may not recover the control premium he paid to obtain the illegally purchased shares.
In an underlying lawsuit, the Delaware Chancery Court ruled that defendant Miller had conspired with certain directors of EMS, a privately owned company, to purchase EMS's outstanding warrants, which Miller exercised to acquire a controlling block of the company's shares (the "Warrant Shares"). The court further found that Miller's purchase of the warrants had interfered with EMS's attempts to negotiate a warrant extension agreement with the warrant holders, pursuant to which EMS would have acquired the right of first refusal with respect to the shares subject to the warrants. Having concluded that the Warrant Shares were procured by Miller as a result of opportunities improperly diverted from EMS by its fiduciaries, the Delaware Chancery Court ordered Miller to offer them to EMS or CVC, the prior majority stockholder of EMS, and subsequently sought clarification from the Delaware Supreme Court as to the proper price EMS or CVC were required to pay for the Warrant Shares.
Accepting certification of the Chancery Court's question, the Delaware Supreme Court held that the fiduciary must surrender property which should have been purchased for the beneficiary if the beneficiary "restores to the fiduciary the amount of the purchase price, or the price for which he could have obtained it for the beneficiary, whichever is less." The court noted that while Miller had paid a higher price to obtain the Warrant Shares because they represented a control block to him, those shares would not have commanded a control premium if they had been purchased by EMS or CVC. Thus, the court held that Miller must be paid the lesser of his purchase price or the price at which EMS or CVC could have obtained the warrant shares, and remanded the case to the Chancery Court for determination of that hypothetical purchase price. *
Miller v. Agranoff, No. 476, 2000 WL 313438 (Del. Supr. Mar. 14, 2000).