Blaustein v. Lord Baltimore Capital Corp.
84 A.3d 954
| Del. | 2014Background
- Minority stockholder Blaustein sues in a closely held Delaware company, alleging misfeasance by Thalheimer directors in repurchasing her shares.
- Shareholders’ Agreement Paragraph 7(d) permits repurchase with company and shareholder consent or board majority or 70% stockholder approval, but does not impose an affirmative duty to negotiate.
- Blaustein alleges a right to a non-conflicted board decision and argues implied covenant and fiduciary duties require negotiation at a reasonable price.
- Court of Chancery dismissed most claims; on appeal, the court rejects both direct and derivative fiduciary claims and the implied covenant claim.
- Alleged oral promises about liquidity after ten years are not pursued as fraud claims in this appeal; the court affirms dismissal of amended fiduciary and implied covenant claims.
- Judgment of the Court of Chancery is AFFIRMED.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether directors owe a fiduciary duty to consider repurchase free of conflict. | Blaustein asserts a right to non-conflicted consideration. | No general duty; agreement grants discretion. | No direct fiduciary duty to negotiate; affirmed. |
| Whether the derivative claim is viable without demand futility. | Alleges lack of independence due to control group. | Majority directors remain independent; demand not excused. | Derivative claim dismissed; demand not excused. |
| Whether the implied covenant creates a duty to negotiate in good faith. | Paragraph 7(d) implies a good-faith negotiation right. | 7(d) is permissive; no renegotiation obligation. | Implied covenant does not add new terms; affirmed. |
| Whether the alleged oral liquidity promise supports fraud claims. | Oral promises induced investment. | Fraud claim not argued on appeal. | Fraud claim not considered; affirmed on other grounds. |
Key Cases Cited
- Aronson v. Lewis, 473 A.2d 805 (Del.1984) (presumptions of independence in demand context)
- Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del.2004) (test for direct vs. derivative claims)
- Nemec v. Shrader, 991 A.2d 1120 (Del.2010) (courts should not rewrite contracts to appease a party)
- Stone ex rel. AmSouth Bancorporation v. Ritter, 911 A.2d 362 (Del.2006) (pleading standards for derivative actions)
- Zim v. VLI Corp., 681 A.2d 1050 (Del.1996) (demand futility standards)
- Gerber v. Enterprise Products Holdings, LLC, 67 A.3d 400 (Del.2013) (implied covenant limits reworking contract terms)