In re Wayport, Inc. Litigation
2013 Del. Ch. LEXIS 109
Del. Ch.2013Background
- Wayport was a private Delaware company; plaintiffs sold Wayport stock and sued for damages arising from alleged fiduciary and fraud-based misconduct in 2005–2007 stock transactions.
- Wayport’s Board, Trellis Partners (Trellis) and NEA held ROFRs and had information rights; waivers were later obtained to complete stock sales in 2007.
- The Cisco MSSID Patents sale in 2007 yielded $7.6 million net proceeds and was not disclosed to Stewart until after multiple stock sales.
- Gordon Williams and Greg Williams led the patent monetization efforts; Stewart offered aggressive IP strategies and questioned management’s execution.
- Trellis and NEA waived ROFRs to accommodate multi-party stock sales; Stewart sold substantial shares to Trellis and Millennium in 2007.
- The trial court found Trellis liable to Stewart for common-law fraud regarding a June 2007 stock sale; Wayport, Williams, Trellis, and NEA were exonerated on fiduciary claims, with other counts dismissed or resolved in favor of defendants.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether fiduciary duties were owed in private stock purchases | Lank/Kors special facts doctrine imposes disclosure | No general duty to disclose absent special facts | Special facts doctrine governs; no duty found for Trellis/NEA/Williams |
| Whether a duty to speak existed in the direct stock sale | Disclosure of material information required under fiduciary duty | No duty to disclose absent special facts or misrepresentation | No duty to speak found for Trellis/NEA/Williams; liability limited |
| Whether the Cisco patent sale was a material special fact triggering disclosure | Cisco sale significantly affected stock value | Cisco sale was not a ‘special fact’ warranting disclosure | Cisco sale was material but not a ‘special fact’ warranting duty to speak |
| Whether Trellis committed common-law fraud by omissions | Omissions about Cisco sale induced reliance and damages | No fraud; no scienter or causation shown | Trellis liable for common-law fraud; damages awarded |
| Whether Wayport or Williams can be liable for aiding and abetting | Aiding and abetting breach of fiduciary duty | No underlying breach by Wayport; no aiding abetting liability | Wayport not liable; aiding-and-abetting claim failed |
Key Cases Cited
- Gantler v. Stephens, 965 A.2d 695 (Del.2009) ( Classic ratification and disclosure standards in fiduciary context)
- Stroud v. Grace, 606 A.2d 75 (Del.1992) (Contextual duty to disclose when seeking shareholder action)
- Malone v. Brincat, 722 A.2d 5 (Del.1998) (Public statements by directors carry fiduciary disclosure duties)
- Kors v. Carey, 158 A.2d 136 (Del.Ch.1960) (Special facts doctrine as disclosure when special knowledge is used to mislead)
- Lank v. Steiner, 224 A.2d 242 (Del.1966) (Adoption of Kors special facts doctrine; disclosure in private stock sales)
- Lynch v. Vickers Energy Corp., 429 A.2d 497 (Del.1981) (Complete candor standard for controlling stockholders)
- Berger v. Pubco Corp., 976 A.2d 132 (Del.2009) (Duty to disclose in tender/ownership context; post-offer disclosures)
- Glassman v. Unocal Exploration Corp., 777 A.2d 242 (Del.2001) (Public and fiduciary disclosure duties in corporate contexts)
- Shell Petroleum, Inc. v. Smith, 606 A.2d 112 (Del.1992) (Disclosure duties in corporate transactions)
- In re American International Gp., Inc., 965 A.2d 763 (Del.Ch.2009) (Corporate fiduciaries’ duties when dealing with stockholders)
- In re Oracle Corp., 867 A.2d 904 (Del.Ch.2004) (Disclosure and fiduciary duties in corporate transactions)
- Lank v. Steiner, 224 A.2d 242 (Del.1966) (Special facts doctrine applied to disclose future plans or resources)