Blaustein v. Lord Baltimore Capital Corp.

Summary

The Delaware Supreme Court affirmed the Court of Chancery’s refusal to permit claims alleging that directors breached fiduciary duties by declining to repurchase a minority stockholder’s shares at a more favorable price. The court held that directors of a closely held corporation have no general fiduciary duty to repurchase minority shares, and that the shareholders’ agreement imposed no duty to negotiate or pay full value. The court also held that the implied covenant of good faith and fair dealing could not add terms omitted from the agreement, while noting that the allegations might support a fraud-in-the-inducement theory that had not been presented.

Holdings

1. Directors of a closely held corporation have no general fiduciary duty to repurchase the stock of a minority stockholder, and a minority stockholder has no inherent right to sell shares to the company at full value or any other price.
2. The alleged self-interest of the directors did not establish a direct fiduciary-duty claim because Blaustein had no right to demand a repurchase, a full-value price, or a non-conflicted board process under common law or the shareholders' agreement.
3. A stockholder cannot maintain a derivative claim without pleading either a wrongful refusal of demand or demand futility with particularity; the mere existence of a control group is insufficient to excuse demand.
4. The implied covenant of good faith and fair dealing does not create a duty to negotiate a reasonable repurchase price or a right to a full-value repurchase where the contract expressly gives the parties discretion whether and at what price to complete the transaction.

Questions Presented

1. Whether directors of a closely held corporation owe a common-law fiduciary duty to consider and negotiate a repurchase of a minority stockholder's shares through a non-conflicted board process.
2. Whether Blaustein stated a direct fiduciary-duty claim based on the directors' refusal to negotiate a repurchase at a more favorable price.
3. Whether Blaustein stated a derivative fiduciary-duty claim where she made no demand and alleged only conclusory demand-futility facts.
4. Whether the implied covenant of good faith and fair dealing supplied a contractual right to good-faith negotiation or a full-value repurchase when the shareholders' agreement gave the company and stockholder discretion over whether and at what price to repurchase shares.

Disposition

affirmed