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Gantler v. Stephens

Supreme Court of Delaware

November 5, 2008, Submitted; January 27, 2009, Decided

No. 132, 2008

Opinion

 [*698]  JACOBS, Justice:

The plaintiffs in this breach of fiduciary duty action, who are certain shareholders of First Niles Financial, Inc. ("First Niles"  [*699]  or the "Company"), appeal from the dismissal of their complaint by the Court of Chancery The complaint alleges that the defendants, who are officers and directors of First Niles, violated their fiduciary duties by rejecting a valuable opportunity to sell the Company, deciding instead to reclassify the Company's shares in order to benefit themselves, and by disseminating a materially misleading proxy statement to induce shareholder approval. We conclude that  [**2] the complaint pleads sufficient facts to overcome the business judgment presumption, and to state substantive fiduciary duty and disclosure claims. We therefore reverse the Court of Chancery's judgment of dismissal and remand the case for further proceedings consistent with this Opinion.

FACTUAL AND PROCEDURAL BACKGROUND

A. The Parties

First Niles, a Delaware corporation headquartered in Niles, Ohio, is a holding company whose sole business is to own and operate the Home Federal Savings and Loan Association of Niles ("Home Federal" or the "Bank"). The Bank is a federally chartered stock savings association that operates a single branch in Niles, Ohio.

The plaintiffs (Leonard T. Gander and his wife, Patricia A. Cetrone; John and Patricia Gernat; and Paul and Marsha Mitchell) collectively own 121,715 First Niles shares. Plaintiff Gander was a First Niles director from April 2003 until April 2006.

Defendant William L. Stephens is the  [**3] Chairman of the Board, President and CEO of both First Niles and the Bank, and has been employed by the Bank since 1969. Defendant P. James Kramer, a director of First Niles and the Bank since 1994, is president of William Kramer & Son, a heating and air conditioning company in Niles that provides heating and air conditioning services to the Bank. Defendant William S. Eddy has been a director of First Niles and the Bank since 2002. Defendant Daniel E. Csontos has been a director of First Niles and the Bank since April 2006. Csontos has also been a full-time employee, serving as compliance officer and corporate secretary of both institutions since 1996 and 2003, respectively. Defendant Robert I. Shaker, who became a director of First Niles and the Bank in January of 2006 after former director Ralph A. Zuzolo passed away, is a principal of a law firm in Niles, Ohio. Defendant Lawrence Safarek is the Treasurer and Vice President of both First Niles and the Bank.

Until his death in August of 2005, Mr. Zuzolo (who is not a party) was a director and corporate board secretary of First Niles and the Bank. Zuzolo was also both a principal in the law firm of Zuzolo, Zuzolo & Zuzolo, and the CEO  [**4] and sole owner of American Title Services, Inc., a real estate title company in Niles, Ohio. Zuzolo's law firm frequently provided legal services to the Bank, and American Title provided title services for nearly all of the Bank's real estate closings. 2 

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965 A.2d 695 *; 2009 Del. LEXIS 33 **

LEONARD T. GANTLER, PATRICIA A. CETRONE, JOHN GERNAT, PATRICIA GERNAT, PAUL MITCHELL and MARSHA MITCHELL, Plaintiffs Below, Appellants, vs. WILLIAM L. STEPHENS, P. JAMES KRAMER, WILLIAM S. EDDY, DANIEL E. CSONTOS, ROBERT I. SHAKER, LAWRENCE SAFAREK and FIRST NILES FINANCIAL, INC., a Delaware corporation, Defendants Below, Appellees.

Prior History:  [**1] Court Below: Court of Chancery of the State of Delaware. C. A. No. 2392.

Gantler v. Stephens, 2008 Del. Ch. LEXIS 20 (Del. Ch., Feb. 14, 2008)

Disposition: The court reversed the judgment as to all counts and remanded the case for proceedings consistent with the rulings in the opinion.

CORE TERMS

shareholders, due diligence, Proxy, bid, ratification, merger, business judgment, alleges, fiduciary duty, shares, disclosure, stock, voted, reasonable inference, terminated, motion to dismiss, ratified, approve, dismissed count, duty of loyalty, deliberation, misleading, benefits, circumstances, acquisition, disclose, inferred, sabotage, revised, shareholder approval

Civil Procedure, Appeals, Standards of Review, De Novo Review, Evidence, Inferences & Presumptions, Inferences, Defenses, Demurrers & Objections, Motions to Dismiss, Failure to State Claim, Responses, Motions to Dismiss, Questions of Fact & Law, Business & Corporate Law, Management Duties & Liabilities, Causes of Action, Misfeasance & Nonfeasance, Mergers & Acquisitions Law, Takeovers & Tender Offers, Duties & Liabilities of Directors & Officers, Fiduciary Duties, Business Judgment Rule, Burdens of Proof, Allocation, Presumptions, Presumptions, Rebuttal of Presumptions, Directors & Officers, Scope of Authority, General Overview, Duty of Good Faith, Pleadings, Complaints, Requirements for Complaint, Duty of Loyalty, Self-Dealing, Duty of Care, Corporate Existence, Powers & Purpose, Powers, Negligent Acts of Directors & Officers, Shareholders, Meetings & Voting, Defenses, Ratification, Fraud & Misrepresentation, Misappropriation of Funds, Ultra Vires Doctrine