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Gentile v. Rossette

Supreme Court of Delaware

April 26, 2006, Submitted ; August 17, 2006, Decided

No. 573, 2005

Opinion

 [*93]  JACOBS, Justice:

The plaintiffs, who are former minority shareholders of SinglePoint Financial, Inc. ("SinglePoint" or "the company"), appeal from a grant of summary [**2]  judgment by the Court of Chancery dismissing their claim for breach of fiduciary duty against SinglePoint's former directors and its CEO/controlling stockholder. The claim arises from a self-dealing transaction in which the CEO/controlling stockholder forgave the corporation's debt to him, in exchange for being issued stock whose value allegedly exceeded the value of the forgiven debt. The transaction, it is claimed, wrongfully reduced the cash-value and the voting power of the public stockholders' minority interest, and increased correspondingly the value and voting power of the controller's majority interest. After the debt conversion, SinglePoint was later acquired by another company ("Cofiniti") in a merger. Shortly thereafter, the acquirer, Cofiniti, filed for bankruptcy and was liquidated. The plaintiffs then brought this action in the Court of Chancery, seeking to recover the value of which they claimed to have been wrongfully deprived in the debt conversion. The Court of Chancery dismissed the action on the ground that the claim was exclusively derivative, and that as a result of the Cofiniti merger the plaintiffs had lost standing to assert the claim on behalf of SinglePoint.

 [**3]  The issue presented on this appeal is one purely of law: can SinglePoint's former minority stockholders bring a direct claim against the fiduciaries responsible for the debt conversion transaction complained of, or is such a claim exclusively derivative? We hold, for the reasons discussed herein, that the claim is not exclusively derivative and can be brought by the (former) minority shareholders directly. We must, therefore, reverse the contrary ruling of the Court of Chancery.

 [*94]  I. FACTS 1 

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906 A.2d 91 *; 2006 Del. LEXIS 431 **

JOHN A. GENTILE, VICTORIA S. CASHMAN, BRADLEY T. MARTIN, JOHN KNIGHT, and DYAD PARTNERS, LLC, Plaintiffs Below, Appellants, v. PASQUALE DAVID ROSSETTE, DOUGLAS W. BACHELOR, and LEASENET GROUP, INC., an Ohio Corporation, as successor by merger to LeaseNet Group, Inc., a Delaware corporation, Defendants Below, Appellees.

Subsequent History: On remand at, Judgment entered by, Costs and fees proceeding at, Application denied by Gentile v. Rossette, 2010 Del. Ch. LEXIS 123 (Del. Ch., May 28, 2010)

Prior History:  [**1]  Court Below: Court of Chancery of the State of Delaware in and for New Castle County. C.A. No. 20213.

Gentile v. Rossette, 2005 Del. Ch. LEXIS 160 (Del. Ch., Oct. 20, 2005)

Disposition: REVERSED and REMANDED.

CORE TERMS

conversion, shares, voting power, stock, shareholders, merger, derivative, stockholder, dilution, overpayment, minority stockholder, minority shareholder, conversion claim, plaintiffs', minority interest, summary judgment, reduction, economic value, controlling stockholder, common stock, per share, fiduciary, convert, harmed, give rise, terms, breach of fiduciary duty, controlling shareholder, outstanding shares, fair value

Business & Corporate Law, Actions Against Corporations, Derivative Actions, General Overview, Shareholder Actions, Direct Actions