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N. Am. Catholic Educ. Programming Found., Inc. v. Gheewalla

Supreme Court of Delaware

February 12, 2007, Submitted; May 18, 2007, Decided

No. 521, 2006

Opinion

 [*93]  HOLLAND, Justice:

This is the appeal of the plaintiff-appellant, North American Catholic Educational Programming Foundation, Inc. ("NACEPF") from a final judgment of the Court of Chancery that dismissed NACEPF's Complaint for failure to state a claim. 2 NACEPF holds certain radio wave spectrum licenses regulated by the Federal Communications Commission ("FCC"). In March 2001, NACEPF, together with other similar spectrum license-holders, entered into the Master Use and Royalty Agreement (the "Master Agreement") with Clearwire Holdings, Inc. ("Clearwire"), a Delaware corporation. Under the Master Agreement, Clearwire could obtain rights to those licenses as then-existing leases  [**2] expired and the then-current lessees failed to exercise rights of first refusal.

The defendant-appellees are Rob Gheewalla, Gerry Cardinale, and Jack Daly (collectively, the "Defendants"), who served as directors of Clearwire at the behest of Goldman Sachs & Co. ("Goldman Sachs"). NACEPF's Complaint alleges that the Defendants, even though they comprised less than a majority of the board, were able to control Clearwire because its only source of funding was Goldman Sachs. According to NACEPF, they used that power to favor Goldman Sachs' agenda in derogation of their fiduciary duties as directors of Clearwire. In addition to bringing fiduciary duty claims, NACEPF's Complaint also asserts that the Defendants fraudulently induced it to enter into the Master Agreement with Clearwire and that the Defendants tortiously interfered with NACEPF's business opportunities. 3

NACEPF  [**3] is not a shareholder of Clearwire. Instead, NACEPF filed its Complaint in the Court of Chancery as a putative [*94]  creditor of Clearwire. The Complaint alleges direct, not derivative, fiduciary duty claims against the Defendants, who served as directors of Clearwire while it was either insolvent or in the "zone of insolvency."

Personal jurisdiction over the Defendants was premised exclusively upon 10 Del.C. § 3114, which subjects directors of Delaware corporations to personal jurisdiction in the Court of Chancery over claims "for violation of a duty in [their] capacity [as directors of the corporation]." No other basis for personal jurisdiction over the Defendants was asserted. Accordingly, NACEPF's efforts to bring its other claims in the Court of Chancery fail on jurisdictional grounds unless those other claims are adequately alleged to be "sufficiently related" to a viable fiduciary duty claim against the Defendants.

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930 A.2d 92 *; 2007 Del. LEXIS 227 **

NORTH AMERICAN CATHOLIC EDUCATIONAL PROGRAMMING FOUNDATION, INC., Plaintiff Below, Appellant, v. ROB GHEEWALLA, GERRY CARDINALE and JACK DALY, Defendants Below, Appellees.

Subsequent History: As Corrected December 6, 2007.

Related proceeding at N. Am. Catholic Educ. Programming Found., Inc. v. Cardinale, 536 F. Supp. 2d 181, 2008 U.S. Dist. LEXIS 18495 (D.R.I., 2008)

Prior History:  [**1] Court Below - Court of Chancery of the State of Delaware, in and for New Castle County. C.A. No. 1456-N.

N. Am. Catholic Educ. Programming Found., Inc. v. Gheewalla, 2006 Del. Ch. LEXIS 164 (Del. Ch., Sept. 1, 2006)

Disposition: AFFIRMED.

CORE TERMS

insolvency, fiduciary duty, zone, insolvent corporation, personal jurisdiction, spectrum, claim for breach, shareholders, licenses, breach of fiduciary duty, derivative claim, alleges, motion to dismiss, negotiated, fiduciary, fiduciary duty claim, complaint alleges, good faith, individual creditor, matter of law, Court of Chancery Rule, obligations, fraudulent, Vicinity, asserts, solvent

Business & Corporate Law, Management Duties & Liabilities, Fiduciary Duties, General Overview, Civil Procedure, In Rem & Personal Jurisdiction, In Personam Actions, Duty to Third Parties, Defenses, Demurrers & Objections, Motions to Dismiss, Failure to State Claim, Responses, Motions to Dismiss