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To plead a direct claim under Tooley, a stockholder must demonstrate that the duty breached was owed to the stockholder and that he or she can prevail without showing an injury to the corporation.
The corporation’s board authorized the sale of 60,975,609 shares of the corporation’s common stock to the controlling stockholder (the “Private Placement”). The Private Placement increased the controlling stockholder’s economic interest in and voting power over the corporation from 51 percent to 65.3 percent. The former stockholders filed a verified derivative and purported class action complaint against the controlling stockholder for breach of fiduciary duties. The complaint alleged that the controlling stockholder caused the corporation to issue its stock in the Private Placement for inadequate value, diluting both the financial and voting interest of the minority stockholders. The trial court held that the former stockholders have direct standing to challenge the corporation’s private placement of common stock to controlling stockholder. The trial court held that plaintiffs did not state direct claims under Tooley v. Donaldson, Lufkin & Jennette, Inc., but did state direct claims predicated on a factual paradigm "strikingly similar" to that of Gentile v. Rossette, and that Gentile was controlling in this case. Defendants contended that Gentile was inconsistent with Tooley and that the Court's decision in Gentile has created confusion in the law and therefore ought to be overruled.
The Supreme Court of Delaware overruled the exception in Gentile v. Rossette, 906 A.2d 91 (Del. 2006), to the Tooley test for derivative and direct standing because the practical and analytical difficulties courts encountered in applying the exception reflected fundamental unworkability. To plead a direct claim under Tooley, a stockholder must demonstrate that the duty breached was owed to the stockholder and that he or she can prevail without showing an injury to the corporation. In this case, the dismissal of the stockholders' claim was appropriate because the stockholders failed to allege any facts supporting a reasonably conceivable inference that the controlling shareholder, absent the private placement, would have permitted a dilution of their equity stake sufficient to relinquish their majority control. The controlling shareholder also never achieved the level of control necessary to unilaterally remove supermajority voting rights.