Litle v. Waters - Civil Action No. 12155, 1992 Del. Ch. LEXIS 25 (Ch. Feb. 10, 1992)

Rule:

A definition of oppressive conduct describes it as burdensome, harsh and wrongful conduct; a lack of probity and fair dealing in the affairs of a company to the prejudice of some of its members; or a visible departure from the standards of fair dealing, and a violation of fair play on which every shareholder who entrusts his money to a company is entitled to rely. 

Facts:

The manager and the investor had formed two corporations. Allegedly, they had an agreement that the investor would provide the funding, and that, as one corporation was a Subchapter S corporation, the dividends would pass through to help the manager pay taxes on his shares. The corporations were merged, the manager was fired, and none of the dividends allegedly passed through. The Trial Court dismissed the suit in part.

Issue:

Did the complaint adequately allege oppression in this case?

Answer:

Yes

Conclusion:

The Court found that the manager alleged sufficient facts that the investor and the director were interested directors under the fairness doctrine who decided not to issue dividends to pressure the manager to sell his stock cheaply. The Court held that a claim that the agreement to pay dividends to cover taxes was too vague to support a breach of contract claim. The agreement never stated how much would be paid, to whom, when, or how. The manager alleged sufficient facts to support an oppression claim in that his reasonable expectation that he would be paid dividends was violated. The motion to dismiss under Del. Ch. Ct. R. Civ. P. 9(b) was denied since the manager did not allege fraud so that there was no requirement that his pleading had to meet the heightened requirements of the rule.