Law School Case Brief
North American Catholic Educational Programming Foundation, Inc. v. Gheewalla - 930 A.2d 92 (Del. 2007)
The creditors of a Delaware corporation that is either insolvent or in the zone of insolvency have no right, as a matter of law, to assert direct claims for breach of fiduciary duty against the corporation's directors.
Plaintiff putative creditor, North American Catholic Educational Programming Foundation, Inc. (NACEPF), held certain licenses. It, together with similar license-holders, entered into a master agreement with Clearwire Holdings, Inc. (Clearwire), a Delaware corporation, so that Clearwire could obtain rights to those licenses. NACEPF sued defendants Rob Gheewalla, Gerry Cardinale, and Jack Daly, who served as directors of Clearwire at the behest of Goldman Sachs & Co. 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. and alleged that they were responsible for getting NACEPF to enter into the master agreement and, that at the time, the corporate directors were employees of an investment firm who favored the investment firm's agenda in derogation of their fiduciary duties as corporate directors of the corporation. That was a problem, the putative creditor claimed, because Clearwire allegedly was insolvent or in the zone of insolvency and Goldman Sachs allegedly did not intend further funding of Clearwire. The trial court dismissed NACEPF’s direct claims of breach of fiduciary duty against the corporate directors, which did not leave any other viable claim against them.
Could the creditors of a company that was in the "zone of insolvency" assert a direct claim for breach of a fiduciary duty against the corporate directors?
The Supreme Court of Delaware concluded that creditors of Clearwire, which was in the "zone of insolvency," could not assert a direct claim for breach of a fiduciary duty against the corporate directors.
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