Zimmerman v. Crothall

This case addressed the allegations of a minority unitholder in a privately held medical device company. The unitholder, the former CEO of the company, became a minority stakeholder after accepting investments in the company in exchange for units after he sold some of his own units. After the board of directors caused the company to enter into several financing transactions, the unitholder filed this action against the board. The unitholder alleged (1) the transactions were in breach of the company's operating agreement, and by undertaking the transactions, the directors also breached their fiduciary duties, and (2) certain unitholders breached fiduciary duties and they and their affiliates aided and abetted the directors' breach of fiduciary duties. The court of chancery held (1) the directors exceeded their authority in engaging in the financing transactions, but they did not breach the fiduciary duties they owed thereunder when they engaged in the transactions; and (2) the directors' breach caused no damage and all defendants were entitled to indemnification notwithstanding the directors' breach of the company's operating agreement. View "Zimmerman v. Crothall" on Justia Law