Delaware Supreme Court Affirms Dismissal with Prejudice against Kreisler Manufacturing Corp.’s Directors
Blank Rome’s Delaware corporate litigation team successfully represented the former board of directors of Kreisler Manufacturing Corporation, in an appeal before the Delaware Supreme Court of the Court of Chancery’s dismissal with prejudice of a putative shareholder class action suit brought against the former directors relating to the sale of Kreisler. Oral argument before the Delaware Supreme Court on Kahn’s appeal, with all five of the court’s justices sitting en Banc, was held on March 7, 2018.
After the sale of Kreisler closed, Plaintiff Alan Kahn alleged that Kreisler’s directors were self-interested and failed to properly disclose information regarding the sale process to the company stockholders. At the trial level, the Court of Chancery sided with the Firm's argument that since a majority of the board was disinterested and the company's charter included a Section 102(b)(7) exculpation provision, the plaintiff could not pursue post-closing damages for breach of fiduciary duty unless his complaint pleaded facts making it reasonably conceivable that the majority of the board acted in bad faith—which it did not.
On appeal, Kahn argued that the Court of Chancery failed to consider well-pled allegations within his complaint or otherwise afford him all reasonable inferences owed to a plaintiff when deciding a motion to dismiss under Delaware’s fairly lenient pleading standard. During oral argument, the Supreme Court recognized the Firm's position that Kahn’s case must rise or fall solely on the well-pled allegations of his complaint—not through additional facts or arguments advanced in briefing—and that, while the plaintiff argued other issues/theories below, the plaintiff had appealed only one narrow issue. On March 15, 2018, the Supreme Court issued its written opinion holding the “pled facts do not support a rational inference that any of the directors faced a non-exculpated claim for breach of fiduciary duty” on the singular claim appealed, and affirmed the dismissal of Kahn’s class action with prejudice.