Andre G. Bouchard.

New Enterprise Associates Inc. cannot escape a shareholder lawsuit accusing the venture capital giant of exploiting its control of a medical device company in order to secure other deals for its own benefit, the Delaware Court of Chancery has ruled.

Chancellor Andre G. Bouchard on Monday said an investor in Advanced Cardiac Therapeutics Inc. had cleared early pleading hurdles in the case, asserting direct and derivative claims against NEA and members of the ACT board in connection with a series of corporate transactions in 2014.

While the suit will continue “in large part” against the $17 billion venture capital fund, Bouchard released ACT directors Roy T. Tanaka and William Olson for a lack of connection to the underlying accusations of wrongdoing. However, the remaining ACT directors would face heightened scrutiny for decisions that led to the derivative claims against the ACT board, Bouchard said.

The case stems from ACT's issuance in April 2014 of nearly 266 million shares of ACT preferred stock, which valued the private heart catheter maker at around $15 million, according to court documents. NEA acquired more than 90 percent of the shares in the transaction, giving the firm a more than 65 percent stake in the company and making it ACT's controlling stockholder.

Plaintiff Kenneth Carr, an ACT co-founder and investor, last May accused NEA of then abusing its position to pursue a “three-headed” deal that undervalued ACT and created a windfall for NEA and its affiliates.

According to Carr, NEA used its influence to lock ACT into a potential sale to Abbott Laboratories on the cheap so that Abbott Laboratories could then acquire another company, Topera Inc., and invest in VytronUS Inc., a firm in which NEA was the largest institutional investor. Along the way, the ACT board ignored a substantially better offer to buy the company, without obtaining a financial adviser or a fairness opinion, Carr said.

Carr's complaint accused the ACT directors of aiding and abetting NEA's breaches of its fiduciary duty as a controller and violating their own duties of care and loyalty to the company.

NEA and the individual board members moved to dismiss the suit last July, arguing that Carr had not stated a claim against them and that his failure to make a presuit litigation demand on the board had torpedoed his case.

On Monday, Bouchard ruled that four out of the six ACT directors who approved the stock issuance to NEA were tainted by their own financial interests in the transaction. Meanwhile, he said, Carr had made an initial case that NEA had taken advantage of its dominant position and engaged in self-dealing.

“Carr alleges, in essence, that NEA prioritized its fund's overall rate of return over maximizing value for ACT's stockholders. This is precisely the kind of behavior that controllers may not engage in under Delaware law,” Bouchard wrote in a 60-page memorandum opinion.

Because of the board conflicts and oversights, Bouchard declined to defer to the directors' business judgment and instead evaluated their actions under Delaware's entire fairness standard. Application of the entire fairness standard, Bouchard cautioned, does not necessarily mean that the directors breached their fiduciary duties, but it does impose a more stringent framework for reviewing possible wrongdoing.

Attorneys for both the NEA and the individual director defendants were not immediately available to comment on Tuesday. An attorney for Carr did not immediately return a call seeking comment on the case.

The case is captioned Carr v. New Enterprise Associates.