On March 15, the Delaware Court of Chancery significantly expanded the right of a stockholder to make direct claims against corporate fiduciaries. Previously, many of those claims were classified as derivative claims that could only be brought in the name of the corporate entity. As a result, stricter pleading rules applied and such claims might be dismissed for a variety of other reasons, such as a cash-out merger that denied standing to the plaintiff or a decision by an independent committee to drop the claim on behalf of the entity. Thus, by expanding the number of “direct” compared to “derivative” claims, the decision in Carsanaro v. Bloodhound Technologies, C.A. 7301-VCL (Mar. 15, 2013), expands stockholder rights.
The Bloodhound case involved some fairly common corporate financings of a startup company. Following a series of issuances of preferred stock over several years, the preferred stockholders both took control of the Bloodhound Technologies board of directors and diluted the equity interest of the common stockholders to less than 1 percent of Bloodhound. The controllers then sold Bloodhound through a merger that gave them almost all of the $82.5 million sale price. The plaintiffs who founded Bloodhound and held only common stock received less than $36,000 when their company was sold.
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