Directors Are Public Figures for Election-Related Communications Among Investors

In Agar v. Judy, C.A. No. 9541-VCL (Del. Ch. Jan. 19, 2017), a case of first impression in Delaware, Vice Chancellor J. Travis Laster held that directors of a corporation, plaintiffs in a defamation action, were public figures for the limited purpose of election-related communications among the company’s investors. Because they were limited-purpose public figures, they bore the burden of proving in the defamation action that statements in a letter distributed by their opponents to the company’s investors in connection with an upcoming election of directors were not true and were made with actual malice.

The case arose from a contested election for directors of Preferred Communications Systems Inc., a Delaware corporation. An association of preferred investors opposed the re-election of incumbent members of the company’s board. In advance of the annual meeting, the association distributed a “fight letter” to the company’s investors. The letter made a number of allegations against the incumbent directors, including that they had acted to benefit themselves at the expense of the company. The letter accused the incumbent directors of having “looted” the company. The letter also accused the incumbent directors of concealing their actions from the company’s investors and failing to make required payments to investors. In the ensuring election, three of the incumbent directors lost their seats. They brought this claim for defamation against the association and its members who signed the fight letter.