Opinion ID: 2068918
Heading Depth: 1
Heading Rank: 2

Heading: The Timing of the Alleged Wrongs

Text: Partners argues that the Court of Chancery erred in its analysis of when the alleged wrongs took place for purposes of 8 Del.C. § 327. Partners relies on Maclary v. Pleasant Hills, Inc., 35 Del.Ch. 39, 109 A.2d 830, 834 (1954), for the proposition that the Boston Chicken directors' breaches of fiduciary duty were not completed until the directors received their Private Placement shares on November 16, 1993. Since Partners was a Boston Chicken stockholder as of that date, it argues that the contemporaneous ownership requirement of 8 Del.C. § 327 was satisfied. We find that Partners' reliance on Maclary is misplaced. That was a derivative action seeking, among other things, the cancellation of 100 shares of stock allegedly issued without consideration. The resolution authorizing the issuance of those shares was passed before plaintiffs inherited their stock. However, the challenged shares were not actually issued until 3 years after the resolution, and more than 1 year after plaintiffs became equitable stockholders. The Maclary court held that, under the facts of that case, the challenged transaction should not be deemed complete until the stock certificates actually were issued. The court stated: [T]here is nothing in the policy behind [8 Del.C. § 327] which would call for a construction favoring its application in situations where inexcusable inaction on the part of corporate personnel might make it less likely that wrongdoing would be discovered. It would seem more likely that a wrongful issuance of stock would be discovered if the issuance thereof and the stock holdings appeared of record. To consider this transaction as having been completed prior to the issuance of the certificates would sanction an application of the statute not required by its language and not fairly required to effectuate its purpose. On the contrary, it would place a premium on corporate conduct which might run counter to desirable standards. Id. 109 A.2d at 833. The facts of this case bear no resemblance to Maclary. Partners is not seeking the cancellation of any Boston Chicken stock, nor is it alleging that the issuance of those shares was unlawful. In addition, there was no inexcusable inaction on the part of Boston Chicken. The Court of Chancery declined to follow Maclary after concluding that it was a special case in which a rule was crafted to meet unusual circumstances. We agree that Maclary is distinguishable and does not control the result here. Rather, the timing of the allegedly wrongful transaction must be determined by identifying the wrongful acts which [Partners] want[s] remedied and which are susceptible of being remedied in a legal tribunal. Newkirk v. W.J. Rainey, Inc., 31 Del.Ch. 433, 76 A.2d 121, 123 (1950). The Amended Complaint is clear. It alleges that Boston Chicken's principal executive officers learned, during the IPO pricing negotiations, that there was an extraordinary demand for Boston Chicken stock. They misused that information by deciding to sell themselves stock in the Private Placement at a price the directors allegedly knew would be well below market price. In short, the Boston Chicken directors allegedly, breached their fiduciary duties of loyalty and due care ... by participating in, permitting or acquiescing in the use of inside information proprietary to Boston Chicken to enable defendants Beck, Nadhir, Shearer and Harreld ... to acquire Boston Chicken stock in the Private Placement at a price far below fair market value. Amended Complaint, ¶ 15. Partners is challenging the terms of the [Private Placement] rather than the technicality of its consummation.... In re Beatrice Companies, Inc. Litigation, Del.Supr., 522 A.2d 865 (1987) (ORDER). Thus, Partners must establish that it was a stockholder of Boston Chicken at the time the terms of the Private Placement were established.