Opinion ID: 1535019
Heading Depth: 1
Heading Rank: 6

Heading: The Aiding and Abetting Claim Against Knightsbridge

Text: We next turn to the plaintiffs' claims relating to Knightsbridge's conduct during the auction process. They first argue that the trial court erred in dismissing their claim that Knightsbridge aided and abetted the board's alleged breach of its fiduciary duty  namely, the board's failure to obtain the highest price reasonably available during the auction. Specifically, the amended complaint alleges that Knightsbridge (1) initially misrepresented the nature of its interest in the Trusts' shares, (2) threatened to sue the board if it breached the June 1997 merger agreement, (3) demanded a hasty consummation of the September 1997 merger, and (4) conditioned the September 1997 offer on the board's acceptance of extremely restrictive contract terms. [73] The Court of Chancery rejected these arguments because the negotiations between Knightsbridge and Frederick's were at arm's-length and because the facts alleged in the complaint do not indicate that Knightsbridge knowingly participated in any fiduciary breach by the board. [74] A third party may be liable for aiding and abetting a breach of a corporate fiduciary's duty to the stockholders if the third party knowingly participates in the breach. [75] To survive a motion to dismiss, the complaint must allege facts that satisfy the four elements of an aiding and abetting claim: (1) the existence of a fiduciary relationship, (2) a breach of the fiduciary's duty, ... (3) knowing participation in that breach by the defendants, and (4) damages proximately caused by the breach. [76] In this case, we have concluded that the amended complaint does not adequately allege a duty of loyalty claim. But we have assumed, without deciding, that the amended complaint, construed most favorably to plaintiffs, alleges that the board's conduct was grossly negligent and constituted a breach of its duty of care. [77] We must therefore determine whether the plaintiffs alleged facts supporting a reasonable inference that Knightsbridge knowingly participated in the board's due care breach. [78] Knowing participation in a board's fiduciary breach requires that the third party act with the knowledge that the conduct advocated or assisted constitutes such a breach. [79] Under this standard, a bidder's attempts to reduce the sale price through arm's-length negotiations cannot give rise to liability for aiding and abetting, [80] whereas a bidder may be liable to the target's stockholders if the bidder attempts to create or exploit conflicts of interest in the board. [81] Similarly, a bidder may be liable to a target's stockholders for aiding and abetting a fiduciary breach by the target's board where the bidder and the board conspire in or agree to the fiduciary breach. [82] In the present case, the Court of Chancery concluded that the September 1997 merger agreement was the product of arm's-length negotiations and that arm's-length negotiations are inconsistent with participation in a fiduciary breach. [83] The plaintiffs argue that this conclusion reflected impermissible fact-finding on a motion to dismiss, but there is no indication in the amended complaint that Knightsbridge participated in the board's decisions, conspired with board, or otherwise caused the board to make the decisions at issue. [84] Moreover, there is no dispute that only one of the Frederick's directors who approved the merger had a conflict of interest, and that director did not dominate or control the others. Although Knightsbridge's tactics here, as alleged, may have been somewhat suspect, [85] we agree with the trial court's conclusion that the plaintiffs' aiding and abetting claim fails as a matter of law because the allegations in the complaint do not support an inference that Knightsbridge knowingly participated in a fiduciary breach.