Opinion ID: 2360439
Heading Depth: 1
Heading Rank: 2

Heading: the court of chancery decision

Text: In its October 20, 2005 opinion, [6] the Court of Chancery held that the debt conversion claim was derivative, and that as a result of the 2000 merger with Cofiniti, the plaintiffs were no longer SinglePoint shareholders with standing to assert the corporation's claim. The Court held that the dilution claim was derivative, because when a `board of directors authorizes the issuance of stock for no or grossly inadequate consideration, the corporation is directly injured and shareholders are injured derivatively . . . [and that] mere claims of dilution, without more, cannot convert a claim traditionally understood as derivative, into a direct one.' [7] Although the Court of Chancery acknowledged that a share dilution claim may be brought as a direct claim where voting rights are harmed because of the dilution, [8] it held that, to give rise to a direct claim, the dilution must result in a material decrease in voting power. Here, the Vice Chancellor held, there was no material decrease in voting power, because the plaintiffs were minority shareholders of SinglePoint both before and after the debt conversion. The trial court reasoned that the gist of the plaintiffs' debt conversion claim was that SinglePoint was caused to sell its shares too cheaply, and as a result was deprived of the opportunity to sell those shares for a better price. [9] Because that loss of opportunity was suffered only by the company, and because any remedy either to cancel the excess shares issued to Rossette or to require Rossette to restore their fair valuewould benefit only the company, the claim was derivative under the analysis mandated by Tooley v. Donaldson, Lufkin & Jenrette, Inc. (Tooley). [10] Accordingly, the Court of Chancery granted summary judgment dismissing the plaintiffs' debt conversion claim. On appeal from a grant of summary judgment, our review is de novo. [11]