General Video Corporation v. Kertesz, C.A. No. 1922 (Del. Ch., Dec. 17, 2008) (V.C. Lamb)

In a post-trial opinion, the Court of Chancery rejected a number of claims, including usurpation of corporate opportunity claims, asserted against a former officer and director of a corporation and a former attorney of the corporation. The two plaintiffs were an insolvent Delaware corporation (“GVC”) and a Delaware LLC (“Audeo”), “a shell entity, created…primarily as a means to defraud GVC’s creditors.” First, the Court held that Sections 141(b) and 142(b) of the DGCL do not require written notice to a corporation for the resignation of an officer or director of a corporation to become effective. The Court determined that one of the defendants had ceased being an officer or director of GVC or Audeo, on the date he told his business partner, a GVC director and Audeo manager, he “wanted out” and thus the defendant could not be held liable on fiduciary grounds for his actions following such time. The Court also considered several usurpation of corporate opportunity claims. The Court held that when a corporation is irremediably insolvent, the corporate opportunity doctrine is not implicated because the corporation is not financially able to exploit the opportunity. In addition, the Court found that Audeo did not have an interest or expectancy in a particular business opportunity under the corporate opportunity doctrine when its only connection to the opportunity was a self-dealing transaction that was voidable under the entire fairness test. Finally, the Court considered allegations against GVC’s former attorney related to the usurpation of a corporate opportunity. The Court stated that “the contours of the duty of loyalty as between an attorney and client must relate to the matter for which the attorney has been retained to represent or advise the client.” The Court explained that “there are no restrictions on how the attorney may act in his individual capacity, so long as his actions are not affected by any confidential information he obtained.” Because the attorney was retained for a specific purpose which bore no relation to the claimed usurpation of corporate opportunity (and there was no evidence he learned any confidential information related to the claim), the claim failed.

About Potter Anderson

Potter Anderson & Corroon LLP is one of the largest and most highly regarded Delaware law firms, providing legal services to regional, national, and international clients. With more than 100 attorneys, the firm’s practice is centered on corporate law, corporate litigation, intellectual property, commercial litigation, bankruptcy, labor and employment, and real estate.