The Delaware Court of Chancery has refused to dismiss a breach of fiduciary duty claim brought against the directors of infoGROUP, Inc. by former shareholder, the New Jersey Carpenters Pension Fund. NJC Pension Fund alleged that the disinterested and independent board of directors came under the control of the beneficial owner of approximately 37% of infoGROUP's outstanding common stock, Vinod Gupta. In addition to being the largest shareholder of infoGROUP, Mr. Gupta was also infoGROUP's founder, and served as its CEO and Chairman of the Board. NJC Pension Fund alleged that Mr. Gupta possessed power over infoGROUP's board of directors, which was derived from a pattern of threats and other irrational actions aimed at the directors by Mr. Gupta. In light of this pattern of intimidation, NJC Pension Fund alleged that Mr. Gupta forced the seemingly disinterested board to approve the sale of infoGROUP at an inopportune time, at an unfair price, and while utilizing a flawed and inadequate sales process. As such, NJC Pension Fund alleged that the directors lost their independence and breached their duty of loyalty in connection with their approval of the sale of infoGROUP.
The Court held that NJC Pension Fund's claim survived the defendant directors' motion to dismiss because NJC Pension Fund sufficiently alleged that the sale was not approved by a disinterested and independent majority of the directors. The Court found that Mr. Gupta's desperate need for liquidity and his personal financial stake in the transaction rendered him an interested director. Moreover, the Court found that even though the other directors were not financially dependent on, nor did they have close familial relationships with Mr. Gupta, one may reasonably infer that NJC Pension Fund's allegations of intimidation could render the directors non-independent for purposes of voting on the sale.
New Jersey Carpenters Pension Fund v. infoGROUP, Inc., C.A. No. 5334-VCN (Del. Ch. Sept. 30, 2011, revised Oct. 6, 2011)