Shocking Technologies, Inc. sued Balch Hill Capital, LLC, one of Shocking's stockholders, and Simon J. Michael, Balch Hill's manager and a director of Shocking. Shocking alleged that Michael breached his duty of loyalty to its stockholders by providing a potential investor with bargaining advice and disclosing confidential company information. Michael was concerned about Shocking's corporate governance and used its need for financing to coerce the other directors into agreeing to his demands by encouraging the potential investor not to invest unless it received better terms, including a board seat. Further, Michael revealed confidential information to the potential investor regarding its status as Shocking's only potential investor at the time.
The Delaware Court of Chancery held that Michael breached his fiduciary duty of loyalty to the Company because a director may not put the existence of a corporation at risk to bolster his personal views of corporate governance, even if he had reasonable goals. The fiduciary duty of loyalty imposes an affirmative obligation to protect and advance the interests of the corporation and requires a director to absolutely refrain from any conduct that would harm the corporation. The Court held that Michael's conduct, which had the foreseeable consequence of causing the company's demise, and his disclosure of confidential information to the company's substantial detriment, breached his duty of loyalty.
Shocking Technologies, Inc. v. Michael, et al., C.A. No. 7164-VCN (Del. Ch. Oct. 1, 2012).