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ATR-Kim Eng Financial Corp. v. Araneta

Delaware Court of Chancery
2006 WL 3783520 (Del. Ch. 2006)


Facts

ATR-Kim Eng Financial Corp. and ATR-Kim Eng Capital Partners, Inc. (ATR) (plaintiffs) owned 10 percent of PMHI Holdings Corp. (PMHI) shares. Carlos Araneta (defendant) controlled 90 percent of PMHI shares and served as chairman of the board. ATR alleged that Araneta caused PMHI to transfer its key asset, LBC Operating Companies (LBC), which was worth more than $35 million, to his family members, leaving ATR's minority stock ownership in PMHI worthless. ATR alleged that not only had Araneta violated his fiduciary duties, but also that the other PMHI directors, Hugo Bonilla and Liza Berenguer (defendants), were jointly and severally liable for this harm, because they failed to monitor Araneta and prevent his self-dealing. Neither Berenguer nor Bonilla participated in, approved of, or directly profited from Araneta's transfer of LBC. Bonilla and Berenguer worked for Araneta. Berenguer was Araneta's niece and worked as the chief financial officer for LBC, and Bonilla was the head of Araneta's other company. Both Bonilla and Berenguer admitted that they regarded themselves as mere employees of Araneta and entirely deferred to Araneta in corporate matters. There was no corporate information-and-reporting system in place. The directors did not have regular board meetings. Neither Berenguer nor Bonilla knew about the corporate activities. Neither even knew that the company name was changed. Berenguer stated that she would take Araneta's word as authoritative if Araneta said that he had agreed with ATR on certain matters. Bonilla stated that he took Araneta's word as PMHI's word, and Bonilla would not make an independent inquiry if Araneta said he had an agreement with ATR. Bonilla and Berenguer did nothing when they knew that the assets were gone. A trial was held.

Rule of Law

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Issue

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Holding and Reasoning (Strine, J.)

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  • A “yes” or “no” answer to the question framed in the issue section;
  • A summary of the majority or plurality opinion, using the CREAC method; and
  • The procedural disposition (e.g. reversed and remanded, affirmed, etc.).

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