Millenco L.P. v. meVC Draper Fisher Jurvetson Fund I, Inc.

824 A.2d 11 (2002)

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Millenco L.P. v. meVC Draper Fisher Jurvetson Fund I, Inc.

Delaware Court of Chancery
824 A.2d 11 (2002)

Facts

Larry Gerhard (defendant) served as chief executive officer for eVineyard, Inc. In 1999, Gerhard solicited significant investments in eVineyard from John Grillos (defendant), whom Gerhard shared a preexisting business relationship with. Grillos became chairman of eVineyard’s board of directors and compensation committee, which made Grillos an executive officer above Gerhard per eVineyard’s bylaws and gave Grillos the authority to revise employment agreements. Harold Hughes (defendant) owned substantial eVineyard stock, served as a director, and held positions with eVineyard. Before an initial public offering in 2000, the founders of meVC Draper Fisher Jurvetson Fund I, Inc. (the fund) (defendant), a closed-end mutual fund, appointed a five-member board of directors, which consisted of Gerhard, Grillos, Hughes, and two others. In 2001, Grillos was up for reelection to the fund’s board. The proxy statement filed by the fund with the Securities and Exchange Commission (SEC) disclosed Grillos’s status as an interested director because of his affiliation with one of the fund’s investment advisers. Otherwise, the proxy statement did not disclose Grillos’s affiliation with eVineyard nor his relationships with Gerhard and Hughes. Grillos was reelected. In 2002, Gerhard was up for reelection to the fund’s board. The proxy statement filed by the fund again did not disclose Grillos’s affiliation with eVineyard nor his relationships with Gerhard and Hughes. Gerhard was reelected. Thereafter, Millenco L.P. (Millenco) (plaintiff), the Fund’s largest stockholder, sued to invalidate the 2001 and 2002 elections. The parties cross-moved for summary judgment. Millenco argued that the omitted facts rendered the proxy statements materially false and misleading. The fund and the directors in question argued that the omitted facts were immaterial because the directors were not “interested” within the meaning of the Investment Company Act and because the directors considered themselves to be independent.

Rule of Law

Issue

Holding and Reasoning (Lamb, J.)

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