Thorpe v. CERBCO, Inc.
Delaware Supreme Court
676 A.2d 436 (1996)
George and Robert Erikson (the Eriksons) (defendants) were directors, officers, and controlling shareholders of CERBCO, Inc., which in turn owned a controlling stake in three subsidiaries. Only one of these subsidiaries, Insituform East, Inc. (East), was profitable. James Krugman, chairman of Insituform of North America, Inc. (INA), approached the Eriksons in their capacity as directors and proposed that CERBCO sell East to INA in January 1990. Krugman was not aware that the Eriksons were controlling shareholders. The Eriksons indicated that they would block any attempt by INA to purchase East from CERBCO, and proposed instead that INA buy the Eriksons’ stake in CERBCO. Krugman agreed to consider that offer. The Eriksons did not inform CERBCO’s outside directors of INA’s offer to buy East, but they did disclose INA’s potential purchase of their CERBCO holdings. One of the outside directors suggested that CERBCO sell East to INA instead, but the Eriksons rejected this idea. In March 1990, the Eriksons and INA signed a letter of intent to complete the sale of the Eriksons’ controlling stake in CERBCO. INA paid the Eriksons a deposit of $75,000. In May 1990, Merle Thorpe, a CERBCO minority shareholder, filed a demand with the board that the proposed sale be rejected. The outside directors of CERBCO formed a special committee to consider the situation and hired counsel. In September 1990, the letter of intent expired and the sale was never completed due to disagreements between the Eriksons and INA. Thorp filed a shareholder derivative suit against the Eriksons, alleging that they had usurped a corporate opportunity. After a trial, the Court of Chancery found that the Eriksons had breached their duty of loyalty to the corporation but awarded no damages, because the sale was not completed and because the Eriksons could have blocked the sale of East to INA even if it had been disclosed to the board. Thorpe appealed.
Rule of Law
Holding and Reasoning (Walsh, J.)