## Facts

- TerraForm Power, Inc., a publicly traded Delaware corporation, had Brookfield Asset Management, Inc. and affiliates as its controlling stockholder.
- TerraForm sought financing for an acquisition and initially considered a public equity offering at $10.66 per share.
- The financing was changed to a private placement of TerraForm common stock to Brookfield at $10.66 per share when the market price was allegedly higher.
- Former minority stockholders alleged the private placement was underpriced and dilutive, transferring economic value and voting power to Brookfield.
- Plaintiffs asserted both (i) direct class fiduciary-duty claims for dilution of minority economic and voting power and (ii) derivative claims alleging the corporation received inadequate consideration for the shares.
- TerraForm later merged out of existence, implicating whether former stockholders could continue to pursue any derivative claims after losing stock ownership.

## Issues

1. Whether claims challenging an allegedly underpriced, dilutive stock issuance to a controlling stockholder may be brought directly by stockholders or are exclusively derivative under the Tooley framework.
2. Whether to retain or overrule Gentile’s recognition of “dual-natured” dilution claims (both direct and derivative) in controller transactions.
3. Whether the merger eliminated plaintiffs’ standing to pursue the claims if they are classified as derivative.

## Decision

- The Delaware Supreme Court reversed the Court of Chancery’s ruling that plaintiffs had direct standing under Gentile.
- The Court held the alleged harm is a classic corporate overpayment/underpayment-in-issuance injury and is exclusively derivative under Tooley.
- The Court overruled Gentile v. Rossette.
- Because the claims were derivative and plaintiffs ceased to be stockholders after the merger, they lacked derivative standing, and the action could not proceed.

## Legal Principles

- Direct-versus-derivative classification turns on Tooley’s two questions: who suffered the harm (corporation or stockholders individually) and who would receive the benefit of the remedy (corporation or stockholders individually).
- Claims that a corporation issued stock for inadequate consideration (overpayment/“dilution” in issuance) are generally derivative because the corporation is the primary victim and any recovery belongs to the corporation.
- A controlling stockholder’s involvement does not change the Tooley analysis; the identity of the alleged wrongdoer does not convert a corporate overpayment claim into a direct claim.
- Gentile’s “dual-natured” category for controller dilution claims is inconsistent with Tooley and is no longer good law.
- After a merger, former stockholders generally lack standing to maintain derivative claims absent a recognized exception; loss of continuous ownership extinguishes derivative standing.

## Conclusion

The Delaware Supreme Court held that challenges to an allegedly underpriced stock issuance to a controlling stockholder assert exclusively derivative harms under Tooley, overruled Gentile’s dual-natured doctrine, and concluded that a subsequent merger eliminated plaintiffs’ ability to proceed because they no longer had derivative standing.


Brookfield Asset Mgmt., Inc. v. Rosson, 261 A.3d 1251 (Del. 2021)