## Facts

- Stockholders of Frederick’s of Hollywood, Inc., a Delaware corporation, challenged the board’s approval of a merger in which Knightsbridge-related entities would acquire the company.
- During the sale process, the board negotiated and approved a merger agreement that set the merger price and included deal-protection provisions limiting the board’s ability to solicit or accept competing offers, subject to a fiduciary-out provision.
- The stockholders alleged the board favored the Knightsbridge transaction over purportedly higher-value alternatives and that at least one director received an improper personal benefit.
- The stockholders also alleged the board made materially misleading statements or omissions in the materials used to solicit stockholder action on the merger.
- Frederick’s charter included an exculpatory provision authorized by 8 Del. C. § 102(b)(7), eliminating directors’ monetary liability for duty-of-care breaches.
- The Court of Chancery dismissed the complaint under Rule 12(b)(6), and the stockholders appealed.

## Issues

1. Whether the complaint stated a non-exculpated claim for monetary damages against directors for breach of fiduciary duty (loyalty or disclosure), given the corporation’s § 102(b)(7) exculpatory charter provision.
2. Whether the complaint stated a claim that the acquiring entities aided and abetted any fiduciary breach by the target board.
3. Whether the complaint stated a claim for tortious interference with a prospective business opportunity based on the acquirer’s alleged interference with competing bids.

## Decision

- The Delaware Supreme Court affirmed dismissal of all claims.
- The complaint did not plead well-supported facts showing a non-exculpated breach of the duty of loyalty (including improper personal benefit, lack of independence, or bad faith).
- Any theory amounting to a duty-of-care claim for money damages was barred by the § 102(b)(7) charter provision.
- The alleged disclosure violations were dismissed because the pleaded omissions or misstatements were immaterial as a matter of law and therefore did not support a viable disclosure-based fiduciary claim.
- The aiding-and-abetting claim was dismissed for failure to plead an underlying non-exculpated fiduciary breach and failure to plead knowing participation by the acquirer.
- The tortious-interference claim was dismissed for failure to plead wrongful conduct and proximate causation connecting the acquirer’s conduct to any lost alternative transaction.

## Legal Principles

- When a corporation has adopted a § 102(b)(7) exculpatory charter provision, a plaintiff seeking monetary damages against directors must plead a non-exculpated breach (e.g., loyalty, bad faith, or improper personal benefit); allegations sounding only in due care are subject to dismissal at the pleading stage.
- Conclusory assertions of conflicts or favoritism in a merger process do not state a loyalty claim absent well-pleaded facts supporting a reasonable inference of director interest, lack of independence, bad faith, or receipt of a non-ratable benefit.
- Disclosure claims in connection with stockholder action require pleading a materially misleading statement or omission; immaterial alleged defects cannot support liability and will not circumvent § 102(b)(7) exculpation.
- Aiding and abetting a fiduciary breach requires (1) a predicate fiduciary breach and (2) knowing participation by the non-fiduciary; arm’s-length negotiations, without more, do not satisfy knowing participation.
- Tortious interference with prospective business relations requires wrongful conduct and proximate causation; speculative allegations that an acquirer’s conduct caused the loss of a competing transaction are insufficient.

## Conclusion

The Delaware Supreme Court held that, in the presence of a § 102(b)(7) exculpatory charter provision, merger-challenge complaints seeking damages must plead well-supported, non-exculpated loyalty or material-disclosure misconduct; because the stockholders alleged only conclusory loyalty theories, immaterial disclosure defects, and insufficient facts for buyer liability, dismissal under Rule 12(b)(6) was affirmed.


Malpiede v. Townson, 780 A.2d 1075 (Del. 2001)