## Facts

- meVC Draper Fisher Jurvetson Fund I, Inc. (the Fund) was a Delaware closed-end mutual fund that elected to be treated as a business development company under the Investment Company Act of 1940, making director independence an important governance feature.
- Before the Fund’s initial public offering, the founders appointed a five-member board that included Larry Gerhard, John Grillos, Harold Hughes, Chauncey Lufkin, and a fifth director.
- Larry Gerhard served as chief executive officer of eVineyard, Inc.
- Gerhard solicited significant investments in eVineyard from John Grillos, with whom Gerhard had an existing business relationship.
- Grillos became chairman of eVineyard’s board of directors and its compensation committee. Under eVineyard’s governance documents, that role placed Grillos in an executive-officer-superior position relative to Gerhard and gave Grillos authority connected to Gerhard’s employment terms.
- Harold Hughes owned substantial eVineyard stock and also served as a director and held positions with eVineyard, creating overlapping business and financial ties among Gerhard, Grillos, and Hughes.
- In 2001, Grillos stood for reelection to the Fund’s board. The Fund’s proxy materials disclosed Grillos’s “interested” status based on his affiliation with one of the Fund’s investment advisers, but did not disclose Grillos’s eVineyard roles or the eVineyard-based relationships among Grillos, Gerhard, and Hughes. Grillos was reelected.
- In 2002, Gerhard stood for reelection. The Fund’s proxy materials again did not disclose Grillos’s eVineyard roles or the eVineyard-based relationships among Grillos, Gerhard, and Hughes. Gerhard was reelected.
- Millenco L.P., the Fund’s largest stockholder, sued to invalidate the 2001 and 2002 director elections, claiming the proxy statements were materially false or misleading because of the omissions.
- The Fund and the director defendants argued the omitted facts were not material, pointing to the directors’ asserted independence and to the view that the relationships did not make the directors “interested persons” under the 1940 Act.
- The parties filed cross-motions for summary judgment.

## Issues

1. Whether the Fund’s 2001 and 2002 proxy statements were materially misleading under Delaware law because they omitted eVineyard-related roles, holdings, and inter-director relationships bearing on stockholders’ evaluation of director independence and potential conflicts.
2. Whether defendants could defeat the disclosure claim as a matter of law by arguing that the directors were not “interested persons” under the Investment Company Act and considered themselves independent.
3. What equitable relief was appropriate if the director elections were procured through materially misleading proxy solicitations.

## Decision

- The Court of Chancery held that the undisclosed eVineyard ties and the resulting relationships among Fund directors were material to a reasonable stockholder voting in the challenged director elections.
- The court concluded that the proxy statements were misleading because they failed to provide stockholders with important information relevant to assessing board independence and potential conflicts in a regulated fund structure.
- The court rejected the defense that technical compliance with the 1940 Act’s “interested person” concept, or directors’ own views of their independence, resolved Delaware’s disclosure question.
- On the cross-motions for summary judgment, the court granted relief to Millenco on the core disclosure violation and denied defendants’ request for judgment that the omissions were immaterial as a matter of law.
- The court directed curative steps designed to restore an informed stockholder vote, including corrective disclosures and renewed stockholder action regarding the tainted director elections.

## Legal Principles

- Delaware fiduciary law requires “full and fair disclosure” when directors seek stockholder action, including director elections.
- An omission is material if there is a substantial likelihood that a reasonable stockholder would consider the information important in deciding how to vote, or if disclosure would significantly change the total mix of information available.
- Information bearing on whether directors presented as independent are actually independent may be material, especially for investment-company structures where independence is a central protection against conflicts.
- Materiality is not limited to whether a director meets a technical statutory label (such as “interested person” under the 1940 Act); substantial business and financial ties still may matter to stockholders evaluating independence and conflicts.
- Directors’ subjective views about independence do not control the analysis; materiality turns on what a reasonable stockholder would consider important.
- When a stockholder vote is obtained through a materially misleading proxy solicitation, Delaware equity may order remedies aimed at obtaining a new, informed vote, including corrective disclosures and resubmission of the matter to stockholders.

## Conclusion

In Millenco L.P. v. meVC Draper Fisher Jurvetson Fund I, Inc., the Delaware Court of Chancery held that the Fund’s proxy statements omitted material information about directors’ eVineyard roles and relationships that bore on independence and potential conflicts, rejected defenses based on technical “interested person” status and self-assessed independence, and ordered curative measures to secure an informed stockholder vote on the affected director elections.


Millenco L.P. v. meVC Draper Fisher Jurvetson Fund I, Inc., 824 A.2d 11 (2002)