## Facts

- Riblet Products Corporation was a closely held Delaware corporation operating in Indiana.
- Ernest J. Nagy served as chairman, president, and CEO and held a minority equity interest.
- A 1986 employment agreement provided a fixed term and specified that termination “for cause” (including fraud, dishonesty, felony conviction, illegal drug use, or misappropriation of funds) would forfeit benefits, while termination other than for cause would entitle Nagy to compensation and benefits for the remaining term.
- In April 1990, Riblet terminated Nagy before the contract term ended, asserting cause based on alleged self-dealing and insubordination.
- Nagy sued in federal court for breach of the employment contract and for breach of fiduciary duty by the majority stockholders.
- A jury found for Nagy on both claims, awarding compensatory and punitive damages.
- On appeal, the Seventh Circuit affirmed the contract verdict but certified to the Delaware Supreme Court whether majority stockholders can breach fiduciary duties to a minority stockholder-employee where the dispute arises solely from the employment contract.

## Issues

1. Whether majority stockholders of a closely held Delaware corporation can be liable for breach of fiduciary duty to a minority stockholder when the alleged wrong arises solely from the minority stockholder’s rights as an employee under a written employment contract.

## Decision

- The Delaware Supreme Court answered the certified question “no.”
- Majority stockholders’ fiduciary duties to minority stockholders exist only with respect to the minority’s interests as a stockholder.
- When the dispute concerns a stockholder’s rights as an employee under a written employment agreement, the governing obligations are contractual rather than fiduciary.
- The court emphasized it was not deciding whether any fiduciary breach occurred as to Nagy’s interests as a stockholder or as to the corporation; the certified question was limited to the employment-contract dispute.

## Legal Principles

- Controlling or majority stockholders owe fiduciary duties to minority stockholders in their capacity as stockholders.
- Fiduciary-duty doctrine is not triggered by conduct that implicates only an individual’s rights as an employee under a written employment agreement, even if the employee is also a minority stockholder.
- A shareholder-employee’s remedy for alleged wrongful termination that violates a written employment contract lies in contract law unless the challenged conduct targets the person’s rights as an owner (rather than as an employee).

## Conclusion

The Delaware Supreme Court held that majority shareholders in a closely held Delaware corporation do not breach stockholder fiduciary duties by actions that create only an employment-contract dispute with a minority shareholder-employee; such claims are governed by contract, not fiduciary-duty law.


Riblet Prods. Corp. v. Nagy, 683 A.2d 37 (Del. 1996)