## Facts

- Troy Corporation, a privately held Delaware corporation, had three series of common stock with different voting rights.
- Series A stockholders could elect four of five directors; Daryl D. Smith held a majority of Series A and elected himself and three other directors.
- Series B stockholders could elect the fifth director; a separate corporation held a majority of Series B and elected Richard W. Schoon.
- Schoon served as a director but owned no Troy stock.
- Schoon alleged Smith dominated the board and engaged in conduct to entrench control and obstruct transactions that could maximize value for the corporation and stockholders.
- Schoon filed a derivative action in the Delaware Court of Chancery on Troy’s behalf alleging fiduciary duty breaches by Smith and other directors.
- Defendants moved to dismiss for lack of standing because Schoon was not a stockholder.

## Issues

1. Whether Delaware law permits a director who is not a stockholder to obtain equitable standing to bring a derivative action on the corporation’s behalf for alleged fiduciary duty breaches.

## Decision

- The Delaware Supreme Court affirmed dismissal of the complaint.
- The court held a director, solely by virtue of office and without stock ownership, lacks standing to bring a stockholder-type derivative action.
- The court declined to extend equitable standing to nonstockholder directors.

## Legal Principles

- Derivative standing in Delaware is generally limited to stockholders; equitable standing is exceptional and historically aimed at preventing a complete failure of justice.
- Courts will not expand derivative standing to a new category of plaintiffs where stockholders have an available derivative remedy to address alleged fiduciary breaches.
- Any extension of derivative standing to directors is for the Delaware General Assembly to authorize by statute, not for courts to create through equity.

## Conclusion

Delaware does not permit a nonstockholder director to sue derivatively on the corporation’s behalf on equitable grounds; absent legislative authorization, only stockholders (with traditional standing) may bring a stockholder-type derivative action to remedy fiduciary duty breaches.


Schoon v. Smith, 953 A.2d 196 (Del. 2008)