Delaware Courts and the Weakening of the Duty of Loyalty: In re El Paso Corp. Securities Litigation (The Damage Alternative) (Part 4)
Having found sufficient allegations of a conflict of interest, the court had to consider the remedy. Plaintiffs sought an injunction.
In a refreshing discussion, the court considered the alternative of a cause of action for damages but concluded that the claim was unlikely to succeed.
Some claims were likely to fail because of legal impediments. A claim for damages for breach of the duty of care against directors would fail both on the merits, see id. ("the independent directors’ reliance upon [the CEO] seems to have been made in good faith."), and because of the waiver of liability provision.
Some claims might be inadequate for practical reasons. The court suggested that any action against the CEO would not result in an adequate recovery. See id. (wealth of CEO was unlikely to be sufficient to pay "a verdict of more than half a billion dollars.").
An action against Goldman for aiding and abetting would also have little chance of success. See id. ("And although Goldman has been named as an aider and abettor and it has substantial, some might say even government-insured, financial resources, it is difficult to prove an aiding and abetting claim.").
The same was true of any possible claim against Kinder Morgan. Id. ("Nor do I find any basis to conclude that Kinder Morgan is likely to be found culpable as an aider and abettor.").
Thus, the court agreed that, "[f]or present purposes," the plaintiffs had "shown that there is a likelihood of irreparable injury if the Merger is not enjoined."
Primary materials in this case, including the opinion, can be found at the DU Corporate Governance web site.