930 A.2d 92 (Del. 2007)
In 2000, North American Catholic Educational Programming Foundation, Inc. (NA-CEPF), a Rhode Island corporation, joined with Hispanic Information and Telecommunications Network, Inc., Instructional Telecommunications Foundation, Inc., and affiliates of ITF to form the ITFS Spectrum Development Alliance, Inc. The Alliance collectively owned a significant percentage of FCC-approved ITFS spectrum licenses for educational programs.1
The defendants Rob Gheewalla, Gerry Cardinale, and Jack Daly, all employed by Goldman Sachs, served as directors of Clearwire Holdings, Inc., a Delaware corporation, at the behest of Goldman Sachs. They allegedly controlled Clearwire through its financial influence as the company's only source of funding.2
Between 2000 and March 2001, Clearwire negotiated a Master Use and Royalty Agreement with the Alliance members. Under the agreement, Clearwire could acquire the ITFS spectrum licenses as existing leases expired. Clearwire had obligations to pay NA-CEPF and others more than $24.3 million. NA-CEPF negotiated the terms with the defendants who purported to act on behalf of Goldman Sachs and the entity that became Clearwire.3
In June 2002, the market for wireless spectrum collapsed after WorldCom announced accounting problems. This prompted Clearwire to negotiate settlements with HITN and ITF for over $2 million by threatening bankruptcy protection. These settlements left NA-CEPF as the sole remaining Alliance member.4
By October 2003, Clearwire had been unable to obtain any further financing beyond a stopgap advance from Goldman Sachs in late 2001. Clearwire effectively went out of business. It had a monthly burn rate of $2.1 million with no significant revenues after the Master Agreement closing when it held approximately $29.2 million in cash of which $24.3 million was needed for spectrum payments.5
NA-CEPF filed its complaint in Superior Court.6 The complaint asserted claims for fraudulent inducement to enter and continue the Master Agreement.7 It also asserted direct breach of fiduciary duties owed to it as a substantial creditor while Clearwire was insolvent or in the zone of insolvency.8 Finally, it asserted tortious interference with prospective business opportunities to convey its licenses to other buyers.9
The action was dismissed without prejudice for lack of subject matter jurisdiction. It was transferred to the Court of Chancery under 10 Del. C. § 1902. The Court of Chancery addressed the defendants' motions to dismiss under Rules 12(b)(2) and 12(b)(6). Personal jurisdiction for the non-fiduciary claims was premised on the viability of the fiduciary duty claim under 10 Del. C. § 3114. NA-CEPF appealed the final judgment of dismissal to the Supreme Court of Delaware.10
Whether creditors of a Delaware corporation operating in the zone of insolvency may assert direct claims for breach of fiduciary duty against the corporation's directors?11
Directors of a Delaware corporation owe fiduciary duties to the corporation and its shareholders.12 Creditors are protected through contractual agreements, fraud and fraudulent conveyance law, implied covenants of good faith and fair dealing, bankruptcy law, and other sources of creditor rights.13 Delaware courts are reluctant to expand fiduciary duties. The general rule is that directors do not owe creditors duties beyond the contractual terms.14 When a solvent corporation is in the zone of insolvency, directors must continue to discharge their fiduciary duties to the corporation and its shareholders. They do so by exercising their business judgment in the best interests of the corporation for the benefit of its shareholder owners.15
No. NA-CEPF, as a creditor of Clearwire, alleged that Clearwire was in the zone of insolvency. NA-CEPF further alleged that the Defendants breached fiduciary duties owed directly to it. The breaches consisted of not preserving the assets of Clearwire for its benefit and that of its creditors when it became apparent that Clearwire would not be able to continue as a going concern. The breaches also consisted of holding on to NA-CEPF's ITFS license rights when Clearwire would not use them, solely to keep Goldman Sachs's investment in play.16
The rule establishes that no direct claim for breach of fiduciary duty may be asserted by creditors of a solvent corporation operating in the zone of insolvency. This follows because the focus for Delaware directors does not change. Directors must continue to discharge their fiduciary duties to the corporation and its shareholders.17
Creditors of a Delaware corporation operating in the zone of insolvency may not assert direct claims for breach of fiduciary duty against the corporation's directors.18
Whether creditors of an insolvent Delaware corporation may assert direct claims for breach of fiduciary duty against the corporation's directors?19
When a corporation is insolvent, its creditors take the place of the shareholders as the residual beneficiaries of any increase in value. They have standing to maintain derivative claims against directors on behalf of the corporation for breaches of fiduciary duties. The corporation's insolvency makes the creditors the principal constituency injured by any fiduciary breaches that diminish the firm's value.20 Individual creditors of an insolvent corporation have no right to assert direct claims for breach of fiduciary duty against corporate directors. They may protect their interests by bringing derivative claims on behalf of the insolvent corporation or any other direct nonfiduciary claim that may be available.21
No. NA-CEPF asserted only a direct claim against the director Defendants for alleged breaches of fiduciary duty when Clearwire was insolvent. It did not attempt to allege a derivative claim.22
Recognizing such a right would create a conflict.23 The directors have a duty to maximize the value of the insolvent corporation for the benefit of all those having an interest in it.24 This would conflict with a newly recognized direct fiduciary duty to individual creditors.25
Creditors of an insolvent Delaware corporation may not assert direct claims for breach of fiduciary duty against the corporation's directors.26