Buttonwood Tree Value Partners, LP. v. Sullivan: Board of Directors Did Not Violate Fiduciary Duty by Refusing Offer to Purchase

In an unexpectedly brief opinion, the Delaware Supreme court in Buttonwood Tree Value Partners, LP. v. Sullivan, 2015 BL 348912, (Del. Oct. 22, 2015)  affirmed the Court of Chancery's ruling to dismiss Buttonwood Tree Value Partners’ (“Buttonwood”) claim that Sullivan and other directors of the Central Steel and Wire Company (“Central Steel”) violated their fiduciary duty by not entertaining Buttonwood's offers to acquire the company.

 According to the allegations, the directors both managed Central Steel and acted as trustees for a charitable trust that owned a majority of the company’s shares.  After the directors refused to consider an offer to acquire the company, Buttonwood filed a claim for breach of fiduciary duty. Specifically, Buttonwood alleged that the directors of Central Steel made "a nice living from their roles" and, as a result, their decision was motivated by disloyalty. The lower court dismissed the claim under the ruling in Gantler v. Stephens by concluding that the refusal to consider an offer was not actionable absent allegations other than "the typical entrenchment motive".

 The Supreme Court decided the case on a different basis. The Court noted that a controlling shareholder was not required to consider offers to sell its share. This did not change solely because directors served at both the company and the trust. According to the Court, a controlling stockholder usually had affiliated managers serving as top managers at the controlled company. “That those affiliated managers derive all or a substantial part of their living from their positions does not mean that an independent claim for breach of fiduciary duty arises when the controlling stockholder does not wish to sell its shares and those affiliates therefore do not entertain a takeover offer dependent on the controller's willingness to sell. In other words, there was nothing here that distinguishes this case from the long-standing rule that a controller does not have to entertain offers.”  To bring an action against a controlling shareholder required allegations of interested transactions or other such conduct that violated the duty of loyalty. 

As a result, the Court affirmed the dismissal of the action.

The primary materials for this post are available on the DU Corporate Governance website.