Malone v. Brincat

722 A.2d 5 (1998)

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Nature of the Case

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Facts

Malone (P) and others filed a class action against Mercury Finance Company Directors (D) for a breach of their fiduciary duty to disclose. Mercury is a publicly traded company engaged in the purchasing of installment contracts from auto dealers and providing short-term installment loans directly to consumers. According to P since 1994, the directors of D caused Mercury to disseminate information containing overstatements of earnings, financial performance, and shareholder equity. Mercury's earnings for 1996 were actually 33 cents per share rather than the 70 cents per share. The 1995 earnings were 44 cents per share rather than the 57 cents per share reported and the 1994 earnings were 47 cents per share rather than the 49 cents reported. Shareholder equity was reported at $353 million in 1996 but was actually $263 million or less. Ps alleged that this inaccurate information was disseminated in virtually all communications made by Ds and that this violated their fiduciary duties. As a result of these false filings, the company lost virtually all of its value ($2 Billion). The Court of Chancery granted both motions to dismiss with prejudice; there was no director fiduciary duty of disclosure under Delaware law in the absence of a request for shareholder action and that the cause of action is federal.