Sutherland v. Sutherland,

2009 WL 857468 (Del.Ch. 2009)

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Nature of the Case

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Facts

Martha (P) is a stockholder of Dardanelle Timber. She is both trustee and beneficiary of a trust by which she is the beneficial owner of 17% of Dardanelle’s common stock. Perry (D) is the brother of Martha. He is one of three directors of both Dardanelle and Southwest, as well as the president and chief executive officer of both companies. Todd (D) is the twin brother of Perry. He is one of three directors of both Dardanelle and Southwest, as well as an officer of both companies. Mark (D) is the cousin of the Sutherland siblings and the third of the directors of both Dardanelle and Southwest. He holds no equity interest in either corporation. Dardanelle is a family owned and operated Delaware corporation, which, through its wholly-owned subsidiary Southwest, is in the business of operating retail lumber yards and stores. Both companies were founded by Dwight SR. who gave 25% of Dardanelle’s common stock to each of his children: Martha, Dwight Jr., Perry, and Todd. When Sr. died the wife's, Norma's, shares were put in trust, Perry and Todd have voting control over Dardenelle and Southwest because Perry is the trustee for Norma’s trust, and Todd has allied himself with Perry. Martha was voted off the board. Relying upon the documentation she received as a result of a hard-fought action brought pursuant to 8 Del. C. § 220, Martha filed this suit for breach of fiduciary duty asserting claims derivatively on behalf of Dardanelle; the second count is for waste; the third count is for breach of fiduciary duty and asserts double derivative claims on behalf of Southwest. P alleges that the individual Ds have used the companies’ “corporate funds and assets for personal benefit.” Besides allegation of conversion of corporation benefits and assets to personal use Martha asserts that the employment agreements pay Perry excessively for “part-time” work and contain excessive perquisites, such as payment for personal use of the aircraft and personal tax and accounting services. P alleges that the individual defendants improperly caused Dardanelle to spend over $750,000 to defend against Martha’s Section 220 action, and improperly amended Dardanelle’s bylaws pursuant to 8 Del. C. § 102(b)(7) to include a limitation of liability provision. Ds filed a motion to dismiss for failure to state a claim upon which relief can be granted. They alleged an exculpatory provision of the charters of both corporations protects self-dealing transactions from attack.