Although the case at issue involves insider trading, the limitations involving disgorgement as a monetary remedy could be applied to many other circumstances. The Delaware Supreme Court took little time in reversing a lower court decision that could have had widespread effects. Thus, Delaware law on this point returns to a classic election of remedies by the plaintiff. The case is important because of the large number of companies that are incorporated in Delaware.
The case involves a defendant (a 60% shareholder) who clearly traded on inside information. However, before doing so, the Board of Directors indicated that the trading was not a corporate opportunity. The issue before the Delaware Supreme Court was whether disgorgement of the insider trading profits was a viable monetary remedy since the corporation did not suffer any harm.
Most damage analysts would almost automatically state that disgorgement would be an available remedy in this situation. But this somewhat intuitive result was altered with a 2010 decision by the Delaware Chancery Court in re: Pfeiffer v. Toll et al., 989 A. 2d 683 (Del.Ch. 2010). The Chancery Court in the Pfeiffer case decided that, while corporate fiduciaries could still be sued for trading on inside information, the corporation (i) could only recover upon proof of actual damage, and (ii) was not necessarily entitled to recover the insider’s ill-gotten gains.
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