Narrative Opinion Summary
In *In re DIGEX, INC. SHAREHOLDERS LITIGATION*, the Delaware Court of Chancery considered a motion for a preliminary injunction brought by minority shareholders of Digex, Inc. against a proposed merger between WorldCom, Inc. and Intermedia Communications, Inc., the controlling shareholder of Digex. The plaintiffs alleged breach of fiduciary duties by the Digex board, particularly in waiving protections under 8 Del. C. 203, which they claimed favored the interests of Intermedia and WorldCom over those of the minority shareholders. The court concluded that the plaintiffs did not have a reasonable likelihood of success on their corporate opportunity claim, as Digex lacked a legitimate interest in the transaction. However, the court found the plaintiffs likely to succeed on their claim concerning the waiver of Section 203, noting substantial concerns about the fairness of the board's decision. Despite this, the court denied the preliminary injunction due to the absence of an immediate threat of irreparable harm, emphasizing that the relief sought was retrospective. The decision underscores the significant burden on directors to demonstrate fairness when their actions potentially conflict with shareholder interests.
Legal Issues Addressed
Fiduciary Duty and Corporate Opportunitysubscribe to see similar legal issues
Application: The court determined that the plaintiffs did not demonstrate a likelihood of success on the corporate opportunity claim as Digex did not have a legal interest or expectancy in a potential transaction with WorldCom.
Reasoning: As the plaintiffs have not demonstrated a reasonable likelihood of success on their corporate opportunity claim, their case is unlikely to prevail at trial.
Fiduciary Duty and Section 203 Waiversubscribe to see similar legal issues
Application: The court found that the Digex board's waiver of protections under 8 Del. C. 203 was not handled with entire fairness, giving plaintiffs a reasonable probability of success on this claim.
Reasoning: The conduct of these directors raises significant concerns about the entire fairness of the board's decision to waive Digex's Section 203 protections, leading to a preliminary conclusion that the defendants are unlikely to demonstrate fairness, thus giving plaintiffs a reasonable probability of success on their Section 203 claim.
Preliminary Injunction Standardsubscribe to see similar legal issues
Application: Although the plaintiffs showed a likelihood of success on their Section 203 claim, the court denied the preliminary injunction due to insufficient evidence of irreparable harm.
Reasoning: Plaintiffs have shown a likelihood of success regarding their claim that defendants breached fiduciary duties by waiving protections under a specific statute (referred to as § 203). However, the court finds that plaintiffs have not sufficiently demonstrated an immediate threat of irreparable harm concerning the § 203 waiver decision, leading to the denial of their request for a preliminary injunction.