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Court of Chancery Awards Post-Trial Damages in Breach of Fiduciary Duty Case

By Francis G.X. Pileggi

The Court of Chancery in GyneConcepts, Inc. v. Kim, et al., C. A. No. 4820-CC (Del. Ch. August 18, 2010), read decision here, issued a short four-page post-trial decision awarding plaintiff GyneConcepts money damages in the amount of $1,181,708, plus pre-judgment interest at the legal rate for, among other things, breaches of fiduciary duty.  Kevin F. Brady of Connolly Bove Lodge & Hutz LLP prepared this summary.

The Court broke its analysis into four categories: (i) out-of-pocket loss; (ii) lost value due to delay (lost profits); (iii) lost international patent rights; and (iv) prejudgment interest.  While the opinion is mostly fact-driven, the Court made some interesting observations in its discussion about who could decide the reasonableness of defendant Kim's charges of over $43,000 related to airplane flights and hotel rooms.  Apparently in response to the defendants' argument that the Court could not decide but rather an expert was needed to testify as to whether the defendant's conduct was within the range of reasonableness, the Court observed:

All of these lavish expenses were incurred at a time when Kim agreed the company could not even afford to hold a stockholders' meeting. These expenses were a frivolous waste of company resources. Contrary to the defendants' argument, I know waste when I see it, and no 'expert' must testify 'as to whether Kim's conduct was within the range of reasonable conduct of investment bankers seeking wealthy investors.'… It clearly was not reasonable conduct, as any perusal of the transcript of this proceeding will amply demonstrate. … GyneConcepts was an undercapitalized start-up medical technology company that operated on a shoestring budget. 

While GyneConcepts was seeking lost profits for, among other things, Kim's breach of fiduciary duty, the Court awarded nothing for lost profits reasoning:

It is impossible, unfortunately, to calculate the losses caused to GyneConcepts as a result of Kim's breach of fiduciary duty and wrongful assertion of ownership of the Company's medical device. GyneConcepts asks me to award it between $23 million and $43 million, based on the four year delay in bringing the device to market caused by Kim's wrongful assertion of ownership. This calculation, however, is based on Kim's proposed calculations of the revenue stream if the device were indeed marketed worldwide, and Kim's use of these calculations in negotiations with the Company were completely self-serving and (so far as I can tell) created from thin air. With no credible basis for accepting any of Kim's testimony, or his revenue stream calculations, I cannot turn Kim's excel spreadsheet (JX176) into a damage calculation of GyneConcepts' lost profits. GyneConcepts offered no other evidence at trial concerning its lost profits and, therefore, I cannot award money damages on that basis.

 

Full post as published by Delaware Corporate and Commercial Litigation Blog on August 18, 2010 (boomark / email).