Controlling shareholders, because of their dominant share of ownership of a corporation, possess the power to direct its affairs. As noted by Harvard Law Professor Victor Brudney: “In the exercise of that power, controllers’ fiduciary obligation precludes their obtaining separate benefits for themselves.” In an important decision handed down earlier this week, the Delaware Supreme Court affirmed one of the largest damage awards ever in a case involving claimed fiduciary breaches by the shareholders of a corporation.
As described in this article, the case arose “from a proposal by Grupo Mexico SAB in 2004 [which had a controlling share in Southern Peru Copper] …to sell its 99.15% interest in Minera Mexico SA to Southern Peru Copper for about $3 billion in Southern Peru shares. “ As was later determined by the court in a derivative case brought by minority shareholders in the company, the interest in Minera Mexico was worth far less than what Southern Peru Copper ultimately paid for it. Based on this difference, the court awarded more than $2 billion to plaintiffs.
The Supreme Court’s decision this week drew most attention in the press for its affirmance of the lower court’s awarding 15% of these damages in attorneys fees (which was apparently 66 times what the lawyers would have been paid based on their regular hourly rate). This $300 million amount is evidently the largest award of attorney’s fees in any derivative case ever. (For those interested in this part of the decision, the discussion begins on page 85 of the court’s opinion.)
However, in addition to making history this way, hopefully the decision – and particularly the two billion dollar number – will stand as an important reminder of the need for controlling shareholders to act fairly with respect to minority shareholders. But the $300 million figure is relevant to that, too – because finding lawyers to bring cases of this sort should now be a lot easier than it was before.