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Delaware Supreme Court Upholds Award Of Nominal Damages To Plaintiffs Unharmed By Unfair Conflicted Controller Transaction
12/17/2025On December 3, 2025, Chief Justice Collins Seitz, on behalf of the Delaware Supreme Court sitting en banc, upheld the Court of Chancery’s award of nominal damages in an action against a conflicted controller for breach of his fiduciary duty. In re Straight Path Commc’ns Inc. Consol. S’holder Litig., No. 19, 2025 (Del. Dec. 3, 2025) (affirming In re Straight Path Commc’ns Inc. Consol. S’holder Litig., CA No. 2017-0486-SG (Del. Ch. Oct. 3, 2023). Plaintiffs alleged that Defendant used his control of the Company to settle an indemnification claim for significantly less than it was worth. The Supreme Court agreed with then-Vice Chancellor Glasscock that, while defendant was a controller and breached his fiduciary duty by engaging in unfair dealing, plaintiffs could recover only nominal damages because the claim was a “contractually questionable” “flawed asset” and the settlement recovered more than the value of the claim.
Plaintiffs were minority shareholders in a company that owned wireless spectrum (the “Company”), a spin-off from a corporation founded by defendant (the “Indemnitor”). Under the separation and distribution agreement associated with the spin (“SDA”), the Company was entitled to indemnification by the Indemnitor for certain losses, including losses arising from broadcast spectrum licenses that were the subject of an investigation by the FCC. Following issuance of a consent decree by the FCC, the Company resolved to sell itself, along with the at-issue licenses, and the independent directors planned to establish a litigation trust to preserve the indemnification claim against the Indemnitor. Fearing this would jeopardize the Company’s sale price, defendant exercised his control of both the Company and the Indemnitor to settle the claim for $10 million. Plaintiffs challenged the settlement as a controller transaction that conferred a non-ratable benefit to defendant and violated the entire fairness doctrine.
The Vice Chancellor determined that defendant’s interest in the Indemnitor (and those of his family) were sufficiently significant that the settlement created a non-ratable benefit and thus reviewed the transaction for entire fairness. The trial court concluded that defendant secured the settlement with a “campaign of abuse and coercion” but nevertheless found that the settlement value was fair because the Company failed to comply with the SDA’s notice and consent requirements, rendering the claim was “economically worthless.” While acknowledging that defendant knew about the claim, the Court found that the Indemnitor was not notified, did not waive its right to consent, and would be materially prejudiced if it was found liable when the value of the claim exceeded both the Indemnitor’s ability to pay and its liquidation value. The Court additionally noted that a contrary finding would force the Indemnitor into strict compliance with the SDA, while holding the Company to a lesser standard.
Observing that “fair price does not ameliorate a process that was beyond unfair,” the trial court then analyzed the risks associated with bringing the claim and applied that calculation of risk to the potential value of the claim in settlement. On that basis, the trial court concluded that the price paid to settle the claim was more than it was worth and, consequently, defendant was only liable for nominal damages. The Supreme Court affirmed, finding “evident that the judgment of the Court of Chancery should be affirmed” for the reasons articulated by the Vice Chancellor.
