eBay Domestic Holdings, Inc. v. Newmark

Delaware Court of Chancery · 2010 · Corporations

16 A.3d 1 (2010)

Updated August 1, 2026

Corporationscorporate purposedefensive measurespoison pillrights planstaggered boardentire fairnessUnocal

Facts

eBay owned 28.4% of craigslist under agreements that expressly allowed eBay to compete with craigslist, but if eBay engaged in specified competitive activity it would lose certain consent, preemptive, and first-refusal rights while its own shares would become freely transferable. After eBay launched Kijiji in the United States and did not cure after receiving a notice of competitive activity, Jim and Craig, who controlled craigslist as directors and as a control group of stockholders, adopted a rights plan, implemented a staggered board, and offered stockholders one new share for every five shares made subject to a right of first refusal in craigslist's favor. Jim and Craig accepted the right-of-first-refusal offer and received new shares; eBay declined, preserving transferability but being diluted from 28.4% to 24.9%. eBay sued, alleging breaches of fiduciary duty.

Issue

Did Jim and Craig, as craigslist directors and controlling stockholders, breach fiduciary duties to eBay by adopting the rights plan, implementing the staggered board, and approving the right-of-first-refusal/dilutive issuance? More specifically, were those measures valid under the applicable standards of review for defensive action, ordinary board action, and self-dealing transactions?

Rule

A rights plan adopted by directors is reviewed under Unocal enhanced scrutiny: directors must identify a proper corporate objective, show they reasonably perceived a threat to corporate policy and effectiveness, and justify the measure as a reasonable response. Directors of a for-profit Delaware corporation cannot use fiduciary power to defend a corporate policy that openly rejects stockholder wealth maximization as an end in itself. Where interested fiduciaries stand on both sides of a transaction, the transaction is subject to entire fairness, requiring fair price and fair dealing; if the business judgment rule applies, the court will not disturb a decision attributable to any rational business purpose.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Maple Square Media, Inc., a Delaware for-profit corporation based in Portland, Maine, has three stockholders. After minority stockholder Nora Patel launches a competing local-listings website, the two controller-directors adopt a rights plan that blocks Nora from acquiring more shares and makes it much harder for her to sell her existing block. They explain that the corporation exists to serve neighborhoods, not to maximize returns, and that the pill is meant to preserve that philosophy indefinitely.

If Nora challenges the rights plan for breach of fiduciary duty, which is the strongest argument that the plan is invalid?

Explanation. A rights plan is reviewed under Unocal enhanced scrutiny. The directors must identify a proper corporate objective and show the response is reasonable in relation to that objective. Under the majority opinion, directors of a for-profit Delaware corporation may not deploy a rights plan to defend a corporate policy that clearly rejects stockholder wealth maximization as an end in itself. Subjective sincerity or social-minded motives are not enough.