Harriman v. E.I. duPont de Nemours & Company

United States District Court for the District of Delaware · 1974 · Corporations

372 F. Supp. 101 (1974)

Updated August 22, 2026

CorporationsRule 12(b)(6)Section 20(a)Rule 10b-5control person liabilitypotential controlinterlocking directorsfiduciary duty

Facts

Plaintiffs challenged a proposed merger of Christiana into DuPont as unfair to DuPont and its stockholders. As to Wilmington Trust, the complaint did not allege that it made any misstatements, aided any misstatements, or participated in negotiating the merger. The complaint did allege that Wilmington Trust held title as trustee or co-trustee to over 50% of Christiana's common stock, had sole or joint voting discretion over a substantial number of those shares, and had multiple directors in common with Christiana and DuPont. Plaintiffs also alleged that various DuPont directors had beneficial interests in trusts administered by Wilmington Trust that would benefit from the merger.

Issue

Whether the complaint stated a federal securities claim against Wilmington Trust under Rule 10b-5 and Section 20(a) based on allegations showing potential control over Christiana, despite no allegation of affirmative participation in the merger or misstatements. Whether the complaint also stated a Delaware-law fiduciary-duty claim against Wilmington Trust based on its trustee status, stockholdings, and interlocking director relationships.

Rule

For Section 20(a), control means the direct or indirect possession of the power to direct or cause the direction of management and policies, whether through voting securities, contract, or otherwise. A plaintiff may state a Section 20(a) claim without alleging affirmative action by the defendant if the alleged status shows the potential for control; participation in the challenged transaction is relevant only to the defendant's good-faith and non-inducement defense. Under Delaware law, fiduciary duty in this setting arises from the exercise of power over the corporation, and only when a person affirmatively undertakes to dictate the corporation's destiny does such a duty arise.

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In Cleveland, North Shore Trust serves as trustee for several family trusts that collectively hold 58% of the voting shares of Lakeview Holdings, a company accused of issuing a misleading proxy statement in connection with a stock-for-stock acquisition. The complaint alleges North Shore Trust has sole or shared voting discretion over most of those shares and that four of its directors also sit on Lakeview Holdings' board, but it does not allege the trust company drafted the proxy materials or negotiated the deal.

If North Shore Trust moves to dismiss the Section 20(a) claim for failure to state a claim, how should the court rule?

Explanation. Section 20(a) focuses on possession, directly or indirectly, of the power to direct management and policies. The majority opinion emphasized that potential control and indirect means of discipline or influence are enough at the pleading stage, and that a plaintiff need not allege affirmative action by the alleged controlling person. Trustee-held voting power plus overlapping directors can support an inference of control sufficient to survive dismissal.