Hollinger International., Inc. v. Black

Delaware Court of Chancery · 2004 · Corporations

844 A.2d 1022 (2004)

Updated August 22, 2026

Corporationsfiduciary dutiescontrolling stockholdersbylawsshareholder rights planscorporate opportunitycontrolling stockholder misconductboard candor

Facts

Black was the ultimate controlling stockholder of Hollinger International and, under a Restructuring Proposal, agreed to remain chairman, devote his principal time and energy to a strategic process for International's equal and ratable benefit, and not support an Inc.-level ownership transaction that would negatively affect that process except in narrow circumstances and with as much advance notice as reasonably possible. Instead, he diverted to himself and Inc. the Barclays' interest in buying International's Telegraph assets or International itself, used International's confidential information in negotiations with the Barclays, misled International's board about those negotiations, and failed to make a required repayment under the agreement. After Black unveiled the Barclays Transaction, he caused Inc. to adopt bylaw amendments requiring unanimous board action on major matters and eliminating the committee formed to respond. International's independent directors then adopted a time-limited rights plan to preserve the strategic process and sued.

Issue

Did Black breach his fiduciary and contractual duties by diverting the Barclays opportunity and pursuing the Barclays Transaction, were the bylaw amendments ineffective because adopted for an inequitable purpose, and was the rights plan a permissible defensive response under Delaware law? The court also had to decide whether International was entitled to injunctive relief against the Barclays Transaction and further breaches.

Rule

A controlling stockholder and chairman breaches the duty of loyalty by diverting to himself a corporate opportunity belonging to the corporation, misleading fellow directors, and using confidential corporate information for personal advantage without authorization. Stockholder-adopted bylaws that are otherwise statutorily permissible are ineffective if adopted for an inequitable purpose. Under Unocal, a rights plan is permissible if the board reasonably identifies a threat to corporate policy and effectiveness and adopts a response proportionate to that threat; in extraordinary circumstances, a time-limited rights plan may be used to preserve a contractually promised strategic process from subversion by a controlling stockholder's serious breaches of duty.

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Redwood Media Holdings, a Delaware public company based in Chicago, began a board-approved six-month process to explore selling either the company or major assets. Its chair and controlling stockholder, Victor Sloan, secretly received repeated inquiries from Nora Vale, a newspaper investor in London, about buying Redwood's flagship magazine division, but he never told Redwood's board and instead steered Vale toward buying the holding company through which he controlled Redwood.

If Redwood later sues Sloan, which is the strongest basis for finding a likely breach of the duty of loyalty?

Explanation. The majority held that a controlling stockholder-chair breaches the duty of loyalty by concealing an opportunity to sell a corporate asset, denying the board the chance to consider it, and diverting that opportunity to himself. Liability did not depend on a prior board vote to sell, nor on the buyer being a looter. The key is that the opportunity fell within the corporation's own strategic process and belonged to the corporation, not the controller personally.