Tooley v. Donaldson, Lufkin & Jenrette, Inc.

Supreme Court of Delaware · 2004 · Corporations

845 A.2d 1031 (2004)

Updated August 1, 2026

Corporationsdirect vs. derivative testdirect claimderivative claimstockholder standingfiduciary dutyspecial injurytime-value of money

Facts

DLJ was acquired by Credit Suisse through a cash tender offer for minority shares followed by a merger, while AXA, the 71% stockholder, exchanged its shares for a mix of stock and cash. The tender offer price for minority stockholders was $90 per share, and the merger agreement allowed certain extensions, including one by agreement between DLJ and Credit Suisse. Credit Suisse and DLJ agreed to a second extension that delayed closing by 22 days. Plaintiffs claimed that the delay harmed minority stockholders by depriving them of the time-value of the cash they would receive for their shares.

Issue

How should a court determine whether a stockholder claim is direct or derivative? Applying that standard here, did plaintiffs state a direct claim, a derivative claim, or no claim at all based on the alleged 22-day delay in closing?

Rule

To determine whether a stockholder's claim is derivative or direct, the court must ask solely: (1) who suffered the alleged harm—the corporation or the suing stockholders individually; and (2) who would receive the benefit of any recovery or other remedy—the corporation or the stockholders individually. The stockholder's claimed direct injury must be independent of any alleged injury to the corporation, and the stockholder must show that the duty breached was owed to the stockholder and that the stockholder can prevail without showing an injury to the corporation. The court expressly disapproved the use of the "special injury" concept and the idea that a claim is necessarily derivative merely because it affects all stockholders equally.

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

Red Mesa Robotics, a Delaware corporation headquartered in Phoenix, spent $18 million on a failed software platform after its board ignored internal warnings. Nina Patel, a stockholder in Denver, sues the directors for breach of fiduciary duty, alleging the waste reduced the value of every share she owns.

Under the governing Delaware test, how should Nina's claim most likely be classified?

Explanation. The claim is derivative. The court asks solely who suffered the alleged harm and who would receive the benefit of any recovery. Here, the alleged wrong is mismanagement of corporate assets, so the corporation was harmed first, and any recovery would belong to the corporation. A decline in share value that follows from injury to the corporation is not an independent stockholder injury. The fact that all stockholders were affected does not make the claim direct.