Document: Nemec v. Shrader, et al., C.A. No. 3878-CC, Chandler, C. (Del. Ch. April 30, 2009)
The Court of Chancery dismissed breach of fiduciary claims against defendant directors in connection with a retirement contract entered into between defendant Booz Allen Hamilton Inc. (the “Company”) and the Plaintiffs. Plaintiffs were long-tenured officers considered “founding fathers” of the Company’s modern business. Upon retiring, Plaintiffs’ held shares of stock and a two-year put right to have the Company buy any shares, after which the Company could redeem any shares at book value. Pursuant to the contract governing those stock grants, the Company subsequently bought back Plaintiff’s shares just before selling the Company to a private equity firm for a large premium. As a result of the redemption, the defendant directors added almost $6M to the proceeds they collectively received through the sale transaction. The Court dismissed Plaintiffs’ action because the directors had the bargained-for contractual right to redeem Plaintiffs’ shares and the exercise was not against reasonable business judgment. As such, a contract right does not necessarily create a fiduciary duty. In addition, the Court held that Booz Allen did not breach the implied covenant of good faith and fair dealing on the same general grounds.