The representative of a Delaware statutory trust (the “Trust”) brought suit against the Trust’s managing owner (the “Managing Owner”) for breach of fiduciary duty, and against the Managing Owner’s parent and grandparent (the “Cargill Defendants”) for exercising control over the Managing Owner’s actions to serve their own self interest. The Managing Owner entered into a purchase and sale agreement with a subsidiary of Refco, Inc., which transaction resulted in the transfer of the Trust’s accounts to a Refco entity. Refco subsequently filed for bankruptcy and the trust recovered less than half of the funds in its Refco accounts. The Court of Chancery denied a motion to dismiss the breach of fiduciary duty claims against the Managing Owner because the pleaded facts supported a reasonable inference that the Managing Owner violated its duty of care and duty to safeguard the Trust’s assets by failing to adequately investigate the consequences of the Refco transactions. The Court also denied the motion to dismiss the breach of fiduciary duty claims against the Cargill Defendants because: (1) under common law principles, they may owe fiduciary duties to the trust because they exercised control over the Managing Owner by virtue of ownership interest and interlocking management; (2) the facts alleged supported a reasonable inference that the Cargill Defendants used such control for their own self-interest; (3) the Delaware Statutory Trust Act does not preempt this particular field of law; and (4) the parties did not contract to modify the default duties imposed by law on fiduciaries and their corporate parents. Lastly, the Court denied motions to dismiss claims against the Cargill Defendants for general negligence and knowing participation in the Managing Owner’s breach.
