The Class Plaintiffs Stated A Valid Claim For Breach of Their Dividend Rights Sample Clauses

The Class Plaintiffs Stated A Valid Claim For Breach of Their Dividend Rights. The District Court held that Class Plaintiffs failed to state a claim for breach of contract because Class Plaintiffs were only entitled to dividends if and when they are declared in the sole discretion of the Board. Op. at 37-41. This was erroneous for three reasons. First, the Net Worth Sweep nullified the contractual right of the private shareholders to receive dividends under any circumstances. Prior to the Net Worth Sweep, Class Plaintiffs had a right to dividends if and when declared by the board of directors. After the Net Worth Sweep, that right no longer exists. Indeed, the stated goal of the Net Worth Sweep was to ensure that funds will never be “legally available” to flow from the Companies to private shareholders. ¶94. Thus, the Net Worth Sweep violated the contractual right of shareholders to receive dividends when properly declared.16 Second, while generally “the declaration and payment of a dividend rests in the discretion of a corporation’s board of directors,” that discretion is not unlimited. Litle x. Xxxxxx, 1992 WL 25758, at *321 (Del. Ch. Feb. 11, 1992), quoting Gabelli & Co., Inc x. Xxxxxxx Grp., Inc. 479 A.2d 276, 280 (Del. 1984). Rather, the withholding of dividends is subject to judicial challenge where it stems from “an oppressive or fraudulent abuse of discretion.” See id at 322.17 For example, in Litle, the Court found that the plaintiff-stockholder met this standard where he pled that the director responsible for making the decision not to declare dividends served his own personal financial interests by not doing so. See id. at 323-24. See also QVT Fund LP v. Eurohypo Capital Funding LLC I, 2011 WL 2672092 (Del. Ch. July 8, 2011).18 16 The District Court observed that the original terms of the Government Stock Agreements provided that FHFA no longer had exclusive discretion to issue dividends. Op. at 39. That is irrelevant. Granting Treasury veto rights over the issuance of dividends (which would have to be exercised consistent with its fiduciary duties) is a very different proposition than granting Treasury all corporate profits such that no dividend will ever be possible.
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