A recent decision by the Delaware Court of Chancery may have plowed fresh ground by establishing a new tort claim against corporate directors. Lee v. Pincus, C.A. No. 8458-CB (Del. Ch. Nov. 14, 2014), held that directors who released themselves from a lockup agreement gained a benefit that was not shared with stockholders and may be liable to those stockholders as a result. This “improper benefit” claim is at least novel, if not entirely unprecedented. Corporate directors need to understand the implication of this decision.
The plaintiff class, led by Wendy Lee, were stockholders of Zynga Inc., a producer of interactive online games. Zynga went public in December 2011. Most of the investors in Zynga prior to the initial public offering were subject to a lockup agreement that restricted their right to sell their Zynga stock until after May 28, 2012. However, the Zynga directors waived the lockup to permit a secondary offering in April 2012 by some, but not all, of those pre-IPO investors, including four Zynga directors. Those favored by the board’s decision then sold their stock for $12 per share. When Zynga’s stock price later fell to $6.09 per share when the lockup expired for everyone else, Lee sued. She claimed the four directors who sold their stock earlier had benefited by approximately $100 million. She wanted her share of that benefit.
