On January 17, 2022, Justice Masley of the New York County Commercial Division issued a decision in Eccles v. Shamrock Capital Advisors, LLC, 2022 NY Slip Op. 30187(U), holding that holders of less than a majority of a company’s shares did not have a fiduciary duty to the company, explaining:
No trust relation ordinarily exists between the stockholders themselves or between the stockholders and the corporation, because the stockholders ordinarily are strangers to the management and control of the corporation business and affairs. A majority shareholder who manages and controls a corporation’s affairs, though, is a fiduciary. The complaint alleges that the KKR/Shamrock Defendants collectively owned 36% of the Preference Shares, which is less than a majority.
The complaint, though, describes the KKR/Shamrock Defendants as controlling shareholders that possessed a drag along right to force a sale and exerted control over the conflicted Director Defendants. A controlling shareholder is one who controls the majority of a company’s voting stock. A minority shareholder may be a controlling shareholder if it dominates the corporation through actual control of corporate conduct, which is usually accomplished through its control of the corporation’s board of directors. As applied here, plaintiffs fail to adequately plead facts showing that the KKR/Shamrock Defendants are controlling shareholders such that they owed a fiduciary duty to plaintiffs. First, there is no allegation that the KKR/Shamrock Defendants, as Preference shareholders, held most of the FDL’s voting stock or that they enjoyed superior voting rights over the Ordinary shareholders. Second, as explained above, the allegations of control over the Director Defendants are not sufficiently specific. Apart from exercising the Drag Along Right, plaintiffs do not allege that the KKR/Director Defendants previously directed or managed company operations.
Plaintiffs maintain the claim centers on the fiduciary relationship created when KKR and Shamrock acted on their rights under the Articles and took control of the corporate affairs of FanDuel with respect to the merger. However, a breach of fiduciary duty ordinarily involves a duty separate and apart from the duty to abide by the terms of the contract. Here, mere ownership and exercise of the Drag Along Right did not transform the KKR/Shamrock Defendants into controlling shareholders, since that right was expressly granted to them in the Articles and the TTA. The KKR/Shamrock Defendants exercised the Drag Along Right, which allowed them to “drag” the other shareholders into accepting PandaCo’s offer without their approval as was permissible under Article 78. Plaintiffs fail to cite caselaw in support of the proposition that ownership or exercise of this right gave rise to a fiduciary relationship. Thus, the complaint fails to sufficiently plead a breach of a fiduciary duty against the KKR/Shamrock Defendants.
(Internal quotations and citations omitted).