ATR-Kim Eng Financial Corp. v. Araneta
2006 WL 3783520 (Del.Ch. Dec. 21 2006)

  • Araneta owned 90% of a corporation called PMHI. He was also chairman of the board of directors. Araneta took $35M of PMHI assets for himself and his family members.
  • Shareholders who owned the other 10%, represented by ATR-Kim sued Araneta and the other directors, Bonilla and Berenguer for breach of fiduciary duty.
    • ATR-Kim argued that Bonilla and Berenguer breached their fiduciary duty to the corporation by standing idly by while Araneta looted it.
      • Bonilla and Berenguer never bothered to check whether PMHI retained its primary assets and never took any steps to recover them one they realized those assets were gone.
    • Bonilla and Berenguer argued that they never participated in, nor profited by any of Araneta’s schemes.
  • The Trial Court found all three liable for breach of fiduciary duty.
    • The Trial Court found that Ananeta breached his fiduciary duty as a director by impoverishing PMHI for his own personal enrichment.
    • The Court found that Bonilla and Berenguer breached their fiduciary duty of loyalty to the company by acting as “stooges for Araneta, seeking to please him and only him, and having no regard for their obligations to act loyally towards the corporation and all of its stockholders.”
      • The Court noted that Bonilla and Berenguer did not make a good faith error in judgment, they purposefully neglected their duties to the corporation.
    • The Court looked to Stone v. Ritter (911 A.2d 362 (Del. 2006)), and found that directors can be liable for failure to exercise oversight of employees who fail to comply with their duties was a “lack of good faith as evidenced by a sustained or systematic failure of a director to exercise reasonable oversight.”
      • While that is a pretty high standard to meet, Bonilla and Berenguer met it in this case.
      • “It is no safe harbor to claim that one was a paid stooge for a controlling stockholder.”