Controlling shareholders of a Delaware corporation owe fiduciaries duties, but those duties do not require controllers to sacrifice contract rights or to vote altruistically. In the Court of Chancery’s recent decision in
RCS Creditor Trust v. Schorsch et al., the Court affirmed this proposition, holding that where a special committee and its review process were otherwise independent, a controlling shareholder did not breach his fiduciary duties or improperly influence the committee by sharing how he planned to vote in connection with two proposed, competing transactions.
RCS Capital Corporation (“RCS”) was a real estate investment trust servicing company in need of an equity infusion. To help resolve these liquidity problems, a potential transaction involving Apollo Global Management, LLC and AR Capital, LLC, (the “Apollo Transaction”) was presented to RCS’s Board. Because Apollo was affiliated with RCS’s controller, Nicholas Schorsch, a special committee was formed to review the transaction. During the special committee process, an alternative to the Apollo Transaction arose involving Centerbridge Capital Partners III, L.P (the “Centerbridge Proposal”). The Centerbridge Proposal included terms unfavorable to Schorsch, including the loss of his controller status through a surrender of his preferred voting shares. Schorsch informed the special committee that he did not support the Centerbridge Proposal. Ultimately, in part because Schorsch’s continued opposition made the Centerbridge Proposal infeasible, the special committee recommended pursuing the Apollo Transaction.