Elena Davis Examines Delaware Chancery Court’s Reaffirmance of Strict Pleading Standard for Minority Investor Control

In an article published in Law360, litigation & enforcement associate Elena Davis analyzes the Delaware Court of Chancery’s decision in Witmer v. Armistice Capital LLC, which underscores the strict standard for pleading minority investor control. Vice Chancellor Morgan T. Zurn dismissed claims against a 41% stockholder with one of seven board seats, emphasizing that fiduciary duties arise only where a minority investor exercises actual—not mere potential—control over a corporation’s affairs or a specific transaction.

Elena explains that the court rejected allegations of control premised on the minority investor’s ownership stake, a single board designee’s participation, and purported business ties with management, reiterating Delaware’s presumption of director independence and its insistence on well-pleaded facts showing a stockholder’s actual influence.

As Elena writes, “Witmer's reaffirmance of Delaware's strict approach to control provides increased predictability for minority investors in their investment and corporate governance decisions.”