The Slow But Sure Evolution of Brophy: Delaware's Common Law Action for Insider Trading
Many corporate practitioners both inside and outside of Delaware, at least until recently, may likely have considered a common law fiduciary duty claim for insider trading an antiquated notion with only historical significance given the federal regime of securities laws developed over the past half-century. Think again. A string of recent Delaware decisions demonstrates that the fiduciary insider trading claim – known as a “Brophy” claim after the 1949 case that first recognized it as a cause of action in Delaware – is anything but antiquated and warrants attention by not only traditional corporate insiders (i.e., directors and officers), but also significant stockholders with board representation or observation rights. Indeed, in certain circumstances, stockholder plaintiffs may find a higher likelihood of success asserting a fiduciary insider trading claim under Delaware law as opposed to asserting a claim arising from the same acts under federal securities laws. Given the Delaware Supreme Court’s recent clarification that disgorgement of any gain realized by the improper trades at issue is an available remedy, the incentives for plaintiffs bringing such claims have only increased.