Delaware Court of Chancery Imposes Constructive Trust over Founder’s Shares After Attempted Squeeze Out of Cofounder and Shifts Attorneys’ Fees

09.24.2026

This article was originally published the August 2026 issue of Month-in-Brief: Mergers & Acquisitions, a publication of the Business Law Section of the American Bar Association.

In Ramadurgam v. Destiny XYZ Inc., C.A. No. 2024-0057-PAF (Del. Ch. July 23, 2026), the Delaware Court of Chancery found that a founder and controller of Destiny XYZ Inc., a Delaware corporation (“Destiny”), which operates the now-NYSE-listed company Destiny Tech100, breached his fiduciary duties by squeezing out his minority cofounder at an unfair price and as part of an unfair process through a reverse-forward stock split. To accomplish the ouster of his cofounder, the controlling founder appointed two “henchmen” to Destiny’s board of directors, had his lawyers hire an investment banker to secretly value Destiny, and convened a special board meeting by Zoom to approve the reverse-forward split. The controller held the Zoom meeting with cameras off and shared the investment banker’s valuation report by Zoom chat before hastily approving the cash-out price of the minority founder’s shares.

After finding that the controller’s actions failed exacting entire fairness scrutiny, the Court imposed a constructive trust on the controller’s equity in order to restore plaintiff to the relative equity position that he held prior to the squeeze-out transaction. In addition, the Court found that the individual defendants’ egregious breaches of fiduciary duty warranted fee-shifting under the bad faith exception to the American rule under which litigants generally pay their own attorneys’ fees regardless of the litigation outcome. The Court found fee-shifting to be warranted because the defendants’ breach of fiduciary duty was a deliberate abuse of control by a founder to remove a minority founder from the company’s capital structure and seize his cofounder’s equity in retaliation for the founder’s request to appoint independent directors to the corporation’s board.

The Court’s decision serves as a cautionary tale for directors and their advisors when dealing with founder disputes as the Court takes a critical look at both the actions of the controlling founder and his advisors and takes the unusual step of shifting attorneys’ fees.

Lisa R. Stark  brings more than two decades of experience guiding companies through complex corporate transactions and strategic decisions involving Delaware corporate law. Her practice spans mergers and acquisitions, IPOs, proxy contests, asset sales, stock issuances and hostile takeovers. She advises both public companies and private equity funds and their portfolio companies in connection with mergers and acquisitions. She also counsels both public and private companies on corporate governance matters, including Delaware fiduciary duties, and the General Corporation Law of the State of Delaware.