Steve Bainbridge discusses a Delaware chancery suit by a Berkshire-Hathaway shareholder against former B-H executive David Sokol for profits he earned by buying Lubrizol stock ahead of his former employer. Steve analyzes state law, concluding
I am unaware of any Delaware precedent holding that a state law cause of action for breach of fiduciary duty lies when the facts fit within the misappropriation framework. It would not be surprising if such a cause of action existed, however. In effect, when an executive misappropriates information and uses it to make a profit by trading in the stock of a potential takeover target the executive has usurped a corporate opportunity.
Steve explains why this could be true even if Buffett knew about the trades because Sokol should have gotten board approval.
I basically agree with Steve’s analysis. But this raises another question, as I noted when Sokol’s trades were disclosed:
[W]hat should federal law have to do with all this? The “hook” for federal securities liability is the trading in Lubrizol — but the breach of duty that triggers liability has to do with the details of Sokol’s dealings with Buffett and Berkshire. This, as I’ve said before, is appropriately a matter of state law. See my article, Federalism and Insider Trading, 6 Supreme Court Economic Review, 123 (1998).
