The Delaware Supreme Court recently ruled that the Court of Chancery should have revived a derivative suit over a stock sale by a major Kraft Heinz Co. investor after learning the action had been wrongly dismissed because of the long-hidden consultant role of a pivotal food giant director in Erste Asset Mgmt GmbH v. Hees, et al., Del. Supr., No. 374, 2024 (June 9, 2025)

A unanimous high court found that when plaintiff shareholder Erste Asset Management GmbH sought to reinstate its suit via a procedural request for relief from judgment, the trial court should have applied Chancery Rule 60(b)(3) more broadly to include key misrepresentations that defrauded other litigants, not just the court.

 “Although Rule 60(b)(3) applies only in rare circumstances, the rule’s plain language and Delaware precedent establish that it extends beyond a fraud on the court and applies when fraud between the parties prevents the defrauded party from fairly and adequately presenting its case,” the Court wrote. “Erste has pleaded such a claim, and the court therefore erred in dismissing the action.”

The high court opinion provides an important update on the application of Rule 60 in the Delaware courts, rejecting the Court of Chancery’s decision that new information regarding director John Cahill’s consultancy income was not “newly discovered” evidence under the rule because Erste could have learned about the information with reasonable diligence.

Background

Erste’s suit challenged a stock sale by 3G Capital Inc, a significant minority shareholder of Kraft Heinz with three seats on its board. According to the court record of the trial, before the period about which the suit was filed, Kraft Heinz director John Cahill had also been a compensation consultant who reported to the CEO, but he allegedly dropped that role before the applicable date for the derivative action and he was therefore found able to objectively review the merit of the suit as part of a six-person board majority.

One and a half years after Chancery dismissed and closed the case–because it failed to show that a majority of the board lacked objectivity or independence–the 3G defendants admitted Cahill’s paid advisor roll had continued, but the court barred Erste’s move to refile claims, and Erste appealed.

The high court noted that Kraft Heinz’s proxy statements for 2021–2023 continued to incorrectly describe Cahill as a “former consultant.” But all that had changed was that Kraft switched his compensation from cash to stock grants–until Cahill’s hidden role was publicly revealed.

Fraud on litigants, too

Chancery’s decision cited Kraft’s argument that it had not used false claims to win the demand futility ruling, but it was not necessary for Erste to prove the hiding of Cahill’s role was a fraud on the court, the high court explained. “By its plain terms, Rule 60(b)(3) covers both intrinsic and extrinsic fraud and obviates the muddied distinction between the two concepts’ effect on the litigation.”

She ruled that, “A party cannot make a false public disclosure outside litigation that the other side relies on in its allegations in the complaint, repeat those false representations in court, obtain a final ruling based on those false representations, and then argue that those false representations were entirely outside the judicial process and that the defrauded party is to blame for relying on them.”

Remanded for a redo

The Delaware Supreme Court remanded two counts of the suit to Chancery:

Count One was remanded for new proceedings to determine how the demand futility would apply and whether new evidence of Cahill’s advisor role tipped the balance in the plaintiff’s favor.

Count Two was remanded to reconsider the claim that some Kraft Heinz directors breached their duty of loyalty because they knew all along that disclosures made about Cahill’s role were intentionally false and didn’t correct them.

The Supreme Court decided to remand because “at a minimum, the motion practice is likely to clarify issues regarding causation and damages.”