A Shearman & Sterling litigation team won the dismissal of most of the claims in a Midway Games Inc. creditors’ suit last week in a significant decision involving issues of Delaware law regarding the fiduciary duties of a controlling shareholder to an insolvent corporation and its creditors.

Shearman & Sterling represented Sumner Redstone and National Amusements Inc. (“NAI”) in an adversary proceeding brought by the Creditors Committee of Midway against NAI, Redstone, and the former directors of Midway (who were separately represented) in Delaware Bankruptcy Court. Most of the claims were dismissed, including claims for breach of fiduciary duty against NAI and Redstone as controlling shareholders and claims for fraudulent conveyance.

The official committee of unsecured creditors had filed a suit in Delaware Bankruptcy Court against Midway’s former directors and its former controlling shareholder, Summer Redstone, claiming breach of fiduciary duty and seeking to recover damages resulting from debt Midway took on before its Chapter 11 filing. The Midway creditors claimed that as the company’s financial situation deteriorated in 2008, the board of directors took out a loan from Redstone’s NAI instead of exploring alternative solutions, including bankruptcy. On January 30, 2010, Judge Kevin Gross issued an order dismissing the claims for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, fraudulent conveyance, and equitable subordination.

The Shearman & Sterling team included partners Stuart J. Baskin (New York-Litigation), Jaculin Aaron (New York-Litigation), Brian Polovoy (New York-Litigation) and associates John Scalzo (New York-Litigation), Michael Haidas (New York-Litigation), Robert L. Whitener (New York-Litigation), Tom Rosen (New York-Litigation) and Joshua Goodman (New York-Litigation).