Delaware Business Litigation Report

Delaware Business Litigation Report

Court Of Chancery Declines To Intervene In Arbitration

Posted in Arbitration

LG Electronics, Inc. v InterDigital Communications Inc., C.A. 9747-VCL (August 20, 2014)

This is the first decision by the Court of Chancery that dismissed a case over which it has jurisdiction because an arbitration proceeding had been filed first.  As the court points out, this is unusual because the court usually dismisses cases in favor of arbitration when the court lacks jurisdiction to hear disputes subject to an arbitration provision.  Here, however, both the court and the arbitration panel had jurisdiction so that a dismissal on those grounds was not appropriate.  Instead, the Court applied the McWane doctrine whereby a case is dismissed when a first-filed proceeding elsewhere will do justice between the parties.

The decision is interesting because it also holds that the court will not interfere in how another proceeding is being conducted.  While that may not always be true, it is a useful reminder of the limits of what the Court of Chancery will get involved in most of the time.

Delaware Supreme Court Adopts Exception to Attorney-Client Privilege

Posted in Articles
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Authored By Albert H. Manwaring, IV
This article was originally published in the Delaware Business Court Insider August 13, 2014

In Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970), the U.S. Court of Appeals for the Fifth Circuit recognized a fiduciary exception to the attorney-client privilege “where the corporation is in suit against its stockholders on charges of acting inimically to stockholder interests, protection of those interests as well as those of the corporation and of the public require that the availability of the privilege be subject to the right of the stockholders to show cause why it should not be invoked in the particular instance.” Thus, upon a showing of “good cause,” Garner allows stockholders to invade the corporation’s attorney-client privilege to prove fiduciary-duty breaches of directors, officers or those in control of the corporation. The Fifth Circuit listed the following factors relevant to show “good cause” under the Garner exception to the attorney-client privilege: “the number of shareholders and the percentage of stock they represent; the bona fides of the shareholders; the nature of the shareholders’ claim and whether it is obviously colorable; the apparent necessity or desirability of the shareholders having the information and the availability of it from other sources; whether, if the shareholders’ claim is of wrongful action by the corporation, it is of action criminal, or illegal but not criminal, or of doubtful legality; whether the communication is of advice concerning the litigation itself; the extent to which the communication is identified versus the extent to which the shareholders are blindly fishing; the risk of revelation of trade secrets or other information in whose confidentiality the corporation has an interest for independent reasons.” Continue Reading

Court Of Chancery Awards Fee Despite Confusion Over Causation

Posted in Attorney Fees

Sample v. Gumbiner C.A. No. 8873-VCN (July 31, 2014)

In settling a class or derivative suit, the plaintiff’s attorney will seek a fee if she has caused a corporate benefit, such additional disclosures in a merger.  But what happens when there is a dispute over why those added disclosures were made?  The Court, as here, is left with a causation dispute where the record is not clear.  This decision illustrates how a court will try to reason its way to a conclusion and, in effect, split the baby by lowering the fee when causation is not clear.

Court Of Chancery Holds Corporation Does Not Owe Fiduciary Duty

Posted in Case Summaries, Fiduciary Duty

Buttonwood Tree Value Partners L.P. v. R.L. Polk & Co. Inc., C.A. No. 9250-VCG (August 7, 2014)

A Delaware corporation does not itself owe a fiduciary duty to its stockholders and may not be charged with aiding and abetting a breach of that duty by its directors.  This holding has ample precedent and is important because it may avoid the expansion of the company’s disclosure obligations beyond the duty to avoid fraudulent disclosures.

Court Of Chancery Discusses Bylaw To Remove Officers

Posted in Corporate Charters

Salamone v. Gorman, C.A. No. 8770-VCN (July 31, 2014)

This is an unusual case involving a director deadlock created by a stockholder voting agreement, despite the presence of a majority stockholder.  Frustrated by his inability to get his way due to the director deadlock, the stockholder adopted a bylaw that purports to give stockholders the right to remove officers.  That may conflict with the provisions of the DGCL that vest control of management in the directors, absent a different order in the certificate of incorporation. While the Court expressed some doubt the bylaw was valid it did not need to decide the issue.

Chancery Court Reforms Management Agreements

Posted in Articles

Authored By Thomas E. Hanson, Jr.
This article was originally published in the Delaware Business Court Insider August 5, 2014

In Delaware, the Court of Chancery has the power to reform an agreement that “fails to express the [parties'] real agreement or transaction,” as in Miller v. National Land Partners LLC, C.A. No. 7977-VCG, at 34 (Del. Ch. June 11, 2014), citing Amstel Associates LLC v. Brinsfield-Cavall Associates, (Del. Ch. May 9, 2002). However, for a plaintiff to obtain reformation based on a mutual mistake, he or she must demonstrate by “clear and convincing evidence” that the written agreement failed to reflect accurately the oral agreement reached by the parties. Continue Reading

Modest Reflections on the State of Delaware Litigation

Posted in Articles

Authored By Edward Mcnally
This article was originally published in the Delaware Business Court Insider July 30, 2014

Delaware’s courts are going through a period of rapid change. While it is too early to decide whether those changes are for the better, some preliminary comments are possible. In general, the recent events are a cause for optimism that Delaware is maintaining its position as the best forum for corporate litigation. There is, however, one dark cloud on the horizon. Continue Reading

Albert J. Carroll Joins Morris James’ Business Litigation Practice

Posted in News
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Morris James has announced that Albert J. Carroll has joined the Firm’s Business Litigation Group as an associate in its Wilmington office. His practice will focus on Corporate and Commercial Litigation. “Albert’s experience as a corporate litigator will be a great asset to Morris James. We look forward to his contributions to the growth of our business litigation team,” said Managing Partner David Williams.

Mr. Carroll’s experience includes representing stockholders, directors, officers, and companies in the Court of Chancery in matters involving breaches of fiduciary duty, breaches of contract, and summary proceedings under the Delaware General Corporation Law.  Albert has also assisted in counseling special committees of boards of directors formed to investigate alleged wrongdoing. His commercial experience also includes representing companies in breach of contract matters in arbitrations governed by the AAA Commercial Arbitration Rules. Continue Reading

Chancery Court Dismisses Revlon and Quasi-Appraisal Claim

Posted in Articles

Authored By Lewis Lazarus
This article was originally published in the Delaware Business Court Insider July 23, 2014

The Delaware courts apply a high standard of review in sale transactions where a plaintiff pleads a conflict of interest. Where a board sells to a third party and the plaintiff pleads no conflict of interest, however, the Delaware Supreme Court has noted that “an extreme set of facts” is “required to sustain a disloyalty claim premised on the notion that disinterested directors were intentionally disregarding their duties.” Lyondell Chemical v. Ryan, 970 A.2d 235, 243 (Del. 2009). Only where a plaintiff pleads facts showing a conscious disregard of duties would a plaintiff be able to allege that the directors had acted in bad faith in approving a sale transaction. And if a plaintiff cannot plead facts showing disloyalty or bad faith, and assuming the board is protected by a Section 102(b)(7) provision, then a plaintiff will not be able to plead any non-exculpated conduct and hence the court will dismiss at the pleadings stage any claim for monetary damages. The recent case of Dent v. Ramtron International, C. A. No. 7950-VCP (Del. Ch. June 30, 2014), illustrates these principles and provides guidance as well into the court’s application of the materiality standard in assessing claims of breach of the duty of candor that might give rise to a quasi-appraisal remedy. Continue Reading