Delaware Business Litigation Report

Delaware Business Litigation Report

Court Of Chancery Explains When Inspection Is Warranted

Posted in Books and Records

Fuchs Family Trust v. Parker Drilling Company, C.A. 9986-VCN (March 4, 2015)

Everyone knows that a proper purpose is needed to justify inspection of a company’s records and that investigating wrongdoing is such a proper purpose. But is it enough to just allege that alone, even when there is sufficient evidence that there was wrongdoing?  As this decision explains, it is also necessary that the inspection may lead to some sort of action. Here the wronging had already been addressed by a new board and further inspection of the company’s records did not seem necessary.  Hence, inspection was denied.

Derivative Action Stayed Pending $228.9M Appeal

Posted in Articles
Lazarus (1)

When a company receives an adverse judgment holding it responsible for hundreds of millions in damages, shareholder derivative suits often follow. A typical claim is that had the board exercised proper oversight, the company and its stockholders would not have suffered such severe monetary losses. When a stockholder makes a demand on a board that it take action against the officers and directors allegedly responsible for the company’s losses, the board is obligated to take a position on the demand following appropriate investigation. When and for how long the company is entitled to investigate depends upon the context. If, for example, a stockholder receives no response from a company for six or more months after delivery of a demand, the stockholder can file a derivative action and claim that the board’s refusal to investigate is wrongful. Where the factual predicate underlying the claimed injury is not finally determined, however, as when a judgment for monetary liability is on appeal or the claimed losses are the subject of ongoing securities claims, the Delaware Court of Chancery typically will stay the derivative action. The Court of Chancery’s well-reasoned transcript decision in Hays v. Dvorak, C.A. No. 9768-CB (December 15, 2014), illustrates the practical approach that guides the court’s resolution of a motion to stay when the underlying factual predicate for the plaintiff’s claim of injury may be reversed or substantially modified on appeal. Continue Reading

The Office Of The Child Advocate Recognizes Lewis H. Lazarus for Ten Years of Pro Bono Service

Posted in News
Lazarus (1)

The Office Of The Child Advocate has recognized Lewis Lazarus with “deep appreciation” for ten years of pro bono service as an attorney guardian ad litem. The Office Of The Child Advocate noted that Mr. Lazarus “has made a difference in the lives of children and has enabled OCA to make great strides in the improvement of Delaware’s child welfare system.” The mission of the Office Of The Child Advocate is to safeguard the welfare of Delaware’s children through educational advocacy, system reform, public awareness, training and legal representation; it succeeds on behalf of Delaware’s children due to the tireless hours of volunteers. If you or someone you know is interested in volunteering, please visit their website here.

Master Denies Limits On Trading Following Inspection

Posted in Books and Records

Southpaw Credit Opportunity Master Fund LP v. Advanced Battery Technologies Inc,. C.A. 9542-ML (February 26, 2015)

A Master holds that the Court should not impose trading restrictions after a books and records inspection but should impose a confidentiality provision. Also interesting, the Master rejected the claim that China law prohibited inspection of a Delaware corporation’s records.

Court Of Chancery Upholds Arbitration Clause In LLC Agreement After Conversion

Posted in Arbitration

3850 & 3860 Colonial Blvd LLC v. Griffin, C.A. 9575-VCN (February 26, 2015)

This is an interesting decision because it deals with whether an LLC agreement requiring arbitration may be enforced even after the LLC was converted into a corporation that lacks such an arbitration clause.  The Court upheld the agreement to arbitrate.

Court Of Chancery Limits Drag-Along Rights

Posted in Appraisal

Halpin v. Riverstone National Inc., C.A. 9796-VCG (February 26, 2015)

Whether drag-along rights can preclude an appraisal action for common stock has not been decided in Delaware.  Here, because the merger was completed before the drag-along rights were asserted, the Court did not have to decide that issue and instead just held the right was asserted too late.

Court Of Chancery Upholds Privilege For Funding Agreement

Posted in Discovery

Carlyle Investment Management Company L.L.C. v. Moonmouth Company S.A., C.A. No. 7841-VCP (February 24, 2015)

Applying the Delaware “because of” test to determine what is covered by the work product privilege, this decision prohibits discovery of the funding agreement between a litigation funding firm and one of the parties to the litigation. This is the first time that issue has been decided by a Delaware court.

Delaware Adopts Curative Procedures for Invalid Past Corporate Actions

Posted in Articles
McNally (1)

Business lawyers frequently face mistakes their clients make in documenting what they want to accomplish in terms of corporate actions, such as issuing stock. Clients will ask for advice years after they have delivered stock certificates to investors, but without actually authorizing that stock in any formal way. That stock is not valid. What to do about that and similar miscues has long been a problem. Continue Reading