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,” as in 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, 2004), 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
Recently derivative suits claim that there is no need to make a pre-suit demand on the board because that board violated the terms of an incentive compensation plan and is thus disqualified from considering a demand it file suit. As this decision by the new Chancellor points out, the prior case law that excused demand turned on the alleged fact that the incentive plan was clearly violated by the board. Here, in contrast, the plan might reasonably be interpreted to permit just what the board was accused of doing when it amended the plan to grant the extra incentive the complaint alleged was wrong. Hence, the board was not disqualified out of fear the members would be held liable for doing what they did to intentionally violate their duties.
Morris James LLP is pleased to announce that Meghan A. Adams has joined the Firm’s Wilmington office as an associate in its Business Litigation Group. Her practice will focus on Corporate and Commercial Litigation.
Ms. Adams’ experience includes stockholder litigation, corporate governance, officer and director fiduciary obligations and the resolution of limited partnership and limited liability disputes. During law school, she served as a Judicial Extern to the Honorable Myron T. Steele, then Chief Justice of the Supreme Court of Delaware.
Managing Partner, David Williams, said of Meghan, “We are thrilled to bring such a capable lawyer to our Business Litigation group. Her experience in both the Delaware Court of Chancery and the Delaware Superior Court makes her a great addition to our firm.”
Ms. Adams graduated from Widener University School of Law in 2007, ranking in the top 10% of her class and receiving the Dean Santoro Scholarship and Outstanding Service Award. She served as the Articles Editor for The Delaware Journal of Corporate Law at Widener. Meghan received her B.S. in Business Administration from the University of North Carolina at Chapel Hill in 2003, which she attended on a golf scholarship while serving as captain of the women’s varsity golf team. She is admitted to practice law in Delaware and the United States District Court for the District of Delaware.
While not adhering to the first-to-file rule, Delaware courts have long recognized that a stay of an action in favor of another action may be appropriate in the interests of comity and judicial efficiency when there is identity of the parties and issues in the two actions. The Court of Chancery has frequently stayed derivative actions (in favor of federal securities fraud actions) where the derivative action simultaneously seeks to prosecute fiduciary-duty claims based on similar facts and claims for misrepresentations and insider trading, or seeks indemnification from the directors based on a company’s potential liability in the federal securities action.
In these circumstances, the court has recognized a company may be unfairly prejudiced if forced to adopt conflicting positions and litigation strategies where the company is simultaneously a defendant in the federal securities action and a nominal plaintiff in the stockholder derivative action. Indeed, a company faces an inherent litigation conflict if forced to simultaneously defend against allegations that the directors and the company lacked knowledge of purported wrongdoing in a federal securities action while at the same time, a stockholder asserts derivative claims, on behalf of the same company, against the directors, alleging that they had knowledge of the wrongdoing. Continue Reading
Can a company defeat a former officer’s claim for indemnification by simply amending its bylaws? If the right to indemnification has already accrued, such as by the filng of a suit against that director, the short answer is “no.”
There is a general sense that it is hard to have the Court of Chancery grant a motion to dismiss litigation attacking a proposed merger. While that may be true when the merger involves insiders, this decision demonstrates that an arms length transaction subject to typical deal protection provisions is not easily attacked absent some hard facts supporting the claim. Without those well-pleaded facts, the Court will dismiss the suit.
The question of whether the members of an LLC owe fiduciary duties to the other members is dependent on the terms of the LLC agreement. When there is a manager designated by the LLC agreement, the members as members will not ordinarily have fiduciary duties.
This decision has a good review of when just posting a web page is enough to support jurisdiction over the posting party.
This is a useful opinion dealing with when a securities action should be certified as a class action.
Under 8 Del. C. Section 220, stockholders of Delaware companies are entitled to inspect certain books and records of the company upon stating a proper purpose. A long-recognized proper purpose for a books-and-records demand is an interest in valuing one’s stock. In The Ravenswood Investment L.P. v. Winmill & Co., C.A. No. 7048-VCN (Del. Ch. May 30, 2014), the Court of Chancery decided the “novel” issue of whether a company, in response to a books-and-records demand, may condition the provision of nonpublic financial information on a trading restriction. Finding that the trading restriction would “inappropriately frustrate a fundamental stockholder right” to value its stock, the court held that the company could not require an agreement on the part of the requesting stockholder not to trade its stock for a certain period of time after receipt of the requested information. Continue Reading