The Delaware Barristers Association awarded Morris James partner, Charles H. Toliver, IV, the Justice Thurgood Marshall Award at the Louis L. Redding Benefit and Awards Gala on November 14, 2014. Continue Reading
Delaware’s courts continue to struggle with the problem of how to control multiple suits in multiple jurisdictions, over the same basic dispute. Just recently, the Delaware Supreme Court explained how the lower courts should deal with this problem, in its decision in The North River Insurance v. Mine Safety Appliances, 2014 Del. LEXIS 527 (Del. Nov. 6, 2014). The Supreme Court’s careful analysis is worth reviewing. Continue Reading
In Palkon v. Holmes, C.A. No. 2:14-CV-01234 (SRC) (October 20, 2014), the United States District Court for the District of New Jersey dismissed with prejudice a shareholder derivative action arising from three distinct breaches of Wyndham Worldwide Corporation (“Wyndham”). The Court granted the Defendant Directors’ Motion to Dismiss pursuant to Rules 23.1(b) and 12(b)(6) of the Federal Rules of Civil Procedure. The matter was resolved on demand-refusal grounds, but the opinion provides fresh guidance to corporate boards in how to address their exposure to risk based on cybersecurity breaches and shareholder actions arising from those breaches. Specifically, the decision highlights the importance of independent advice and of making a record of board review of policies and procedures to address the threat of a cyber-security breach. As this decision illustrates, boards who seek independent legal and other advice and who make an appropriate record of reviewing policies for addressing the risk of cyber-security breaches are more likely to be able to withstand a shareholder derivative claim for breach of fiduciary duty. Continue Reading
This decision holds that the waiver of a lockup in favor of 4 directors may constitute a breach of their fiduciary duties to the other stockholders who were subject to the lockup and whose shares could only be sold later at a reduced market price. There is no prior case dealing with this set of facts. The key point is that the directors secured a benefit for themselves that was not available to the class of stockholders who remained subject to the lockup and who presumably would have sold their stock before the price declined had they been able to do so. This leaves open some interesting damages issues.
A recent decision of the Court of Chancery may significantly affect how breach of fiduciary litigation is conducted in the Delaware courts. In re Rural/Metro Stockholders Litigation, 2014 Del. Ch. LEXIS 202, held that RBC Capital Markets as a financial adviser to Rural/Metro was liable for about $75.8 million as a result of the Rural/Metro directors improperly negotiating a merger at too low a price and sending stockholders misleading information. Even more startling, the directors had settled the claims against them for just $6.6 million and had no obligation to contribute to the $75 million that RBC had to pay. How could this happen? Continue Reading
It is a breach of the duty of loyalty for a corporate director to lie to the entity’s stockholders. But, as this decision explains, a false statement is not a lie unless the speaker knows it is false. Hence, a complaint that asserts a derivative action must contain facts that show a majority of the board is not disinterested because they knew they had lied. Just alleging their statement was wrong does not get you there.
This decision explains the Amendment-By-Merger Exception that is found in alternative entity agreements. The purpose of the Exception is to be sure that a merger agreement that has the affect of amending the operating agreement gets the same vote, including class votes, that an equivalent amendment to the operating agreement would require under the terms of the operating agreement. Such clauses try to prevent a merger agreement from being used, as is done for corporations, to amend the basic deal set out in the parties’ agreement.
The decision also has an interesting discussion of what constitutes an amendment to an operating agreement, a point that is not always clear.
This is the latest in a series of decisions dealing with the claims of plaintiff stockholders for an attorneys’ fee based on improved consideration received in a merger after the stockholders filed suit. The argument is that the pendency of the suit contributed to upping the merger price. While the burden of proving there was no connection between the suit and the bump up is on the company, here that burden was met and the fee petition was denied.
Because the Delaware Supreme Court decides so few cases, it is not uncommon to believe it will jump at the chance to decide an issue it has not seen before. Two recent decisions from the court, however, highlight the important procedural limitations imposed by Supreme Court Rule 8 on the court’s ability to decide issues before it, even the novel or interesting ones. In both of these decisions, the Supreme Court declined to address unsettled questions of Delaware law because the appellant failed to raise the argument made on appeal to the Delaware Court of Chancery. More importantly, the Supreme Court also revealed that it looks at the “interests of justice” exception to Rule 8 more narrowly in a corporate or commercial case, making it more important that all of the relevant arguments are presented to the trial court or well planned on appeal. Continue Reading
This decision explains the rights of a dissenting stockholder who demands appraisal and then withdraws that demand. She is entitled to damages if she does not then receive the merger consideration.