Delaware Business Litigation Report

Delaware Business Litigation Report

Company Ordered to Produce Records Related to Subsidiaries

Posted in Articles
Hanson

Authored By Thomas E. Hanson, Jr.
This article was originally published in the Delaware Business Court Insider October 16, 2014

In Oklahoma Firefighters Pension & Retirement System v. Citigroup, C.A. No. 9587-ML (Del. Ch. Aug. 13, 2014), a stockholder sought books and records related to a company’s board of directors and senior management regarding certain public investigations of two of the company’s wholly owned subsidiaries. Citigroup Inc. argued that the stockholder failed to demonstrate a nexus between the subsidiaries’ wrongdoing and the board or senior management, and therefore failed to show a credible basis to infer possible mismanagement or wrongdoing. The master in chancery disagreed with the company’s argument and recommended the court find that the stockholder stated a proper purpose for the inspection. Continue Reading

Court Of Chancery Explains Affect Of Stockholder Vote In Non-Controlling Stockholder Case

Posted in M&A

In re KKR Financial Holdings LLC Shareholder Litigation, C.A. 9210-CB (October 14, 2014)

This important decision addresses two tricky questions of Delaware corporate law. First, it clarifies that the informed vote of a majority of the disinterested stockholders will invoke the business judgment rule when there is no controlling stockholder pushing the transaction.

Second, it makes it clear that stockholder approval may ratify director actions even when the stockholder vote is not required to implement that action.

The decision carefully reviews prior cases in reaching these conclusions and for that reason alone is worth a reading.

Court Of Chancery Allocates Fault In Breach Of Loyalty Case

Posted in Fiduciary Duty

In re Rural/Metro Corporation Stockholders Litigation, C.A. 6350-VCL (October 10, 2014)

In a precedent-setting opinion, the Court of Chancery has allocated damages among some directors and one of their advisers in a breach of fiduciary duty case. This decision has big implications on how breach of duty cases are tried in the Court of Chancery.

First, the Court held that a contribution claim by one defendant against other defendants requires joint liability, not just joint culpability. Hence, if some directors are exculpated by a Section 102(b)(7) clause, they cannot be held to contribute to a damages award even if they are negligent. Conversely, if they violated their duty of loyalty (a claim outside of 102(b)(7) protection), they may be held liable to contribute.

Second, the Court held that an unclean hands defense may also bar a contribution claim under the right circumstances.

While there are many other aspects of this decision that warrant close reading, it will affect most directly how defenses line up in cases going to trial.

Court Of Chancery Applies Limitations To Books And Records Case

Posted in Books and Records

Wolst v. Monster Beverage Corporation, C.A. 9154-VCN (October 3, 2014)

Normally a books and records case will not be dismissed on the basis that the claim sought to be investigated is subject to some affirmative defense. That defense is for another day if the claim is ever filed. However, when that claim is clearly subject to a limitations defense, then investigation of it may be too burdensome to permit, as was the case here. Note, however, that the underlying claim involved in this case had been investigated before and that influenced the decision.

Court Of Chancery Claim Of Oral Agreement

Posted in Breach of Contract

Black Horse Capital LP v. Xstelos Holdings, Inc., C.A. 8642-VCP (September 30, 2014)

This decision is yet another example of the difficulty in recovering under almost any legal theory, except breach of contract, when there is a detailed contract that was designed to exclude other oral agreements. Not only will claims of a side oral agreement be rejected, but so too will theories like unjust enrichment that are pled to get around the problem that the plaintiff is not satisfied with the deal made in the writing that the parties signed.

The Dilemma of the Unintended Fiduciary

Posted in Articles
McNally (1)

Authored By Edward M. McNally
This article was originally published in the Delaware Business Court Insider October 8, 2014

A recent Delaware decision highlights a trap for the unwary adviser to a business entity. The decision holds that helping a business get started may create fiduciary duties owed by the adviser, even if he or she is not acting in one of the roles that are normally thought of as creating such duties, such as serving as a lawyer or trustee. Because those fiduciary duties limit what the adviser may do for those other than his or her immediate client, it is important to recognize when those duties exist. Continue Reading

Court Of Chancery Upholds Creditor Derivative Claim

Posted in Derivative Claims

Quadrant Structured Products Company Ltd. v. Vertin, C.A. 6990-VCL (October 1, 2014)

This is an important decision because it outlines the rights of creditors of an insolvent corporation to file a derivative suit for breaches of fiduciary duty, it holds that the creditors do not need to meet the continuous ownership rule that limits which stockholders may file such suits, and it implies that the demand requirements of Rule 23.1 must be met by a creditor plaintiff.

Also interesting is the holding that director decisions that do not directly benefit them or their controller are subject to the business judgment rule, even in the context of an insolvent entity. Creditors had sought to impose a rule of law giving them a preference for their interests in such situations, but they did not get it here.

Supreme Court Stresses Literal Contract Interpretation

Posted in Breach of Contract, Uncategorized

ev3 Inc v. Lesh, No. 515, 2013 (Del. September 30, 2014)

Delaware law favors a strict interpretation of contract language. Here, the Supreme Court rejected an attempt to read into a contract provisions from a letter of intent signed before the final contract was executed. The final contract did not provide by its literal terms such an interpretation and the Supreme Court would not have any  of the plaintiff’s attempts to read it otherwise.

Court of Chancery Rejects Limits on Advancement Rights

Posted in Articles
Lazarus

Authored By Lewis Lazarus
This article was originally published in the Delaware Business Court Insider October 1, 2014

{Note the decision discussed in this article was certified to the Delaware Supreme Court on October 6, 2014.}

By statute and case law, Delaware has long protected the rights of officers and directors to advancement of fees and expenses incurred defending claims arising out of the officers and directors’ service. The public-policy rationale is that in the absence of such protection, qualified individuals would be reluctant to serve in management positions. Corporations whose documents are expansive in providing advancement, however, often are less generous when the time comes to advance company funds to someone the company believes has misused his or her position to the detriment of the company and its stakeholders. While a substantial body of case law has clarified many of the circumstances where directors and officers are entitled to advancement over the company’s objections, issues continue to arise that enable the court to provide fresh guidance. The recent case of Pontone v. Milso IndustriesC. A. No. 8842-VCP (Del. Ch. August 22, 2014), sheds light on the nature of claims entitled to advancement, whether a right to third-party advancement vitiates a director or officer’s entitlement to advancement from the corporation itself, and the type of counterclaims that are subject to advancement. Continue Reading