Delaware Business Litigation Report

Delaware Business Litigation Report

Claims Challenging Stock Issuance Validity Subject to Stay

Posted in Articles
Manwaring (1)

Authored By Albert H. Manwaring, IV
This article was originally published in the Delaware Business Court Insider October 22, 2014

The 2013 amendments to the Delaware General Corporation Law (DGCL) added new Sections 204 and 205, which set forth self-help procedures for a corporation to ratify, and vest the Court of Chancery with jurisdiction to validate, defective corporate acts, including the invalid issuance of stock, that might otherwise be void or voidable due to noncompliance with the DGCL or a corporation’s organizational documents. These new sections were enacted in response and to overturn Delaware case law that held unauthorized corporate acts were void or voidable despite equitable considerations. (See, e.g., STAAR Surgical v. Waggoner, 588 A.2d 1130 (Del. 1991).) New Section 205 confers jurisdiction on the Court of Chancery to determine the validity of any corporate act or transaction, any stock, or right or option to acquire stock. Sections 204 and 205 became effective April 1. Continue Reading

Morris James Leads Delaware Today “Top Lawyers” Edition with 25 Recognitions

Posted in News

Morris James LLP is pleased to congratulate the lawyers listed below, who were most recommended by their professional peers in a survey of Delaware attorneys conducted by Delaware Today magazine. Morris James received more “top lawyer” peer recognitions and had more “top vote-getters” than any other law firm. Top vote-getters are listed in bold below and a number following a name indicates the number of recognitions this year. Continue Reading

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.