When does a board act in bad faith so as to not be entitled to exculpation under a corporate charter? As this decision explains, mere mistakes in complicated negotiations do not come close to supporting a bad faith claim.
This decision is another helpful explanation of what is required to meet Rule 23.1 requirements to plead a derivative case. Mere personal friendships or employment by a company that is a subsidiary of a company where the alleged controller is on the board are not enough to show a director is under the control of others. Indeed, merely being in management does not establish control over an entity because you must show control over its board.
On cross-motions for partial summary judgment, the Delaware Court of Chancery, in Knutkowski v. Cross, C.A. No. 4889-VCG (Oct. 13, 2014), found that certain payments due under a promissory note were barred by the applicable statute of limitations where the note called for repayment of the loan in installments, but did not include an acceleration clause. The plaintiff asserted various equitable and legal claims, and, with respect to the legal claim for recovery under the note, the court found that 6 Del. C. Section 3-118(a) barred the recovery of any payments that were due more than six years before the plaintiff initiated the action. As the note did not include an acceleration clause, the plaintiff was not in a position to accelerate the amounts due and seek a recovery of the full amount of the note. Continue Reading
Under the conspiracy theory of jurisdiction, a non-resident may still be subject to Delaware court jurisdiction if a co-conspirator commits an act in Delaware in furtherance of the conspiracy. While that is a simplified version of the law, this decision explains the theory in detail.
This is a virtual treatise on the implied covenant of good faith and fair dealing. As it points out, the covenant is a gap filler that is to be used rarely and is considered part of the contract. Hence, it does not require a showing of bad faith for it to be violated. Here the court dealt with the duties of an escrow agent.
The opinion is also very good at explaining what is required to find a tortious interference with a contract by the parent of a subsidiary. It is often wrongly thought that members of the same corporate family cannot be held liable for the breach of contract by another member of the family for a contract they did not sign. As this decision shows, that may not be so and a parent can be on the hook when it wrongly causes a subsidiary to breach its contract.
This decision has a good explanation of when a non-party to a contract may seek to enforce its terms as a third party beneficiary.
James Semple will be a moderator at the Lorman Legal Ethics in Delaware Live Seminar on December 11, 2014 in Wilmington, Delaware. Topics of the seminar include Conflicts of Interest, Confidentiality and Privilege, 2014 Ethics Opinions and Developments, Ethical Concerns in Litigation, and more.
The CLE seminar will take place at the DoubleTree Hotel in Wilmington. To register online, please click here.
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