Delaware Business Litigation Report : Delaware Business Litigation Lawyer & Attorney : Morris James Law Firm : Delaware Business Litigation Report

E.I. du Pont de Nemours & Company v. Allstate Insurance, Co., C.A. No. 99C-12-253 JTV, 2006 WL 2338045 (Del. Super. Ct. July 31, 2006).

DuPont sued its excess insurance carriers for declaratory relief and damages in connection with a number of class-action lawsuits over the past 20 relating to polybutylene ("PB") piping. DuPont claimed that the defendant carriers were obligated under the terms of their respective policies to indemnify DuPont for liabilities arising from the sale of a product produced by DuPont and used by several other companies to make acetal fittings for polybutylene piping. As of this opinion, those liabilities totaled more than $235 million. Following discovery, the court granted DuPont's motion for summary judgment on several issues.

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Nutzz.com, LLC v. Vertrue Inc., C.A. No. 1231-N, 2006 WL 2220971 (Del. Ch. July 25, 2006).

The Court of Chancery has decided that some claims under a contract are subject to arbitration, but a claim for injunctive relief is not arbitable and may proceed in court. Such a "split decision" was the result of a carve out for injunction claims in the arbitration provision in the parties' contract. Accordingly, the Court had to decide the effect of the carve out while at the same time holding that other claims arising out of the contract dispute would go to arbitration.

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Daystar Construction Management, Inc. v. Mitchell, CA No. 04C-05-175-JRS, 2006 WL 2053649 (Del. Super. Ct. July 12, 2006).

This decision upholds for the first time the defense to a contract claim that the plaintiff has acted in bad faith in the performance of the contract. It has long been recognized that all contracts include the obligation to act in good faith and to deal fairly. Exactly what that means is more difficult to state. In what it characterized as a case of first impression, this decision holds that the so-called covenant of fair dealing may be raised as a defense in a breach of contract case. Because this is an affirmative defense, the lack of fair dealing must be proved by the defendant.

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AIG Retirement Services, Inc. v. Barbizet, C.A. No. 974-N, 2006 WL 1980337 (Del. Ch. July 11, 2006).

Business relationships between directors may sometimes make them unqualified to pass upon demands their company sue their fellow directors. This is such a case where the board members derived substantial benefits from their relationships with the potential target of litigation the plaintiff demanded be brought. Under those circumstances, the futility of making a demand under Rule 23.1 was easily established.

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Zeleny v. Thompson Homes At Centreville, Inc. C.A. No. 05-12-224 SCD (Del. Super. Ct. July 10, 2006).

Buyers of a newly constructed home sued the builder for breach of contract, breach of warranty, and negligence arising out of water leaks and other defects in their home. The court granted defendant's motion to dismiss on the ground that the parties' contract required the dispute to be submitted to binding arbitration.

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Save the Date!

On Thursday, October 5, 2006, the Delaware State Bar Association will be presenting a program entitled "Good Faith After Disney: Fiduciary, Contract, Agency, Statutory and Trust Law in Delaware Business Entities". The program will be held at the Chase Center on the Riverfront, 800 S. Madison St., Wilmington, DE.

Attendees will receive 6.0 hours CLE credit.

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Highland Select Equity Fund, L.P. v. Motient Corp., C.A. No. 2092-N, 2006 WL 1903129 (Del. Ch. July 6, 2006).

In this case, the Court of Chancery dismissed a demand to inspect the records of a Delaware corporation because the demand for inspection was abusive. A demand to inspect corporate records must be based on a good reason and when the request is to inspect allegations of wrongdoing, those allegations must have some basis. While the Court here felt that part of the test for inspection had been met, the way the plaintiff went about its request cost it the litigation.

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Abraham v. Emerson Radio Corp. C.A. No. 1845-N, 2006 WL 1879205 (Del. Ch. July 5, 2006).

This decision makes it clear that a controlling stockholder may sell control without fear of liability for the actions of the buyer after the transaction closes, with few exceptions. While it has long been the rule that a stockholder may deal with its shares as it sees fit, case law recognized that a controlling stockholder has a fiduciary duty to its company and the minority owners by virtue of the controller's ability to control what the company does. How that duty applied in the sale of control context is the question addressed in this case.

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