Posted on August 27, 2010 by Edward M. McNally
Lambrecht v. O'Neal, Del Supr., C.A. 135, 2010 (August 27, 2010)
This decision sets out the standing requirement for a double derivative suit following a merger. In a stock-for stock merger, stockholders of the acquired company lose their stock in that company in return for stock in the new parent company who, in turn, becomes the sole stockholder of the company acquired in the deal. A derivative suit by the former stockholder of the acquired company is then a "double derivative" suit because it really is on behalf of the new parent company for damages done to its subsidiary. May the stockholder bring such a suit considering he is no longer a stockholder of the subsidiary?
The Delaware Supreme Court says he may do so long as he continues to hold stock in the parent company.
Posted on August 27, 2010 by Edward M. McNally
O'Brien v. IAC/Interactive Corp. , C.A. 3892-VCP (August 27, 2010)
This is an interesting decision because, perhaps for the first time, the Court explicitly orders payment of a contingent fee in an indemnification case. The fee in question involved a bonus for success in the underlying arbitration proceedings. As the Court held, if the fee is due and is reasonable, it should be paid.
Posted on August 23, 2010 by Edward M. McNally
Ruffalo v. TransTech Service Partners Inc., C.A. 5039-VCP (August 23, 2010)
This decision addresses the rights of investors in a so-called "blank check company" where a pool of money is raised to invest in some to-be determined business. Not surprisingly, the investors' rights are determined by what the certificate of incorporation provides. That may not be an easy matter to determine, as such "contracts' are, as here, complicated and not always clear.
Posted on August 20, 2010 by Edward M. McNally
Dubroff v. Wren Holdings LLC, C.A. 3940-VCN (August 20, 2010)
This decision clarifies when a class action may be brought arising out of a claim based on the duty of disclosure. Briefly, when there was no request for the stockholders to vote [such as when they just receive notice of a completed corporate action], then a plaintiff must prove "reliance, loss causation and damages." As those elements of the claim may vary for each individual plaintiff, a class action is inappropriate. Delaware does not recognize the "fraud on the market" theory in those instances.
Posted on August 16, 2010 by Edward M. McNally
Grayson v. Imagination Station Inc., C.A. 5051-CC (August 16, 2010)
Determining if a claim is direct or derivative is often difficult. Here the Court explains that a claim asserting the directors are acting outside their authority in violation of the relationship set out in Section 141 of the Corporation Code is direct. The facts of this case are unusual as it involves a stockholder agreement whose apparent violation is at the center of the decision.
Posted on August 13, 2010 by Edward M. McNally
Aveta Inc. v. Bengoa, C.A. 3598-VCL (August 13, 2010)
This is an interesting decision for its explanation of the criteria the Court will consider in reviewing a fee application. The Court held that when the fee award is under the terms of a contract, then the primary criteria is to make the applicant whole for the fees it paid. Of course, the fees must still be reasonable.
Posted on August 12, 2010 by Edward M. McNally
Yucaipa American Alliance Fund II, L.P. v. Riggio, C.A. 5465-VCS (August 12, 2010)
In this important decision, the Court of Chancery explains the limits on what may be included in a poison pill. Briefly, the pill must not preclude a successful proxy contest. This may mean that a pill that is triggered by a very low threshold is invalid. However, a pill that does preclude joint proxy solicitations seems permissible. In any event, the Unocal test will be applied.
The Court's very careful analysis is well worth studying. For as it makes clear, the process used to adopt the pill is important with, as usual, the role of independent directors being critical. The effect of the pill under the particular circumstances is also important and while the Court does seem willing to accept the judgment of the Board when the process is sound, the facts will be reviewed in a sort of balancing test to see if a proxy contest is precluded by the pill.
Posted on August 9, 2010 by Edward M. McNally
Phillips v. Firehouse Gallery LLC, C.A. 3644-VCL (August 9, 2010)
To its credit, the Court of Chancery has recently reminded attorneys of their obligations to cooperate in litigation. Here it levied a $5,000 fee to be paid personally by a lawyer who failed to carry out that responsibility.
Posted on July 30, 2010 by Edward M. McNally
Baker v. Impact Holding Inc., C.A. 5144-VCP (July 30, 2010)
When may a former director obtain advancement of his attorney fees when he files suit? A series of past decisions held that a counterclaim plaintiff may, in the right circumstances, obtain advancement for prosecuting his counterclaim and other decisions have upheld advancement for a plaintiff under a bylaw or other right that was broadly drafted to require such advancement.
However, when the bylaw or other contractual provision requires advancement for litigation "in defense" of a claim, this decision holds a plainitff may not obtain advancement for bringing suit on his behalf.
Posted on July 26, 2010 by Edward M. McNally
Shandler v. DLJ Merchant Banking Inc., C.A. 4797-VCS (July 26, 2010)
This decision is interesting for its discussion of the role of an appointee of the bankruptcy court and the pursuit of post-bankruptcy derivative claims.
Posted on July 23, 2010 by Edward M. McNally
Related Westpac LLC v. JER Snowmass LLC, C.A. 5001-VCS (July 23, 2010)
For some reason probably rooted in human nature, parties to LLC agreements seem to think the agreement should provide that all the parties act "fairly" toward one another. Of course, each party then defines what is "fair" by what they want to get out of the deal. However, as this decision points out, when an agreement provides that a party has the discretion whether to advance additional funds or not, that is its choice to make. Whether the choice is "fair" or not is irrelevant and the other parties to the agreement have no basis to complain about that decision.
Posted on July 23, 2010 by Edward M. McNally
Massachusetts Mutual Life Insurance Company v Certain Underwriters At Lloyds , C.A. 4791-VCL (July 23, 2010)
This decision holds that insurance in the form of an indemnity bond or a D&O policy may cover losses suffered as a result of the Madoff fraud. The application of a bond to such claims may surprise some as Madoff was not an employee whose dishonesty was the cause of the loss. However, as the Court notes, the bond at issue was written very broadly and may well cover dishonesty of such third persons.
Posted on July 23, 2010 by Edward M. McNally
TR Investors LLC v. Genger, C.A. 3994-VCS (July 23, 2010)
Stockholder agreements frequently provide that notice must be given before any stock subject to the agreement may be transferred. Usually, the notice triggers a right to buy. Here the Court, as expected, held that the failure to give the notice does not end the other party's right to buy, but the stock and informal notice is not good enough to comply with the formality required by the agreement.
Posted on July 12, 2010 by Edward M. McNally
Hampshire Group Limited v. Kuttner, C.A. 3607-VCS (July 12, 2010)
This decision holds that the Unifrom Contribution Among Joint Tortfeasors Act applies to claims against directors. While at least 1 other court agreed with this point, this is the first Delaware decision on this issue.
This is important becaue it has serious implications to settlements with some but not all directors in derivative and class claims and as it may give leverage to former directors who are now on the outs.
Posted on July 5, 2010 by Edward M. McNally
In Re CNX Corporation Shareholders Litigation, C.A. 5377-VCL (July 5, 2010)
Perhaps no area of Delaware corporate law is as confusing as that applicable when a company is taken private by a majority owner in a freeze out of the other shareholders. This scholarly opinion explains that at least 3 different standards of review have been applied by the Court of Chancery in its review of such transactions. As a result, the Court has certifiied its latest decision for appeal to the Delaware Supreme Court with a request that the law be clarified.
Until that clarification is issued, however, this is the definitive analysis of Delaware law in this area and deserves to be read, carefully.
Posted on June 23, 2010 by Edward M. McNally
Berger v Pubco Corp. ,C.A. 3414-CC (June 23, 2010)
This decision awards 26% of a large recovery to the prevailing attorneys. If you are successful, then you will be well rewarded, just as it should be.
Posted on June 17, 2010 by Edward M. McNally
Cambridge North Point LLC v. Boston & Maine Corporation, C.A. 3461-VCS (June 17, 2010)
This is another example of the Court of Chancery enforcing the contract the parties wrote despite one party's second thoughts. Saying that you did not read it does not help either.
Posted on June 7, 2010 by Edward M. McNally
Monroe County Employees' Retirement System v. Carlson, C.A. 4587-CC (June 7, 2010)
Because "self dealing" sounds so bad, sometimes a plaintiff thinks that all she needs to do is say those words in a complaint to state a claim. Not so. As this decision points out, self dealing may still be fair if the price is right. Hence, to state a claim a complaint must state facts that show the deal was not fair.
Posted on June 3, 2010 by Edward M. McNally
Baca v. Insight Enterprises. Inc., C.A. 5105-VCL (June 3, 2010)
Just as it did last month in the King case, the Court of Chancery has again dismissed a complaint for inspection of a company's books and records when that complaint was filed after a derivative suit was filed and is an effort to find a a basis to sustain the derivative case.
Posted on June 3, 2010 by Edward M. McNally
Monier Inc. v. Boral Lifetile, Inc., C.A. 3117-VCN (June 3, 2010)
When there is a failure to produce a relevant document in discovery, the Court must decide what sanction to impose. Here the Court declined to dismiss a case but awarded fees for the discoverey failure of a party. The balancing of the failure and the penalty is interesting.
Posted on May 31, 2010 by Edward M. McNally
3Com Corporation v. Diamond II Holdings Inc., C.A. 3933-VCN ( May 31, 2010)
Delaware law governs privilege disputes in most cases in Delaware courts before it involves Delaware business disputes. This is an important point as Delaware law is more liberal than some states' law in upholding claims of privileged communication.
Posted on May 28, 2010 by Edward M. McNally
Gentile v. Rossette, C.A. 20213-VCN (May 28, 2010)
The calculation of damages for the wrongful conversion of convertible stock is not easy. This decision explains how.
Posted on May 28, 2010 by Edward M. McNally
Fletcher International LTD v. ION Geophysical Corp., C.A. 5109-VCP (May 28, 2010)
Preferred stockholders like to claim, in addition to the rights they have to be "preferred" under the certificate of incorporation, that they also have the right to enforce fiduciary duties to them by the board. Not so as this decision explains. When the preferred stock's "contract" touches on a topic, such as the right to share in merger consideration, then that defines their rights and they cannot resort to fiduciary duty law to expand those rights.
Posted on May 25, 2010 by Edward M. McNally
In Re CNX Gas Corporation Shareholders Litigation, C.A. 5377-VCL (May 25, 2010)
This is an important decision explaining the standard of review that the Court will apply in various circumstances involving a tender offer by a majority stockholder that is to be followed by a cash out merger. Briefly, if the minority stockholders are effectively represented by a special committee with real bargaining power and the merger is subject to approval by disinterested stockholders, then the business judgment rule will apply and not entire fairness review.
Sometimes it is difficult to understand the Delaware corporate law. The law is constantly evolving. The evolution is often through long, closely reasoned opinions and there are a lot of those opinions to digest. This decision then is particularly helpful in doing the work of consolidating the past decisions into one unified approach.
It is also an interesting example of the depth of research and thinking that goes into the decisions of the Court of Chancery. Actually, it is a little scary because it is hard to believe that we practitioners can ever get ahead of the Court .
Posted on May 24, 2010 by Edward M. McNally
Brown Investment Management L.P. v. Parkcentral Global L.P., C.A. 5248-VCL (May 24, 2010)
A member of a LLC or LP has the right to a list of its members even after it has gone bust.
Posted on May 21, 2010 by Edward M. McNally
Arkansas Teacher Retirement System v. Caiafa, C.A. 530, 2009 (May 21, 2010)
This is the odd case whose dicta may be more important than we now appreciate. It has long been Delaware law that a plainitff loses standing to pursue a derivative case when he is ceases to be a stockholder after a merger. The exception is when the merger is done solely to deprive the stockholders of standing to sue.
Here the Court seems to be saying that when a merger is the only way out for a corporation that has been devastated by wrongful conduct, the former stockholders may have a claim for damages even after they cease to be stockholders. If so, that is new law and this bears watching.
Posted on May 21, 2010 by Edward M. McNally
Aris Multi-Strategy Fund L.P v. Southridge Partners LP, C.A. 5422-CC (May 21, 2010)
It is sometimes believed that remedies such as the right to inspect a company's records are not subject to an arbitration clause. Wrong. This decisions upholds arbitration of such claims in a variety of contexts.
Posted on May 14, 2010 by Edward M. McNally
Arkema v The Dow Chemical Company, C.A. 5479-VCP ( May 14, 2010)
When the economy is in stress, contracts to supply materials at a fixed price seem to be broken more often. This decision explains what you have to show to get a TRO against the breaking of such a contract by the supplier. In short, it is not easy but can be done when the ability to "cover" is not available.
Posted on May 14, 2010 by Edward M. McNally
Concord Real Estate CDO 2006-1 Ltd v. Bank of America N.A., C.A. 5219-VCL (May 14, 2010)
This is an intesting case even though it deals with how to interpret a complicated indenture. As the Court explains, it will look to the commentary to the Model Debenture Indenture for guidance. The reason is that there is a need for uniform interpretation of such documents. It does not follow, necessarily, that the Court will accept "expert" testimony on what other contracts are supposed to mean.
Posted on May 13, 2010 by Edward M. McNally
Maric Capital Master Fund, Ltd v. Plato Learning Inc., C.A. 5402-VCS (May 13, 2010)
It is important to note what sort of disclosure violations will casue an injunction to issue. This decision provides guidance on that issue by enjoining a merger until there are corrective disclosures over the discount rate used by the investment banker to give a fariness opinion, the projections of future income and the retention of management.
Posted on May 12, 2010 by Edward M. McNally
King v. Verifone Holdings Inc. , C.A. 5047-VCS (May 12, 2010)
This is another important decision in the Court of Chancery's continuing effort to curb what it sees as abuses in derivative litigation. Here the Court ruled that a plaintiff may not file a books and records case to obtain discovery after it filled a derivaive suit. Rather, the books and records case must be filed before the derivative suit is filed.
The Court also indicated that it may not select as lead counsel the attorney for the party who files first, as it has often done in the past. This shows the Court is focusing on the merits of a complaint more than the speed with which it is filed.
Posted on May 10, 2010 by Edward M. McNally
Berger v. Pubco Corp., C.A. 3414-CC (May 10, 2010)
This decision explains 2 points of appraisal law. First, when the discounted cash flow approach is used to value a company, no control premium is added to the result. That sort of premium is only used when the valuation is based on comparable market prices or "comps" that reflect the minority discount inherent in the price of a small block of stock.
Second, at least in this case, there is no deduction for the capital gain tax due on the sale of assets by a holding company. Instead, those assets are valued on a pre-tax basis.
Posted on May 6, 2010 by Edward M. McNally
In Re Cox Radio Shareholders Litigation, C.A. No. 4461-VCP (May 6, 2010)
The standard of review that a court applies to a transaction may determine the outcome of the litigation in a close case. Here the Court explains that entire fairness does not govern the review of a noncoercive tender offer by a controlling shareholder. This continues the trend away from applying the test of Kahn v. Lynch that is now restricted to mergers involving a controlling shareholder. This decision also explains when a tender offer is deemed not to be coercive.
Posted on May 5, 2010 by Edward M. McNally
MCG Capital Corporation v. Maginn, C.A. 4521-CC (May 5, 2010)
This decision addresses the prevously unanswered question of whether preferred stockholders may bring a derivative suit. They can. While to some this may seem obvious, the answer was by no means all that certain. In recent years the Delaware courts have consistently cut back on the rights of preferred stockholders and creditors to allege fiduciary duty claims. Now warrant holders and creditors may not sue derivatively [except when the entity is insolvent]. Hence, the right of preferred stockholders to do so was at least questionable.
This decision is also an excellent collection of the law on what claims preferred stockholders may bring, particularly on the limits to assert breach of fiduciary duty claims.
Posted on April 29, 2010 by Edward M. McNally
Delaware's Superior Court has joined the ranks of courts in other states by creating a "business court" for commercial disputes between companies. The new "court" is technically a division within the existing Delaware Superior Court and has major advantages for resolving business disputes. Among those are:
1. Three very experienced judges have been assigned to cases filed in the new divisions and will stay with those cases until they are completed.
2. Each case will be subject to a tight case management order designed to control litigation expenses and keep the litigation moving to completion.
3. Discovery of electronically stored data will be subject to special "e-discovery' orders that will limit expense and avoid disputes.
4. Protocols are to be adopted for each case to control expert witness discovery and the recovery of inadvertently produced privileged information.
The creation of this new division followed an extensive review of business courts through out the United States by a Special Committee and adopts the best procedures of those other courts. The Delaware Superior Court and the Delaware Court of Chancery have been consistently voted the best courts for business disputes in the United States. For more details, see the Administrative Directive establishing the new division and the Special Committee's report.
Posted on April 29, 2010 by Edward M. McNally
Binks v. DSL.net Inc., C.A. 2823-VCN (April 29, 2010)
In this unusual case filed by a pro se litigant, the Court extended Revlon duties to when a company issues convertible notes that will change control of the company upon conversion. This is consistent with past indications in other decisions.
Posted on April 23, 2010 by Edward M. McNally
Beard Research Inc. v Kates, C.A. 1316-VCP (April 23, 2010)
This is an excellant primer on how to litigate a business tort case arising out of an employee's stealing all your confidential information and using it to lure away your customers to his new firm. It also includes a good outline on how to prove damages. What we found particularly interesting is the interplay between a trade secret claim and a claim for breach of fiduciary duty. You can have both in one case. Of course, the elements of proof vary but together these prove an efficient way to maximize a recovery.
Posted on April 23, 2010 by Edward M. McNally
Ashall Homes Limited v. ROK Entertainment Group Inc., C.A. 4643-VCS (April 23, 2010)
This decision is interesting because it upholds a forum selection clause requiring litigation in England. How these parties could have not chosen Delaware seems unbeliveable.
The opinion also applied the forum selection not just to disputes that were based on the parties' contract, but also to tort claims that arose out of the same facts. In short, you cannot plead around the forum you chose.
Posted on April 23, 2010 by Edward M. McNally
Global GT LP v. Golden Telecom Inc., C.A. 3698 (April 23, 2010)
This is an interesting appraisal decision for 2 reasons. First, the Court declined to use the price set in the market as a strong indicator of value notwithstanding recent decisions in Delaware that had been inclined to do so. The Court was not satisfied that in the case of this company with its dominant stockholders announcing that they would only support the deal on the table that there was a real market check.
Second, the Court's analysis of how to do a discounted cash flow valuation again illustrates its preference for expert opinion based on a knowledge of the industry involved.
Posted on April 21, 2010 by Edward M. McNally
M&G Polymers USA LLC v. Carestream Health Inc., C.A. 07C-11-242 PLA (Del. Super., April 21, 2010)
In this 193 page opinion, the Court imposed a large fee award for the failure to disclose important documents during discovery. The decision is a useful collection of authority on the parties' discovery obligations and the Court's powers to penalize offenders.
Posted on April 21, 2010 by Edward M. McNally
Crown EMAK Partners LLC v. Kurz, C.A. 64, 2010 (Del. April 21, 2010)
This important decision focuses on the increasingly controversial issue of vote buying in stockholder elections. In general, vote buying occurs when a party acquires the right to vote stock it does not have legal title to or hold the beneficial interest in that stock. It just buys the right to vote the stock. On the other hand, when the buyer acquires the economic interests represented by the stock along with the right to vote it, that is not vote buying even if he does not then acquire legal title to the stock. The distinction may be critical as votes acquired by vote buying are invalid.
Exactly how this will play out is not clear. For example, if the buyer obtains the right to vote and all appreciation in the value of the stock, but not title, that seems to satisfy the test and is not vote buying. That is so even if he never has title transfererd to him or, possibly, even if all the buyer's rights revert to the seller a moment after a stockholder election. We shall see.
Posted on April 20, 2010 by Edward M. McNally
Lisa, S.A. v. Mayorga, C.A. 410, 2009 (Del. April 20, 2010)
This decision clarifies the effect of where an action is first filed. When the case is filed first in Delaware, a Delaware court may only dismiss it on the grounds the forum is inconvenient when the defendant can show it will be an "overwhelming hardship" to litigate it in Delaware.
On the other hand, when an action is first filed in a forum other than Delaware, the general rule is to defer to the other jurisdiction and stay or dismiss the second suit filed in Delaware. While there are numerous exceptions to this general rule, the burden is much less to have the case dismissed.
Posted on April 15, 2010 by Edward M. McNally
Coughlan v. NXP B.V. , C.A. 5110-CC (April 15, 2010)
When a payout in an M&A deal is dependent on post closing events, somehow the former stockholders must be represented if there are to be any adjustments. Appointment of a stockholder representative is often done for that purpose. Here the Court held that the stockholder representative may also sue to enforce the rights of a class of stockholders to such payments.
Posted on April 12, 2010 by P. Clarkson Collins Jr.
Pfeiffer v. Toll, C.A. 4140-VCL (March 3, 2010)
Vice Chancellor Laster recently affirmed the continuing vitality of state law “Brophy” claims for Delaware corporations injured by their fiduciaries’ insider trading. In so ruling, the Court clarified the elements of a Brophy claim, explained why the claim is firmly grounded in the duty of loyalty applicable to Delaware fiduciaries and discussed why such claims complement and do not conflict with the federal securities law regime. Less clear and undecided by the decision are the elements of damage the corporation might recover.
The Toll Brothers decision arose in the context of a motion to dismiss a shareholder derivative complaint brought for the benefit of Toll Brothers Inc. against eight of the eleven directors of the corporation. The complaint alleged they sold significant amounts of their Toll Brothers stock during the period from December 2004 through September 2005. The complaint further alleged that they did so while in possession of material nonpublic information about Toll Brothers’ future prospects that contradicted the Company’s upbeat disclosures about its business prospects and expected growth and earnings. When the Company in December 2005 suddenly revised its public growth forecast for 2006 net income downward from 20% to 0.5%, its stock price precipitously dropped.
A federal securities lawsuit followed joining the individual defendants and alleging they made material misrepresentations and omissions of material fact in connection with projections for 2006 and 2007 that were “knowingly unreasonable” when made. The federal action also alleged insider trading in violations of Section 10(b)(5). The federal court upheld the securities claims against a motion to dismiss under the rigorous standards for pleading securities fraud and the case moved to merits discovery.
The Delaware derivative action followed in November 2008. The Delaware complaint had two counts. The first alleged breach of fiduciary duty under Brophy v. Cities Service, 70 A.2d 5 (Del. Ch. 1949) for harm caused by insider trading. The second count was a generalized claim for indemnification and contribution for harm to the Company resulting from the federal securities fraud action. The director defendants moved to dismiss both counts on various grounds including that Brophy is an outdated precedent that should be rejected.
The Court rejected all of the defendants’ arguments challenging the Brophy claim. The Court first stated the elements of claim: “1) the corporate fiduciary possessed material, nonpublic company information; and 2) the corporate fiduciary used that information improperly by making trades because he was motivated, in whole or in part, by the substance of that information.”
The Court found that the complaint sufficiently pled a reasonable basis from which the fiduciaries’ knowledge could be inferred. The inference was based on specific allegations of the defendants’ knowledge and reliance on core metrics the Company used to measure and forecast growth and earnings, the contrast between the defendants’ public statements and the underlying trends indicated by the Company’s metrics, and the defendants’ contemporaneous massive sale of securities. The Court ruled the allegations supported a pleading stage inference that the Sellers took advantage of confidential corporate information not yet available to the public to unload significant blocks of shares before the market’s views of Toll Brother’s prospects dramatically changed. The Court contrasted this case from those cases dismissed at the pleading stage where evidence of accounting improprieties were disclosed in a subsequent restatement and senior officers and directors sold stock during the period covered by the restatement. Those cases the Court noted lacked allegations supporting an inference that the fiduciaries would have known of the particular accounting problems, in contrast to the core operational information involved in the Toll Brothers case.
The Court also addressed and rejected the assertion that Brophy was an anachronism that predated the current federal insider trading regime and should no longer be followed. Brophy involved a corporate secretary who knew of Cities Service’s planned open market purchases that would likely boost its stock price. The fiduciary bought for his personal account in advance of the corporate purchase and later sold the shares at a profit after the market price rose. Rejecting the argument that the corporation suffered no harm, the Brophy Court said “Public policy will not permit an employee occupying a position of trust and confidence toward his employer to abuse that relation to his own profit, regardless of whether his employer suffers a loss.”
Vice Chancellor Laster in the Toll case explains why the Brophy claim does not duplicate the federal securities laws and does provide a meaningful remedy for corporate harm. First, a Brophy claim does not exist to recover losses by contemporaneous traders, nor does it automatically require disgorgement of reciprocal insider trading gains; rather it is to remedy harm to the corporation. Pointing to Delaware Supreme Court precedent rejecting claims of breach of fiduciary duty or fraud as a basis for the class-wide recovery of trading losses, the Court agreed with Vice Chancellor Strine in his recent AIG opinion upholding a Brophy claim that it is harm to the corporation that is of primary concern. Vice Chancellor Laster wrote that harm in the case of insider trading might include the costs and expense the corporation incurred for regulatory proceedings involving the insider trading, internal investigations, fees paid to counsel and other professionals, fines paid to regulators and judgments in litigation. In this case and the recent AIG case, both of which involved companion securities law litigation naming the corporation a defendant, the Court noted that the defendants’ breaches of the duty of loyalty, involving trading on confidential information and material misrepresentations and omissions, may subject the corporation to a substantial judgment or settlement in the federal securities action.
The Court left to another day the precise type of damages or remedy that would be available if plaintiff proved its case. It noted, however, that Delaware remedies to protect the corporation and non-duplicative of the federal remedies that might be granted, were necessary and available to remedy breaches of the fiduciary duty of loyalty based on insider trading. Avoiding damages duplicative of the federal securities laws and satisfying public policy concerns regarding indemnification for securities fraud violations remain significant issues in fashioning a damage award for successful derivative plaintiffs. See e.g., Richard A. Booth, The Missing Link Between Insider Trading and Securities Fraud, 2 J. Bus. & Tech. L. 185-206 (2007).
The Court’s opinion also dealt quickly with defendants’ arguments that the derivative complaint failed to plead demand futility adequately under Rule 23.1 and was barred by the statute of limitations. Using the Rales standard, the Court concluded that demand was excused because a majority of the Board could not consider the merits of a demand without being influenced by improper considerations. Because of the potential personal liability a majority of the directors faced in the federal securities action, they faced a sufficiently substantial threat of personal liability to compromise their ability to act impartially on a demand.
As to the statute of limitations, the Court acknowledged that the complaint was filed more than 3 years after the alleged insider trading, but it found the pleading supported a basis for equitable tolling. Because the complaint alleged wrongful self-dealing and shareholders’ reasonable reliance on the competence and good faith of the director fiduciaries until December 2005 when management officially abandoned its previous growth projections, the Court ruled the running of the limitations period was equitably tolled until then.
Finally, the Court acknowledged the tension between allowing the concurrent prosecution of the shareholder derivative action for the benefit of the corporation at the same time the corporation seeks to defend itself from liability in the federal securities action. Not wanting to have the derivative action burden the corporation’s ability to defend itself in the securities action, the Court urged the parties to coordinate the actions and acknowledged the possibility of a stay of the derivative action pending the outcome of the securities action as was done in the AIG case.
Posted on April 6, 2010 by Edward M. McNally
Nemec v. Shrader , C.A. 305, 2009 (April 4, 2010)
In a rare split amongst the Justices, the Delaware Supreme Court has divided over when the duty of good faith and fair dealing applies. The majority opinion is an example of the views of Chief Justice Steele who is noted for his stance that a contract should be held to fix the parties' rights and there is little room to add to those rights under the so-called duty to act in good faith and with fair dealing. If the circumstances that the plaintiff complains of might have been anticipated when the contract was drafted, it is too bad if the contract does not give the plaintiff what he now wants.
The two Justices in the minority, Justices Jacobs and Berger, are not so sure they want to rely entirely on what the parties put into their contract to define their rights in all circumstances. They are more inclined to expand a party's rights when they feel the other side has acted in a way that would not have been agreed to had they thought about it beforehand.
For now at least, the strict upholding of the contracts limits has won the day.
Posted on March 24, 2010 by Edward M. McNally
Fletcher International Inc. v. ION Geophysical Corp., C.A. 5109-VCP (March 24, 2010)
When a provision in a certificate of incorporation is violated, the question that often arises is what is the remedy. Often the Court will enjoin the violation, but not always. Here the preferred stock had approval rights for certain corporate transactions. Those rights were violated. Finding that an injunction would cause more harm than was merited, the Court denied the injunction and remitted a damages remedy to the plaintiff.
Posted on March 11, 2010 by Edward M. McNally
London v Tyrrell, C.A. 3321-CC (March 11, 2010)
When should the recommendations of a SLC to not pursue a derivative suit be accepted? As this opinion points out, certainly not when the defendants appoint their relative to the SCL and those that are indebted to them. Nor will the SCL be respected when its members approach their investigation with views fixed before their investigation was performed and when their non-Delaware counsel does not understand Delaware law.
This decision summarizes the Zapata principles for examining the report of a SLC, including a good summary of prior case law. Apart from the basic rules it sets down on burden of proof, independence and the scope of any SLC investigation [all of which alone are worth reading], the decision's analysis of the internal logic of the SLC report is critical. Put simply, the Court wants the report to make sense under an objective review and when it does not, trouble will follow.
Posted on March 8, 2010 by Edward M. McNally
LC Capital Master Fund, Ltd. v. James, C.A. 5214-VCS (March 8, 2010)
Lately, there seems to be a lot of interest in the rights of preferred stock compared to the rights of common stock and how the board of directors should act when caught in the middle of their conflicting claims. This decision summarizes the past decisions and explains what to do.
Here are some "rules" to go by:
1. When the certificate of incorporation speaks to the preferred stock's rights on an issue, that controls and the board does not need to consider granting greater rights to the preferred. The charter ends the discussion.
2. When the certificate of incorporation is silent on an issue and leaves the preferred in the same position as the common [such as on the right to get the highest price for the company in a merger] then the board needs to consider the preferred and common as having the same rights and owed the same fiduciary duty.
3. When the issue somehow falls in a gap between the preferreds rights under the certificate of incorporation and the rights of the common stock, get a good lawyer. Seriously, the board needs to do its best to strike a fair balance under the circumstances.
Posted on March 8, 2010 by Katherine J. Neikirk
In re Revlon, Inc. Shareholders Litigation, Consol. C.A. No. 4578-VCL (March 16, 2010)
Vice Chancellor Laster took the unusual step of removing and replacing co-lead counsel and Delaware liaison counsel in a proposed settlement of a class action challenging a proposed merger by a controlling stockholder and a subsequent exchange offer by the target company. Despite the refusal of the Special Committee's financial advisor to render a fairness opinion on the proposed merger and the refusal of the Special Committee to recommend the original transaction, plaintiffs' counsel engaged in minimal litigation efforts and quickly reached a settlement with the defendants. Vice Chancellor Laster was highly critical of the actions of the New York and Delaware firms representing the class and proposing the settlement. Among other things, Vice Chancellor Laster noted the New York and Delaware law firms' extensive history of filing and settling representative cases in the Court of Chancery, the existence of significant discrepancies between the plaintiff counsel's actions as set forth in the memorandum of understanding and the exchange offer, the strong possibility of the entire fairness standard applying to the exchange offer, the failure of the exchange offer to receive a majority of the minority shares and the lack of litigation by the plaintiffs' counsel. Although the new counsel had only sought to represent stockholders who exchanged their shares in the exchange offer, Vice Chancellor Laster appointed that counsel to represent the entire class and take over the litigation. Interestingly, Vice Chancellor Laster rejected the leadership structure proposed by new counsel, which would have consisted of two non-Delaware firms known for performing the same type of work as former counsel as lead counsel and a Delaware firm less known for performing similar work as Delaware liaison counsel. Instead, Vice Chancellor Laster appointed the Delaware firm to act as lead counsel along with the non-Delaware firms and gave the Delaware firm decision-making authority in the event of disagreements.
Plaintiffs' counsel and defense counsel should pay close attention to this decision in negotiating settlements, drafting disclosures related to such settlements and defending such settlements in the Court of Chancery. This decision could also encourage law firms not traditionally associated with frequent representative litigation in the Court of Chancery to bring such actions and seek appointment as lead counsel.
Posted on March 5, 2010 by Edward M. McNally
Thor Merritt Square LLC v. Bayview Malls LLC, C.A. 4480-VCP (March 5, 2010)
On occasion, the members of an LLC try to end its life by filing a certificate of cancellation with the Delaware Secretary of State. This is done in the hope that it will provide a defense to suits over the LLC's obligations. Well, that does not work. As this decision explains, a creditor may then file a claim to nullify the certificate of cancellation and to seek a receiver.
Posted on February 26, 2010 by Edward M. McNally
Selectica Inc. v. Versata Enterprises, Inc., C.A. 4241-VCN ( February 26, 2010)
In a case with an unusual factual setting, the Court of Chancery has upheld a poison pill with a 5% trigger. The very low trigger is explained by the need to protect a NOL that might be adversely affected by the acquisition of 5% of a company's stock.
In its discussion of the Unocal standard of review that applies to defensive measures, the Court applied a very differential approach to the board's decisions. Arguably, that is not the higher standard of review that had been suggested by Moran as applicable to the adoption of a poison pill.
This decision illustrates the Court's limited role in reviewing board's decisions that are not affected by any conflict of interest on the part of directors. Briefly, unless there is a duty of loyalty issue involved, directors just will not be second guessed in Delaware.
Posted on February 25, 2010 by Edward M. McNally
RBC Capital Markets Corp. v. Thomas Weisel Partners LLC, C.A. 4709-VCN (February 25, 2010)
Many decisions discuss when arbitration is required by an agreement. This one deals with the rarer problem of what claims may be presented to arbitrators in a matter that the parties concede must be arbitrated. The Court will usually leave that decision to the arbitrators in the first instance, but will at least consider if a claim is so far outside the scope of the arbitration clause that its presentation should be barred.
Posted on February 24, 2010 by Edward M. McNally
Kelly v. Blum, C.A. 4516-VCP (February 24, 2010)
It is well known that an LLC agreement may limit the right to sue for breaches of fiduciary duty. What is less well thought out is what language needs to be used to do so. This decision tells you what to say if you want to limit liability.
Posted on February 24, 2010 by Edward M. McNally
Global Link Logistics Inc. v. Olympus Growth Fund III, L.P., C.A. 4444-VCP ( February 24, 2010)
This decision explains what should be in a fee application to the Court of Chancery. Redacted bills, explanations of what the time was for and why it was spent are all required in a contested matter.
Posted on February 18, 2010 by Edward M. McNally
Agilent Technologies Inc. v. Kirkland, C.A. 3512-VCS ( February 18, 2010)
Calculating damages in trade secret litigation is often difficult. Lost profits may overlap with unjust enrichment claims and the whole process may be affected by possible injuntive relief. This decision explains how a court will decide the right remedy and calculate damages. It is also a particularly good example of the Court of Chancery's thoughtful approach to remedies.
Posted on February 9, 2010 by Edward M. McNally
Kurz v. Holbrook, C.A. 5019-VCL (February 9, 2010)
This significant decision holds that you cannot eliminate a director by amending the bylaws to reduce the number of seats on the board of directors. Of course, this only came up in the odd context of a stockholder who could not vote for directors and hence could not vote to eliminate them as well. Nonetheless, it is interesting as a limit on the power to amend bylaws
Perhaps more importantly, the decision explains the complicated and often misunderstood ways in which proxies are obtained to vote the shares of public companies. Those shares are mostly held in the name of Cede & Co., a depository for brokers and banks. Getting the proxy from Cede, and then to the brokers and then to the actual beneficial owners has proved cumbersome in fast proxy battles. This decision helps that process by letting the records of Cede act as a list of owners.
Posted on February 5, 2010 by Edward M. McNally
Concord Steel Inc v. Wilmington Steel Processing Co. Inc., C.A. 3369-VCP (February 5, 2010)
In this decision, the Court modestly reduced an attorney fee award because too much of the legal work was done by a senior partner when a lower cost associate could have been used. While perfectly reasonable, it only shows getting old is not for sissies.
Posted on January 29, 2010 by Edward M. McNally
Global Link Logistics Inc. v. Olympus Growth Fund III, L.P., C.A. 4444-VCP (January 29, 2010)
If you are a co-defendant in an arbitration case with a claim for contribution, you had better assert it in the arbitration proceedings. Otherwise, you may lose the right under the Joint Tortfeasors Act to make your co-defendant pay more than his pro rata share. This result follows under this decision because the Act requires the cross claim be asserted before "judgment" is rendered and the arbitration award counts as a judgment for that purpose.
Posted on January 29, 2010 by Edward M. McNally
Great American Opportunities Inc. v Cherrydale Fundraising LLC., C.A. 3718-VCP (January 19, 2010)
This decision is a landmark case on Delaware law on non-compete agreements with employees. It establishes so many new precedents that it is hard to briefly summarize. For example, it holds that it is possible to assign an employee non-compete agreement in connection with an asset sale.
Perhaps the most significant part of the decision is its discussion on how to calculate damages when an at-will employee is lured away by a competitor and then violates his non-competition agreement. Damages are not, under this decision, what the new employer won in new business with the purloined employee. Instead, how to calculate damages in such a case is much more complicated and requires a careful reading of this decision.
Posted on January 27, 2010 by Edward M. McNally
New Radio Group LLC v. NRG Media LLC, C.A. 4951-VCL (January 27, 2010)
Litigants frequently seek to keep their dirty linen secret in litigation by asking the court to seal the court's files to public inspection. Chancery Rule 5(g) deals with the limits on that confidentality order and this decision shows that litigants cannot ask the Court for more than 5(g) permits. The better practice is to make the provisions of any order specifically subject to the rule.
Posted on January 22, 2010 by Edward M. McNally
Mitsubishi Power Systems Americas Inc. v. Babock & Brown Infrastructure Group US LLC, C.A. 4499-VCL (January 22, 2010)
Deal attorneys try to limit the ability of a buyer to make post deal claims for misrepresentation. That is hard to do by contractual provisions that plainitffs are all too clever at avoiding and courts are often reluctant to enforce.
Here the Court of Chancery took the time to go over exactly what contract language may limit post deal claims. All deal lawyers should study it carefully.
Posted on January 22, 2010 by Lewis Lazarus
NACCO Industries Inc. v. Applica Incorporated, C.A. No. 2541-VCL (December 22, 2009)
In this decision, the Court's newest Vice Chancellor, the Hon. J. Travis Laster, substantially denied a motion to dismiss a complaint filed by a jilted suitor who sought damages from the target and the winning bidder. The complaint alleged that the target violated no-shop and prompt notice provisions of a merger agreement between plaintiff and the target that the target later terminated in favor of a superior proposal from the defendant winning bidder. Plaintiff alleged that the winning bidder violated Delaware law by fraudulently misstating its intentions in filings required by the Securities Exchange Act of 1934 ("the Exchange Act). The Court of Chancery upheld plaintiff's claims for breach of contract, tortious interference with contract, fraud, and civil conspiracy for fraud. Although the Court emphasized that its decision was required under the plaintiff-friendly standard the Court applied in analyzing a motion to dismiss a complaint at the pleadings stage, the opinion has three critical lessons for practitioners concerning (i) the potential inadequacy of termination fee and expense reimbursement provisions to preclude a damages claim, (ii) the viability of state law claims arising out of misstatements in public filings required as a matter of federal law, and (iii) the relation of prior injunction proceedings to later claims for damages.
Payment of Termination Fee and Expense Reimbursement Does Not Preclude a Damages Remedy Where Jilted Suitor Can Allege Fraud Under State Law
First, the Court rejected defendants' arguments that plaintiff was not entitled to damages because the target paid a termination fee and expense reimbursement upon termination. The Court held that if plaintiff were able to show a breach of the merger agreement between the jilted suitor and the target, it should be entitled to receive expectancy or reliance-based damages. The Court recognized that any reliance-based recovery would have to overcome the jilted suitor's receipt of a bargained-for $4 million termination fee and $2 million expense reimbursement. But at the pleadings stage, it was sufficient for the Court to note that the merger agreement excluded from the limitation on liability any termination arising from a willful or material breach of a representation, warranty or covenant in the merger agreement. The Court also noted that the target's ability to terminate and pay fees without further liability required it to comply with its obligations under the no-shop and prompt notice provisions.
Exchange Act Does Not Preclude State Law Claims for Fraud
Second, the Court of Chancery explained that the mere fact that plaintiff's allegations against the winning bidder arose out of filings mandated by the Exchange Act did not deprive a state court of jurisdiction to resolve fraud claims brought solely under state law. The Court noted that a Delaware Supreme Court decision, Rossdeutscher v. Viacom, Inc., 768 A.2d 8 (Del. 2001), and federal decisions comported with this result. The Court's scholarly analysis of this issue at pages 31-42 culminates with emphasis on Delaware's interest in "preventing the entities that it charters from being used as vehicles for fraud." In short, the opinion reaffirms that the Exchange Act contemplates a balance between state and federal roles and responsibilities and does not preempt fraud claims arising under state law.
Moreover, in permitting the jilted suitor to bring a fraud claim, the Court held it was entitled to rely on the bidder's statements in public filings. Note that the Court does not require the jilted suitor to have bought securities or limit the damages to the loss it incurred as a result of its purchase of the target's stock.
Federal Decision Denying Preliminary Injunction Based on Same Claims of Alleged Falsity of Public Filings Does Not Preclude Later State Law Claim for Damages
Third, a decision rendered denying a preliminary injunction is not case dispositive. Here an Ohio Federal District Court had denied an application by the jilted suitor to enjoin the winning bidder's merger with the target based on the same alleged misstatements that formed the basis of the jilted suitor's later state law claim. The strength of that court's conclusion - "[c]ontrary to Plaintiff's position, the Court does not perceive any falsity in [the winning bidder's] filings when they are properly viewed alongside unfolding events." (NACCO Indus., Inc. v. Applica Inc., 2006 WL 3762090, at *7 (N.D. Ohio Dec. 20, 2006)) - did not preclude a different result on a different record and in a different procedural context. The lesson for bidders and practitioners: Absent a binding final judgment, the parties proceed at their own risk.
Perhaps this opinion will focus the attention of transactional lawyers on the breadth of prompt notice provisions in merger agreements and the nature of their clients' intentions when acquiring stock in a target and making the filings required by the Exchange Act. From a target's perspective, this decision reaffirms that contractual language in merger agreements concerning no-shops and prompt notice of competing proposals will be enforced when a party can plead injury from a breach. From a bidder's perspective, this decision reinforces the importance of timely and accurate disclosure regarding a client's intentions in purchasing stock of a company that is in play. The decision is also a reminder that a holding by a Federal district court denying an injunction on a preliminary record does not prevent a later assertion of a state law claim for fraud. As the Court rendered the NACCO decision on a motion to dismiss it remains to be seen whether liability will be imposed on a fuller record.
Posted on January 19, 2010 by Edward M. McNally
Amirsaleh v. Board of Trade of the City of New York, C.A. 2822-CC ( January 19, 2010)
A recent trend is to offer 2 types of consideration in connection with a merger and to permit the stockholders to pick which they prefer, such as stock or cash. Of course, the time to pick must be limited as a practical matter. This decision deals with when the time limit may be extended and when a company may in good faith cut off the extensions. Basically, decisions that are made for neutral business reasons and not to favor a selected few will be respected by the Court.
Posted on January 15, 2010 by Edward M. McNally
Brinckerhoff v. Texas Eastern Products Pipeline Co. LLC., C.A. 2427-VCL (January 15, 2010)
In the famous Cox Communications case, the Court was critical of attorneys who settle fast after getting a modest and usually expected price increase in a merger and then ask for a big attorneys fee. This decision shows how the newest Vice Chancellor will calculate such fees. He is no pushover either.
Most importantly, the Court explains in detail how it approaches fee requests. The analysis is very fair and the award was ample. This added explanation is very useful in helping to predict future awards and thus facilitate settlements.
Posted on January 14, 2010 by Edward M. McNally
Alaska Electrical Pension Fund v. Brown, C.A. 240, 2009 (January 14, 2010)
This decision upholds the unremarkable proposition that a class member whose attorneys do not contribute to an increase in merger consideration do not deserve a fee award. The case is interesting because it reflects an unusual clash among plaintiffs' attorneys over who did what to get the price increased and a company's successful defeat of a fee petition.
Posted on January 11, 2010 by Edward M. McNally
In re The Dow Chemical Company Derivative Litigation, C.A. 4319-CC (January 11, 2010)
In an era when "too big to fail" seems to be an accepted reason to do the extraordinary, in this case the plainitffs tried to argue that a 'bet-the-company" deal requires a board to be right or be held for the consequences. The Court soundly rejects that argument and held the business judgment rule protects the board from second guessing in even the biggest deals.
This decision is also an excellent summary of the law dealing with when demand must be made on a board before filing a derivative suit. The Chancellor was once a law professor and his teaching skills are on full display in this case.
Posted on January 8, 2010 by Edward M. McNally
Xu Hong Bin v. Heckmann Corporation, C.A. 4802-CC ( January 8, 2010)
There is a dilemma over the broad rights to advancement of legal fees given the sometimes very large amounts demanded. This decision holds that some limits on advancement rights may be placed in the bylaws, even when advancement is provided for in the certificate of incorporation. Note that the bylaw cannot be inconsistent with a certificate provision and must be in place when the director began his term of office for the period when his acts are in question in the underyling litigation.
Posted on January 5, 2010 by Edward M. McNally
In re Sunbelt Beverage Corp. Shareholder Litigation, C.A. 16089-CC (January 5, 2010, revised February 15, 2010)
This is an interesting appraisal case for at least 2 reasons. First, it illustrates what not to do in getting a fairness opinion. A rush job with no intent to reach a fair result is doomed to be rejected. Second, the Court for the first time in recent memory notes that criticism of the efficient market theory may be justified and did not accept an arguably arms length sale as solid evidence of share value. In the past the Court was moving toward acceptance of market values as setting the "fair value" required by the Delaware appraisal statute.
The case does involve an unusual set of facts and in the long run may not mark a great shift in approach, but it is worth noting for the usual careful analysis of the facts to reach the right result free of a formulaic approach.
Posted on December 29, 2009 by Edward M. McNally
Deloitte LLP v. Flanagan, C.A. 4125-VCN (December 29, 2009)
This decision holds a partner in an accounting firm liable for trading on the nonpublic information that he received in connection with his work at his firm. The Court upheld several theories of liability in what appears to be a case of first impression in Delaware. Thus, this decision paves the way for enforcing the duty to not misuse insider information apart from the Federal Securities laws.
Posted on December 24, 2009 by Edward M. McNally
Aveta Inc. v. Bengoa, C.A. 3598-VCL (December 24, 2009)
After the entry of an order compelling arbitration, the defendant delayed the arbitration and even sought to re-litigate the underlying suit compelling arbitration. The Court was not impressed and found the defendant in contempt, imposing severe sanctions.
Posted on December 23, 2009 by Edward M. McNally
In re Texas Eastern Overseas, Inc., C.A. 4326-VCN (December 23, 2009)
When it is "reasonably likely" that a corporation has some assets, the Court will appoint a receiver even if the corporation has been dissolved for 15 years.
Posted on December 18, 2009 by Edward M. McNally
In re 3Com Shareholders Litigation, C.A. 5067-CC (December 18, 2009)
This decision explains that in litigating a disclosure claim it is important to relate the disclosures at issue to past decisions determining when a particular type of disclosure was actionable. Here the Court dealt with when projection must be disclosed and noted that not everything considered by management or a board must be put into the proxy statement.
Posted on December 10, 2009 by Edward M. McNally
Zurich America Insurance Company v. St. Paul Surplus Lines Inc., C.A. 4095-VCP (December 10, 2009, revised April 14, 2010)
In this case, the Court of Chancery declined to upset an arbitrator's decision and explained the limits on the Court's review of arbitration awards. Here, that limit applied even when the arbitrator had declined to rule based on his decision that he lacked jurisdiction.
Posted on December 10, 2009 by Edward M. McNally
Off v. Ross, C.A. 3468-VCP (December, 10, 2009)
In this unusual decision, the Court of Chancery awarded attorney fees after having previously declined to do so in a November 26, 2008 decision in the same case. The prior decision had been decided because of pending litigation that the Court did not want to affect by a premature approval of a settlement in this case. When that other litigation was settled, it was time to address the settlement here. This illustrates the flexibility of the Court of Chancery in dealing with competing litigation.
The settlement was approved and fees awarded based on the plaintiff’s success in opening up a limited offer to purchase stock to all of the entity's stockholders.
Posted on December 9, 2009 by Edward M. McNally
TR Investors LLC v. Genger, C.A. 3994-VCS (December 9, 2009)
This is the most important recent decision on the Court's handling of discovery of emails and other e-documents. For spoliation, the Court imposed four forms of sanction: (1) it increased the burden of proof to a clear and convincing standard for the offending party to prove his case, (2) it held his testimony must be corroborated by other evidence to meet that burden, (3) it denied any claim of attorney-client privilege to certain documents, and (4) it imposed attorney fees for the sanction motion work.
This is also a good read for its explanation of how e-documents are stored in computers and servers and may be retrieved long after they were thought to be destroyed.
Posted on December 8, 2009 by Edward M. McNally
DiRienzo v. Steel Partners Holdings L.P., C.A. 4506-CC (December 08, 2009)
While it is well known that appraisal rights are limited to stockholders of record, sometimes stockholders do not really understand what it means to be "of record." They think if their name is on a brokerage statement, they are a "stockholder of record." Wrong! They must be listed on the records of the company to be "of record," and most stock in public entities is held by nominees, such as Cede & Co., to facilitate trading.
Here, the Court examines when the corporation is estopped by its conduct from denying appraisal rights and finds that the elements of waiver or estoppel are hard to establish and not present in this case.
Posted on December 8, 2009 by Edward M. McNally
Paolino v. Mace Security International Inc., C.A. 4462-VCL (December 8, 2009)
In this decision the Court examines when a corporate officer is entitled to have his fees advanced in defending a counterclaim against him. The opinion does so in the context of a full explanation of the Cochran. line of cases that determine when an employee is entitled to indemnification (when sued for acting in an official capacity) and when he is not (when sued for breaching his employment contract). That is not as easy a distinction as it may seem, and this case helps us understand it
Posted on December 4, 2009 by Edward M. McNally
Cephalon Inc. v. John Hopkins University, C.A. 3505-VCP (December 4, 2009)
This is a short, but excellent summary of the law of attorney/client privilege. It also is an example of how the Court conducts an in camera review of documents to decide privilege questions.
Posted on December 3, 2009 by Edward M. McNally
Reid v. Johnston, C.A. 08C-01-025-JRS (December 3, 2009)
In this case of first impression, the Court held that a party seeking to depose an opponent’s expert must pay for the expert's preparation time. However, to prevent abuse, the Court limited the fees to a time period equal to the length of the actual deposition. Talk fast to save money.
Posted on December 1, 2009 by Edward M. McNally
Mangano v. Pericor Therapeutics Inc., C.A. 3777-VCN (December 1, 2009)
This decision illustrates another loop hole in a stockholder agreement designed to restrict voting rights. Briefly, the agreement provided that an otherwise controlling stockholder would place his stock in a voting trust that would then vote his stock as did the other stockholders. However, there was a provision that permitted the otherwise majority stockholder to transfer his stock to a family member and another provision that terminated the trust if the majority stockholder's stock in trust fell below 45% of the stock outstanding.
Of course, what the majority stockholder did was transfer enough stock to his sister to make him own less than 45% and thereby terminated the trust. His sister then voted with him, and they took control of the corporation.
The Court held that the stockholder did not have a beneficial ownership in the sister's stock as she had no obligation to vote with him or give him any benefit from her ownership of the stock. To be a beneficial owner you have to have some interest in the stock.
Posted on December 1, 2009 by Edward M. McNally
Vichi v. Koninklijke Philips Electronics N.V., C.A. 2578-VCP (December 1, 2009)
This decision provides a full review of the basis for jurisdiction over foreign entities by the Court of Chancery. This includes a discussion of the limits of the conspiracy theory of jurisdiction.
Most interestingly, the Court holds that a parent company may be subject to Delaware jurisdiction because of the acts of agents of its subsidiaries, at least when those agents had the apparent authority to act for the parent. That may occur when, as here, the parent entity touts the business interrelationship of it and all its subsidiaries. This is another example of getting not wanting what you wished for and a caution against ignoring the separateness of corporate entities in how they do business.
Posted on November 30, 2009 by Edward M. McNally
In the Matter of Texas Eastern Overseas Inc., C.A. 4326-VCN (November 30, 2009)
This decision answers the question of whether it is possible to have a receiver appointed for a dissolved Delaware corporation more than 3 years after it is dissolved. Section 278 of the Delaware General Corporation Law provides for a 3 year statute of limitations for litigation against a dissolved Delaware corporation. However, when the petition to appoint a receiver seeks to get at assets still held by the dissolved corporation (in this case an insurance policy), the Court ruled that the petition may proceed. The theory is that the persons protected by Section 278, such as its stockholders, will not be affected by the appointment of a receiver who is only seeking assets still held by the entity and that they would not receive anyway.
Posted on November 13, 2009 by Edward M. McNally
Airborne Health, Inc. v. Squid Soap, LP, C.A. 4410-VCL (November 13, 2009)
In this decision, the Court explains that an anti-reliance clause is different from an integration clause. The anti-reliance clause bars claims of reliance on extra contractual promises and must be very specific in doing so. A more general integration clause will not bar such claims of reliance.
There are two aspects of this decision that are particularly worth noting. Most importantly, this is the first extensive and significant opinion by the newest Vice Chancellor. It shows he writes wonderfully well and is fun to read.
Second, he brings to the task his extensive business background. That shows how important it is to have a judge who knows what he is talking about.
As a result, the future of the Court of Chancery looks secure.
Posted on November 13, 2009 by Edward M. McNally
Lefkowitz v. HWF Holdings LLC, C.A. 4381-VCP (November 11, 2009)
The Delaware Arbitration Act has a unique provision that permits the Court of Chancery to enjoin an arbitration when the claim asserted is barred by a statute of limitations. However, to get into Court, the arbitration agreement must be governed by Delaware's Arbitration Act. If it is not, then this unique remedy is not available, and it is up to the arbitrator to decide if the claim is barred on limitations grounds.
This decision also contains an excellent discussion of when the Delaware Arbitration Act applies and, when it does, to what extent its provisions control.
Posted on November 12, 2009 by Edward M. McNally
Lola Cars International Limited v. Krohn Racing LLC, C.A. 4479-VCN (November, 12, 2009)
The Delaware Limited Liability Company Act permits the Court of Chancery to dissolve an LLC when it is not "reasonably practicable to carry on the business" of the LLC. The initial decisions under this statute tended to adopt a narrow construction of its terms and dissolution was not ordered just because of a business dispute between the members of the LLC. More recent decisions have expanded the circumstances when dissolution will be ordered, including when there is a management deadlock. This decision expands that trend to permit dissolution when there is serious mismanagement established. While not yet to the point of "no-fault" dissolution, the trend is headed that way, and it remains to be seen exactly how much mismanagement needs to be shown to win a dissolution decree. Probably disloyalty such as self-dealing is still required.
Posted on November 9, 2009 by Edward M. McNally
Amirsaleh v. Board of Trade of The City of New York, Inc., C.A.2822-CC (November 9, 2009)
The law of good faith and fair dealing in contracts is a “judicial tool used to imply terms in a contract that protect the reasonable expectations of the parties." This decision clearly explains Delaware law in this area, including the point that not acting in good faith involves bad faith and that is proved by showing an improper motive.
Posted on October 31, 2009 by Edward M. McNally
eBay Domestic Holdings, Inc. v. Newmark, C.A. 3705-CC (October 29, 2009)
Modern discovery is often subject to problems, particularly with electronic "documents." As a result, some courts have imposed harsh sanctions for a party's failures to follow all the requirements. While not in any way excusing those failures, this decision shows that the Court of Chancery is aware of the difficulties involved. The Court held that only deliberate failures to follow the rules will be sanctioned by a fee award.
The opinion is also noteworthy for the discussion of a party’s offer to help the Court do an in camera document review. That offer took a lot of nerve to make and, characteristically, the Court politely declined the offer to do its job for it.
Posted on October 28, 2009 by Edward M. McNally
Petroplast Petrofisa Plasticos S.A. v. Ameron International Corp., C.A. 4304-CC (October 28, 2009)
When does the Uniform Trade Secrets Act preempt claims arising out of the misuse of documents based on other legal theories such as conversion? While not answering that question definitively, this decision does go a long way to clarifying how to decide that issue at the pleading stage.
Briefly, it holds that, if the alternative legal theory may be applied after trial because the documents in dispute are found not to be trade secrets under the Trade Secret Act definition, the case should go forward on alternative theories of recovery. This let the Court decide the case on the evidence and not some preliminary assessment based on the pleadings alone.
Posted on October 20, 2009 by Corinne Amato
Leeseberg v. Converted Organics Inc., C.A. No. 08-926-GMS (D. Del. Oct. 7, 2009).
Applying Delaware law, the district court concluded that a late fee provision was not a liquidated damages clause and dismissed the defendant’s motion to dismiss the plaintiff’s claim for actual damages. The late fee provision did not bear the label liquidated damages and there was no explicit evidence in the contract indicating that the late fee was the plaintiff’s sole damages in the event of a breach.
Posted on October 20, 2009 by Corinne Amato
Collins & Aikman Corp. v. Stockman, C.A. No. 07-265-SLR/LPS (D. Del. Sept. 30, 2009).
Upon review of the Report and Recommendation issued by Magistrate Judge Leonard P. Stark, and the objections thereto, the district court rejected Judge Stark's recommendation that the complaint did not contain adequately specific allegations that the defendants knew or should have known that the company's financial statements were false in connection with a Rule 10b-5 claim. The complaint is a rare example of a pleading that sufficiently raised red flags which should have alerted the defendants to accounting irregularities from the fraudulent schemes asserted against the director and officer defendants.
Posted on October 15, 2009 by Edward M. McNally
Choice Hotels International Inc. v. Columbus-Hunt Park DR BNK Investors LLC, C.A. 4353-VCP (October 15, 2009)
Delaware courts frequently must decide if a case filed in Delaware should be stayed in favor of another action filed elsewhere. While we wonder why anyone would want to leave Delaware, it happens. This decision carefully reviews when even "summary" proceedings filed in Delaware may be stayed in favor of another litigation. When a "summary" proceeding seeks to determine who is in change of a Delaware entity, there is a policy against staying the action because of the need to promptly resolve that important issue.
This is a case where that policy did not overcome the rule that a first filed action should proceed even over a Delaware case. Of course, given that the plaintiff in Delaware had filed first in Maryland, that hurt its claim to proceed in Delaware. The use of a status quo order also mitigated against the need to move quickly in Delaware.
Posted on October 9, 2009 by Edward M. McNally
Total Holdings USA Inc. v. Curran Composites, Inc., C.A. 4494-VCS (October 9, 2009).
In a case of first impression, the Court of Chancery has upheld its jurisdiction over a nonresident partner in a Delaware partnership. The current version of the Delaware Uniform Partnership Act authorizes jurisdiction over nonresident partners for disputes arising out of the internal affairs of the partnership. Here the parties' joint venture agreement expressly created a partnership "under Delaware law," and that was enough to support the Court's jurisdiction over a partner who had no other contact with Delaware.
Posted on October 7, 2009 by Edward M. McNally
LeCroy Corporation v. Hallberg, C.A. 4328-VCP (October 7, 2009).
This decision is another example of why Delaware is more frequently chosen to litigate trade secret or unfair competition disputes. For, while the defendant had no ties to Delaware other than its incorporation here, the Court declined to dismiss the litigation on venue grounds. Instead, the Court promptly dealt with the dispute, entering a status quo order, and resolving the venue dispute to get on with the case.
Moreover, it is widely thought that Delaware law is more favorable to protecting trade secrets than other jurisdictions. Delaware, for example, recognizes that it is inevitable that a former employee will use a valuable trade secret in competition with her old employer even if the secret is held only in her head. Other states are not so favorable.
Here, the defendant was dismissed for want of jurisdiction over the non-resident individual. Whether that result would have been the same had her employment contract contained a forum selection and consent to jurisdiction clause for Delaware remains to be seen.
Posted on October 2, 2009 by Edward M. McNally
In re John Q. Hammons Hotels Inc. Shareholder Litigation. C.A. 758-CC (October 2, 2009).
The application of the Lynch doctrine to a merger is an often discussed topic. This decision does a great job of summarizing and explaining the rationale for applying the entire fairness test to a merger that has the majority stockholder on both sides of the deal. Given that Lynch has been applied to other deals where a majority stockholder was not involved [such as when a controlling stockholder dictates a self-dealing transaction], the parameters of that doctrine need such an explanation.
This decision also settles two other points. To shift the burden of proving fairness from the defendants, the vote of the minority stockholders must be by a majority of all the minority stockholders eligible to vote, not just a majority of those who did vote. Second, the vote must be binding and not waivable by a special committee.
Posted on October 2, 2009 by Edward M. McNally
Dutiel v. Tween Brands Inc., C.A. 4743-CC (October 2, 2009).
The Court has recently explained the criteria to determine who should be appointed lead counsel in a class action. In this decision it added a new twist, giving advantage to counsel that has shown it gets along best with co-counsel in the case. This just makes sense, if only to avoid the Court supervising the play in the sandbox.
Note, however, that on a motion for reargument, the Court stressed that not too much should be made of its re ference to coorperation among some counsel as a factor to be consided. Moreover, in that October 28, 2009 opinion the Court detailed how to assess the relative stockholder interest in deciding whose counsel should lead.
Recently, at least one fellow Delaware attorney has suggested that the way to win such favor from your co-counsel is to known as generous with the fee splitting that occurs when the case ends. Given that the division of the fee awarded by the Court among all the plainitff attorneys is not done publicly, that may be an insight into the world of plainitffs counsel that is worth remembering.
Posted on September 30, 2009 by Edward M. McNally
Concord Steel Inc. v. Wilmington Steel Processing Co. Inc., C.A. 3369-VCP ( September 30, 2009).
This is another in a line of decisions enforcing agreements not to compete. What is striking about this case is the apparent utter disbelief of the defendants that the agreement would actually be enforced. Defendants in these cases seem to think that, if they are not actually engaged in the exact same business as the other party to their agreement not to compete, the Court will say there is "no harm, no foul." Wrong!
Agreements not to compete may cover not just exactly the same business but any line of work that may be a substitute for a business' normal work. In any case, it is the language of the agreement that counts, and this decision illustrates that point.
Posted on September 30, 2009 by Edward M. McNally
In re NYMEX Shareholders Litigation, C.A. 3621-VCN (September 30, 2009).
When is a claim that the merger was unfair a derivative and not a direct claim? This is a perplexing question under Delaware law. Generally, a claim that the merger price is too low because management manipulated the process to drive down value is derivative, because the claim asserts it is the company that was hurt by the actions taken. When, however, the price was unfairly reduced by the actions of a corporate fiduciary, then the so-called "Parnex exception" may apply, and a direct stockholder class action may be brought.
This decision explains the Parnex Exception. In general, a direct claim may be brought when the alleged breach of fiduciary duty was intended to benefit a particular fiduciary at the expense of all the other stockholders. The breach of duty must be directly connected to the reduced price, however, and any large gap in time may be fatal to the direct claim.
Keep in mind that all claims challenging a merger are not derivative, and it is only because this was an entrenchment claim that the court held it was derivative. This points out the importance of picking your legal theory wisely. A mistake can cost you the case in this complicated area.
Posted on September 28, 2009 by Edward M. McNally
City of Westland Police & Fire Retirement System v. Axcelis Technologies, Inc., C.A. 4473-VCN (September 28, 2009).
This is the first Delaware decision to deal with the so-called Pfizer policy on when directors may be retained despite a shareholder vote on dissatisfaction. Axcelis had a bylaw that any director up for re-election who did not get a majority of the votes cast must tender her resignation to a committee of the whole Board, and that committee had the discretion to accept or reject the resignation. When three directors did not get the majority vote and tendered their resignations, the committee rejected the resignations and the directors stayed on the Board. The plaintiff then filed a books and records case to discover why.
The Court held that under the company policy the committee had the discretion to reject the resignations. In the absence of even a minimal showing that the exercise of discretion was wrongful, the Court denied inspection into the committee's reasoning. That seems consistent with existing Delaware law. Otherwise, any stockholder who disliked a board decision might demand inspection of corporate records to fish for a basis to sue.
The implications of this opinion are that any committee who rejects a director resignation under a policy giving it broad discretion will have its decision upheld. Indeed, the decision is virtually unreviewable.
Posted on September 21, 2009 by Edward M. McNally
Zrii LLC v. Wellness Acquisition Group, Inc., C.A. 4374-VCP (September 21, 2009).
This is an interesting case because of the limitations on the remedy imposed for violating a non-competition agreement. The decision illustrates the rule that no matter how wrong the conduct, the remedy of an injunction will be limited to stopping the competition for the period provided for in the agreement. Of course, a damage remedy is also available.
Posted on September 16, 2009 by Edward M. McNally
eBay Domestic Inc. v. Holdings Inc., C.A. 7705-CC (September 16, 2009).
This decision upholds the right to claw back privileged documents inadvertently produced in discovery, at least when there is an agreement permitting claw back rights.
Posted on September 11, 2009 by Corinne Amato
King v. Baldino, C.A. No. 08-54-GMS-MPT (D. Del. Aug. 26, 2009).
This memorandum order issued by Magistrate Mary Pat Thynge is an example of the continued judicial reluctance to impose liability on boards of directors for alleged failures in oversight responsibility, where the plaintiff fails to plead that the board was on notice, through “red flags,” of corporate misconduct. The Magistrate applied Delaware law on oversight liability as set out in Stone v. Ritter, 911 A.2d 362 (Del. 2006) to find that the plaintiff failed to plead demand futility and comply with Federal Rule of Civil Procedure Rule 23.1.
Posted on September 10, 2009 by Edward M. McNally
Julian v. Julian, C.A. 4137-VCP (September 9, 2009).
For a number of reasons, a plaintiff may seek to litigate his claim in the Court of Chancery rather than trust his case to arbitration. This decision illustrates how hard it is to avoid arbitration when the arbitration clause in the parties' contract is broadly drafted. Thus, this decision holds that the statutory right to fair value for a retiring member of an LLC may be subject to arbitration, if the LLC agreement so provides.
Posted on September 10, 2009 by Edward M. McNally
Martinez v. Regions Financial Corporation, C.A. 4128-VCP (September 9, 2009).
There is a recurring problem of what is the Court to do when the parties fight over the reasonableness of fees requested in an advancement case. As the fee requests are recurring, the Court has made it clear it does not want to be put in the role of monitoring play in the sandbox every month. In the past, the Court has appointed a special master as in Duthie v. CorSolutions Medical Inc., C.A. 3048-VCP (September 10, 2008). That approach has its own problems, as under Delaware law the decisions of a master are reviewable de novo by the Court.
The solution to this problem adopted by this decision is to have the parties submit any disputed bills to the court who will then rule on the dispute in a teleconference. See the order attached. While the Vice Chancellor involved in this case is the most patient of men, he will need some good luck with this process.
Posted on August 31, 2009 by Edward M. McNally
Smith v Horizon Lines, Inc., C.A. 4573-CC (August 31, 2009)
When the statute governing demands for inspection rights was changed to permit a demand by a beneficial owner, it also required proof of beneficial ownership. This decision explains what form that proof must take. An account statement that just has the owner's last name and does not indicate the date is not good enough. You would think that someone named "Smith" would have been told by now to be more explicit.
Posted on August 24, 2009 by Edward M. McNally
In Re Countrywide Corporation Shareholders Litigation, C.A. 3464-VCN (August 24, 2009)
This is another in a series of decisions explaining the limits of a release in settlement of a class action. The opinion particularly focuses on when a common law fraud or federal securities law claim may be released.
Posted on August 21, 2009 by Edward M. McNally
Case Financial Inc. v. Alden, C.A. 1184-VCP (August 21, 2009)
This decision is of interest because it explains the effect of a common merger agreement provision that is often misunderstood. It is common for such an agreement to say that representations expire at a certain date, such as the merger date. What does that mean? Some would argue it means that any claim for misrepresentation ends that day. That is not correct.
As this decision explains, this language only means exactly what it says-the representation of a fact ends on that date and the facts may change afterwards. A claim for fraud or misrepresentation may still be filed later.
Posted on August 18, 2009 by Edward M. McNally
World-Win Marketing Inc. v. Ganley Management Co., C.A. 3905-CC (August 18, 2009).
The extent to which a court will review an arbitration award is a tricky question. The court may do so when the arbitrator exceeds his authority. But, what does that really mean? This decision explains this vague standard of review.
In general, if the decision seems grounded in the facts presented to the arbitrator and is within the subjects that she may deal with under the parties agreement to arbitrate, the decision will be upheld even if the court would have decided the matter differently.
Posted on August 14, 2009 by Edward M. McNally
Wesley T. O'Brien v. IAC/Interactive Corp., C.A. 3892-VCP (August 14, 2009).
In this decision, the Court dealt with an odd set of facts that are not likely to be repeated. However, the opinion is noteworthy because the Court declined to bar a suit for indemnification even when the complaint had been filed more than three years after the right to indemnification arose. The plaintiff was, in a sense, a victim of a judicial nightmare in Florida where his claim had first been barred and then reinstated by an appeal court after the statutory limitations period expired. In permitting his claim to go forward, the Court of Chancery again showed its support for indemnification claims.
Posted on August 6, 2009 by Morris James
The Harvard Law School Forum on Corporate Governance and Financial Regulation has posted a useful summary of the recent amendments to Delaware's alternative entity statutes, drafted by Delaware practitioner Louis G. Hering. The post can be viewed here.
Posted on August 6, 2009 by Edward M. McNally
Martinez v. Regions Financial Corporation, C.A. 4128-VCP (August 8, 2009).
This decision deals with an unusual right to have attorney fees advanced to an employee who is suing to enforce her interpretation of her employment agreement. The Court upheld the right to advancement based on the broad language used that made it clear that even if the employee lost her suit, she was entitled to attorney fees.
As the Court again points out in its opinion, companies need be carefully if they want to limit attorney fee claims, and, if they do not, they will lose the argument under Delaware's broad public policy of enforcing such agreements.
Posted on July 31, 2009 by Edward M. McNally
In re National City Corp. Shareholders Litigation, C.A. 4123-CC (July 31, 2009).
This is an example of the Court of Chancery, even absent an objection from the corporation involved, carefully examining a fee request. The Court cut the request, because the benefit conferred was not significant. Too often critics claim the Court awards fees too generously, but here the Court again shows that it is mindful of its oversight duty.
Posted on July 30, 2009 by Edward M. McNally
Kuo v. Genius Products Inc., C.A. 3329-CC (July 30, 2009).
It is settled law that, when a corporation abandons a proposed corporate transaction after a suit is filed, to avoid payment of fees, the corporation must prove the litigation was not the cause of the transaction's termination. That burden was not carried here and, as a result, fees were awarded. The decision is also interesting because it shows that it is possible that the amount of the fees will be reduced when there is some doubt the litigation was the sole cause of the end of the transaction.
Posted on July 30, 2009 by Edward M. McNally
Bosse v. WorldWebDex Corp. C.A. 4443-CC (July 30, 2009).
The Court of Chancery frequently acts to promptly resolve actions seeking inspection rights even faster than the parties might expect or ask. This is an example of the Court reviewing the complaint and response and deciding to grant judgment on the pleadings when there does not seem to be any valid defense.
Posted on July 28, 2009 by Edward M. McNally
Louisiana Municipal Police Employees' Retirement System v. Fertitta, C.A. 4339-VCL (July 28, 2009).
This is a major decision with implications for all special committees. The Court denied a motion to dismiss, because the special committee did not stand up to the controlling stockholder. That much is not news. But the decision goes on to at least suggest that a special committee may have more than just the duty to say "no." In addition, a special committee needs to act affirmatively to make the controlling stockholder follow his fiduciary duties.
The decision is very fact specific, and the Court makes it clear that the context of a motion to dismiss strongly affected its analysis. However, it is also clear that those who predicted that Lyondell v. Chemical Co v. Ryan, 970 A2d 235 (Del. 2009) marked a lessening of scrutiny of board action may be wrong.
Posted on July 28, 2009 by Edward M. McNally
Mickman v. American International Processing LLC, C.A. 3869-VCP (July 28, 2009).
This decision applies corporate case law to a demand for the records of an LLC. The Court held that a right to review "all books and records" under the LLC agreement means just that, all the pertinent records. It also held that the grant of access to the records includes the right to copy them.
Posted on July 24, 2009 by Edward M. McNally
In re Trados Incorporated Shareholder Litigation, C.A. 1512-CC (July 24, 2009).
Directors sometimes face a conflict between what is best for the common stockholders compared to what is best for the preferred stockholders. While it is generally recognized that preferred stockholder rights are largely contractual and not based on fiduciary duties, that does not resolve all conflicts with common stockholders. The certificate of incorporation just cannot deal with every possible conflict. Here the Court held that common stock is to be favored in any conflict with the preferred that is not resolved by the terms of the certificate of incorporation. That will not solve all the problems, of course, and in this case, the Court held that a full trial might be needed to reach a final decision on how the preferred/common conflict should be resolved.
Where then does that leave a board of directors faced with such a conflict in the interests of the common and preferred stockholders? The answer probably lies in the case law dealing with what to do when a company is insolvent and the creditors are the residual risk holders. In that instance, the stockholders want the board to use every last dollar to reverse the company's fortunes, while the creditors want asset preservation and liquidation to get what they can. The Delaware Courts have held in that circumstance, the board is charged with making a business judgment over what is the best course for the entity to follow. That is easier said than done but may boil down to a risk/benefit analysis somewhat like a card player makes when deciding if it is time to fold his hand. So long as the board acts in good faith, its decision should be upheld.
Posted on July 24, 2009 by Edward M. McNally
Latesco, L.P. v. Wayport, Inc., C.A. 4167-VCL (July 24, 2009).
The question sometimes arises over what are the disclosure duties of the buyer under a stockholder agreement that compels a stockholder to sell her stock upon some triggering event, such as retirement. This decision clarifies the rules that apply.
In general, when the sale is strictly pursuant to the stockholder agreement, then that agreement determines if any disclosure is required. However, it is not always clear whether the sale is "strictly" pursuant to the agreement as sometime other terms are discussed, extra stock added [as was the case here] and the agreement for some reason not followed. When that happens, the rules change.
While the corporation itself may not have any disclosure duties, the directors as fiduciaries do have those duties. Thus, if they are the buyers, then they need to disclose material facts when they purchase a stockholder's shares outside the provisions of a stockholder's agreement.
Posted on July 14, 2009 by Edward M. McNally
David A. Stockman v. Heartland Industrial Partners, LP, C.A. 4227-VCS (July 14, 2009)
This is possibly the best decision to read to understand how to interpret the often confusing advancement and indemnification rights contained in limited partnership agreements. The discussion of the history of those rights under Delaware law is very useful as well.
There are three basic holdings that should be noted: (1) ambiguous agreements are to be construed against the entity, be it partnership or corporation, (2) acquittal of criminal charges puts the burden on the entity to show why any conditions to indemnification have not been meet (such as the lack of good faith, etc.) by the claimant, and (3) there is no need to wait until all proceedings against a director are concluded before he is entitled to indemnification for the proceedings that he won.
Posted on July 7, 2009 by Edward M. McNally
Berger v. Pubco Corporation, Del Supr. C.A. 509, 2008 (July 9, 2009)
In this precedent setting decision, the Supreme Court holds that stockholders who are cashed out in a short-form merger may bring a class action for damages when there are violations of the duty of disclosure in the materials sent to them notifying them of the merger. In prior decisions, the Court of Chancery had reached somewhat inconsistent results in such cases, granting a quasi-appraisal remedy, but sometimes requiring stockholders to opt-in to be part of the stockholder group obtaining appraisal rights and also requiring an escrow of the merger consideration.
Here, the Supreme Court rejected both of those limits on the remedy. Instead, it held that all the minority stockholders had the right to be part of a class entitled to appraisal rights, subject to a right to opt-out of the class. In addition, stockholders do not have to escrow any of the merger consideration while the action is pending.
This result creates a "free rider" issue as there is little incentive for stockholders to opt-out. While it is possible the trial court will decide the fair value of their stock in the appraisal proceedings is less than the merger consideration, for smaller stockholders, the amounts in question may not justify the company enforcing any right to a refund.
Of course, the way out of this dilemma is to provide fair disclosure in the first place.
Posted on July 1, 2009 by Corinne Amato
City of Roseville Employees’ Ret. Sys., v. Horizon Lines Inc., C.A. No. 08-969 (D. Del. June 18, 2009)
In this putative class action, the plaintiffs allege that Horizon, a container shipping and logistics company, fraudulently inflated the value of its securities by entering into illegal price-fixing agreements with its competitors in order to manipulate prices in certain markets. In an unopposed motion for appointment of lead plaintiff and counsel, the district court applied In re Cendant Corp. Litig., 264 F.3d 201 (3d Cir. 2001) and the terms of the PSLRA to appoint the Police and Fire Retirement System of the City of Detroit as lead plaintiff and their choice for lead and liaison counsel.
Posted on June 25, 2009 by Edward M. McNally
In re TD Banknorth Shareholders Litigation, C.A. 2557-VCL (June 25, 2009)
In this order, the Court awarded 27.5% of the class recovery of $964,086 to class counsel. This illustrates that sometimes, the smaller the pie, the larger the slice for class counsel. Even when the recovery is not large, the work involved is often the same as in a larger case.
Posted on June 25, 2009 by Edward M. McNally
CME Group Inc.v. Chicago Board Options Exchange Inc., C.A. 2369-VCN (June 25, 2009)
Class action settlements often have a claim procedure that is complicated. Class members miss the deadlines and mess up their filings. However, as this decision illustrates, the Court is liberal in extending deadlines and forgiving filing mistakes.
Posted on June 23, 2009 by Corinne Amato
In re Intel Corp. Derivative Litig., C.A. No. 08-93-JJF (D. Del. June 4, 2009)
This opinion discusses when a court will apply the Rales test rather than the Aronson test in deciding whether a derivative plaintiff has pled particularized facts establishing demand futility. Here, the district court applied the Rales test requiring that allegations establish a reason to doubt that the board could have properly exercised its independent and disinterested business judgment in responding to a demand. The complaint alleged that the directors made a decision not to act which was not made in good faith and was contrary to the best interests of the company. Despite plaintiff’s contention that Aronson should apply, the district court noted that Delaware courts have found that they cannot address the business judgment of an action not taken and, therefore, should apply what is now known as the Rales test.
Posted on June 23, 2009 by Corinne Amato
Southern Track & Pump Inc. v. Terex Corp., C.A. No. 08-543-JJF (D. Del. June 9, 2009)
By granting, in part, the defendant’s motion to dismiss its claim for breach of the implied covenant of good faith and fair dealing, the district court found that financing promises may not be regarded as an implied contractual obligation when there is no explicit reference in the agreement.
This dispute arose out of a distributing agreement, whereby the plaintiff agreed to distribute the defendant’s products. By the plaintiff’s account, the defendant represented that it had a relationship with a financier and could leverage this relationship to secure favorable financing. The plaintiff obtained financing and, thereafter, defaulted on its obligation. When the defendant refused to intervene on the plaintiff’s behalf, the plaintiff brought suit for an implied breach. The district court dismissed the plaintiff’s claim to the extent it was based on the alleged explicit promise regarding financing.
Posted on June 17, 2009 by Edward M. McNally
American International Group Inc. Consolidated Derivative Litigation, C.A. 769-VCS (June 17, 2009)
This is the latest decision in the continuing saga of the AIG litigation. In this case, the Court declined to permit a derivative stockholder of AIG to sue the co-conspirators of AIG in the various frauds alleged to have hurt AIG and its stockholders. The Court upheld the in pari dilecto defense that generally prohibits one wrongdoer from suing her fellow wrongdoers. This scholarly opinion covers all the reasons for upholding that defense and why the only exception it will permit is for the corporation to sue its own directors who caused it to do wrong.
Posted on June 16, 2009 by Edward M. McNally
Sinomab Bioscience Limited v. Immunomedics, Inc., C.A. 2471-VCS (June 16, 2009)
In this rare case for the Court of Chancery, the Court determines the scope of noncompetition employment agreements. What is particularly interesting is the way the Court analyzed the testimony of the key witness to determine if he was telling the truth. This illustrates the critical role of circumstantial evidence in witness credibility and why it is so often a mistake to think that such evidence is not important or irrelevant to the real issues. Often that seemingly small point can make all the difference.
Posted on June 16, 2009 by Edward M. McNally
Duthie v. CorSolutions Medical Inc., C.A. 3048-VCN (June 16, 2009)
It is well known that directors with advancement rights may call on those rights even when acting as a plaintiff. This decision explains the limits on that doctrine. In general, when there is no need to bring suit as a defensive maneuver to protect the director, then the right to have expenses advanced ends for a plaintiff.
Posted on June 12, 2009 by Edward M. McNally
Gatz v. Ponsoldt, C.A. 174-CC (June 12, 2009)
This decision raises an interesting question over whether attorneys fees should be paid when the fees in a way that does not benefit the company for whom the suit was filed. Briefly, the facts were that the defendant directors were found to be entitled to have the settlement of the claims against them paid by their company under their rights to be indemnified. The settlement balance was to go to the stockholder class. The Court's concern was that this meant the company's stockholders were not really benefiting if they, in effect, were funding the settlement by their company.
This issue was resolved when it turned out that under the odd circumstances of this case that the stockholders who were receiving the benefit of the settlement were largely different from those who now owned the company. Had that not been the case, however, the result may not have been the same. This means that there is a potential issue when defendant directors are indemnified for the damages. Whether the amount of fees will be affected in those circumstances remains to be seen.
Posted on June 11, 2009 by Edward M. McNally
James Cable LLC v. Millennium Digital Media Systems LLC, C.A. 3637-VCL (June 11, 2009)
When a party to a merger agreement must rely on the financial support of a third party to complete the deal, that must be spelled out in written agreement. Absent that written commitment, the deal is then just an option to close held by the party without assets who is then fee to back out.
This decision rejects some clever attempts to make up for the lack of an agreement to fund the deal. The Court held that the "affiliate privilege" bars a claim that a parent entity wrongly caused its subsidiary to back out of the transaction by refusing funding. Other theories of recovery such as a contract claim were also dismissed for want of facts to support them.
Posted on June 2, 2009 by R. Christian Walker
Boyce Thompson Institute For Plant Research v. MedImmune, Inc., C.A. No. 07C-11-217 JRS (Del. Super. May 19, 2009) (applying New York law per choice of law provision)
This opinion discusses some interesting contractual interpretation and jurisdictional issues arising out of a licensing agreement. The dispute arose because the licensees denied any obligation to pay royalties to the licensor for products they are manufacturing in a country where, they claim, the licensor does not hold a patent.
The Superior Court found that the contract was ambiguous on whether “covered” products included those that were protected by the licensor anywhere or only those that were protected by a patent in the locations where they were manufactured. In any case, the Court denied the licensees’ motion to dismiss on the basis that there was no evidence presented to rule out the possibility that the licensees are, in fact, infringing on the patent by their acts in this other country.
The Court also raised the issue of whether it had subject matter jurisdiction to decide the case. While the Court deferred resolution of the issue, it noted that, if the contract claim requires the Court to determine whether the patent was infringed, then it would likely follow that patent law is a “necessary element” of the breach of contract claim and the federal courts have exclusive subject matter jurisdiction.
Posted on June 2, 2009 by R. Christian Walker
STMicroelectronics N.V. v. Agere Sys., Inc., C.A. No. 08C-09-099 MMJ (Del. Super. May 19, 2009) (applying New York law per choice of law provision)
This case illustrates the series of events that may arise when a subsidiary is party to a licensing agreement, but its parent is not.
Here, the licensor sued the parent company for patent infringement in the Eastern District of Texas and before the International Trade Commission. In response, the parent and subsidiary brought this action in Delaware, claiming that the filing of the patent infringement actions, though only naming the non-signatory parent, violated the licensing agreement’s covenant not to sue.
The Superior Court permitted the claim to move forward, denying the defendant-licensors’ McWane motion on the basis that the Delaware action did not present the same legal and factual issues as the first-filed proceedings. Further, the Court denied the defendants’ motion to dismiss for failure to state a claim and for lack of standing on the basis that additional discovery was necessary to resolve those issues.
Posted on June 1, 2009 by Corinne Amato
In re Adams Golf, Inc., Secs. Litig., C.A. No. 99-371-GMS (D. Del. May 26, 2009)
Chief District Judge Gregory M. Sleet rejected the defendants' motion for summary judgment, finding remaining issues of material fact concerning disclosures of gray marketing (marketing that legally circumvents authorized channels of distribution to sell goods at prices lower than those intended by the manufacturer). The Court found factual disputes as to: (1) whether the defendants had a duty to disclose the risk of gray marketing and (2) whether the gray marketing risk was material. The defendants argued that gray marketing was not a “known trend or uncertainty” that must be disclosed under Item 303(a)(3)(ii) of Regulation S-K. The court concluded, however, that a jury could reasonably conclude that the risk of gray marketing was a known trend or uncertainty likely to have a material impact on future revenue or that such knowledge rendered the statements false and misleading. The Court also could not find as a matter of law that gray marketing risks were obviously unimportant to an investor.
Posted on June 1, 2009 by Corinne Amato
Collins & Aikman Corp. v. Stockman, Civ. No. 07-265-SLR-LPS (D. Del. May 20, 2009)
Magistrate Judge Leonard P. Stark considered the plaintiffs’ state law claims of breach of fiduciary duty and denied the defendants’ motion to dismiss these claims against certain individual defendants. The complaint alleged that the individual defendants, each of whom were directors or officers of Collins & Aikman, owed “fiduciary duties of loyalty, good faith and care to the Company” and breached those duties “by orchestrating, encouraging or utilizing various accounting schemes . . . which materially misstated the financial condition of the Company.” The Court rejected the defendants’ argument that, with regard to the duty of care claims, C&A’s § 102(b)(7) exculpatory provision eliminated or limited personal liability. The Court took judicial notice of the exculpatory provision and found it inapplicable as the complaint alleged facts implicating breaches beyond that of due care.
Posted on May 29, 2009 by Edward M. McNally
Beard Research, Inc. and CB Research & Development, Inc. v. Michael J. Kates, et al., C.A. 1316-VCP (May 29, 2009)
The Court of Chancery has become increasingly unhappy with litigants who fail to preserve electronic "documents" such as email. In this latest expression of the concern, the Court sets out in detail the duties of client and counsel and explains when sanctions will be imposed for the failure to preserve evidence.
This is a particularly good opinion for its careful analysis of how to determine what sanction should be imposed. The goal is to make the sanction fit the offense, such as by awarding a presumption that the destroyed emails would have hurt the case of the guilty party. Exactly how much this will help remains to be seen, but it is a start.
Posted on May 29, 2009 by Edward M. McNally
Oliver v. Boston University, C.A. 16570-VCN (May 29, 2009)
What to do about unclaimed funds from a class action settlement is often a problem. While the funds should not go back to the defendants, thereby rewarding them, the funds otherwise might be escheated to the State or sent to a charity. Here the Court has the unclaimed finds going to Boston University, and the discussion will serve as guidance in future cases.
Posted on May 22, 2009 by R. Christian Walker
Sunstar Ventures, LLC v. Tigani, C.A. No. 08C-04-042 JAP (Del. Super. April 30, 2009)
This case illustrates the exception to the statute of frauds of "substantial part performance."
The seller of a $5MM home, and other items, brought a breach of contract action, because the buyer backed away. The buyer moved to dismiss on the grounds that there was no meeting of the minds, and, in any case, the statute of frauds bars enforcement of such a handshake agreement.
But the Superior Court denied the motion to dismiss, holding, among other things, that the fact that the buyer took possession and began making modifications to the home supported an inference that there was substantial part performance, an exception to the statute of frauds.
Posted on May 22, 2009 by Edward M. McNally
In Re Cablevision/Rainbow Media Group, C.A. 19819-VCN (May 22, 2009)
In the good old days, the multiple counsel for plaintiffs class or derivative litigation always seemed to be able to agree on how to split the fee awarded by the Court. Well, the good old days are over. Here the Court explains how to split the fee in a complex settlement.
Posted on May 22, 2009 by Edward M. McNally
Dubroff v. Wren Holdings LLC, C.A. 3940-VCN (May 22, 2009)
A claim that stockholders were wrongly diluted by the issuance of additional stock is generally consider a derivative claim that must meet tough pleading standards. However, when the dilution is caused by a controlling stockholder, the claim is also a direct claim that may be filed without meeting the rules for derivative suits. This is a big advantage.
This decision holds that a group may be consider a "controlling stockholder" for purposes of determining when a direct claim may be filed. Note that acting in parallel or voting together on an issue is evidence of acting as a group but is not enough to meet the rule requiring the pleading of facts that show an agreement to act together as a group.
This decision is also important as the first time the Court has addressed what must be disclosed in the information statement that must be sent to stockholders after stockholder consent under Section 228 is executed. Fair, if not full, disclosure is required, including whether corporate insiders benefited from the action taken by consent.
Posted on May 18, 2009 by Edward M. McNally
Triton Construction Company Inc v. Eastern Shore Electrical Services Inc., C.A. 32390-VCP (May 18, 2009)
While it is well known that directors and officers have fiduciary duties, what about employees who are neither a director nor an officer? This decision addresses that issue. While the decision goes into a detailed analysis, in general, even a non-essential employee may have a fiduciary duty to her employer as an agent of the employer. That duty then would require the employee to disclose certain conflicts of interest and to not compete with her employer.
This decision also has an excellent discussion of how to calculate lost profits in a business tort case.
Posted on May 12, 2009 by Edward M. McNally
San Antonio Fire & Police Pension Fund v. Amylin Pharmaceuticals Inc., C.A. 4446-VCL (May 12, 2009)
One defense against a hostile takeover is a provision that permits only "continuing directors" to approve certain important corporate acts. In general, to be a "continuing director" you need to be "approved" by the existing board. Hence, if you are elected in a proxy contest that marks the beginning of a takeover battle, you may not be an approved "continuing director." That would be a bad thing for your client.
In this decision, the Court upheld the power of the board to approve even candidates from an opposition slate of directors to be "continuing directors." This unusual circumstance was the result of a bond debenture provision that would have triggered a default if there were too many non-continuing directors on the board. To avoid a default, it was decided to approve even the enemy.
That, in turn, lead the Court to be concerned about whether the board had acted in the stockholders' best interests. The Court cautioned that the approval must be a considered act and that the adoption of such continuing director provisions needs to be carefully reviewed by the board in the future if they are to be upheld.
Posted on May 6, 2009 by Edward M. McNally
In re Nextmedia Investors LLC, C.A. 4067-VCS (May 6, 2009)
This is an interesting case, because it upholds the right of a member of an LLC to have it dissolved at the end of the term set for its existence in the LLC Agreement even when more than 90% of the members want it to continue. In the current recession, many limited purpose investment funds are seeking to extend the term of their existence, because they have not been able to find an investment for their member or stockholders' money. When the LLC agreement or the corporate certificate of incorporation limits how long the entity may exist without making an investment of its funds, management may try to extend the life of the entity by amending its governing instrument. However, at least in the case of an LLC, when the LLC agreement says that all members must consent to extending the entity's existence, the court will uphold that requirement.
This decision reflects the primacy of contract law in the LLC context. The result may have been different for a Delaware corporation where a requirement for unanimous voting by stockholders is probably not valid.
Posted on May 6, 2009 by Edward M. McNally
Jakks Pacific, Inc.v. THQ/Jakks Pacific LLC, C.A. 4295-VCL (May 5, 2009)
When the business of an LLC is limited, so too may inspection rights be limited. Here the "business" was to exploit a license that was about to come to an end, and the Court held there was no need to inspect business records to value the business as there may well be nothing left to value.
Further, the Court held that mere allegations, unsupported by facts at trial, do not provide a basis to inspect records to determine if there has been any wrongdoing.
Posted on April 30, 2009 by Edward M. McNally
Nemec v. Shrader, C.A. 3878-CC (April 30, 2009)
A contract right does not create a fiduciary duty. Here the plaintiffs had a contract that gave their former employer the right to buy back company stock at book value. The employer did so on the eve of a big transaction, greatly increasing the company's book value. The Court held that plaintiffs' contract did not give them the right to insist that the company hold off on stock redemption until the big deal was done.
Posted on April 29, 2009 by Edward M. McNally
Tooley v. AKA Financial Inc., C.A. 18414-CC (April 29, 2009)
While it is well known that the failure to prosecute a class action may lead to the case being dismissed, many practitioners just do not believe in the need to move a case along or risk losing it. Here, the Chancellor of the Delaware Court of Chancery sends a clear message that delay in litigating a case will lead to the dismissal of the claims in the future.
Posted on April 28, 2009 by Corinne Amato
Norman v. Elkin, C.A. No. 06-005-JJF (D. Del. Apr. 28, 2009)
The district court denied motions for summary judgment for claims of breach of contract, usurpation of corporate opportunities, breaches of fiduciary duty, breach of the duty of disclosure, conversion and misappropriation, and fraudulent representation. In their motion, the defendants responded to the plaintiff’s usurpation of corporate opportunity and misappropriation claim by arguing that the claim failed as matter of law, because the defendant corporation did not have the financial capability to participate in an auction for certain licenses. The district court cited the Court of Chancery’s standard for establishing that a corporation is financially unable to take advantage of a corporate opportunity. “[S]uch financial inability must amount to insolvency to the point where the corporation is practically defunct.” The district court agreed with the plaintiff that a reasonable jury could find that the defendant was not practically defunct and could have raised funds necessary to participate in the auction.
Posted on April 27, 2009 by Corinne Amato
Spear Pharm. Inc. v. William Blair & Co. LLC, C.A No. 07-821-JJF (D. Del. Apr. 27 2009)
The district court denied motions to dismiss the complaint and found the Supreme Court’s decision in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) instructive. In Twombly, the Supreme Court considered whether a complaint that alleged conspiracy to restrain trade, in violation of the Sherman Antitrust Act, but lacked factual context suggesting an agreement, as distinct from identical, independent action, should be dismissed. The district court concluded that, under Twombly and Third Circuit precedent, the complaint was not “fatally speculative” and should not be dismissed. Unlike the Twombly complaint, where the allegations mentioned no specific time, place, or person involved in the alleged conspiracies, the Spear complaint cited an individual, a time frame, and a temporal sequence of events supporting the allegations.
Posted on April 27, 2009 by Edward M. McNally
Ivize of Milwaukee, LLC v. Compex Litigation Support LLC, C.A. 3158-VCL (April 22, 2009)
While a statement may not be a lie unless the speaker knows he has failed to tell the truth, a contractual representation does not require knowledge that it is false for it to be actionable if untrue. This decision then puts to rest the argument that scienter is needed to prove a breach of a contractual representation.
Posted on April 3, 2009 by Morris James Delaware
Lynch v. Coinmaster USA, Inc., C.A. No. 06-365-JJF (D. Del. Mar. 30, 2009)
In this opinion, the court denied a broad application of the ultra vires doctrine. Seeking damages for breach of an employment agreement with Coinmaster USA, Inc., the plaintiff claimed that he was owed outstanding monthly pay, a termination fee, profits, and stock options. Moving for summary judgment, the defendants argued, inter alia, that the agreement was void ab initio in light of the plaintiff’s pre-existing employment agreement with Coinmaster Gaming PLC, a company related to Coinmaster USA, Inc. The defendants cited Solomon v. Armstrong, 747 A.2d 1098 (Del. Ch. 1999), noting that ultra vires acts are void ab initio. Although the court was not entirely clear on the defendants’ position, the court ascertained that the defendants were arguing that the plaintiff, by contracting with Coinmaster USA, Inc. for additional compensation, breached the Coinmaster Gaming PLC agreement and, hence, breached a fiduciary duty to Coinmaster PLC. Under Solomon, the defendants claimed that such a contract is ultra vires and, therefore, void ab initio.
Rejecting the defendants' argument, the court found that the Coinmaster USA, Inc. agreement was not void ab initio. Delaware law severely restricts the categories of claimants who can raise the ultra vires defense. The defendants cited no cases, and the court could not identify any authority, suggesting that such a contract was ultra vires and, hence, void ab initio merely because it conflicts with a contract involving a third party. Finding that Solomon does not stand for this proposition, the court denied the defendants’ motion for summary judgment with respect to the plaintiff’s breach of contract claim.
Posted on April 2, 2009 by Edward M. McNally
In re William Lyon Homes Shareholders Litigation, C.A. No. 2015-VCN (Del Ch. April 4, 2009)
This decision deals with when a plaintiff may receive a fee when a merger price is increased after he files suit and then his case is mooted. The general rule applied here is that while the defense has the burden of proving the plaintiff did not contribute to the increased price, when the merger consideration was increased without any help from the plaintiff, there is no fee. In short, no help, no fee.
Posted on April 1, 2009 by Edward M. McNally
Mickman v. American International Processing LLC, C.A. No. 3869-VCP (Del. Ch. April 1, 2009)
In the case of an LLC, unlike with a Delaware corporation, the statutory definitions of who may seek court relief have not been broadened. Generally, only a member or manager has those rights, and membership is determined by the LLC operating agreement. This decision holds that a plaintiff may prove she is a member entitled to enforce membership rights by extrinsic evidence, such as a tax return listing her as a member.
Posted on March 31, 2009 by Edward M. McNally
In re Countrywide Corporation Shareholders Litigation, C.A. No. 3464-VCN (Del. Ch. March 31, 2009)
This decision provides an excellent outline of what claims may be released in a class action settlement. Here the objectors to the settlement had a damage claim unique to them but that the proposed settlement would have released. The Court held that the objectors needed to be given the right to opt out of the settlement or the release that was part of the settlement must be more limited so as to not affect their rights in their individual claim.
Posted on March 25, 2009 by Edward M. McNally
Lyondell Chemical Company v. Ryan, C.A. 401, 2008 (Del Sup March 25, 2009)
In this expected reversal of a decision by the Court of Chancery, the Supreme Court has again defined what constitutes "bad faith." The reversal was expected because of the unusual action of the Supreme Court in taking an interlocutory appeal from a decision denying summary judgment . The trial court's decision was considered controversial by some, although the critics exaggerated its significance, as the trial court itself explained when it had refused to certify the appeal.
First, the Supreme Court decided that Revlon duties did not come into play when the Board had rejected a merger proposal. No surprise there, and this is largely a technical point.
Second, the Court repeated, more forcefully than in the past, that only when a disinterested board "knowingly and completely failed to undertake their responsibilities" will it be said to act in bad faith. This means that grossly negligent conduct is not bad faith when there is no scienter involved.
Most significantly, in this case there was no real evidence that the Board knew what it was doing was wrong. It had competent legal and financial advisers, the merger price was a good one, and a "fiduciary out" clause permitted at least some possibility of a competing offer.
Saint Louis University law professor Matt Bodie offers an interesting view on the decision over at the PrawfsBlawg.
Posted on March 23, 2009 by Edward M. McNally
Sutherland v. Sutherland, C.A. No. 2399-VCL (Del. Ch. March 23, 2009)
This decision is a good outline of the effect of Section 144 of the Delaware General Corporation Law ("DGCL") that permits transactions to be judged on their merits, even if they are with interested directors. After explaining that law, the Court went on to hold that a certificate of incorporation provision that permitted interested directors' votes to be used to invoke the business judgment rule would be in violation of the DGCL and, thus, invalid.
This is important, because it means that, at least in a Delaware corporation, there are limits on what exculpation can be provided to directors in a certificate of incorporation. The law may well be different in an LLC or LP, of course.
Posted on March 18, 2009 by Edward M. McNally
Addy v. Piedmonte, C.A. 3571-VCP (Del. Ch. March 18, 2009)
It is now common to include a clause in contracts asserting that a buyer has not relied on anything she was told and instead has only relied on her own investigation and the promises contained in her written contract. Sellers then seek to defeat fraud claims by arguing that the buyer is barred from showing reliance on anything not exactly in the contract between the parties. Courts do enforce these provisions as they have a legitimate place in private ordering.
Here, the Court explains the limits of these exculpation clauses. Even sophisticated parties dealing with a purely commercial matter with the time to investigate may be able to state a claim for fraud despite such an exculpation clause. Briefly, it depends on how bad the lying seems to the court. This case reeks of a scheme to defraud an investor, and the Court was concerned that it would further the scheme if it dismissed the claim because of the exculpation clause. Note, however, that the plaintiff still has to prove he relied on what he claims was a false statement in the face of language in the contract that he was not relying on matters outside the contract itself. Somehow it seems, if he got past the motion to dismiss, he has a good shot at prevailing.
Posted on March 10, 2009 by Morris James Delaware
Zwanenberg Food Group (USA) Inc. v. Tyson Refrigerated Processed Meats, Inc., Civ. No. 08-329-LPS (D. Del. Feb. 27, 2009).
United States Magistrate Judge Leonard P. Stark denied Tyson Refrigerated Processed Meats, Inc.’s (“Tyson”) motion for partial summary judgment of Zwanenberg Food Group (USA) Inc.’s (“ZFG”) contract-based claim that Tyson breached the implied covenant of good faith and fair dealing.
Both Tyson and ZFG are producers and manufacturers of canned meats and other food products. Pursuant to the contract at issue, ZFG purchased from Tyson inventory and equipment used to manufacture canned luncheon meat for private label customers. Wal-Mart Stores, Inc. (“Wal-Mart”) was Tyson’s largest customer for the goods it produced using the assets that were sold to ZFG. Tyson and ZFG, without the involvement of Wal-Mart, executed an Asset Purchase Agreement (“APA”) and the deal closed.
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Posted on March 6, 2009 by Edward M. McNally
In re Yahoo! Shareholders Litigation, C.A. 3561-CC (Del. Ch. Mar. 6, 2009)
This is another in a line of cases where substantial attorney fees ($8,400,000) are awarded to a stockholder whose complaint achieves an intangible benefit for the corporation. Here the benefit was the end of Yahoo's employee severance plan that made it harder to sell Yahoo.
Posted on March 3, 2009 by Edward M. McNally
BASF Corp. v. POSM II Properties Partnership L.P., C.A. 3608-VCS (Del. Ch. Mar. 3, 2009)
The plaintiff in this case argued it was entitled to be bought out of the partnership because the partnership agreement provided buy out rights when control of the partnership changed. The Court held that a change in ownership of the partnership managing entity was not a change in control of the partnership itself. Instead, only control of the manager had changed.
Posted on February 27, 2009 by Edward M. McNally
Metcap Securities LLC v. Pearl Senior Care Inc., C.A. 2129-VCN (Del. Ch. Feb. 27, 2009)
In this decision the Court explains when it will grant reformation of a contract based on mistake. Most importantly, it held that an attorney was authorized to agree to the amendment to a contract that his client later argued was a mistake. The circumstances were very unusual, but the key point remains that reformation will not be granted when in hindsight a concession is later regretted.
Posted on February 26, 2009 by Edward M. McNally
Beiser v. PMC-Sierra Inc., C.A. 3893-VCL (Del. Ch. Feb. 26, 2009)
Under the federal PSLRA, discovery may be stayed while a motion to dismiss is pending. Parties have tried to get around this stay by filling a books and records complaint in the Court of Chancery. This decision explains when you can get away with that, and holds, not very often.
Briefly, a books and records action may only proceed when the plaintiff is not already involved in a federal case over the same issues, when the plaintiff's attorney is also not involved in a pending federal case, and where the plaintiff agrees not to use the materials produced in the Delaware case to prosecute a pending federal case.
Posted on February 26, 2009 by Edward M. McNally
Kosseff v. Ciocia, C.A. 188-MG (Del. Ch. Feb. 26, 2009)
This decision points to a new method of handling attorney fee requests following a settlement. The Court referred the request to one of its Masters for a report, reviewed the report, and upheld the Master's award.
Posted on February 25, 2009 by Edward M. McNally
Lillis v. AT&T Corp., C.A. 717-VCL (Del. Ch. Feb. 25, 2009)
In what surely must have been a boring use of judicial time, in this case the Court of Chancery was required to decide what fees were reasonable in a complex indemnification case. The decision is helpful in showing how the Court went about a task that the parties should have been able to do for themselves. In any event, the Court carefully went over the fee request and did what it had to do under the circumstances.
Posted on February 24, 2009 by Edward M. McNally
Underbrink v. Warrior Energy Services Corp., C.A. 2982-VCP (Del. Ch. Feb. 24, 2009)
When a party is entitled to have her attorney fees advanced while litigation is pending, the Court of Chancery is faced with the possible task of reviewing each monthly bill to decide what is reasonable. At the end of the case, of course, a final accounting will occur, but that is too late and would defeat the whole purpose of a right to advancement.
To avoid the onerous task of acting like an attorney fee audit firm, the Court of Chancery has explored using formulas to decide how much of each month's bills should be paid. That way the bills are paid at least at a level that provides enough compensation to obtain representation, while not awarding so much as to encourage a complete lack of restraint. For example, the Court may decide that 65% of the bills should be paid promptly and the balance left to a final accounting. That is what it did here.
Posted on February 24, 2009 by Edward M. McNally
In re Citigroup Inc. Shareholder Derivative Litig., C.A. 3338-CC (Del. Ch. Feb. 24, 2009)
After the recent decision in the AIG case denying a motion to dismiss a complaint, there was some concern that perhaps the Court of Chancery was loosening the pleading requirements to state a claim under the Caremark line of case law. Caremark, of course, suggested that directors might be liable for failing to properly supervise management even when the directors did not receive any personal benefit as a result.
In this latest decision, the Chancellor has put those fears to rest. He distinguished the AIG decision and strongly affirmed that the business judgment rule protects directors when they make business decisions, even those that involve risk to the entity.
Thus, it is important to read the AIG decision and this decision together to get a full picture of how the Court is reacting to the calls to assign blame in the current financial crisis.
Posted on February 23, 2009 by Edward M. McNally
West Willow-Bay Court LLC v. Robino-Bay Court Plaza LLC, C.A. 2741-VCN (Del. Ch. Feb. 23, 2009)
When attorney fees are awarded under the terms of a contract, the question sometimes comes up on how to calculate the fees when there was only partial success by the prevailing party. This decision answers that question. Basically, if you win, then you win your fees when the contractual right to fees does not say otherwise and even if you are only partially successful.
Posted on February 18, 2009 by Edward M. McNally
Banet v. Fonds de Regulation et de Controle Cafe Cacao, C.A. 3742-CC (Del. Ch. Feb. 18, 2009)
This is an excellent summary of the law governing when the Court of Chancery will appoint a receiver for either an insolvent or a solvent corporation. For example, only when there is a grave risk of serious harm to the entity will the Court appoint a receiver for a solvent Delaware corporation.
Posted on February 12, 2009 by Edward M. McNally
Norfolk Country Retirement System v. Jos. A. Bank Clothiers, Inc., C.A. 3443-VCP (Del. Ch. Feb. 12, 2009)
Repeated books and records demands by different stockholders should be viewed favorably. When, as here, a special litigation committee (SLC) has reviewed the conduct sought to be investigated by the plaintiff, and the independence and diligence of the SLC cannot be fairly questioned, then a stockholder who demands inspection may receive the SLC report and some backup materials, but no more absent a stronger showing of real justification to think the SLC did not do its job.
Posted on February 10, 2009 by Edward M. McNally
American International Group Consolidated Derivative Litigation, C.A. 769 (Del. Ch. Feb. 10, 2009)
The Court of Chancery is often faced with the difficult task of deciding when a complaint has enough factual allegations to survive a motion to dismiss, particularly when there is no self dealing by directors and the business judgment rule is raised as a defense. This detailed 102-page decision illustrates the thought process that the Court uses.
The basic question presented was whether the plaintiff, could at the pleading stage, state sufficient facts to show that the case should go forward. As is typical, the defendants argued that all the complaint really alleged is that they made some bad decisions or that others below them in the corporate entity were the parties at fault. The Court denied the motion to dismiss because there was enough in the complaint to warrant an inference that the defendants must have known of the corporate wrongdoing. The keys to this result were: (1) the defendants were in position to know of the wrongs that had been committed; (2) they had practiced tight control over the entity so that they generally were aware of all that was going on; and (3) the bad acts were massive in scale and unusual in nature so as to have been unlikely to have been done without the defendants' knowledge.
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Posted on February 6, 2009 by Edward M. McNally
In re: Affiliated Computer Services, Inc. Shareholders Litigation, C.A. 2821-VCL (Del. Ch. Feb. 6, 2009)
Determining when a derivative complaint should be dismissed becomes complicated when the composition of the board of directors changes. What board do you look to to determine if a demand must be made on the board before suit may proceed? You start by looking at the board that existed at the time the complaint was filed. If demand on that board was excused, then the case was "validly in litigation" and may proceed even if the board composition later changes to include a majority of disinterested directors.
Posted on February 6, 2009 by Edward M. McNally
Spellman v. Katz, C.A. 1838-VCN (Del. Ch. Feb. 6, 2009)
In drafting an LLC operating agreement, the key point to remember is that you get what you agreed to even if you later come to regret it. Here, the operating agreement included a provision that the LLC would be dissolved when certain events occurred. When those events occurred, one of the members claimed that he never intended the LLC would then be dissolved. Too bad said the Court and ordered dissolution and winding up.
Posted on February 3, 2009 by Edward M. McNally
BAE Systems Information and Electronic Systems Integration, Inc. v. Lockheed Martin Corp., C.A. 3099-VCN (Del. Ch. Feb. 3, 2009)
It is sometimes difficult to decide when a writing is an enforceable contract or merely an agreement to agree. This decision sets out the methodology to decide that question. Particularly important is the way that other businesses operate in the same field for that may provide guidance on how to “fill in the blanks.”
Posted on January 27, 2009 by Edward M. McNally
Gantler v. Stephens, C.A. 132,2008 (Del. Jan. 27, 2009)
This is an important decision because it limits when stockholder approval of a transaction has the effect of ratifying director action. Moreover, it limits the effect of stockholder ratification by holding that the business judgment level of review still applies to the directors' action, rather than holding that ratification extinguishes any claim.
The ratification holding is that stockholder ratification only occurs when the stockholders approve a transaction that the directors are empowered to take without the approval of the stockholders. For example, because directors are able to issue stock without stockholder approval, the added approval of the stockholders would ratify their decision to sell stock. In contrast, because a merger already requires stockholder approval, the approval of the stockholders does not constitute "ratification" of the directors' decision to recommend the merger. They approve it but do not "ratify" it. How is that for a distinction?
The rationale for this tightly reasoned result lies in the difference under Delaware law between complying with a controlling statute's requirements to carry out a transaction and having a good reason for doing the transaction in the first place. In other words, in Delaware just because you have the power to act (the stockholders voted for it) does not mean you should act (a decision that is measured by Delaware's law of fiduciary duty).
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Posted on January 22, 2009 by Morris James Delaware
The following is a summary of the top 10 most important corporate law decisions published in 2008. The Delaware courts addressed a range of issues this past year in the areas of fiduciary duty, the negligence - bad faith continuum, advancements and mergers.
Fiduciary Duty
The Delaware courts found occasion to reaffirm in one case and expand in two cases the reach of fiduciary duty law.
The Court of Chancery reaffirmed that warrant holders are not owed fiduciary duties and there is no duty to keep them informed. See Corporate Prop. Assoc. 14 Inc. v. CHR Holding Corp., C.A. No. 3231-VCS, 2008 WL 963048 (Del. Ch. Apr. 10, 2008); see also previous commentary here. However, the Court found further that a corporation has a duty to a warrant holder to truthfully answer its inquiries about corporate plans. When asked about a matter that implicated the warrant holders' financial interest, the corporation had a duty to answer truthfully. For a summary of the opinion see Francis G. X. Pileggi’s post here.
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Posted on January 21, 2009 by Edward M. McNally
Topspin Partners L.P. v. Rocksolid Systems. Inc., C.A. 4275-VCL (Del. Ch. Jan. 21, 2009)
This decision illustrates the sometimes forgotten Delaware rule that if you get a TRO you better act fast. Here the plaintiff sat on its rights for ten months and the Court, while finding that irreparable harm might occur and that the claims appeared meritorious, denied immediate relief because of the delay.
Posted on January 20, 2009 by Edward M. McNally
Agilent Technologies, Inc. v. Kirkland, C.A. 3512-VCS (Del. Ch. Jan. 20, 2009)
This decision is interesting because it illustrates what a party to litigation can or cannot say about the case. The failure to adhere to the rules results in a business tort claim for unfair practices, etc. Here is the rule in a nutshell: You can say that there is a suit on file but you cannot say that you are sure to win and put the other side out of business. After all, that is for the Court to decide.
Posted on January 16, 2009 by R. Christian Walker
Firemen's Insurance Co. v. Birch Pointe Condo. Assoc., Inc., C.A. No. 08C-04-081 JAP (Del. Super. Dec. 17, 2008).
In this decision, the Superior Court ruled sua sponte that it lacked subject matter jurisdiction over an action seeking declaratory relief and requesting the appointment of an arbitrator. The court held that under 10 Del. C. § 5704 the Court of Chancery has exclusive jurisdiction to appoint an arbitrator when the parties’ agreed upon method of appointment fails for any reason.
Posted on January 15, 2009 by Edward M. McNally
Alliance Data Systems Corporation v. Blackstone Capital Partners V, LP, C.A. 3796-VCS (Del. Ch. Jan. 15, 2009)
Here the target tried to argue that the parent entity should be responsible to pay damages for its sub’s failure to close under the facts of this case. It claimed that as all the parties knew the parent had to support the sub to get the deal done, the merger agreement should be read to imply that obligation. The Court of Chancery rejected that argument as inconsistent with the terms of the merger agreement and noted that if the target knew of the risk and failed to cover that risk by securing the parent's guarantee in its agreements, then that was too bad.
Many mergers involve the use of a new, assetless entity that is a subsidiary of the real acquiror, as a merger partner. When the parent does not guarantee the obligations of the sub, however, the merger agreement then is really just an option for the parent to exercise or not as it sees fit. For if the sub does not close the merger, the other parties to the deal are left without a real remedy. This insulation of the parent entity is understood and intended, and is a risk the target is willing to take to get the best price.
Posted on January 14, 2009 by Edward M. McNally
Julian v. Eastern States Construction Company, C.A. 1892-VCP (Del. Ch. Jan. 14, 2009)
This decision answers the question of whether the normal rules governing attorney fee awards in derivative litigation will be applied in closely held entities. This has been a concern because some have argued that when the entity is closely held, the recovery in the derivative litigation benefits the few owners more directly and immediately than in the case of publicly held companies. For example, in subchapter S companies, the recovery is often distribution to the owners; hence, the argument goes, there is no need to award fees to give an incentive to the plaintiff to bring a derivative suit.
Here the Court rejected that argument and awarded fees. After all, the amount distributed to the successful owner in such cases may not be enough to pay her attorneys and some additional incentive is appropriate.
The opinion is also interesting in its discussion of how to calculate those fees. Given that the recovery is fairly small, so should the fees and a multiple of hourly rates may not be warranted in such cases.
Posted on January 13, 2009 by Edward M. McNally
Fisk Ventures, LLC v. Segal, C.A. 3017-CC (Del. Ch. Jan. 13, 2009)
It has long been established that a limited partnership may be dissolved when a deadlock makes it impossible to carry on the partnership business. Here the Court of Chancery applied that same law to an LLC as the statute also provides for a judicial dissolution when it is "not reasonably practical to carry on the business" for which the entity was created.
Posted on January 2, 2009 by Edward M. McNally
Ryan v. Gifford, C.A. 2213-CC (Del. Ch. Jan. 2, 2009)
In this decision the Court approves the settlement of a stock option back dating case. The opinion carefully goes through all the analysis of when to approve a settlement, particularly when the recovery is adequate under the circumstances.
The attorney fee award of $9,000,000 or about $1,100 per hour shows that contrary to some beliefs, the Court is prepared to award significant fees for hard, excellent work that achieves a good result.
Posted on December 19, 2008 by Edward M. McNally
Marie Raymond Revocable Trust v. MAT Five LLC, C.A. 3843-VCL (Del. Ch. Dec. 19, 2008)
This decision has a good summary of the law governing certification of a class and when to approve a class settlement. Here the settlement permitted class members to opt out without the loss of any rights to pursue other related litigation. Thus, this decision distinguished the recent decision in Off v. Ross that had disapproved a settlement without opt out rights.
The interesting question is whether these two cases now mean that opt out classes are favored in Delaware. We doubt it. However, it is certainly the case that settlements with hardly any benefits to class members are receiving even greater scrutiny.
Posted on December 11, 2008 by Edward M. McNally
Aveta Inc. v. Bengoa, C.A. 3598-VCL (Del. Ch. Dec. 11, 2008)
It is now common to provide for post merger payouts and the arbitration of any disputes about those payouts. This case illustrates the problem of what happens when one party feels it does not have enough information to go into arbitration where discovery may be limited. The Court held that when the obligation to arbitrate is not conditioned on the receipt of information, arbitration will be ordered and the parties will be left to deal with the arbitrators over information exchange issues.
The answer is to provide clearly for adequate information exchange rights in the arbitration.
Posted on December 11, 2008 by Edward M. McNally
Kahn v. Portnoy, C.A. 3515-CC (Del. Ch. Dec. 12, 2008)
This important decision illustrates how hard it is to make an LLC agreement cover all future events. While there is a growing school of thought that advocates letting the parties make their own bed in the form of the LLC agreement, that approach fails to appreciate how hard it is to do that well. The failure to successfully do so leaves everyone unhappy, and they would have been better off had they not tried to begin with.
Here the parties to an LLC agreement tried to address conflict of interest situations that were sure to occur when the entity would contract with related entities owned by its directors. They did so by a clause that was supposed to limit fiduciary duties in such cases. What happened, and it happens a lot, is that the language they used did not exactly fit the circumstances they later faced. As a result, they proceeded apparently thinking that they were alright only to be followed by the Court correctly pointing out that the language they relied upon did not work as they thought. Now they face liability under fiduciary standards they cannot meet.
One answer is better drafting. But given the many times that seems not to have been done, perhaps it is time to give up the effort to speak to all future events. Instead, those transactions that are expected to occur should be addressed directly and specifically. If the directors want their personal company to rent to the LLC, then they should say that is okay at least if the rent is approved by an independent third party. If they do not know what type of transactions they want to enter into, then they should fall back on the extensive fiduciary law under the Delaware corporation law that will tell them how to do a deal safely.
Posted on December 5, 2008 by Edward M. McNally
TravelCenters of America v. Brog, C.A. 3751-CC (Del. Ch. Dec. 5, 2008)
In this unusual case, the LLC sought to require the loser of a proxy contest to pay the costs. The LLC Agreement had a provision that imposed costs on those members who violated any of their obligations in the agreement. The LLC claimed that when the members put up unqualified candidates for office they should pay the costs of defeating them. The Court held that as the conditions to be a candidate were not obligations of the members, but "conditions," costs would not be imposed.
While the opinion does not say so, this may reflect a reluctance to discourage election contests by imposing costs on the loser.
Posted on November 26, 2008 by Edward M. McNally
Off v. Ross, C.A. 3468-VCP (Del. Ch. Nov. 26, 2008)
The Court of Chancery rejected the proposed settlement of this derivative suit for two reasons. First, the transaction under attack in the litigation was completed after a modification favorable to stockholders before the settlement was presented for approval, the modification was considered by the board before suit was filed, and the transaction was not dependent on approval of the settlement. Thus, the Court concluded that there was no consideration for the settlement because the modification to the deal that plaintiff relied upon to justify the settlement would have happened anyway without the suit. A benefit received by stockholders that is not caused by litigation is not valid consideration for the settlement of the litigation.
In addition, the Court was troubled by the effect of the release that was part of the settlement on related litigation in New York. Given that the stockholders received virtually nothing for the release, it was wrong to affect their rights in the litigation elsewhere that might benefit them.
Posted on November 24, 2008 by Morris James
Christ v. Cormick, 2008 WL 4889127 (D. Del. Nov. 10, 2008)
In this opinion the Court sanctioned the defendant’s conduct, including discovery abuse, by awarding punitive damages. The Court first entered default judgment against the defendant after his “repeated dilatory discovery conduct and his refusal to appear for deposition.” The plaintiff sought punitive damages in addition to compensatory damages, and the Court found that the entry of default did not preclude awarding punitive damages. The failure to appear for deposition was “but one example of the kind of willful conduct that requires an award of punitive damages.” The plaintiff also sought attorneys’ fees and expenses both for the Delaware action and proceedings in South Africa. The Court, however, denied this claim, finding that an award for fees in the South African litigation was unsupported by law, and the summary information submitted for fees for the Delaware proceeding was inadequate as a matter of law because it did not allow the Court to make a thorough analysis of the time records.
Posted on November 21, 2008 by Edward M. McNally
Testa v. Nixon Uniform Service, Inc., C.A.3886-VCS (Del. Ch. Nov. 21, 2008)
In a novel attempt to invoke the jurisdiction of the Court of Chancery, the plaintiff tried to rely upon Section 111(a)(2) of the Delaware General Corporation Law that provides the Court of Chancery jurisdiction in disputes over stock. Here the plaintiff was really seeking money damages for the failure to be paid the full value of his SARs. The court held this was a claim for money damages that it did not have jurisdiction to decide, not a claim over ownership of stock.
Posted on November 7, 2008 by Edward M. McNally
Cargill, Incorporated v. JWH Special Circumstance LLC, C.A. 3234-VCP (Del. Ch. Nov. 7, 2008)
In this major opinion, the Court of Chancery held that a manager of a Delaware Statutory Trust has a fiduciary duty to the Trust absent a clear exclusion of that duty in the trust instrument. This conclusion has broad implications including that the owners of the manager may also have such duties in connection with transactions that arguably benefit the owner. That is consistent with a long line of Delaware case law in other contexts, such as for corporations and limited partnerships.
This once again illustrates the need for very careful drafting in these alternative entities where the governing instrument may set the rules of the game. Failure to do so means that principles of corporate law, or in this case, trust law, will control by default. That will defeat the whole purpose of using an alternative to the traditional corporate form to gain the right to draft rules for that particular transaction.
Posted on October 28, 2008 by Edward M. McNally
County of York Employees Retirement Plan v. Merrill Lynch & Co., Inc., C.A. 4066-VCN (Del. Ch. Oct. 28, 2008)
In this decision, the Court of Chancery again affirms it disinclination to stay proceedings in Delaware just because a federal securities case was filed first elsewhere. Some doubt about that issue may have existed after the Court did stay a Delaware case involving Bear Sterns in favor of federal litigation in New York. But as this opinion notes, the Bear Sterns case was unique.
Posted on October 22, 2008 by
Introduction
A recent Delaware Court of Chancery decision has generated much discussion over whether disinterested directors may be held liable for approving a transaction that appeared reasonable to them and their advisors. Indeed, by holding that the directors may have acted in “bad faith,” the decision seemed to some to be a threat to the core principles embodied in the business judgment rule. That rule protects directors from being second guessed by courts long after the business decision has been made. These concerns are overstated. This article will: (1) outline the background to the current controversy over “bad faith” in Delaware, (2) predict how the Delaware Supreme Court will clarify the Delaware law of “bad faith” and (3) suggest a possible solution to address lingering concerns over director liability for disinterested business decisions.
The “Problem”
For many years Delaware limited director liability for disinterested business decisions to those decisions properly held to be grossly negligent. This high standard seemed adequate to protect directors from inappropriate judicial second guessing. Then in 1985, Smith v. Van Gorkom held a board was grossly negligent. Many commentators felt Van Gorkom demonstrated the inability of courts to understand what should constitute gross negligence. The Delaware Legislature promptly responded to Van Gorkom by adopting Section 102(b)(7) of the Delaware General Corporation law. That new statute permitted Delaware corporations to include a provision in their certificate of incorporation that immunized directors for even grossly negligent decisions. Section 102(b)(7) has its exceptions, however. One of those is that actions “not in good faith” lose the statutory protection from liability.
As might be expected, if directors could not be successfully sued for actions “in good faith,” it was only a matter of time before plaintiffs filed claims alleging directors had acted in “bad faith”.
Bad Faith
Bad faith remained largely undefined until 2005. After much debate regarding whether good faith was an independent fiduciary duty and what exactly constitutes good (and bad) faith, Chancellor Chandler defined bad faith as an “intentional dereliction of duty, a conscious disregard for one’s responsibilities” and a “[d]eliberate indifference and inaction in the face of a duty to act.” The Delaware Supreme Court then set out three different categories of fiduciary behavior that might deserve the “bad faith pejorative label.” The first, fiduciary conduct motivated by an intent to do harm, was aptly labeled “subjective bad faith” The second category involves “fiduciary action taken solely by reason of gross negligence and without any malevolent intent,” a lack of due care. The court decided, however, that gross negligence without more does not constitute bad faith, and thus does not breach the duty of loyalty. The third category is the Chancellor’s definition of bad faith, as intentional dereliction of duty, a conscious disregard for one’s responsibilities. In Stone v. Ritter, the court further stated bad faith is a “fail[ure] to act in the face of a known duty to act, thereby demonstrating a conscious disregard for [one’s] responsibilities,” and thus not exculpated under § 102(b)(7).
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Posted on October 22, 2008 by Fotini A. Skouvakis
Brian T. Olson v. O. Andreas Halvrosen, C.A. 1884-VCL (Del Ch. Oct. 22, 2008)
This decision invalidates a provision in an unsigned LLC agreement for violating the statute of frauds. The Delaware LLC Act permits an oral LLC agreement; however, when the promise in that oral agreement cannot be performed within a year, the promise must be in writing. Given the common existence of oral LLC agreements, this decision sounds a word of caution.
Posted on October 21, 2008 by Morris James
Kempski v. Toll Bros., Inc., 2008 WL 4642633 (D. Del. Oct. 21, 2008)
In this opinion, the District Court reinforced Delaware’s law that indemnity provisions that require one party to indemnify another party for the second party’s own negligence are void as against Delaware’s public policy. Here the Defendant, Toll Brothers, Inc., contracted with Delaware Heating and Air Conditioning Services, Inc. (“DHAC”), to perform HVAC work on Defendant’s housing developments. One of DHAC’s employees was injured while performing the work, and sued Defendant. Defendant sought indemnification from DHAC pursuant to their contract. Both Defendant and DHAC sought summary judgment on the indemnification claim. The Court found that under Delaware law, the contractual indemnification provision that Defendant sought to invoke was against Delaware public policy, and granted summary judgment for DHAC.
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Posted on October 14, 2008 by Edward M. McNally
In the Matter of Dow Chemical International Inc. of Delaware, C.A. 3972-CC (Del. Ch. Oct. 14, 2008)
This decision has a good outline of when the right to sue a Delaware corporation expires after it is dissolved. The basic rule is that after three years no suit may be filed. Exceptions may exist for entities that still have undistributed assets and when a receiver is appointed for those entities.
Posted on September 29, 2008 by Edward M. McNally
Hexion Specialty Chemicals Inc. v Huntsman Corp., C.A. 3841-VCL (Del. Ch. Sept. 29, 2008)
This ninety-one page opinion is must reading on how to interpret a merger agreement and on the parameters of the obligation to proceed in good faith to close a deal. In upholding the obligation to at least try to obtain the financing to close, the Court goes into great detail on why the party seeking to escape its obligations bears a heavy burden to explain actions it has taken that may impede its ability to get financing or otherwise close a deal that it no longer finds attractive.
Posted on September 23, 2008 by Edward M. McNally
In re Seneca Investment LLC, C.A. 3624-CC (Del. Ch. Sept. 23, 2008)
This decision applies the corporate law rule that the Court of Chancery will not dissolve a solvent entity except for extraordinary reasons. Merely acting as a holding company without an active business is not even close to good enough to warrant dissolution.
Posted on September 23, 2008 by Edward M. McNally
Weir v. JMACK Inc., C.A. 3263-CC (Del. Ch. Sept. 23, 2008)
This decision repeats the settled Delaware law that the Court of Chancery will not appoint a receiver for a solvent Delaware corporation absent extraordinary circumstances. Of course, having a court tell the world that your tax evasion is not "extraordinary" justification for a receiver may have been punishment enough.
Posted on September 22, 2008 by R. Christian Walker
Capano Homes, Inc. v. Syed, 2008 WL 4182039 (Del. Super. Ct. Sept. 8, 2008).
This decision implements the objective theory of contracts adopted by the Delaware courts. The dispute involved a homebuyer who refused to proceed to settlement, claiming that the builder breached their written agreement and that the buyer should therefore be excused from performing. The homebuyer alleged that the completed home did not meet the parties’ agreed upon specifications for the dimensions of the garage and type of veneer. The court granted summary judgment to the builder.
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Posted on September 19, 2008 by Edward M. McNally
In re Loral Space and Communications Consolidated Litigation, C.A. 2808-VCS (September 19, 2008).
This decision covers the now familiar ground of a review of an interested transaction with a controlling parent company that is blessed by a dysfunctional special committee. After finding the transaction was not fairly negotiated, and not substantively fair as well, the Court has granted an unusual remedy. Rather than awarding money damages, the Court has ordered the deal be restructured to make it fair, by converting the preferred stock issued to the parent to non-voting common stock.
The opinion is also particularly interesting for its discussion of the role of the special committee used in this transaction. The committee apparently felt its role was to get the best terms in the deal proposed by the parent company to make it "fair," rather than to question whether the deal was in their company's best interest. The committee's assumption that they could not just say no was in error.
The decision also touches on the rights of bondholders when a major bondholder has its consent to redemption effectively purchased. The Court noted that it is not unusual for indenture covenants to preclude that vote buying, and the absence of such a prohibition here was fatal to the complaining bondholders.
[UPDATE: The Delaware Supreme Court affirms this decision on July 23, 2009.]
Posted on September 11, 2008 by R. Christian Walker
Jack J. Morris Assoc. v. Mispillion Street Partners, LLC, 2008 WL 3906755 (Del. Super. Ct. Aug. 26, 2008).
This decision briefly reviews the three types of authority by which an agent may bind a principal: actual authority, implied authority, and apparent authority. The principal was a limited liability company, which failed to pay the vendor it purportedly engaged to perform marketing services.
The issue that arose on summary judgment was whether the purported agent, who was removed as the general manager of the LLC two days before signing on behalf of the entity, had authority to bind the entity. The court denied the vendor’s motion for summary judgment, holding that it was up to a jury to determine that question based on the factual circumstances.
Posted on September 11, 2008 by R. Christian Walker
HLTH Corp. v. Agricultural Excess and Surplus Ins. Co., 2008 WL 3413327 (Del. Super. Ct. July 31, 2008).
When one company acquires several other companies, which carry their own D&O liability coverage, the resulting entity then holds multiple towers of coverage.
Here, the company held multiple towers of coverage and sought reimbursement for the defense costs it was advancing to certain of its officers and directors who were prosecuted in a criminal case. The issue that arose on summary judgment was whether the court had to allocate the defense costs across the multiple towers, while the criminal case was ongoing.
Since none of the contracts required such an allocation, the court held that the insured company could elect to collect payments in advance from any tower and that the court would not mandate allocation at this stage. The court left open the possibility that allocation could be required at a future time, presumably upon final disposition of the case.
Posted on September 10, 2008 by Edward M. McNally
Duthie v. CorSolutions Medical, Inc., C.A. 3048-VCN (Del. Ch. Sept. 10, 2008)
When advancement is sought, the amounts are often objected to as too large. While the Court of Chancery in the past has not wanted to monitor fees in such cases (leaving the amounts to be finally determined at the indemnification stage), here the Court agreed to appoint a special master to review the advancement requests. It remains to be seen whether the Court will regret this step because the Delaware Supreme Court requires a master's decision to be reviewed de novo by the Court of Chancery.
Posted on September 4, 2008 by Edward M. McNally
In re Electronics for Imaging Inc. S’holders Litig., C.A. 2797-VCL (Del. Ch. Sept. 4, 2008)
It is common for the settlement of a derivative suit to be funded by the D&O insurers. Here, however, in a twist to that common event, the Court upheld a settlement where the company is permitted to sue the D&O insurers, with counsel for the stockholder plaintiff as its attorneys, to force the insurers to fund.
Posted on September 4, 2008 by Edward M. McNally
Parfi Holding A.B. v. Mirror Image Internet Inc., C.A. 18507-VCS (Del. Ch. Sept. 4, 2008)
In this highly unusual case, the Court of Chancery dismissed the complaint because the plaintiff had not told the truth as to why it was not proceeding promptly and because the named plaintiff had lost standing by conveying away any economic interest in the stock it held in the company.
The standing decision sets new precedent. The Court held that when a plaintiff retains only technical title to stock and assigns all economic interest in that stock to a third party, that is effectively the sale of the stock. Of course, under established law, the sale of stock while a suit is pending violates the Delaware continuous ownership rule and warrants dismissal of a derivative suit.
Posted on September 3, 2008 by Edward M. McNally
In re Countrywide Corp. S'holders Litig., C.A. 3464-VCN (Del. Ch. Sept. 3, 2008)
In this admittedly unusual case, the Court of Chancery has expanded the limited discovery available to an objector of a proposed settlement of a derivative case. The discovery includes the valuation of the derivative claims' value to the company. The Court also notes the potential privilege problems that may be involved.
Posted on September 2, 2008 by Edward M. McNally
In re Lear Corp. S'holder Litig., C.A. 2778-VCS (Del. Ch. Sept. 2, 2008)
In this decision the court dismissed claims against directors whose decision to approve a merger was rejected by the stockholders and the company then had to pay a termination fee. The Court carefully explains why directors may sometimes be wrong, but without incurring any liability for that decision.
Posted on August 29, 2008 by Edward M. McNally
McPadden v. Sidhu, C.A. 3310-CC (Del Ch. Aug. 29, 2008)
This decision again affirms that bad faith is not the same a gross negligence and explains the difference. That distinction is important because usually directors are immunized from decisions made in good faith, even if negligent.
Posted on August 26, 2008 by Edward M. McNally
Henkel Corp. v. Innovative Brands Holdings LLC, C.A. 3663-VCN (Del. Ch. Aug. 26, 2008)
Merger agreements frequently permit a merger to be terminated in the event of a materially adverse change to the business of the company to be acquired. When the right to invoke such a MAC clause is not set by the agreement, this decision holds that it must be invoked within a reasonable time. What is reasonable depends on the circumstances.
Posted on August 21, 2008 by R. Christian Walker
Federal Ins. Co. v. Hilco Capital, LP, 2008 WL 3021109 (Del. Super. Ct. Aug. 5, 2008).
This coverage dispute arises out of the settlement of an underlying breach of fiduciary duty action. The plaintiffs and defendants (insureds) in that underlying action, along with the first-layer D&O carrier, reached a settlement agreement without the consent of the excess liability carrier, despite the settlement implicating that policy.
The excess liability carrier objected to the settlement arrangement and refused to consent. The plaintiffs informed the insureds that it would not seek to recover any part of the judgment from them if they agreed to the settlement, despite the excess liability carrier’s lack of consent.
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Posted on August 20, 2008 by Edward M. McNally
Ryan v. Lyondell Chemical Company, C.A. 3176-VCN (Del Ch. Aug. 29, 2008)
The recent decision in this case denying summary judgment has set off a storm of protest that the Court of Chancery is ignoring the business judgment rule and the director exculpation statute. The critics argue that when directors are disinterested in a merger, have independent advice and secure a market premium, their decision cannot be reviewed. This more recent decision in the same case denying an application to take an appeal effectively answers those critics.
This opinion makes it clear that the Court knows very well that even gross negligence is not the same thing as bad faith. Thus, a board that is negligent cannot be held liable for a bad decision when its company has a director exculpation provision in its charter. The opinion carefully reviews the key precedents that discuss the limited circumstances where bad faith will exist, particularly when there is an "intentional dereliction of duty or a conscious disregard of one's responsibilities."
The key to the prior opinion, as the court’s opinion points out many times, is that it was based on a limited summary judgment record that required the court to accept all the allegations of the complaint and draw all reasonable inferences against the directors. Indeed, two even more recent decisions make it clear the Court of Chancery is upholding the business judgment rule and the statutory protection of directors who act in good faith. See McPaddin v. Sidhu, C.A. 3310-CC (Del. Ch. Aug. 29, 2008) and In re Lear Corporation Shareholders Litigation, C.A. 2728-VCS (Del. Ch. Sept. 2, 2008).
Posted on August 20, 2008 by Edward M. McNally
Postorivo v. AG Paintball Holdings Inc., C.A. 2991-VCP (Del. Ch. Aug. 20, 2008)
This decision carefully reviews the rules that attorneys must follow in Delaware when dealing with possibly privileged documents belonging to another party or in interviewing former employees of an opposing party. Counsel must take care to preserve a possible privilege even if she thinks it is waived or not properly asserted. Further, what has become know as a Monsanto statement must be given to former employees of an opposing party before they are interviewed.
Posted on August 19, 2008 by Edward M. McNally
R&R Capital, LLC v. Buck & Doe Run Valley Farms, LLC, C.A. 3803-CC (Del. Ch. Aug. 8, 2008)
This decision upholds provisions in an LLC agreement that waived the rights of members to seek its dissolution or the appointment of a receiver. Thus, once again, the Court has held that the principle of freedom of contract will be enforced in Delaware. The covenant of fair dealing, which cannot be waived by statute, remains as the remedy for abuses.
Posted on August 18, 2008 by R. Christian Walker
LaPoint v. Amerisourcebergen Corp., 2008 WL 2955511 (Del. Super. Ct. July 25, 2008).
This decision will counsel plaintiffs to seek indemnification under a contract during the underlying action for breach of that contract, and not to initiate a subsequent, separate action.
The plaintiff shareholders of a subsidiary brought an action against the parent company for breach of the merger agreement between the two companies. The plaintiffs prevailed in that action and were awarded damages. They sought attorneys’ fees and costs, but the Court of Chancery’s final order did not address that issue.
After the final order and judgment was entered, the plaintiffs requested reimbursement for their attorneys’ fees, pursuant to the indemnification provision in the merger agreement. When the defendant refused, the plaintiffs filed this action in Superior Court.
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Posted on August 18, 2008 by R. Christian Walker
Gay v. Delmarva Pole Bldg. Supply, Inc., 2008 WL 2943400 (Del. Super. Ct. July 18, 2008).
This case will give pause to contracting parties who consider taking on responsibilities beyond the written terms of the contract.
Here, the parties entered into a contract for the construction of a building. The property owner made a down payment to the builder, pursuant to a contract which placed the responsibility on the property owner to make sure the location did not conflict with any building code or zoning ordinance. But the proposed use violated the zoning code, so a variance was needed.
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Posted on August 1, 2008 by Edward M. McNally
Excite LLC v. Soni, C.A. 2476-CC (Del. Ch. Aug. 1, 2008)
In this decision, the Court explains in detail what is needed to plead a claim for tortious interference with a business relationship. The opinion is particularly helpful in tackling the difficult issue of when a director may be considered to have interfered in a contract with his own corporation.
Posted on July 30, 2008 by Edward M. McNally
Sun-Times Media Group, Inc.v. Black, C.A. 3518-VCS (Del. Ch. July 30, 2008)
In the latest decision in the long running saga of Conrad Black, the Court of Chancery has decided that he is entitled to advancement of his legal fees until his appeals from his criminal conviction are concluded. The holding turns on the phase that required advancement until there was a "final disposition" of Black's case. The Court held that included all appeals. The conclusion seems almost unavoidable for all the persuasive reasons given by the Court.
This case involved many millions of dollars in fees and illustrates that such "blank check" advancement provisions can be very expensive indeed.
Posted on July 29, 2008 by Edward M. McNally
Ryan v. Lyondel Chemical Company, C.A. 3176-VCN (July 29, 2008)
This decision is a textbook explanation and summary of the Delaware case law on the duties of a board of directors when considering a takeover proposal. The Court first sets out the Revlon duties in detail including the effect on those duties when the Barkin "exception" may apply. Next, the Court explains how to comply with the principles of both Omnicare and Unocal concerning defensive measures that protect the proposed transaction. Finally, the Court explains why in the context of a summary judgment motion that the otherwise disinterested board may have its good faith questioned.
This last part of the decision is surely its most controversial. While the Delaware statute protects directors from attacks on their decisions based on their lack of care, the loophole has always been that the statute does not protect from act not taken in good faith. When does a lack of care turn into a lack of good faith is the question.
In a series of decisions such as the Disney case, the Delaware Supreme Court has tried to set out some guidance on this issue. However, the test to be applied is still vague and in the context of a summary judgment motion when all inferences must be drawn in favor of the plaintiff, the test becomes even more difficult in application. This decision illustrates that problem and is worth reading for that issue alone.
Posted on July 29, 2008 by Edward M. McNally
In Re: TD Banknorth Shareholders Litigation, C.A. 2557-VCL (Del. Ch. July 29, 2008)
It has long been known that some pension funds and other institutional investors use the same counsel over and over to bring their class actions. This decision recognizes that fact and holds that it is not a reason to disqualify the proposed class representative.
Posted on July 28, 2008 by Edward M. McNally
Andrew And Suzanne Schwartz 2000 Family Trust v. AM Apparel Holdings, Inc., C.A. 3172-VCS (Del. Ch. July 28, 2008)
The Delaware law has long been that the statutory requirements to obtain appraisal rights must be met, exactly. However, this decision is another example of when the Court will uphold appraisal rights when the company itself fails to comply with the statutory obligation of notice or has issued a confusing notice of the right to demand appraisal.
Posted on July 24, 2008 by Edward M. McNally
TD Ameritrade, Inc. v. McLaughlin, C.A. 3603-CC (July 24, 2008)
This decision set out in detail when the Court of Chancery may set aside an arbirtation award. Not surprisingly, the answer is not very often. The only part of the award set aside was due to an obvious math error. The Court upheld the rest of the award even against an attack that the award was manifestly contrary to law.
The analysis of how to determine if the award is contrary to law is particularly instructive.
Posted on July 17, 2008 by Edward M. McNally
CA, Inc. v. AFSCME Employees Pension Plan, C.A. 329,2008 (Del. 2008) (en banc)
In response to questions certified to it by the SEC, the Delaware Supreme Court has decided if a bylaw may mandate reimbursement of proxy solicitation expenses. No is the short answer.
As pension plans and other institutional investors seeks representation on corporate boards, they are looking for ways to make that process less expensive. Under the current Delaware law, even a successful proxy contestant will not be reimbursed for expenses unless it elects the majority of the board. Given how difficult that is to do as an outsider, few want to go through the expense of the effort. Here the bylaw proposed mandatory reimbursement for any successful election campaign, even if only one slot was filled.
The Court makes a distinction between bylaws that affect "process and procedures" of the board from bylaws that affect "substantive business decisions." Only process and procedure bylaws are valid, and a bylaw may not dictate the decision a board must make in the exercise of its fiduciary duty. As the Court acknowledges, that distinction is a tight one to make as some process bylaws affect the decision to be made.
The Court leaves open the possibility that a provision in a certificate of incorporation may mandate proxy solicitation reimbursement. However, as such a change in the certificate must be proposed by the board itself, that route seems a long road to travel.
Posted on July 17, 2008 by Edward M. McNally
Tanyous v. Happy Child World, Inc., C.A. 2947-VCN (Del. Ch. July 18, 2008)
This decision holds that when the corporate internal documents say the plaintiff is a stockholder, an alleged oral agreement that he was really just a lender with the stock as security is not to be believed. What is striking about this case is the extraordinary patience the Court gave to what seems to be a pretty far-fetched story that documents do not mean what they say.
The plaintiff contended that he was a stockholder entitled to inspection rights. The defense was that despite all the corporate documentation, including tax returns, that said the plaintiff was a stockholder, there really was a side deal that he was only a lender with a security interest in stock. Not surprisingly, that story did not wash.
Posted on July 15, 2008 by Edward M. McNally
Sodano v. American Stock Exchange LLC, C.A. 3418-VCS (Del. Ch. July 15, 2008)
It is widely assumed that the right to be indemnified does not include the right to have attorneys’ fees advanced as the litigation proceeds. Actually, as this decision notes, lawyers deal in this area who do not even know the difference between indemnification and advancement. That is not entirely accurate as this decision holds it is all a matter of contract. When the contract or bylaw defines indemnification in such a way as to include advancement rights, then that is the deal and advancement is required.
Posted on July 10, 2008 by R. Christian Walker
AT&T v. Clarendon America Ins. Co., C.A. No. 04C-11-167-JRJ (Del. Super. Ct. June 25, 2008).
This decision will be of interest to any parties drafting or negotiating D&O policy exclusions.
This coverage dispute arose out of stockholder litigation brought against certain AT&T directors, alleging false and misleading statements. That action settled during trial, with AT&T agreeing to pay $100 million to the plaintiffs. National Union, AT&T’s excess D&O carrier, denied coverage.
The issue before the Superior Court here, on AT&T’s motion for partial summary judgment, was whether National Union could deny coverage based on the policy’s fraud exclusion. AT&T argued that the fraud exclusion requires an adjudication and does not apply to settlements.
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Posted on July 2, 2008 by
The plan of allocation approved in Ginsburg v. Philadelphia Stock Exchange et. al., C.A. No. 2202-CC is a landmark decision for those in the business of litigation arbitrage, buying shares of a company that is involved in a class action that may lead to substantial settlement proceeds.
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Posted on July 1, 2008 by Edward M. McNally
Wood v. Baum, Del Sup. C.A. 621, 2007 (Del. July 1, 2008)
The Delaware Supreme Court has clarified the pleading standard that must be met to excuse demand on a board in a derivative suit. When a non-exculpated claim is plead, such as fraudulent conduct, the plaintiff must state particularized facts to support her claim.
Posted on July 1, 2008 by Edward M. McNally
Wayne County Employees' Retirement System v. Corti, C.A. 3534-CC (Del. Ch. July 1, 2008)
In this disclosure case, the Court declined to order additional disclosures for all the usual reasons. The opinion is fun to read and makes the point that stopping a merger vote when, as now, the market is so uncertain, runs a real risk the deal will unravel. Hence, it is harder to stop the vote for less than material omissions.
Posted on June 27, 2008 by Edward M. McNally
David P. Simonetti Rollover IRA v. Margolis, C.A. 3694-VCN (Del. Ch. June 27, 2008)
What must be disclosed to stockholders in a proxy for a merger vote is now well established. This decision again repeats that the interest of the investment firm giving a fairness opinion must be disclosed. Moreover, that does not just include its fees but also any gain it expects to make on the deal through its ownership of stock or other securities in the target.
Posted on June 24, 2008 by Edward M. McNally
London v Tyrrell, C.A. 3321-CC (Del Ch. June 24, 2008)
One of the tests for whether a board of directors is interested in a transaction under attack in a derivative suit so as to excuse demand on them before suit is filed is if they have personally benefited from the transaction. This decision makes clear that in the case of the grant of a stock option, the directors who have received the option will always be deemed interested in the outcome of an attack on that grant, even without showing the amount of the option is material to their financial condition.
Posted on June 23, 2008 by Edward M. McNally
Jackson Walker LLP v. Spira Footwear Inc., C.A. 3150-VCP (Del Ch. June 23, 2008)
Recently, whether outside counsel is entitled to advancement under a corporate bylaw that provides for payment of the fees incurred by “agents” has become a hot issue. When the attorney is acting as an “agent” depends on whether he is acting on behalf of the company in its relationship with a third party. Thus, an attorney who files litigation meets the test, but one who advises the company on a legal issue does not for lack of acting with a third party.
This somewhat odd distinction reflects a policy of restricting advancement of fees to attorneys who are expected to have the possible cost of litigation built into their fees and malpractice coverage.
Posted on June 20, 2008 by R. Christian Walker
Segovia v. Equities First Holdings, LLC, 2008 WL 2251218 (Del. Super. Ct. May 30, 2008).
This decision offers predictability to parties entering into straightforward secured loan transactions under Delaware law. It assures that a security interest will not be treated as a conveyance of legal title. And, it prescribes that if a party intends for a transaction to result in the conveyance of rights to the secured lender greater than a security interest, then that party must set forth crystal clear and unequivocal language in the parties’ contract.
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Posted on June 20, 2008 by Edward M. McNally
Donohue v. Conning, C.A. 3733-VCS (Del. Ch. June 20,2008)
The Delaware Supreme Court has upheld a claim for fee advancement in litigation instituted by a former director, even though advancement has usually been thought of as a right to defense fees. This decision shows how limited that right may be when the advancement provision relied upon does not clearly provide for fees when the director starts the fight. For in such a case, the court held that there is no right to have fees advanced.
The decision has some unusual facts and may not cover another case were the director is clearly threatened with ligitaion and wins the race to the couthouse.
Posted on June 20, 2008 by Edward M. McNally
Barrett v. American Country Holdings Inc., C.A. 3071-VCS (Del. Ch. June 20, 2008)
There is a continuing tension between D&O insurers and the companies whose directors they insure to use the D&O coverage to pay for corporate transactions or, as in this case, for a settlement that no one but the company wants. In this decision the Court of Chancery has strongly upheld the right of former directors to refuse a settlement of litigation against both them and their company when they do not want to settle.
This decision arose out of the company's wish to have its former directors agree to liability in litigation that would then permit the company to sue the D&O carrier for the remaining insurance coverage and so-called bad faith failure to settle damages, all under a side deal that the company would not actually ask the directors to pay anything themselves. The former directors did not want to settle, however, particularly when the insurer also did not want to settle and was defending them under a reservations of rights letter that may have permitted the insurer to go after the directors for the fees advanced.
The Court determined the directors were entitled to the continued advancement of their attorney fees and fees for fees in this case as well.
Posted on June 19, 2008 by Edward M. McNally
In re Transkaryotic Therapies, Inc., C.A. 2776-CC (Del Ch. June 19, 2008)
The law of Delaware on when damages may be awarded for failing to make proper disclosures to stockholders in a proxy statement has been unsettled. This major decision resolves much of that uncertainty. The Court has now held:
“. . . this Court cannot grant monetary or injunctive relief for disclosure violations in connection with a proxy solicitation in favor of a merger three years after that merger has been consummated and where there is no evidence of a breach of the duty of loyalty or good faith by the directors who authorized the disclosures.”
The opinion carefully reviews and harmonizes precedent to reach this final conclusion. The net effect then is that the remedy for negligent disclosure violations is an injunction. Of course, as the opinion makes clear, damages may still be available in circumstances where there was a conflict of interest by the directors or they acted in bad faith. The latter would occur, for example, if the directors omitted substantial materials from the proxy statement deliberately to mislead.
Posted on June 13, 2008 by Edward M. McNally
Schuss v. Penfield Partners LLP, C.A. 3132-VCP (Del. Ch. June 13, 2008)
This decision explains how distribution rights for a withdrawing partner may be determined and points out that ambiguous language in the partnership agreement may lead to uncertainty. This was particularly important here as the withdrawing partner was given an in-kind distribution of these hedge funds securities after they had declined in value in the period after the date for determining the partner's share and the actual distribution date. This may become an important issue when the market is declining.
The Court also held that the plaintiff had stated a claim for breach of fiduciary duty by alleging the controlling general partner had selected the assets to go to the departing partner with the intent of hurting his interest.
Posted on June 11, 2008 by Edward M. McNally
Gary v. Beazer Homes USA, Inc., C.A. 3537-VCS (Del. Ch. June 11, 2008)
Form bylaws taken from treatises or filings with the SEC are often copied without much thought. In this decision, the Court of Chancery warns that a very common set of those bylaws does not properly set out advancement rights for attorney fees. Hence, using that form without modification is now a sure way to lose those rights. Check out the form involved in this case and be sure to change it to more accurately reflect what is intended as to advancement.
Posted on June 6, 2008 by Edward M. McNally
Maitland v. International Registries, LLC, C.A. 3669-CC (Del. Ch. June 6, 2008)
It often occurs in a dispute between the owners of a closely held corporation or LLC that no one has enough votes to decide who should be counsel to the entity in the litigation. This decision explains how to deal with that problem. The answer is for the owner or group of owners who are not the plaintiff to intervene in the litigation to act on behalf of the entity. This avoids the tough issue of who pays the attorneys’ fees for the entity as the intervener pays her own counsel.
Posted on June 3, 2008 by Edward M. McNally
Venhill Limited Partnership v. Hillman, C.A. 1866-VCS (Del. Ch. June 3, 2008)
For a director of a Delaware corporation to be guilty of gross negligence, her conduct must be so unreasonable that no one could have made the same decision. Unless the decision under review is this bad, it will be protected by the business judgment rule. This gross negligence rarely happens and it is thus difficult to find decisions that illustrate the type of conduct that meets this test. In fact, in this decision the defendant had a conflict of interest and thus the business judgment rule did not apply for that reason.
However, the Court went to great length to point out that the investment decisions under review did also exceed the gross negligence standard. This explanation provides an insight into what sort of decision-making is a breach of fiduciary duty. For example, in this case the investment was in a company that did not have a business plan, was continuously losing money, and was generally in such poor shape that no one but the hapless defendant would have lent it money. In short, it was gross negligence to make the loans and the defendant was liable for them as a result.
Posted on June 3, 2008 by Morris James
Ad Hoc Comm. of Equity Holders of Tectonic Network, Inc. v. Wolford, 2008 WL 212 7464 (D. Del. May 21, 2008)
The District Court recently allowed claims for breach of the duties of care and loyalty against former directors and officers of Tectonic Network, Inc. (the “Company”) to go forward, rejecting Defendants’ jurisdiction, standing and insufficient claim arguments. Plaintiff, an Ad Hoc Committee of Equity Holders in the Company, sued Defendants for purportedly improper conduct in connection with the acquisition of three businesses and the resulting sale of one of the Company’s subsidiaries. Plaintiff alleged that Defendant Officers (Officer #1 and Officer #2) committed fraud related to the Company’s actions, and all Defendants breached their fiduciary duties. Specifically, Plaintiff alleged that the Defendants breached their fiduciary duties in recommending and/or approving the acquisition of the three businesses, all of which Officer #1 had a majority interest in. Plaintiff also alleged that the Defendant Officers committed fraud in making material misrepresentations to the board regarding the profitability of the acquired businesses and the prospective profitability of a future business plan that resulted in the sale of the Company’s subsidiary. Subsequent to acquisitions and sales, the Company’s financial picture worsened, and it filed for voluntary Chapter 11 bankruptcy. The Bankruptcy Court lifted the stay to allow Plaintiff to press its claims outside of the bankruptcy proceedings.
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Posted on May 30, 2008 by Edward M. McNally
Underbrink v. Warrior Energy Services Corporation, C.A. 2982-VCP (Del. Ch. May 30, 2008)
When a board is about to be sued, it is a good idea to review the bylaws to see if they provide the right to have your attorney fees advanced by the corporation. Here the claim was that the board's decision to amend the bylaws to cover advancement rights was an interested transaction that was subject to the intrinsic fairness rule. Prior case law had applied that rule when the litigation was actually pending and a board acted to confer advancement rights as a result. The Court ruled that the decision to confer advancement rights for any future litigation was protected by the business judgment rule. Hence, the fact that the litigation had not yet been brought was important.
It is possible to overstate the holding of this case as it involved an odd set of facts. If the filing of suit against the directors was virtually assured, the decision might have been different. Some caution is required before deciding that the rule of this case applies to all pre-litigation decisions on advancement.
Posted on May 30, 2008 by Edward M. McNally
Berger v. Pubco Corp., C.A. 3414-CC (Del. Ch. May 30, 2008)
More often than we may expect, Delaware corporations commit errors in notifying stockholders of their right to an appraisal after a merger. For some reason, on several occasions the wrong version of the appraisal statute was sent to the stockholders, violating the statutory requirement that a current version accompany the notice of appraisal rights. More commonly there is a disclosure problem, often a failure to provide enough information to permit the stockholders to decide if they should seek appraisal rights. This case involves both using the wrong version of the statute and failing to tell the stockholders of a closely held company how the merger price was set. Both those errors called for the Court to grant quasi appraisal rights.
The decision is particularly interesting for its explanation of how quasi appraisal proceedings should work. Basically, it involves starting all over again by sending out a corrected notice with the right statute attached and giving stockholders another chance to seek appraisal. Note that this is more favorable to the company than simply holding that the case may proceed as a class action for all minority stockholders.
Posted on May 23, 2008 by Edward M. McNally
Zaman v. Amedeo Holdings Inc., C.A. 3115-VCS (Del. Ch. May 23, 2008)
Determining when indemnification rights apply is sometimes tough to do. The claims for which indemnification are sought are often drafted so as to avoid alleging that the defendant is being sued for something he did as an officer or director, but instead allege that he acted in a personal or agency relationship such as a lawyer. In this case, the Court of Chancery offers an insight into how that Court will parse through this problem. Put simply (and perhaps too simply), if there is a doubt as to the basis for the claim, the person seeking indemnification will prevail. This is as it should be given the importance of preserving the right of indemnification.
This opinion also has some interesting insights into how to apply the Roven analysis that permits a defendant to counterclaim and still obtain indemnification for the fees incurred for acting offensively.
Posted on May 16, 2008 by Morris James
Solae, LLC v. Hershey Canada Inc., 2008 WL 2011914 (D. Del. May 9, 2008)
Solae LLC (“Solae”), a Delaware LLC with a principal place of business in Missouri, brought a declaratory relief and breach of contract action in Delaware District Court against Hershey Canada, Inc. (“Hershey Canada”), a Canadian corporation with its principal place of business in Ontario. The claims arose out of a contract for Solea’s provision of soy lecithin to Hershey Canada’s Ontario facility. A shipment of the product contained salmonella, prompting a recall of Hershey Canada’s product in Canada and a Canadian government investigation. Hershey Canada informed Solae that it was liable for any ensuing damages from the recall and investigation, and also refused to accept or pay for additional deliveries of the product under the contract. Solae thereafter initiated this declaratory relief and breach action, and Hershey Canada sought dismissal, among other things, on lack of personal jurisdiction grounds.
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Posted on May 7, 2008 by Edward M. McNally
Fisk Ventuers LLC v. Segal, C.A. 3017-CC (Del. Ch. May 7, 2008)
A Delaware LLC is a creature of the members' contract. Here the LLC agreement gave voting rights to a class of members that effectively gave them veto rights over certain actions. When those members exercised those veto rights, the other members sued claiming that constituted a breach of duty. The Chancellor flatly rejected that argument as an attack on the veto rights that were given in the LLC Agreement.
The opinion also holds that a member's consultation with his designated managers on the LLC Board does not give Delaware jurisdiction over that member under the long arm statute's provisions that subject managers to jurisdiction in Delaware.
Posted on May 5, 2008 by Edward M. McNally
Personnel Decisions Inc. v. Business Planning Systems Inc., C.A. 3213-VCS (Del. Ch. May 5, 2008)
The Delaware Arbitration Act has a statute of limitations that is not found in some other arbitration acts. Here the court held that a demand for arbitration was barred by that limitation and as a result, arbitration would be enjoined. The decision is particularly important in setting out when the limitations period begins to expire.
Posted on May 5, 2008 by Edward M. McNally
Sutherland v. Sutherland, C.A. 2399-VCL (Del. Ch. May 5, 2008)
Once again, the Court of Chancery has shot down a motion to dismiss a derivative suit based on the work of a one person SLC. This time while finding the SLC was independent, the Court felt its work was not adequate because of a lack of effort in reviewing accounting records.
The opinion is a useful collection of SLC law, particularly what not to do if you are going to use a SLC.
Posted on May 1, 2008 by Edward M. McNally
Madison Real Estate Immobilien-Anlagegesellschaft Beschrankt Haftende KG v. KanAm USA XIX LP, C.A. 2863-VCP (Del. Ch. May 1, 2008)
This case sets out the law governing the right to inspect a limited partnership's records, particularly in the context of a possible tender offer. Delaware law draws a distinction between seeking inspection to determine the value of one's interest in the partnership and seeking inspection for purposes of making a tender offer. In the later case, inspection may be denied as not being for a purpose truly related to acting as a partner, but instead as an acquiror. While one might argue this distinction is too fine a line to draw, that is the law for now.
The opinion is also noteworthy for dealing with how to interpret a partnership agreement's contractual right to inspect. As the opinion points out, the right to inspect "books of account" is not as broad as the right to inspect "books and records."
Posted on April 25, 2008 by Edward M. McNally
Young v. Klaassan, C.A. 2770-VCL (Del. Ch. April 25, 2008)
The use of a special committee of the board to avoid derivative suits over allegations of breach of duty is well recognized. What is less well known is how to use the work of such a committee. Here the defendants improperly argued that a derivative suit should be dismissed because of the conclusions of a special committee formed after the complaint was filed. That use of information not alleged in the complaint converted the motion to dismiss into a motion for summary judgment and thereby permitted discovery into the work of the special committee.
The opinion also notes the "unusual" nature of the special committee in this case. The committee did not issue a report, barely had its existence disclosed, and otherwise proceeded irregularly. One has to wonder why it was even formed if it was to act so poorly.
Posted on April 23, 2008 by Morris James
For the seventh year in a row, Delaware received the highest score in a nationwide survey of state liability systems undertaken by the U.S. Chamber Institute for Legal Reform. Delaware ranked at the top of eight of the twelve categories ranked, including judicial competence, judicial impartiality, timeliness of summary judgment or dismissal, treatment of class action suits, and overall treatment of tort and contract litigation. The survey did record a slight decline from last year in Delaware's rankings of jury predictability and jury fairness. The report can be viewed at
www.instituteforlegalreform.com.
Posted on April 23, 2008 by R. Christian Walker
Yesterday eBay Domestic Holdings Inc. brought an action in the Court of Chancery, C.A. 3705-CC, against Craigslist and certain of its directors, challenging recent transactions implemented by the Craigslist board. According to this statement on its website, eBay acquired a minority ownership interest in Craigslist (28.4%) back in 2004. It now alleges that Craigslist's directors have taken unilateral action in violation of their fiduciary duties and have disadvantaged eBay and its investment.
The complaint was filed under seal. The matter has been retained by Chancellor Chandler.
The WSJ Law Blog has coverage here. And, The NY Times reports here.
Posted on April 22, 2008 by R. Christian Walker
Transched Sys. Ltd. v. Versyss Transit Solutions, LLC, 2008 WL 948307 (Del. Super. Apr. 2, 2008)
This case illustrates Delaware’s objective theory of contract interpretation and underscores the importance of certain standard contractual provisions.
The plaintiff purchased software from the defendants and argued that it incurred significant losses due to material misrepresentations, including, for example, the extent of completion of the software. The defendants argued that the material misrepresentation claim was barred by the plain language of the contract, namely the exclusive remedy clause, integration clause, and disclaimer of extra-contractual representations.
The contract stated that indemnification was the exclusive remedy “in respect of any breach of or default under this Agreement . . . .” The integration clause stated that the written agreement was the entire agreement. And, the reps and warranties clause stated that the seller was making no representation or warranty in respect of any of its assets. The court held that the thrust of these three provisions was unambiguous: “no representations made outside of the four corners of the Agreement are to be given consideration by the parties in interpreting the terms.” That is, the provisions precluded the plaintiff’s argument that it justifiably relied on the extra-contractual claims made by the defendants.
Accordingly, the Superior Court dismissed the plaintiff’s negligent misrepresentation claim.
Posted on April 14, 2008 by Edward M. McNally
Levitt Corp. v. Office Depot, Inc., C.A. No. 3622-VCN (Del. Ch. April 14, 2008)
This is a case of bylaws gone bad. While the obvious intent of the company's advance notice bylaw was to obtain notice of what directors a dissident slate might want to nominate, the language of the bylaws was fatally deficient. Thus, this decision gives a good drafting lesson .
The bylaw required advanced notice of an intent to bring a matter before the annual meeting. However, the bylaw made an exception for any matter the company itself had noticed for the meeting. When the company, as always, noticed the meeting would include the election of directors, the court held that included the nomination of directors as part of the matters to be considered. Thus, the court held that the intent to nominate a dissident slate need not be noticed again by the dissidents in accordance with the advance notice bylaw provisions.
The way to avoid this mistake is to make it clear in the bylaws that the intent to nominate a slate different than that proposed by the company is subject to a reasonable advance notice provision in the bylaws. In short, state the rules of the game clearly.
Posted on April 11, 2008 by Edward M. McNally
Helaba Invest Kapitalanlagegesellschaft v. Fialkow, C.A. No. 2683-VCL (Del. Ch. April 11, 2008)
Attorneys who cause a benefit for stockholders are entitled to be awarded. However, the benefit must be caused by the litigation they filed and not just happen to follow the institution of litigation. This gets tricky to determine sometimes as the plaintiff's attorneys insert themselves into the process of negotiating a higher merger price and then claim credit for it. Who gets that credit is the question.
That issue will be decided based on a record that includes the views of the participants in the merger discussions. Hence, that needs to be kept in mind and the record made at the time the events occur.
Posted on April 10, 2008 by R. Christian Walker
In re The Bear Stearns Companies, Inc., Shareholder Litig., C.A. No. 3643-VCP (Del. Ch. Apr. 9, 2008).
In an opinion issued yesterday by Vice Chancellor Parsons (HT: M&A Law Prof and Pileggi), which you can access here, the Court of Chancery ordered a stay of the Delaware actions filed against Bear Stearns in favor of those filed in New York. The Court’s reasoning recognizes the national importance of the matter and a concern for the stability of the financial markets and national economy.
This blog previously reported here on the class actions filed in Delaware against Bear Stearns and its directors, seeking to enjoin the sale to JPMorgan Chase. A few days earlier, however, other Bear Stearns stockholders had filed similar suits in the New York Supreme Court. Based on those earlier New York filings, the defendants moved the Court of Chancery to dismiss or stay the Delaware action. This blog provided coverage of the oral argument here, remarking that the arguments raised several interesting questions, such as (1) the extent to which Delaware courts would defer to New York courts on matters of Delaware corporate law and (2) how Delaware courts would handle the issue of comity urged by the defendants.
Those questions have now been answered. The Court of Chancery decided to exercise its discretion to stay the Delaware proceedings for reasons of comity and the orderly and efficient administration of justice:
As discussed in this memorandum opinion, I have decided in the exercise of my discretion and for reasons of comity and the orderly and efficient administration of justice, not to entertain a second preliminary injunction motion on an expedited basis and thereby risk creating uncertainty in a delicate matter of great national importance.
Continue Reading...
Posted on April 10, 2008 by Edward M. McNally
Corporate Property Associates 14 Inc. v. CHR Holding Corp., C.A. No. 3231-VCS (Del. C. April 10, 2008)
In this case of first impression, the Court of Chancery held that a corporation had a duty to a warrant holder to truthfully answer its inquiries about corporate plans. This is significant because normally there is no fiduciary duty running to warrant holders and no duty to keep them informed. Here, however, finding that when asked about a matter that implicated the warrant holders' financial interest, there was a duty to answer a question truthfully.
Posted on April 9, 2008 by Edward M. McNally
Miller v. McDonald, C.A. 07-51350 (Bankr. Del. April 9, 2008)
In a case of apparent fist impression, a bankruptcy court in Delaware has held that Caremark duties apply to corporate officers as well as directors. Thus, corporate officers also have the duty to exercise reasonable care in oversight of corporate operations in their area of responsibility. This is hardly a surprise. However, given that the officer involved in this case was considered the company's general counsel, this decision has some far-reaching implications.
Posted on April 4, 2008 by R. Christian Walker
Today is the second and final day of the Tulane Corporate Law Institute conference.
The New York Times DealBook is reporting live, with a look at the private equity market here and coverage of comments by Martin Lipton, Joseph Perella, and Chief Justice Steele here.
The WSJ Deal Journal is providing live coverage: an interview with Sullivan & Cromwell partner Jim Morphy here; comments by Lipton and Perella here, where Lipton traces a line from Drexel Burnham Lambert to the financial world of today; and the Clear Channel discussion here, featuring Vice Chancellor Strine.
The DealScape is reporting here.
Posted on April 3, 2008 by R. Christian Walker
The annual Tulane Corporate Law Institute takes place today and tomorrow in New Orleans. The conference brings together the country's most prominent corporate law practitioners, judges, and bankers to discuss the important developments in the world of M&A and corporate law. The panelists this year include Delaware's own Chief Justice Steele, Vice Chancellor Strine, Vice Chancellor Lamb, and Vice Chancellor Parsons, as well as a number of Delaware lawyers. Among the discussions taking place today: how recent legal and market developments are affecting public M&A deals, including a discussion of MAC clauses, breach provisions, and specific performance remedies--topics that are now taking center stage with cases like United Rentals, which this blog previously discussed here.
The full program is available here.
The New York Times DealBook is reporting live here, with CNBC video here, the MAC discusssion here, market outlook here, perils of activist shareholders here, and the Deal Professor's insights and coverage of informal discussions here.
The WSJ is providing live coverage here, discussing MAC's here, the credit crunch here, and the Delaware developments panel here.
Pileggi is reporting here and here.
Posted on March 31, 2008 by Edward M. McNally
TravelCenters of America LLC v. Brog, C.A. 3516-CC (Del. Ch. March 31, 2008)
This decision confirms that for limited liability companies the rule applies from corporate law that a suit for inspection of books and records is a limited case that may not also include other claims such as breach of fiduciary duty.
Posted on March 28, 2008 by Edward M. McNally
In Re IAC/Interactivecorp, C.A. 3486-VCL (Del. Ch. March 28, 2008)
In this widely reported decision, the Court of Chancery applied well established principles of contract construction to determine when a proxy would be upheld. Once again, the Court rejected an attempt to modify the contract language to imply a duty of good faith and fair dealing, or a fiduciary duty that would override the rights given in the contract.
Posted on March 28, 2008 by Edward M. McNally
Reinhard & Kreinberg v. The Dow Chemical Co., C.A. 3003-CC (Del. Ch. March 28, 2008)
Corporate bylaws sometimes provide advancement rights in litigation filed by a director, but that is rare. However, when a director is sued, the question remains if he has advancement rights in that circumstance, and whether he may get those rights to cover a counterclaim in the absence of a bylaw right to do so when bringing litigation. This decision holds that if the counterclaim is compulsory under the rules of procedure, advancement is possible.
Posted on March 28, 2008 by Edward M. McNally
Schoon v. Troy, C.A. 2362-VCL (Del. Ch. March 28, 2008)
Directors who rely on advancement rights under a corporate bylaw need to be aware that those rights may be lost if the bylaw is amended. Delaware law, as this decision notes, permits elimination of advancement rights in a bylaw at least up to the moment those rights "vest" by the filling of a suit that entitled the director to advancement.
This decision is also interesting for its discussion of the Levy case that held when a director has his fees paid for by a third party, he may lose his right to seek advancement from the corporation. This decision limits Levy to cases where the third party is obligated to pay the fees.
Posted on March 27, 2008 by Edward M. McNally
In The Matter Of The Philadelphia Stock Exchange Inc., Del. Sup., C.A. 613/615, 2007 (Del. March 27, 2008)
This comprehensive decision explains Delaware law on the settlement of a class action when the proceeds of a settlement will involve buyers, sellers, and holders of stock in a Delaware corporation. This allocation problem is a difficult one and the Supreme Court held that allocation issues may be resolved in a separate hearing after the settlement with the defendants is approved.
The opinion is also important in explaining the scope of a release that the court will approve in connection with a settlement. There is often a tension between the interests of the defendants who ask for the broadest release possible and the interests of other litigants who want the release limited. Here, for example, objectors to the settlement had a federal case pending that arose out of the same core facts involved in this settlement. The Delaware Supreme Court permitted the release to include a claim arising out of those core facts even if it might affect the federal litigation.
Posted on March 24, 2008 by R. Christian Walker
See latest developments on 03/31/08 above: Last Thursday, a class action complaint was filed against Bear Stearns and its directors in the Court of Chancery. The complaint alleges that the company has failed to maximize shareholder value by agreeing to be purchased by JPMorgan Chase for $2 per share. The complaint further alleges that, by agreeing to the deal, the company has favored numerous constituencies over the shareholders. You can access the complaint here.
Update: The New York Times reports here that JPMorgan Chase raised its offer to $10 per share. Professor Ribstein has commented here, along with Pileggi here.
Further Update: An additional class action was filed against Bear Stearns on Monday by the Wayne County Employees' Retirement System (access the complaint here). And, yesterday a TRO was filed on behalf of the plaintiffs in both actions, seeking to enjoin the sale, which is set to close on April 8 (access the TRO here). Both actions, and the accompanying TRO, have been assigned to Vice Chancellor Parsons.
Posted on March 24, 2008 by R. Christian Walker
Certain Underwriters at Lloyds Severally Subscribing Policy Number DP359504 v. Tyson, 2008 WL 660485 (Del. Super. March 7, 2008)
This case is an insurance coverage dispute between Tyson Foods, Inc., and certain of its underwriters over damages caused by Hurricane Katrina. The underwriters filed two declaratory judgment actions in Delaware seeking denial of coverage. Two weeks later Tyson filed an action in Mississippi. Tyson then moved to dismiss or stay the Delaware action.
The Superior Court found that the underwriters’ Delaware action was first filed. The court then applied the Cryo-Maid factors to determine if the Delaware action should nonetheless be dismissed or stayed on forum non conveniens grounds. The court considered (1) whether Delaware law governs the case; (2) the relative ease of access to proof; (3) the availability of compulsory process for witnesses; (4) the possibility of a view of the premises; (5) the pendency or nonpendency of a similar action or actions in another jurisdiction; and (6) all other practical considerations that would affect the trial.
Continue Reading...
Posted on March 20, 2008 by Morris James
State of Florida, et al. v. Abbott Laboratories et al., Del. District Court 1:08-CV-00155 (filed March 18, 2008).
A group of eighteen states and the District of Columbia filed a complaint in Delaware District Court against Abbot Laboratories, Fournier Industrie et Sante and Laboratoires Fournier S.A. under the Sherman Act, alleging an unlawful monopolization of the fenofibrate market. Defendants allegedly feared that competition from generic manufacturers would reduce profits from their TriCor product, a drug which regulates triglyceride and cholesterol levels. The complaint can be viewed here.
Posted on March 19, 2008 by Morris James
In re infoUSA, Inc. Shareholders Litigation, Consol. C.A. No. 1956-CC (March 17, 2008).
A special litigation committee was formed by the board of infoUSA, Inc. at the end of December, after a motion to dismiss derivative litigation had been denied and after a finding had been made by the Court of Chancery that demand was excused. The SLC moved to stay the ongoing derivative litigation in January, seeking a period of 150 days in which it could investigate the substance of the claims in the action. The plaintiffs opposed such a stay, asserting that the SLC was formed "too late" and should not be allowed to derail the ongoing litigation.
The Court of Chancery rejected this position: "The fact that I have already determined that demand is excused demonstrates why the board must act by means of a special committee; it does not in any way explain why it cannot act through an SLC." Consequently, the requested stay was granted. The Court also rejected as premature any challenge to the independence of the SLC, finding it serves the purposes of judicial economy to do so after the SLC issues its report. The letter opinion can be viewed here.
Posted on March 13, 2008 by Edward M. McNally
JANA Master Fund, Inc.v. CNET Networks, Inc., C.A. 3447-CC (Del. Ch. March 13, 2008)
This is a useful decision on the proper interpretation of a bylaw that governs stockholder proxy proposals in light of SEC Rule 14a-8. The Court held that the bylaw only applied to stockholder requests to have a proposal included in the company's proxy materials under rule 14a-8. In that way the Court again emphasized that Delaware interprets bylaws so as to increase the ability of stockholders to vote.
Posted on March 7, 2008 by Edward M. McNally
Weiss v. Swanson, C.A. No. 2828-VCL (Del Ch. March 7, 2008)
In the latest of the Chancery decisions on complaints challenging the grant of options, the Court has explained what it takes to state a derivative complaint that excuses demand on the Board. Briefly, the Court here focused on what was disclosed to the stockholders when they were asked to approve option plans or elect directors who had received option grants. First, full disclosure is required, particularly of practices that are likely to lead to increasing the value of the options, such as the bullet-dodging alleged in this case.
Second, the fact that a majority of the board received the options also made them interested enough to excuse demand.
Posted on March 6, 2008 by Edward M. McNally
In re SS&C Technologies, Inc. Shareholders Litigation, C.A. No. 1525-VCL (March 6, 2008)
For a long time it has been evident that some plaintiffs show up frequently as class representatives. The recent scandal involving perhaps the major securities class action law firm has only reminded everyone of the odd "coincidence" that one person could have so many class actions to bring. Now the Court of Chancery has done something about it and a warning has been issued as a result. This decision awarded attorney fees to the defendants in a man-bites-dog twist to the ending of a class action.
Of course, the facts in this case are highly unusual. When the named plaintiff tried unsuccessfully to have the court approve a settlement basically for attorney fees alone, he then tried to just dismiss the case, conditioned upon defendants' agreement to keep certain information confidential. Instead, the defendants fought back and discovered the named class representative had a string of investment entities that in turn owned very small stakes in many publicly owned corporations. No rational financial purpose justified these investments, except as a way to pursue law suits. When the plaintiff conditioned settlement on secrecy, the court held that was bad faith and awarded attorney fees to the defendants for resisting such a dismissal.
It is now likely that we will see much more aggressive pursuit of oppositions to class certifications. Discovery of the named plaintiff and his connections to the class counsel will be the new trend. As this decision illustrates, the ability to do data searches to find all the actions filed by a plaintiff and any law firm will also aid in that effort.
Posted on February 29, 2008 by Edward M. McNally
Wilmington Trust Co. v. Tropicana Entertainment LLC, C.A. 3502-VCN (Del. Ch. February 29, 2008)
The Court of Chancery rarely interprets bond indentures; so in the spirit of the date of this decision, the Court did so here. What is particularly interesting about this case is the way the Court reasoned to the result. While focusing on the specific language of the indenture, the Court did not hesitate to apply that language to circumstances that probably were not considered by the drafters. In this very un-Justice Scalia way, the Court held the indenture was violated.
The lesson here is that the Court is very realistic about what language should mean in the business world. It will not be swayed by hyper-technical interpretations that are not what the drafters would have said had they focused on the circumstances at hand. This does not mean that the Court will stretch language beyond what it really means, however. Instead, a sort of middle ground of interpretation is the mark of Delaware law in this regard.
Posted on February 29, 2008 by Edward M. McNally
Postorivo v. AG Paintball Holdings Inc., C.A. No. 2991-VCP (Del. Ch. February 29, 2008)
It has long been recognized that a stockholder may lose her standing to bring derivative litigation by losing her shares in a merger. There is a recognized exception to this rule for mergers designed just to eliminate derivative litigation.
Here, the plaintiff sold the assets of his company in return for cash and stock in the buyer. The stock was held in escrow and when a dispute arose, the buyer revoked the stock as compensation for its claims against the seller. When the seller brought a derivative suit, the court dismissed it as he no longer owned stock in the buyer. Thus, the court refused to make another exception to the rule that a derivative plaintiff must continue to be a stockholder through out the litigation.
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Posted on February 28, 2008 by R. Christian Walker
Yesterday, February 27, 2008, two new complaints were filed against Yahoo! in the Court of Chancery. The first is a class and derivative action, Plumbers and Pipefitters Local Union No. 630 Pension-Annuity Trust Fund v. Yahoo!, C.A. 3578, which you can access here. The second, Mercier v. Yahoo!, C.A. 3579, an additional class action to those previously filed, can be found here.
The plaintiff in the second action, Vernon A. Mercier, was also the lead plaintiff in Mercier v. Inter-Tel (Delaware), Inc., 929 A.2d 786 (Del. Ch. 2007), which you can access here. In a decision in that action last August, Vice Chancellor Strine denied the plaintiff’s application for a preliminary injunction and found that directors fearing that stockholders are about to make an unwise decision that poses the threat that all stockholders will irrevocably lose a unique opportunity to receive a premium for their shares have a compelling justification for a short postponement in the merger voting process to allow more time for deliberation. The decision is worth reviewing for its interesting discussion of the interplay between the Blasius and Unocal doctrines.
Posted on February 19, 2008 by
Schoon v. Smith, C.A. No. 554, 2006 (Del. Feb. 12, 2008).
In an important ruling, the Delaware Supreme Court upheld bedrock principles of Delaware corporate law and governance and rejected plaintiff’s argument that directors of Delaware corporations should have standing to bring derivative suits on behalf of companies upon whose boards they sit.
In Schoon, Plaintiff Richard Schoon was a director of Troy Corporation. He was elected to the Troy board by the Series B stockholder, Steel, which had the right to appoint one member to a five member board. Schoon himself owned no Troy shares but rather acted at the behest of Steel. Schoon brought derivative claims purportedly on behalf of Troy alleging breaches of fiduciary duty by his fellow board members. Steel had also sought books and records pursuant to Section 220 of the Delaware General Corporation Law (“DGCL”).
The defendants moved to dismiss the case, arguing that Schoon lacked standing to assert such derivative claims. The Court of Chancery agreed and dismissed the action. The Court of Chancery relied upon well established precedent, albeit precedent that had never been tested at the Supreme Court level. Schoon appealed.
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Posted on February 15, 2008 by Morris James
Millett v. Truelink, Inc., 2008 WL 345937 (D.Del. Feb. 7, 2008)
In this opinion the District Court granted the provider of a credit report monitoring service summary judgment on claims that it violated state consumer protection provisions and contractual obligations. Plaintiffs, who were spouses, had purchased a subscription to Defendant’s service, and alleged that Defendant failed to alert them to activity that resulted from theft of the husband’s social security number. Plaintiffs alleged that Defendant had violated Kansas’ Consumer Protection Act (“KCPA”) as well as breached the Credit Monitoring Member Agreement (“Member Agreement”) that Plaintiffs entered into when purchasing the service. Plaintiffs moved for class certification and summary judgment on their KCPA claims, and Defendant moved for summary judgment on the KCPA and several breach of contract claims. The Court found that neither the activity nor the advertising and marketing activities of Defendant were in violation of the KCPA provisions on unconscionable acts and practices, and Defendant was not in breach of the Member Agreement.
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Posted on February 15, 2008 by Morris James
Drexel v. Harleysville Ins. Co., 2008 WL 356938 (D.Del. Feb. 11, 2008)
Here the District Court evaluated a claim from an insured that a denial of coverage based on policy expiration constituted a breach of contract. The insured owned a property that sustained fire damage, and submitted a claim to Defendant, his insurer. The policy required annual renewal, but the insured did not submit the payment required for renewal until after both the policy expiration date and the subsequent grace period. However, the insured submitted his claim during the grace period, such that Defendant began to process the request and retain an adjuster and contractor. Defendant subsequently determined that the policy had expired prior to the insured’s claimed damages, and the insured had not submitted payment during the grace period. Defendant therefore denied coverage, and the insured sued on a theory of breach of contract, estoppel, and waiver. Defendant moved for summary judgment on all claims, while the insured moved for summary judgment on the breach claim.
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Posted on February 14, 2008 by Edward M. McNally
Gantler v. Stephens, C .A. No. 2392-VCP (February 14, 2008).
This decision illustrates the confusion that exists over the scope of review of a board's decision to not pursue a merger and largely eliminates the uncertainty. Briefly, the board here decided not to pursue a merger opportunity and the potential acquirer then withdrew its offer. The court held that the business judgment rule applied to the decision not to take the offer. In doing so, the court declined to apply the heightened scrutiny used under the Unocal decision as the board did not take any defensive steps to stop the suitor from going forward on its own.
Instead, the court held that to invoke a higher level of review, the plaintiff must show the board acted in bad faith or was not properly advised. Mere allegations that the board made the wrong decision are insufficient.
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Posted on February 14, 2008 by Edward M. McNally
Sutherland v. Sutherland, C.A. No. 2399-VCL (February 14, 2008).
This is another decision that explains what must be done to have the report of a special litigation committee ("SLC") respected by the court. To begin with, the use of a single board member for the SLC "pressed the theory of Zapata to the extreme". Thus, one-member SLCs are generally not a good idea.
In addition, the report of an SLC needs to include sufficient detail to support its conclusions. It is better practice to include documentation of the report's conclusions, such as the documents it relied on, the interviews it conducted and the advice it received. This is controversial for a good reason. If the court refuses to dismiss the derivative litigation despite the SLC recommendation, then the report may serve as a roadmap for the plaintiff going forward. Thus, the decision on whether to use a SLC should be considered carefully. There are still excellent reasons for using a SLC, but it must be done correctly.
Posted on February 1, 2008 by Morris James
G & G LLC v. White, 2008 WL 205150 (D. Del. Jan. 25, 2008)
In this opinion declining to dismiss for lack of personal jurisdiction, the District Court found that it had personal jurisdiction over both the directors/officers of a Delaware corporation and over a foreign corporation that invested in a Delaware corporation. Plaintiff was a Virginia limited liability company that loaned $2.5 million to a Utah corporation. Plaintiff was granted a security interest in the Utah corporation’s assets, and perfected that interest by filing the required financing statements in Utah. However, the Utah corporation subsequently was merged with and into a Delaware corporation. Plaintiff asserted that this was done at the insistence of various defendants that were seeking to invest in the Utah corporation after Plaintiff informed them that it would not agree to subordinate its security interest to theirs. Plaintiff posited that the investor defendants thereafter controlled the Utah corporation and the Delaware corporation it was merged into, and fraudulently concealed the merger to prevent Plaintiff from perfecting its security interest upon the merger, while at the same time perfecting their own in Delaware. Plaintiff pointed to numerous instances where the Utah corporation, the Delaware corporation, their counsel, the directors/officers of the Delaware corporation (who were appointed by the investor defendants), and the investor defendants failed to notify Plaintiff of the merger and/or made misrepresentations regarding the continuing status of the corporation as a Utah corporation. Taking the allegations as true, the Court found that the actions of the investor defendants and the directors they appointed was sufficient to confer specific jurisdiction over them.
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Posted on February 1, 2008 by Edward M. McNally
Pfeffer v. Redstone, C.A. No. 2317-VCL (February 1, 2008).
At first this seems like a common disclosure case. It is more than that, however. The court here shows that it expects claims to be based on more than mere conjecture to survive a motion to dismiss. The Complaint alleged that the key corporate officers knew of a bad cash flow analysis but failed to disclose it in connection with an exchange offer. When the plaintiff''s counsel could not even say he had seen the alleged report or explain how it was disclosed to the defendant directors, the complaint was dismissed.
To support allegations of knowledge of a red flag, the allegation must be based on common sense or specific facts. It is common sense to infer the directors saw a report if it was common knowledge in the corporation and is a type of report that one would expect the board to have seen. It is not common sense to believe that an obscure memo generated by a lower level employee was shown to the board of a publicly traded corporation.
Posted on January 28, 2008 by R. Christian Walker
Mizel v. Xenonics, Inc., 2008 WL 116203 (Del. Super. Jan. 11, 2008).
This decision addresses the question of whether an expert can testify as to materiality under the securities laws. The moving party argued that materiality was an ultimate issue in this breach of contract action and thus could not be the subject of expert testimony, citing Hill v. Equitable Banks, 1987 WL 8953 (D. Del. 1987), a case in which the ultimate issue was whether certain alleged misrepresentations and omissions were material.
The court, however, distinguished this case from Hill, finding that materiality was not the core question before the jury. The critical issue was whether the plaintiff, a warrant holder, was prevented from exercising his purchase rights—a fact the company denied completely.
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Posted on January 17, 2008 by Edward M. McNally
Sassano v. CIBC World Markets Corp., C.A. No. 3066-VCL ( January 17, 2008).
It is not widely recognized that Delaware law permits a corporation to grant advancement of attorney fees to employees who are not directors and may even be fairly minor employees. Here, the bylaws provided advancement of fees for an officer with "management supervisory functions". The court carefully went over whether the plaintiff had those duties and found that he did and thus, should be advanced his fees for the defense of an SEC investigation.
Posted on January 16, 2008 by Edward M. McNally
Pharmathene Inc. v. SIGA Technologies. Inc., C.A. No. 2627-VCP (January 16, 2008).
Whether an agreement to agree may be enforced seems like an odd question. After all, if the parties really had an agreement then why not just say so and not use a term sheet or other vague type of "agreement to agree" to express their intent. This decision illustrates just why that may occur because the parties apparently were uncertain if they really wanted to bind themselves to one another just yet. Nonetheless, they did list all the essential terms of what they wanted in their contract in a term sheet and when they seemed to have acted to carry out their deal, the court here indicated it will enforce an agreement to agree when to let one party walk away seems inequitable.
Posted on January 15, 2008 by Edward M. McNally
Fogel v U.S. Energy Systems, Inc., C.A. No. 3271-CC (January 15, 2008).
This is another in a line of decisions holding that the Court of Chancery may order the holding of a stockholders' meeting even if the company is in a bankruptcy proceeding. The automatic stay does not apply.
Posted on January 15, 2008 by Edward M. McNally
Portnoy v. Cryo-Cell International Inc., C.A. No. 3142-VCS (January 15, 2008).
This is the definitive decision on when arrangements to secure a stockholder's vote are invalid. "Vote buying" has long been criticized without much thought. After all, the Delaware General Corporation Code specifically authorizes arrangements to lock up a stockholder's vote. However, paying for that vote seems somehow wrong, perhaps because of political reasons. Here, the court carefully sets out the policy considerations and decides when paying for a vote is invalid.
In general, when a stockholder's agreement to cast his vote for managment pursuant to a contract with the corporation is publicly announced, then it will be valid. If the other stockholders do not like it, then they can vote the other way. The exceptions to this are when corporate assets are used to buy the vote and then it becomes more troublesome. The arrangement will be struck down when it is not in furtherance of a proper corporate purpose and is unreasonable.
This decision also comments on how to conduct a stockholder meeting. Postponing votes by lying about why there is a delay is frowned upon, to say the least.
Posted on January 14, 2008 by R. Christian Walker
Delta Eta Corp. v. University of Delaware, 2007 WL 4578278 (Del. Super. Ct., Dec. 27, 2007).
This decision addresses a party’s ability to amend its answer, under Rule 15(a), when the 20-day period to amend as a matter of right has expired. The litigation arose when the University of Delaware terminated a lease it entered into with a fraternity to maintain a chapter house and then took title to the property, triggering a requirement under the agreement that it pay the fraternity the fair market value of the remainder of its leasehold interest.
In its answer, UD admitted that it owed the amount determined by a neutral appraiser to be the value of the interest. But when the fraternity moved for summary judgment, UD moved to amend its answer to deny that the amount was accurate. UD argued that it learned of severe mold damage to the chapter house that should have been taken into account in the valuation.
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Posted on January 14, 2008 by R. Christian Walker
In re: Asbestos Litig., 2007 WL 4571196 (Del. Super. Ct. Dec. 21, 2007).
In this negligence action, a wife alleged that she was exposed to asbestos while laundering her husband’s work clothes. The employer moved for summary judgment, claiming it owed no duty to an employee’s spouse who had never set foot on company property and had only been injured as a result of take-home exposure. This argument presented an issue of first impression in Delaware.
In addressing the core question of when a duty of care arises, the court conducted a review of the doctrinal approaches advanced throughout the history of tort law, from Cardozo’s foreseeability analysis to Learned Hand’s B<PL formula. The court observed that none of these approaches had been adopted in Delaware to the exclusion of the others. Instead, it was up to the court to consider the relationship of the parties in each particular case in light of its peculiar facts.
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Posted on January 14, 2008 by R. Christian Walker
MAA Real Estate LLC v. Patel, C.A. No. 06C-02-249 (Del. Super. Ct. Dec. 7, 2007).
In this breach of contract action, there was no written agreement, only an unsigned pricing sheet prepared by the contractor making the repairs. The court had to determine whether the parties nonetheless mutually assented to any of the terms on the sheet or otherwise entered into an oral contract.
The court held that there was no mutual assent to the items on the pricing sheet, as it did not state the specific materials required to complete the renovation. The customer could only show that the contractor represented that he would install non-skid tile flooring. That created an oral contract. By failing to install non-skid tile, the contractor breached the agreement.
The measure of damages was the cost of replacement and repair for the proper flooring.
Posted on January 8, 2008 by Edward M. McNally
In re James River Group Inc. Shareholders Litigation, C.A. No. 3173-VCL ( January 8, 2008).
Here, the court awarded $400,000 in fees in connection with the settlement of a class action when the relief obtained was a supplement to the proxy statement.
While the company claimed it was always going to send the supplemental materials, the court noted that was contrary to the recital in the settlement agreement. Seems like it is not good to go back on your word in Chancery Court.
Posted on January 2, 2008 by Edward M. McNally
Ryan v. Gifford, C.A. No. 2213-CC (January 2, 2008).
This is an interesting decision because it points out how to do almost everything wrong in using a special committee to investigate accusations of misconduct. The result is that any privilege from disclosure that the work of the special committee may have enjoyed was completely lost and all of its extensive efforts were ordered to be turned over to the plaintiffs in the underlying litigation.
The decision also points out the limits on what its holding may have been in other contexts where the special committee's work was properly used and its privileges maintained.
Posted on December 21, 2007 by Edward M. McNally
United Rentals Inc v. RAM Holdings Inc. C.A. No. 3360-CC (December 12 and 21, 2007).
In these two decisions the Court of Chancery sets out how it will interpret a contract. Following the objective theory of contract interpretation, the court searches for the "common understanding" of the parties. It will not hear evidence of a party's subjective mental impressions or unilateral understandings.
However, the court will apply the "Forthright Negotiator Principle" when a contract is ambiguous. Under that approach, a reasonable interpretation of contract language of one of the parties will be binding on the other party to the contract if he knew or should have known of the other party's understanding and did not object to it when the contract was signed. Silence then may be fatal.
Posted on December 20, 2007 by Edward M. McNally
The Territory Of The Virgin Islands v. Goldman, Sachs & Co., C.A. No. 2505-VCS (December 20, 2007).
This decision upholds the law that Section 278 of the Delaware General Corporation Law ("DGCL") acts as a statute of repose to bar the filing of all litigation against a Delaware corporation after 3 years from the date of its dissolution.
As the court also notes, that means that a suit against stockholders under Section 325 of the DGCL for having received an improper liquidating distribution are also precluded under those circumstances.
Posted on December 18, 2007 by Edward M. McNally
Brown v. T-Ink, LLC ,C.A. No. 3190-VCP (December 18, 2007).
Delaware courts have recently issued several decisions dealing with the scope of an agreement to arbitrate. This is yet another. The opinion is interesting for its explaination of the Delaware approach to determining whether it is for the arbitrator or the court to decide if an issue is subject to arbitration. Generally, that issue will be decided by the court unless there is a clear indication in the agreement that the arbitrator is to decide such questions. As this decision points out, references to the AAA rules and language including "all controversies" arising out of the parties' relationship indicate that an arbitrator should decide such issues.
Posted on December 13, 2007 by R. Christian Walker
Rembrandt Technologies, LP v. Harris Corp., 2007 WL 4237752 (Del. Super. Nov. 30, 2007).
This decision demonstrates the willingness of Delaware courts to uphold the plaintiff’s choice of forum (between the Superior Court and the Court of Chancery), despite an argument by the defendant that transferring courts would allow the hearing of all claims and thus promote judicial economy.
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Posted on December 13, 2007 by Edward M. McNally
Fogel v. U.S. Energy Systems, Inc., C.A. No. 3271-CC (December 13, 2007).
Directors often think that if they get together that is a real board of directors' meeting. Not so. As this decision holds, a board meeting is a formal event that must be preceded by the appropriate notice, be conducted by voting on the issues and otherwise be properly called and conducted. Gatherings of even all the directors that do not meet these tests are void.
Moreover, the consequence of holding a meeting void is that actions taken cannot be ratified later. Thus, even when all but one of the company's directors wanted to fire the CEO, their attempt to do so at a haste gathering of all the directors was ineffective.
Posted on November 30, 2007 by Edward M. McNally
Globis Partners LP v. Plumtree Software, Inc., C.A. No. 1577-VCP (November 30, 2007).
This decision explains why some attacks on a merger fail for want of a basis to avoid the business judgment rule and for a failure to make proper disclosure claims. The merger was a third-party transaction and the defendant directors received no unique benefit as a result. The Court held that granting those directors a right to indemnification, an acceleration of options and a cash out of vested options, did not constitute a special benefit that would make the directors interested parties. Hence, the business judgment rule applied.
The court also concluded that the complaint's disclosure claims lacked merit. For the most part, those claims were attacks on the merits of the investment banker's analysis attached to the proxy statement. That is not a claim of inadequate disclosure. Thus, the complaint was dismissed.
Posted on November 27, 2007 by Edward M. McNally
Sample v. Morgan, C.A. No. 1214-VCS (November 27, 2007).
In this major decision, the Court of Chancery has upheld its jurisdiction over a non-Delaware attorney who is alleged to have aided and abetted a breach of fiduciary duty by directors. Given the breadth of this decision, it has major implications for counsel to Delaware corporations.
First, the Court held that the attorney's arranging for the filing of a certificate with the Delaware Secretary of State satisfied the single act required to permit service of process on the attorney and his law firm under the Delaware Long Arm Statute. That is nothing new under Delaware law as other decisions have held that filing of such a certificate meets the statutory requirement for service.
Second, the Court held, in what may prove to be its most controversial decision, that Due Process was satisfied in subjecting the attorney to jurisdiction by a Delaware court. Noting that this "is a highly unusual case", the Court had no problem holding that giving advice on Delaware law and controlling the course of litigation in Delaware justified subjecting the attorney to jurisdiction here. What may prove to be controversial, however, are sections of the opinion that suggest that regularly providing advice on Delaware corporate law is sufficient to satisfy the requirement of Due Process in asserting jurisdiction over the non-Delaware lawyer for claims arising out of that advice.
Finally, the opinion holds that an attorney may be held liable for aiding and abetting a breach of fiduciary duty when he knows his advice is being used to carry out the breach. This is important because the knowledge requirement may be satisfied when the lawyer claims expertise in Delaware law and his advice is wrong. The inference then is that he knows his advice is wrong. While this seems to go too far, it is not clear how far the logic of the opinion may be stretched by other courts.
Posted on November 26, 2007 by R. Christian Walker
Appriva Shareholder Litig. Co., LLC v. EV3, Inc., -- A.2d --, 2007 WL 3208783 (Del. Nov. 1, 2007)
Deciding whether a motion to dismiss based on lack of standing is considered under Rule 12(b)(6) or 12(b)(1) has implications and has divided some courts. First, lack of subject matter jurisdiction under 12(b)(1) is non-waivable and can be raised by the court sua sponte, whereas failure to state a claim under 12(b)(6) must be raised by motion. Second, a 12(b)(6) motion for failure to state a claim may be converted to a motion for summary judgment, considering matters outside the pleadings, but a 12(b)(1) motion may not. In this consolidated appeal, the Supreme Court held that when the issue of standing is closely related to the merits, a motion to dismiss for lack of standing is properly considered under 12(b)(6) for failure to state a claim.
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Posted on November 26, 2007 by R. Christian Walker
Boerger v. Heiman, 2007 WL 3378667 (Del. Super. Oct. 31, 2007)
The three-year statute of limitations under 10 Del. C. § 8106, which begins to run at the time of the alleged breach in the case of a contract claim and at the time the injury occurs for a tort claim, may be tolled by, among other circumstances, the absence of observable factors that would place a layman on notice. This exception is called the date of discovery rule. When it applies, the statute of limitations begins to run when the defect is or should have been discovered.
In this legal malpractice action, the Superior Court held that the statute of limitations expired prior to the filing of the complaint and that it was not tolled because “multiple factors and plaintiff’s own statements indicate knowledge of the relevant facts which establish a potential claim . . . .” The plaintiff argued that the defendant attorneys fraudulently concealed his potential tax liability, but based on the evidence, the court concluded that the plaintiff should have discovered this fact, at the very least, by the time he hired an independent consultant who brought the matter to his attention.
Posted on November 21, 2007 by Edward M. McNally
Melzer v. CNET Networks, Inc., C.A. No. 3023-CC (November 21, 2007).
The scope of inspection rights may be affected by when a stockholder first acquired her stock. If the inspection is to investigate alleged wrongdoing, the rationale for granting inspection is to permit the filing of a derivative suit if the inspection shows that it is warranted. Hence, prior case law has held that inspection of records existing before the petitioner became a stockholder is not warranted because the stockholder has no right to sue for those pre-ownership wrongs under Delaware law.
This decision extends inspection rights when the potential claim is for a Caremark case alleging a "sustained or systematic failure" of oversight. Then, the Court held, showing past failures is relevant to showing a sustained wrong that culminated in damage to the entity after the petitioner became a stockholder. Under that rationale, the scope of inspection may extend to pre-ownership records.
Posted on November 21, 2007 by Edward M. McNally
Ryan v. Gifford, C.A. No. 2213-CC (November 21, 2007).
In 2003, Delaware amended its long arm statute to cover corporate officers who served in that capacity after January 1, 2004. Past decisions under the director section of this statute have focused on when a defendant is subject to it for acts committed before the date the statute deems the defendant's holding a corporate office is consent to jurisdiction by a Delaware court. Consistent with that case law, this decision holds that prior bad acts do not constitute continuing wrongs that subject the defendant to Delaware jurisdiction after January 1, 2004.
Of course, the decision also holds that there are acts some of the defendants committed before that date which were further implemented after that date and that may subject them to jurisdiction. For example, receiving a back dated option before January 1, 2004 does not subject the officer to jurisdiction in Delaware unless after that date he commits further acts, such as concealing that the option was back dated.
Posted on November 20, 2007 by Edward M. McNally
Bernstein v. Tractmanager Inc., C.A. No. 7263-VCL (November 20, 2007).
This decision illustrates the perils in converting from an LLC to a corporate form without considering the consequences. Here, the LLC involved did not provide for mandatory advancement rights. The LLC was then converted into a Delaware corporation whose bylaws did provide for advancement as a matter of right. Quite possibly this was thought to be a good idea as the attorney who did the conversion was about to be sued by the entity and was a director who now thought he was covered. Unfortunately, the LLC did not provide for advancement and the Court of Chancery held that it was the LLC's operating agreement that controlled the right to advancement. Thus, advancement was denied.
The lesson here is that in converting from one form of entity to another do not assume that the new entity is obligated to fulfill all the obligations that might have been the responsibility of its predecessor. That was the losing party's argument. The problem was that the LLC was not obligated to him and thus, there was no liability to follow upon conversion. If you want the new entity to be liable then say so.
Posted on November 15, 2007 by Edward M. McNally
Hildreth v. Castle Dental Centers, Inc., Del. Sup. C.A. No. 195, 2007 (November 15, 2007).
A tricky issue arises when a defective certificate of incorporation causes stock to be void. Here, the preferred stock was validly authorized but there was not enough common stock to fulfill the conversion rights of the preferred. The Supreme Court held that the defect was with the common stock, not with the preferred. Hence, one defect in the "contract" will not invalidate the whole contract.
Posted on November 9, 2007 by R. Christian Walker
Dubuque v. Taylor, 2007 WL 3106451 (Del. Super. Oct. 1, 2007)
This case demonstrates that a Delaware court will not consider extrinsic evidence of the parties’ intent at the time of entering an agreement if the terms of the document are unambiguous.
The buyer/plaintiff purchased a transmission business called Goodeal Discount Transmissions of Dover, Inc., thinking it was a sole proprietorship. But after the closing, the franchisor—not the seller—came knocking on the buyer’s door seeking unpaid franchise fees and stating the amount to be paid going forward. Soon thereafter, the buyer sued the seller/former owner for breach of contract for failing to disclose that the business was a franchise, for breach of the contractual warranties, and for fraudulent misrepresentation.
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Posted on November 8, 2007 by Edward M. McNally
Seidensticker v. The Gasparilla Inn Inc., C.A. No. 2555-CC (November 8, 2007).
In this decision, the Court of Chancery has once again held that a contract means what it says, not what the parties say they subjectively intended. Thus, if the contract is unambiguous in its language, the Court will not accept explanations of what it was supposed to mean. Instead, the Court will enforce the contract as written. This opinion is useful for its review of recent case law that some have suggested adopted a "subjective" theory of contract interpretation under which, as the Cheshire Cat once said, "A word means what I say it means." Not so in Delaware.
Posted on November 2, 2007 by Edward M. McNally
XO Communications LLC v. Level 3 Communications Inc., C.A. No. 2131-VCL (November 2, 2007).
While the actual terms of a contract will control its meaning, there are occasions when legal rules will determine the result of a contract dispute. Here, the Court of Chancery noted the rule that in the case of a requirements contract, it is bad faith for the buyer to produce for its own use the materials that it committed to buy from the other party to the contract. The Court held that rule did not apply when at the time the requirements contract was entered into, the buyer had the means of producing the goods it had agreed to buy from the other party as well. In short, the requirement was not to use the producing party exclusively.
Posted on November 2, 2007 by Morris James
MBIA Ins. Corp. v. Royal Indem. Co., 2007 WL 3125319 (D.Del. Oct. 25, 2007)
In this opinion the District Court resolved cross-motions for summary judgment on the defendant’s counterclaim for breach of contract. The relationship between the plaintiffs and the defendant arose out of the underwriting of student loans. Student Finance Corporation (“SFC”) underwrote loans to students using funds from banks, then allegedly fraudulently issued “forbearance payments” in order to hide delinquent and defaulting loans. SFC transferred the loans to several trusts, which then issued fixed income notes, called Certificates, to investors. Plaintiff #1 was the trustee of trusts holding the securitized student loans. Defendant insured the loans that backed the Certificates with insurance policies that unconditionally guaranteed the students’ repayment of principal plus 90 days interest. Plaintiff #2 guaranteed payment of the Certificates in the event that the Defendant failed to honor its policies on the loans. Plaintiffs sued Defendant seeking to enforce its unconditional guarantee to repay the loans. Defendant counterclaimed against Plaintiff #1 for breach of contract, arguing that Plaintiff #1 did not adequately fulfill its oversight responsibilities under applicable Pool Servicing Agreements (“PSAs”) with respect to the servicing of the loans, and thus did not discover the allegedly fraudulent forebearance payments, resulting in Defendant engaging in continual transactions with SFC. Plaintiffs’ claim for enforcement of Defendant’s guarantee obligation was settled, leaving the Court only Defendant’s counterclaim to resolve.
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Posted on November 1, 2007 by Edward M. McNally
In re Checkfree Corporation Shareholders Litigation, C.A. No. 3193-CC (November 1, 2007).
Exactly what needs to be included in a proxy statement for a merger vote seems to be a constant subject for debate. Only a "fair summary of the substantive work performed by the investment bankers" need be disclosed, not everything given to them. Moreover, when there is no competing bid, then to enjoin the merger the court must be convinced that a strong showing has been made of disclosure errors.
Posted on October 17, 2007 by Edward M. McNally
In re Coca-Cola Enterprises Inc. Shareholders Litigation, C.A. No. 1927-CC (October 17, 2007).
In breach of fiduciary duty cases, a frequent question is when to apply the three-year statute of limitations that applies to actions at law. Here, the Court again holds that the statute of limitations begins to run in a breach of fiduciary duty case when the parties enter into their contract and not when the harm resulting from that contract occurs.
Thus, when the complaint alleged that Coca-Cola was abusing its bottling company under the terms of a 1986 contract, the breach ran from 1986, not from when Coca-Cola took certain actions under that contract in 2004. Time and again, the Court has used this approach to reject late claims or claims asserting a so-called continuing wrong theory where the limitations period never expires.
Posted on October 12, 2007 by Edward M. McNally
Ornero v. Country Grove Investment Group LLC, C.A. No. 2245-VCS (October 12, 2007).
In this case the contract required arbitration of any dispute between the parties arising from "any other cause", not just from a cause related to their contract. The Court upheld the claim that even a suit on a dispute unrelated to the contract containing the arbitration clause was within this broad arbitration agreement.
Posted on October 9, 2007 by Edward M. McNally
Forsythe v. ESC Fund Management Co., C.A. No. 1091-VCL (October 9, 2007).
The duties of a general partner in a Delaware limited partnership are governed by the partnership agreement. But when those duties may be delegated to third parties under the terms of the partnership agreement, the GP duties are less clear. Here, the Court had to decide if the scienter required by the Caremark case applied to hold the GP liable if red flags pointed to abuses by the parties running the show or whether instead the general partnership obligations of a GP to be responsible for its agents was the standard to apply.
Recognizing that in this case the authority to delegate to third party managers with clear conflicts of interest put the GP on notice, the Court held that the GP had more than just Caremark-like duties -there was a duty of more active inquiry.
Posted on October 8, 2007 by Morris James
Norman v. Elkin, 2007 WL 2822798 (D.Del. Sept. 26, 2007)
In this action the District Court evaluated the application of the statute of limitations to claims that a corporate fiduciary engaged in self-dealing at the corporation’s expense. Plaintiff was a 25% shareholder in a closely-held Delaware corporation with Pennsylvania headquarters, formed to participate in the wireless communications industry. Defendant #1 owned the remaining shares of the corporation, and also served as its President and sole director. Plaintiff alleged that Defendant #1 breached his duties to the corporation when he personally obtained newly-issued communications licenses from the FCC, then sold them along with the corporation’s pre-existing licenses to a third party, keeping the proceeds of the sale himself. Plaintiff further alleged that Defendant #1 took the action without notifying Plaintiff in his capacity as a shareholder, without holding an annual meeting, and without making any disclosure of the sale. Plaintiff sued Defendant #1, along with his wholly owned corporation and another corporate officer, in the Delaware Court of Chancery for breach of contract, unjust enrichment, declaratory relief, and breach of various fiduciary duties. Defendants removed the action to District Court based on diverse citizenship and moved for summary judgment, arguing that all claims were time-barred.
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Posted on October 4, 2007 by Morris James
Howard Hess Dental Laboratories Inc. v. Dentsply Int'l, 2007 WL 2807292 (D.Del. Sept. 26, 2007)
This opinion resolved several motions filed in two different antitrust class actions (the “Hess” action and the “Jersey Dental” action). The District Court denied Plaintiffs’ motion for partial summary judgment in the Hess action and granted various Defendants’ motions to dismiss in the Jersey Dental action. Plaintiffs were dental laboratories that purchased dental products from one Defendant, Dentsply, a manufacturer and distributor of dental products. In the Hess action, Plaintiffs sued Dentsply for alleged antitrust violations in connection with an adopted policy providing that dental dealers promoting Dentsply’s product not add competitive product lines. In the Jersey Dental action, Plaintiffs sued Dentsply and twenty six dental dealers alleging antitrust violations arising from the same Dentsply policy.
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Posted on October 2, 2007 by Edward M. McNally
Louisiana Municipal Police Employees Retirement System, C.A. No. 2608-VCN (October 2, 2007).
To obtain inspection of corporate records to investigate allegations of wrongdoing, it has long been held that a stockholder must have "some evidence" that there was indeed wrongdoing to investigate. Otherwise, mere allegations would permit intrusive books and records reviews.
Here, the allegation was that options had been back dated and the Court permitted inspection based on a statistical analysis that showed stock price rises immediately after many option grants. The Court felt this was "some evidence" that warranted inspection. However, the Court was clearly skeptical and cautioned that it was going to continue as the gate keeper to limit inspections that were not justified.
Posted on October 2, 2007 by Edward M. McNally
Baypo Limited Partnership v. Technology JV, C.A. No. 2693-VCL (October 10, 2007).
Many arbitration clauses contain provisions that permit a court to grant injunctive relief. These are used because of a fear that the arbitration panel may not have that power and that sort of relief may be needed, such as to enforce a noncompetition clause. Notwithstanding the presence of such clause, this decision upholds the usual Delaware rule that it is up to the arbitrators to decide if an issue is subject to the arbitration provision. Of course, that does not mean they decide if a court may hear an application for an injunction.
Posted on September 28, 2007 by Edward M. McNally
In re Career Education Corporation Derivative Litigation, C.A. No. 1398-VCP (September 28. 2007).
This decision decides when to give preclusive affect to a prior decision of a federal court that a derivative case should be dismissed under Rule 23.1. Basically, the standard that the Delaware court applied was whether the claims in the prior litigation that had been dismissed for failure to meet Rule 23.1 had a substantial overlap with the claims in the case here in Delaware. Finding that this overlap existed, the Court of Chancery dismissed the Delaware case.
What is unusual about this result is that the Delaware case was brought by a different party than the prior federal litigation. However, as the 'real' party in interest in both cases was the corporate nominal party, the rights litigated in the federal case were the same as those litigated in Delaware-the right to control the litigation.
Posted on September 14, 2007 by Edward M. McNally
Twin Bridges Limited Partnership v. Draper, C.A. No. 2351-VCP (September 14, 2007).
This decision deals with how to change the governance structure of a limited partnership by using a merger to amend the partnership agreement. At the outset, the Court ruled that the doctrine of independent legal significance would not be applied to a two-step transaction involving an amendment to a limited partnership agreement to permit a merger and then the merger itself. Instead, the Court ruled that the two transactions were integrated and thus, considered as if they were a single event. This may mean that the corporate law concept of treating two transactions separately if they are authorized by two different sections of the corporate law will not apply in the context of a limited partnership that is based on contract law.
In addition, the Court held that using a merger to add an additional, tie-breaking general partner to the partnership governance structure was permissible absent a clear prohibition in the partnership agreement.
Posted on September 7, 2007 by Edward M. McNally
Conrad v. Blank, C.A. No. 2611-VCL (September 7, 2007).
In the latest of the Delaware option cases, the Court of Chancery permits the action to go forward when it appears that the Board considered the option backdating and did nothing about it. It is noteworthy from its decision that this apparent indifference to a wrong served to distinguish this case from others where the backdating appeared to be a simple mistake. In the case of a simple mistake, the error would not be enough to expose the board to liability and that would excuse demand before the derivative suit was filed.
The Court also declined to apply the "continuing wrong" theory. Under that theory, a plaintiff who acquires her stock during the series of wrongful acts has the right to challenge all the actions including even those that occurred before she acquired her stock. Instead, here the court held that each backdated option was a separate wrong and the plaintiff could only sue for those that had occurred after she bought her stock.
Posted on September 4, 2007 by Edward M. McNally
Mahani v. EDIX Media Group, Inc., Del. Sup. C.A. No. 91, 2007 (September 4, 2007).
In this decision upholding a fee award by the Court of Chancery, the Delaware Supreme Court held that a fee based on a contract right to recover fees is not limited by the results in the case. That limitation, the Court held, is more appropriate in fee shifting pursuant to a statute. Instead, the fees awarded under a contract should take into account the 8 factors set out in Rule of Professional Conduct 1.5(a)(1). The results obtained are among those factors but not the driving force to a decision.
This case had an odd set of facts involving a misbehaving litigant - never a good idea in a Delaware court. Hence, the fee award of a multiple of the actual recovery is not often to be repeated.
Posted on September 4, 2007 by Edward M. McNally
LaPoint v. Amerisourcebergen Corporation, C.A. No. 327-CC (September 7, 2007).
In this otherwise fairly common breach of contact case, the Court of Chancery has once again emphasized the importance of evidence that is contemporaneous with the parties' contract and their conduct. Explanations after the fact are viewed as much less convincing than, as in this case, emails created at the time when litigation was not on everyone's mind.
Posted on August 24, 2007 by R. Christian Walker
Hynansky v. 1492 Hospitality Group, Inc., C.A. No. 06C-03-200, 2007 WL 2319191 (Del. Super. Ct. Aug. 15, 2007).
This case sets forth the appropriate measure of damages under a quasi-contract theory (in this instance quantum meruit): the value of the services provided, not the value of the benefit received.
The plaintiff made a typical business loan to the defendant to be paid back with interest, but also agreed to provide additional services to help the defendant avoid foreclosure on other loans, reduce the businesses debt load, and restore profitability. In return for these services, the defendant offered the plaintiff a partnership interest in the business.
But when the business improved, the defendant allegedly stopped working with the plaintiff—and eventually sold the business for a profit.
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Posted on August 17, 2007 by Edward M. McNally
Highfields Capital LTD. v. AXA Financial Inc., C.A. No. 804-VCL (August 17, 2007).
This decision illustrates the point that in an appraisal proceeding the type of business involved may lead to a different approach to valuation. Typically, Delaware courts use the discounted cash flow method to set an appraisal value. Here, however, the Court held that a combined sum of the parts and shared synergies analysis was more appropriate for an insurance company valuation.
Posted on August 14, 2007 by Edward M. McNally
Mercier v. Inter-Tel (Delaware) Incorporated, C.A. No. 2226-VCS (August 14, 2007).
In a precedent setting opinion, the Court of Chancery has recast the standard of review that applies when determining if a board has acted to affect a stockholder vote. Under the previous Blasius standard, the board had to prove a "compelling justification" before taking any action, such as postponing a stockholder meeting, that affected the stockholders' right to vote.
This opinion recasts the standard closer to the familiar Unocal test where director action that affected a proposed takeover had to be a reasonable response to a perceived threat to corporate policy or interests. Now, in the case of board action that may affect the stockholders' vote, the board must show its actions were: (1) designed to achieve a legitimate corporate objective; (2) taken for a proper motive in good faith; and (3) were reasonable means to their proper objective. This test should be substantially easier to meet than the "compelling justification" standard.
Posted on August 13, 2007 by Morris James
Roarty v. Tyco Int'l Ltd. Group, 2007 WL 2248086 (D. Del. Aug. 2, 2007)
In this action alleging violations of ERISA and state contract law, Defendants moved to dismiss two of the claims under F.R.C.P. Rule 12(b)(6). Plaintiff’s husband was employed by one of the defendants. Plaintiff brought the action against the employer and its insurance company, alleging that Defendants wrongfully denied her claim under an employee welfare benefit plan after her husband was killed while on a business trip. She alleged that defendants wrongfully denied benefits under ERISA, breached fiduciary duties owed under ERISA, and violated state contract law. Defendants moved to dismiss the fiduciary breach and state contract claims. The Court allowed the breach of fiduciary duties claim, but dismissed the state contract claim.
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Posted on August 9, 2007 by R. Christian Walker
Data Mgmt. Int’l v. Saraga, C.A. No. 05C-05-108, 2007 WL 2142848 (Del. Super. Ct. July 25, 2007).
Generally, a plaintiff bringing a claim based entirely upon the breach of a contract must sue in contract and is limited to contract remedies. No tort exists merely because a party breaches a contract—even if intentionally. But, the same conduct upon which the breach of contract claim is grounded may give rise to a tort claim if the conduct independently amounts to the breach of such an independent duty imposed by law. And with a tort claim comes the availability of punitive damages.
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Posted on August 9, 2007 by Edward M. McNally
Law Debenture Trust Company of New York v. Petrohawk Energy Corp., C.A. No. 2422-VCS (August 1, 2007).
Change of control provisions are common in employment contracts and other contexts. Here the provision was in a debenture. While primarily focusing on the specific language involved, this opinion is useful to others to see how to avoid triggering a change in control provision while at the same time implementing a merger.
Posted on August 2, 2007 by Morris James
Homsey v. Vigilant Ins. Co., C.A. No. 07-338-JJF (D. Del. July 31, 2007)
In this action alleging, inter alia, bad faith breach of contract and consumer fraud, the defendant insurance company sought dismissal of those counts pursuant to F.R.C.P. Rule 12(b)(6) for failure to state a claim for which relief could be granted. Plaintiffs held an insurance policy with Defendant that contained provisions covering credit card fraud and check forgery. Plaintiffs submitted a claim pursuant to those provisions for over $250,000 in allegedly fraudulent credit card charges and forged checks. Nearly one year later, Defendant tendered payment of $10,000 for the claim, contending that this amount represented the maximum amount due under the policy. Plaintiffs argued that the policy provided broader coverage, and alleged that Defendant denied or delayed payment on Plaintiffs’ claim without reasonable justification. Defendants argued that there was a bona fide dispute as to the policy’s language, such that Defendant could not be found to have acted unreasonably. Defendant also argued that Plaintiffs did not plead consumer fraud with particularity. The Court denied Defendant’s motion, finding that Plaintiffs pled sufficient facts to state both the bad faith and consumer fraud claims.
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Posted on August 1, 2007 by Edward M. McNally
Feldman v. Cutaia, C.A. No. 1656-VCL (August 1, 2007), affrimed, Del Supr. (May 30, 2008).
Classifying a claim as derivative has big consequences. Among those is that the claim is then subject to the continuous ownership rule that requires the plaintiff to hold his shares throughout the litigation to maintain his standing. A merger that eliminates the plaintiff's ownership thus also eliminates his ability to proceed with a derivative suit.
In an effort to avoid this problem, plaintiffs that bring dilution claims asserting their interests have been wrongfully diminished need to fit into an exception to the general rule that dilution claims are derivative. This decision illustrates the limits on such claims. Basically, a dilution claim is derivative unless the claim is that a controlling stockholder has wrongly diluted the interests of the minority stockholders. For this purpose, "control" means having a greater than 50% interest or active domination of a board. Moreover, it is not possible to aggregate the stock holdings of a group of stockholders to get over the 50% threshold.
This opinion also discusses the exceptions to the general rule that a merger deprives a stockholder of standing, such as when the merger itself is an attempt to fraudulently end the derivative suit. It also notes that aiding and abetting claims based on derivative claims are themselves also derivative and subject to the same standing rules.
Posted on July 31, 2007 by Edward M. McNally
Thompson v. The Williams Companies, Inc., C.A. No. 2716-VCS (July 31, 2007).
Companies often find that they are required to provide advancement of attorney fees to former directors or others when the company really does not want to do so because of the conduct involved. Here, in a case involving an employee with an advancement right, the Court held that requiring security for the amounts advanced is appropriate to insure repayment.
Note, however, that this discretion to require security was based on the terms of the provisions providing for advancement. Without that language in a mandatory advancement provision, it is doubtful that a company might require more than the usual and customary undertaking to repay.
Posted on July 30, 2007 by Morris James
Christ v. Cormick, 2007 WL 2022053 (D.Del. Jul 10, 2007)
In this action for damages based on promissory estoppel, breach of contract, fraud and civil conspiracy, Plaintiff sued the founding member of a Delaware LLC (“Member Defendant”), as well as various foreign individuals and entities (“other Defendants”) associated with the Member Defendant. Plaintiff’s claim arose out of an alleged agreement with the Member Defendant to invest $350,000 in exchange for a 50% equity interest in a South African investment management corporation and a Delaware LLC which owned certain intellectual property rights. Plaintiff claimed that the Member Defendant accepted $250,000 from Plaintiff, but diverted the money to another entity he was affiliated with. Plaintiff further alleged that the Member Defendant promised to repay Plaintiff the $250,000 that was invested, but did not do so. The Defendants moved to dismiss the action under F.R.C.P. Rule 12(b)(2) for lack of personal jurisdiction. The Defendants also moved for dismissal of the conspiracy claim under F.R.C.P. Rule 12(b)(6) for failure to state a claim, and dismissal of both the fraud and conspiracy claims as being outside the statute of limitations. Finally, the Defendants moved for a stay of the action under principles of comity in favor of Plaintiff’s earlier filed action in South Africa.
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Posted on July 30, 2007 by Morris James
Alcoa Inc. v. Alcan Inc., 2007 WL 2083813 (D.Del. July 17, 2007)
In this action for declaratory judgment, Plaintiff sought a ruling that it was not liable to various Defendants for the clean-up costs associated with environmental contamination on a property Plaintiff formerly owned. Plaintiff sold the contaminated property to Defendant 1 pursuant to an acquisition agreement that provided for a 12 year indemnification for certain environmental liabilities. Defendant 1 then sold the property to Defendant 2 with a separate indemnification agreement. Defendant 3 later acquired Defendant 2 and its subsidiary. When Defendant 3 sought to sell the contaminated property to the city in which the property was located, the city first required, both as part of the purchase agreement and through a letter to Plaintiff, that the contamination be sufficiently remedied. Defendant 3 sought indemnification from Defendant 1, which then sought indemnification from Plaintiff. Plaintiff responded to the city’s letter that Defendant 3 was responsible for the clean up, and rejected Defendant 1’s indemnification demand under the argument that it was outside the scope of the acquisition agreement. Plaintiff sought declaratory judgment that it was not liable to any of the Defendants. Defendant 1 moved to dismiss under F.R.C.P. Rule 12(b)(7) for failure to join an indispensable party, arguing that Plaintiff should have joined the city.
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Posted on July 30, 2007 by Morris James
Alcoa Inc. v. Alcan Inc., C.A. No. 06-451-SLR (D.Del. July 17, 2007)
In this action for declaratory judgment, Plaintiff sought a ruling that it was not liable to various Defendants for the clean-up costs associated with environmental contamination on a property Plaintiff formerly owned. Plaintiff sold the contaminated property to Defendant 1 pursuant to an acquisition agreement that provided for a 12 year indemnification for certain environmental liabilities. Defendant 1 then sold the property to Defendant 2 with a separate indemnification agreement. Defendant 3 later acquired Defendant 2 and its subsidiary. When Defendant 3 sought to sell the contaminated property, the contamination was detected. Defendant 3 sought indemnification from Defendant 1, which then sought indemnification from Plaintiff. Plaintiff rejected the indemnification demand under the argument that it was outside the scope of the acquisition agreement, and sought declaratory judgment that it was not liable to any of the Defendants. Defendant 3, a Canadian corporation, moved to dismiss for lack of personal jurisdiction.
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Posted on July 30, 2007 by Morris James
Baker v. MBNA Corp., 2007 WL 2009673 (D. Del. July 6, 2007)
This case is a consolidated class action against MBNA and certain officers for violations of §§ 10(b) and 20(a) of the Exchange Act, as wells as regulations promulgated thereunder. Plaintiffs alleged that the Defendants violated the Act in connection with allegedly false statements made in announcements and public filings regarding restructuring charges incurred and anticipated growth. Plaintiffs further alleged that the Defendants engaged in insider trading. Defendants moved to dismiss the complaint under F.R.C.P. Rules 9(b) and 12(b)(6). The District Court granted the motion with respect to the 10(b) claims again two of the officers, but denied it in all other respects.
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Posted on July 30, 2007 by Morris James
Baker v. MBNA Corp., 2007 WL 2009673 (D. Del. July 6, 2007)
This case is a consolidated class action against MBNA and certain officers for violations of §§ 10(b) and 20(a) of the Exchange Act, as wells as regulations promulgated thereunder. Plaintiffs alleged that the Defendants violated the Act in connection with allegedly false statements made in announcements and public filings regarding restructuring charges incurred and anticipated growth. Plaintiffs further alleged that the Defendants engaged in insider trading. Defendants moved to dismiss the complaint under F.R.C.P. Rules 9(b) and 12(b)(6). The District Court granted the motion with respect to the 10(b) claims again two of the officers, but denied it in all other respects.
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Posted on July 30, 2007 by Morris James
Cannon v. MBNA Corp., 2007 WL 2009672 (D. Del. July 6, 2007)
In this class action lawsuit brought by former MBNA employees, Plaintiffs asserted various breaches of fiduciary duty arising under ERISA in connection with administration of their 401(k) plan. Plaintiffs’ claims arose out of MBNA’s 2005 announcement of expected 10% annual growth for several years. Plaintiffs’ 401(k) plan contained MBNA stock. Several months later MBNA announced lower-than-expected earnings and MBNA stock fell nearly 35%. Plaintiffs alleged that the Defendants breached various fiduciary duties that resulted in this loss. Defendants were MBNA, the former CEO of MBNA, the committee responsible for the administration of the 401(k), and the individual committee members. Defendants moved to dismiss the various claims under F.R.C.P. 12(b)(6). The District Court found that dismissal as to all counts in the complaint was inappropriate at the pleading stage, and denied the motion.
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Posted on July 27, 2007 by Edward M. McNally
Friendly Ghost Enterprises LLC v. McWilliams, C.A. No. 2935-VCN (July 27, 2007).
Sometimes fiduciary duty claims are mixed in with claims that are subject to an arbitration provision. The issue then is whether the nonarbitration claims for breach of fiduciary duty are to be stayed in favor of arbitrating the other claims first. Here, the Court granted a stay because the resolution of the fiduciary duty claims and the claims for dissolution and a receiver would be illuminated by the resolution of the claims to be arbitrated.
Posted on July 20, 2007 by Edward M. McNally
Cobalt Operating LLC v. James Crystal Enterprises LLC, C.A. No. 714-VCS (July 20, 2007).
This factually intense case is interesting for its example of the careful analysis of detail that is typical of the Court of Chancery. The opinion is a good outline of the proper remedies for fraud and breach of contract in the sale of a company.
Posted on July 20, 2007 by Edward M. McNally
NAMA Holdings LLC v. World Market Center Venture LLC, C.A. No. 2756-VCL (July 20, 2007).
Frequently the rights of a member of an LLC or LP to inspect the entity's records is limited by the governing instrument. Thus, permitting only "reasonable access" is common. In this decision, the Court defines what "reasonable access" means, particularly when confidential information is involved.
Posted on July 20, 2007 by Edward M. McNally
Brand v. Deason, C.A. No. 2123-VCL (July 20, 2007).
When the Court is interested in the issues presented by a case and those issues are important to Delaware law, it will rarely grant an application for a stay of the proceedings in favor of another jurisdiction. When the application only comes after discovery has begun a stay is even less likely.
Here, the Court pointed out that option backdating law is still emerging in Delaware with only three decisions in this interesting area. Hence, there was good reason for a Delaware court to decide what is the law of Delaware and not stay its hand.
Posted on July 20, 2007 by Edward M. McNally
Gradient OC Master Ltd. v. NBC Universal, C.A. No. 3021 (July 20,2007).
This decision sets out the principles that govern when an injunction will issue after an appeal from a decision in the Court of Chancery denying a request for an injunction.
Posted on July 19, 2007 by Edward M. McNally
In Re: TD Banknorth Shareholders Litigation, C.A. No. 2557-VCL (July 19, 2007).
It is a mistake to take for granted that the Court of Chancery will approve any class action settlement. Here, the Court rejected a settlement because it appeared that a valid theory of recovery had been overlooked by the plaintiff and the settlement gave very little to the class.
Also of interest was the Court's interpretation of a standstill term in the stock acquisition agreement that limited the acquirer from seeking to obtain even more stock in the target. The Court implied that asking the target board to initiate merger discussions was an invalid attempt to get around that standstill provision.
Posted on July 17, 2007 by Edward M. McNally
Rhodes v. Silkroad Equity LLC, C.A. No. 2133-VCN (July 7, 2007).
The line between what is a direct claim and a derivative claim is frequently critical. Derivative claims can only be brought by stockholders and have other procedural hurdles to jump to survive a motion to dismiss. In this decision, the Court permitted what appeared to be a derivative claim to go forward as a direct claim by a former stockholder. Thus, the Court has expanded the type of claim that may be brought as a direct claim. While the facts of this case may seem unusual, the claims made in this case have come up before and now will certainly take on new life.
Briefly, the plaintiff alleged that the majority stockholder had run down the business of the company to force out the plaintiffs as minority owners at a reduced price under a stockholders' agreement. The damage to the company from their actions would seem to be a classic derivative claim for it was the company that suffered the injury and to whom damages would seem to flow for such a claim. However, the Court held that this conduct also would support a direct claim because the conduct in effect permitted the majority to increase its interest in the company while diluting the interest of the minority stockholders. In that sense, the claim of the minority interest was also a direct claim suffered by them alone.
Posted on July 12, 2007 by Edward M. McNally
Gradient OC Master Ltd. v. NBC Universal Inc., C.A. No. 3021-VCP (July 12, 2007).
A line of Delaware decisions recognizes that it is improper to coerce stockholders into accepting a transaction. What exactly is coercive, however, is not well defined. After all, almost any transaction that offers a choice has incentives built into it to induce taking the deal, but that cannot be improperly coercive. Here the Court of Chancery summarizes the prior decisions and articulates helpful standards to determine when there is actionable coercion.
While the decision is complex, the bottom line appears to be whether the Court is convinced the terms offered make economic sense. Thus, in this case it made sense to ask stockholders to give up some of the restrictive covenants that went with their preferred stock to achieve a successful restructuring. In contrast, when in another case a self-tender was seen as an unjustified attempt to fight off a competing offer, the Court held the too high tender price was an unlawful attempt to coerce stockholders to take the offer or be left with an over-leveraged company in the hands of the same directors.
Posted on July 6, 2007 by Edward M. McNally
Centreville Veterinary Hospital Inc. v. Butler-Baird, C.A. No. 1552-VCP (July 6, 2007).
Second thoughts sometimes reach the right conclusion. The problem, however, is that they may get there too late. This decision holds that once a contract offer is made, the rejection of that offer revokes the power to change your mind and later accept the offer. Based on the reasoning of the Restatement of Contracts (2nd) Section 38, the Court noted that rule works both ways and is grounded on the need to have a bright line test in such matters.
Posted on July 3, 2007 by Edward M. McNally
Robotti & Company LLC v. Gulfport Energy Corporation, C.A. No. 1811-VCN (July 3, 2007).
Applying standard books and records inspection law, this decision permitted inspection into the reasons why a subscription rights offering was structured so as to seemingly benefit insiders. This illustrates the reasoning process that the Court goes through to decide if there is enough basis to support a claim of possible wrongdoing that justifies granting a books and records inspection.
Posted on July 3, 2007 by R. Christian Walker
Sun-Times Media Group, Inc. v. Royal & SunAlliance Ins. Co., C.A. No. 06C-11-108 RRC, 2007 WL 1811265 (Del. Super. Ct. June 20, 2007).
Sun-Times Media Group, Inc. v. Royal & SunAlliance Ins. Co., C.A. No. 06C-11-108 RRC, 2007 WL 1811266 (Del. Super. Ct. June 20, 2007).
This insurance coverage action is an offshoot of the highly publicized, allegedly fraudulent scheme devised by Lord Conrad Black and other inside directors of Plaintiff Sun-Times Media Group (formerly “Hollinger International”) to deceive the corporation and misappropriate hundreds of millions of dollars.
The plaintiffs claim to have incurred over $20 million in defense costs—and allege that they will incur nearly $20 million more—to defend themselves and their agents in multiple lawsuits resulting from this conduct, including a securities class action filed in Illinois (“Illinois Class Action”). Specifically, Plaintiff Sun-Times Media brought this action, seeking a declaration of coverage under its excess D&O insurance policies issued by the defendants. The plaintiffs argued that the defendants were obligated to pay those defense costs and had wrongfully refused to do so.
To this end, early in the litigation, Plaintiff Sun-Times Media moved for partial summary judgment, seeking a declaratory judgment that certain insurer defendants had a duty under applicable policies to pay past and future defense costs incurred in the Illinois Class Action. The defendants countered by moving to dismiss or stay the plaintiffs’ entire complaint, citing McWane and forum non conveniens. The court ruled on both motions, issuing separate opinions.
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Posted on July 3, 2007 by R. Christian Walker
Empire Financial Services, Inc. v. Bank of New York (Delaware), C.A. 00C-09-235 SCD, 2007 WL 1677580 (Del. Super. Ct. June 8, 2007).
The Delaware courts have adopted the United States Supreme Court’s holdings in Daubert and Kumho Tire and apply these precedents along with DRE 702 when deciding the admissibility of expert testimony. Daubert established a “gatekeeper” role for the trial judge to play in determining whether expert testimony is both relevant and reliable. And Kumho Tire extended this role to all types of expert testimony, not just the sort based on scientific knowledge.
Here, the Superior Court performed its “gatekeeper” function by excluding the testimony of two of the plaintiff’s damages experts. Plaintiff Empire won on liability, proving that one of Defendant Bank of New York’s employees reached an unlawful agreement with one of Empire’s former employees to transfer active accounts to a new debt collection business started by the departing employee. But Empire still had to prove its damages and sought to do so through the expert testimony of Zelenovskiy and Landrum. Defendant Bank of New York filed motions in limine.
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Posted on July 2, 2007 by Edward M. McNally
Sutherland v. Sutherland, C.A. No. 2399-VCL (July 2, 2007).
On several occasions, the Delaware courts have questioned why only a single member is appointed to a special committee. However, the practice continues.This decision illustrates the price to be paid by such a bad practice.
Normally, Zapata Corp. v. Maldonado, 430 A2d 779 (Del. 1981) limits discovery of a special committee to materials that reflect on the independence and diligence of the committee. Discovery into the merits of the committee's conclusions is limited. The theory behind this limitation is that to permit broad discovery into the allegations that lead to the committee's creation would effectively undermine the reasons the committee was appointed in the first place.
This decision permitted much broader discovery into the merits of the one person committee's conclusions because of the special circumstances involved in this battle between family members and the limited disclosures given about the reasons for selecting the single member of the committee. The rationale behind the decision still applies to increase discovery of other single member special committees.
Posted on June 28, 2007 by Morris James
Lemon Bay Partners LLP v. Hammonds, C.A. No. 05-327 (D.Del. June 26, 2007)
In this shareholder derivative action for breach of fiduciary duties against various corporate defendants, the Court held that the state law claims asserted so predominated the lone federal claim that exercise of supplemental jurisdiction was inappropriate. Plaintiffs, former shareholders of MBNA Corporation, asserted various claims against the defendants based on breach of fiduciary duties in connection with earnings reports and the merger of MBNA with Bank of America. Defendants moved to dismiss based on lack of subject matter jurisdiction, arguing that the Plaintiffs’ sole claim that rested on federal jurisdiction was so predominated by the state law claims as to make the exercise of the Court’s supplemental jurisdiction inappropriate. The Court concurred with the defendants, concluding that Plaintiffs’ federal law claim bore only a tangential relationship to the rest of the claims. The Court therefore granted Defendants’ motion to dismiss for lack of subject matter jurisdiction.
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Posted on June 25, 2007 by Edward M. McNally
AT&T Wireless Services, Inc.v. Federal Insurance Company, C.A. No. 030-12-232-WCC (June 25, 2007).
What law applies is often a thorny issue in complicated business cases. It is even more complicated when tort and contract claims are mixed together. Throw in a merger or two and it is a real mess. Here, the Superior Court has cut through this fog to decide that one state's law applies in the whole litigation.
First, the Court determined that the principles of the Restatement of Conflict Section 188 that governs choice of law in contract cases would apply. This was done even though tort claims were also raised by the complaint. The Court reasoned that as the tort claims were based on the existence of the contract, it met the parties' probable expectations to apply contract choice of law principles.
In doing so, the Court focused on the principle place of business of the insured in this contract dispute with its insurers. While that is one of the five factors set out in the Restatement, the Court gave it great weight under the unusual circumstances of this case.
Posted on June 21, 2007 by Morris James
Gallagher v. E.I. Du Pont de Nemours & Co., C.A. No. 07-47-JJF (D. Del. June 19, 2007).
In this suit for breach of contract, specific performance, and wages under the Delaware Wage Payment and Collection Act, Plaintiff filed the action in Superior Court. Defendant subsequently filed Notice of Removal to the District Court, asserting that the state law claims were completely preempted by ERISA. The Court held that Plaintiff’s claims did not implicate ERISA, and no grounds existed for federal jurisdiction. Plaintiff’s Motion to Remand to Superior Court was therefore granted.
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Posted on June 19, 2007 by Edward M. McNally
Seidensticker v. The Gasparilla Inn Inc., C.A. No. 2555-CC (June 17, 2007).
Agreements among stockholders of privately held companies usually restrict the sale of company stock and give the other stockholders a right of first refusal. As with any contract, these agreements will be enforced by Delaware courts in accordance with their terms and not as the stockholders may wish years later when a dispute arises. Here, the Court enforced the time limits set out in such an agreement for when the option to acquire a fellow stockholder's shares must be exercised.
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Posted on June 15, 2007 by Edward M. McNally
In Re: Lear Corporation Shareholders Litigation, C.A. No. 2728-VCS (June 15, 2007).
The tactics to use and the terms to seek in merger negotiations are often debated and misunderstood. In this decision, the Court sets out considerable guidance on what to do and what to avoid. Moreover, the Court once again points out the problem created by leaving too much of the work to the CEO whose personal economic interests are also at stake. In short, that is a process to be avoided.
The Court's extended discussion of termination fees, go-shop provisions, voting agreements and matching rights are mandatory reading for anyone with a role to play in an M& A deal.
Posted on June 14, 2007 by Edward M. McNally
In Re: The Topps Company Shareholders Litigation, C.A. No. 2786-VCS (June 14, 2007).
The duties of directors in a sale of the company situation are often difficult to articulate except to say they should get the best price. Here, however, the Court of Chancery examines a real world problem of dealing with two competing bids and explains in detail how to do so properly. Moreover, when as here the Court concludes the directors have been unreasonably favoring one bidder over another, it will intervene to level the playing field.
The Court required that the board of Topps, the baseball card company, end a standstill agreement it had with Upper Deck, amend Topps proxy materials that had unfairly portrayed the Upper Deck offer for Topps and otherwise act to be sure that Upper Deck's proposal to acquire Topps was fairly considered. The decision also illustrates the problems management may have when they are given assurances of continued employment by one bidder who they then seem to favor in the bidding process.
Posted on June 7, 2007 by Edward M. McNally
Desimone v. Barrows, et. al., C.A. No. 2210-VCS (June 7, 2007).
Since the Tyson decision, some have predicted that the Court of Chancery will be hard on option granting abuses. That has proved to be so, but not always. Here the Court discussed a suit that alleged improper option granting because the plaintiff really could not plead a case that the board of directors was knowingly breaking the rules.
Many of the options involved were granted to lower level employees when the board itself was not directly involved. In that case, the plaintiff could not show that the members of the board had enough culpability to fear personal liability. Under those circumstances, the plaintiff could not meet the rules for showing a demand on the board to bring suit would be fatal.
In the case of other options, while they may have been granted at favorable times before good news caused the market to rise or after bad news caused it to fall, the options were part of a prearranged plan with set grant dates. Hence, timing of the grants was not at issue. Again, under these circumstances board liability was too remote to excuse demand under Rule 22.1.
Posted on May 31, 2007 by Edward M. McNally
Ginsburg v. Philadelphia Stock Exchange, C.A. No. 2202-CC (May 31, 2007).
It is often thought that even a short delay in seeking injunctive relief may bar a claim. Certainly in the case of claims to rescind a corporate transaction, any delay may be fatal. However, when the Court is satisfied that the plaintiff has been diligent, it is less likely to punish the delay that occurs in following the command of the Delaware Supreme Court to use the right to review corporate records before filing suit.
In this decision, the plaintiff knew he objected to the sale of securities by the PHLX and filed a demand to review its records on that sale. A year after the sale, he sued to have it rescinded. The Court denied the motion of the defendants for summary judgment on the claim for rescission because much of the delay in suing was attributed to the time the PHLX took in producing the documents the plaintiff had sought to review. In short, if you follow the rules to use the tools at hand you may get the time to do so.
Posted on May 31, 2007 by Edward M. McNally
Matulich v. Aegis Communications Group. Inc., C.A. No. 2601-CC (May 31, 2007).
Under Section 253 of the DGCL, a parent corporation that owns 90% or more of the stock entitled to vote in a subsidiary may merge the subsidiary into itself without a stockholder vote. Here, however, some of the subsidiary's stock had the right to 'consent' to major corporate events, but not to vote on those events. Illustrating the importance of adherence to proper corporate formalities, this decision holds that the right to "'consent' is not the same thing as the right to vote". Hence, the merger was valid when the parent company had 90% of the voting stock of the subsidiary, even if the minority stockholder with the right to consent to the merger did not do so. In short, be careful how you write a corporate charter because the words used really count.
On January 15, 2008, the Delaware Supreme Court affirmed the Court of Chancery's judgment.
Posted on May 30, 2007 by Edward M. McNally
Xpress Management Inc. v. Hot Wings International Inc., C.A. No. 2856-VCL (May 30, 2007).
Under very unusual circumstances, this decision entered a stay of a Delaware proceeding to dissolve a Delaware corporation because of prior filed litigation in Canada. While the law governing stays of Delaware litigation is very well developed, it is unusual to stay a proceeding for dissolution of a Delaware corporation. That is a particularly Delaware-based remedy that its courts are reluctant to forgo when the statutory prerequisites are met.
Here, however, the facts supporting the issuance of a stay were particularly strong. These included extensive and abusive litigation between the parties in Canada, the jurisdiction of the Canadian courts over the key assets in dispute and the existence of orders by the Canadian courts that dealt with the merits of the underlying dispute between the parties that had little to do with Delaware law.
Posted on May 18, 2007 by Edward M. McNally
Openwave Systems Inc. v. Harbinger Capital Partners Master Fund I, Ltd., C.A. No. 2690-VCL (May 18, 2007).
Corporate bylaws sometimes require that the company be given advance notice of the intent to nominate anyone for election to the board. When those provisions are not clear, they will be interpreted in the way that expands stockholder rights. However, when the provisions are clear enough to give notice of their minimum requirements, then they will be enforced. That is what occurred here where the winning candidate was disqualified for his failure to comply with a reasonably clear advanced-notice bylaw.
Posted on May 18, 2007 by Edward M. McNally
North American Catholic Educational Programming Foundation, Inc. v. Gheewalla, C.A. No. 521, 2006 (May 18, 2007).
For many years, the rights of corporate creditors to bring breach of fiduciary duty claims against directors has been the subject of much debate. For the most part, commentators have felt there was little need to protect creditors who it was said should protect themselves through their loan agreements. Nonetheless, substantial case law existed that upheld the right of creditors to sue directors.
In this decision, the Delaware Supreme Court has effectively ended the debate. It holds that creditors may not bring a direct claim against directors for breach of their fiduciary duties. This is true whether the corporation is insolvent or is close to insolvent. Creditors may, however, bring derivative claims when the corporation is insolvent because then they are the residuary risk takers for whom the directors should act. While the opinion does not answer this question, it seems likely that creditors may not bring derivative claims when their corporation is close to but not actually insolvent.
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Posted on May 17, 2007 by Edward M. McNally
Pershing Square L.P. v. Ceridian Corporation, C.A. No. 2780-CC (Del. Ch. May 11, 2007).
To obtain inspection of corporate records, a stockholder must show that her purpose is a proper one. This decision holds that determining the suitability of a candidate to serve as a director is a proper purpose. That much is no surprise.
What is potentially more significant is the Court's other holding. This decision protects confidential business information from being used in a proxy contest, at least when the relevance of the confidential materials to the election seems strained. The Court was clearly concerned about discouraging frank communication to the board.
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Posted on May 16, 2007 by Edward M. McNally
Levy v. HLI Operating Company, Inc., C.A. No. 1395-VCL (May 16, 2007).
It is widely thought that fee provisions in indemnification agreements are always enforceable. Think again. This decision held void a provision in an indemnification agreement that would have provided for payment of attorney fees even when the plaintiff lost his right to indemnification. Hence, agreements to pay attorneys fees to directors will need to be redrafted to make sure that an employment benefit is not dependent on the right to indemnification itself.
Posted on May 14, 2007 by Edward M. McNally
Wilmington Paper Corp. v. ANDA Management LLC, C.A. No. 2568-VCN (May 14, 2007).
When a dispute is subject to an arbitration agreement, it is often the case that immediate relief is needed to protect the parties in the period before the arbitration is decided. While sometimes an arbitration panel may have the power to issue orders that provide that relief, that is not always the case. Here, the Court of Chancery issued a status quo order that limited management powers while an arbitration panel was being formed and was to review the disputes.
Status quo orders are thus a way to deal with problems that occur before the arbitrators can decide what to do. Note, however, that the Court limited the status quo order to the period before the arbitrators could act.
Posted on May 11, 2007 by Edward M. McNally
Crescent/Mach I Partnership LLP v. Turner, C.A. 17455-VCN (May 2, 2007).
Predicting how the Court of Chancery will determine value in an appraisal proceeding is a difficult task. To some extent, each appraisal case will involve a battle of experts. Which side will ultimately prevail can be hard to predict, at least before cross examination. Further, the discounted cash flow approach frequently used by the Court of Chancery can be complicated. This decision offers a primer on that process and is well worth the trip for those willing to put in the time.
Posted on May 9, 2007 by Edward M. McNally
In re: The Topps Company Shareholder Litigation, C.A. No. 2786-VCS (Del. Ch. May 9, 2007).
The race is not always won by the first to start. In this case the Court of Chancery declined to stay a Delaware case attacking a proposed merger even though a similar New York case had been filed earlier. Explaining that the internal affairs doctrine leaves to the state of incorporation the right to decide internal corporate legal issues, the Court of Chancery held it would proceed with this case.
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Posted on May 8, 2007 by Edward M. McNally
Dittrick v. Chalfant, C.A. No. 2156-S (Del. Ch. May 8, 2007).
Provisions for payment of the attorney's fees of the winning party are not uncommon in contracts. What is "winning" is not always clear, however. This decision holds that when the contract says you must win to collect, then you must win it all to invoke the contract or at least the contract at issue in this case. In other words, you do not get paid for winning half the loaf.
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Posted on May 2, 2007 by Edward M. McNally
In re Appraisal of Transkaryotic Therapies Inc., C.A. 1554-CC (May 2, 2007).
A company subject to an appraisal petition argued that a beneficial owner who acquired its shares after the record date to vote for the merger should be required to prove that those shares had been voted against the merger by the record holder, Cede & Co.
The Court rejected that argument and noted that the Delaware Supreme Court has long held that a beneficial owner may demand appraisal through a record owner such as Cede & Co. Given that it is not practical for a beneficial owner to trace its shares through depositories such as Cede, this result seems fair and in compliance with prior decisions.
Posted on April 30, 2007 by Edward M. McNally
MBKS Company Limited v. Reddy, C.A. 1853-VCL (May 1, 2007).
It is occasionally important to distinguish between stock that is voidable and stock that is void. One reason is that voidable stock may be voted while it is still outstanding. In this decision, the Court of Chancery did an exhaustive review of the case law, applied the new statutory standard for consideration of "any benefit to the corporation" and concluded the stock in question was void.
On MArch 3, 2008, the Delaware Supreme Court affirmed this decision in an opinion that is worth reading as well.
Posted on April 27, 2007 by Edward M. McNally
NAMA Holdings, LLC v. Related World Market Center LLC, C.A. No. 2755 (Del. Ch. April 27, 2007).
The rights and obligations of a third party beneficiary to a contract are not clear. This decision illustrates that uncertainty and resolves the issues of when a third party beneficiary may be compelled to arbitrate a dispute.
The Court held that a third party beneficiary may be compelled to arbitrate a dispute when the agreement provides that the right the third party seeks to enforce is subject to the arbitration provisions of the agreement. In addition, the theory of equitable estoppel will compel a third party to arbitrate if it has received a direct benefit from the contracts' performance such that it would be inequitable to refuse to comply with the general intent of the agreement that disputes are to be arbitrated.
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Posted on April 18, 2007 by Morris James
CIT Commc’ns Fin. Corp. v. Level 3 Commc’ns, LLC, 2007 WL 951799 (D.Del. Mar. 29, 2007).
In this suit alleging breach of contract, unjust enrichment and conversion, Plaintiff moved for the District Court to remand the case to Delaware Superior Court, asserting that the District Court did not have subject matter jurisdiction. Plaintiff leased a telephone system to a company that later filed for bankruptcy. Through that bankruptcy, Defendants acquired the telephone system lease from the debtor, and the debtor was later liquidated pursuant to the Bankruptcy Court’s Confirmation Order. After the dissolution, Plaintiff filed several claims in the bankruptcy proceedings related to lease payments due by the debtor prior to Defendants’ acquisition of the lease. Plaintiff later filed the breach of contract, unjust enrichment and conversion claims against Defendants in the Delaware Superior Court, based on non-payment of Defendants’ non-payment of obligations under the acquired lease. Defendant filed notice of removal of the suit to federal court, alleging that the claims were pending in, and therefore related to, the bankruptcy proceedings, such that the District Court had subject matter jurisdiction over the claims. In seeking remand, Plaintiff argued that the claims against Defendants existed independent of the bankruptcy, such that the federal court did not have subject matter jurisdiction.
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Posted on April 16, 2007 by Edward M. McNally
Gatz v. Ponsoldt, C.A. No. 298 (Del. Supr., April 16, 2007).
The dividing line between what is a derivative suit and what claims may be filed directly on behalf of stockholders is undergoing a rapid development in Delaware. This decision is the latest in that recent line of decisions.
This decision makes it clear that under the recent Rossette decision, claims for dilution may be filed by a class of stockholders whose interest in the entity have been diluted by the issuance of stock to "a significant or controlling stockholder'" in a dilutive transaction. Before Rossette, it was generally thought those claims belonged to the entity that did not get fair consideration for its stock and thus, were derivative claims only.
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Posted on April 9, 2007 by R. Christian Walker
Mehiel v. Solo Cup Company, No. 06C-01-169-JEB, 2007 WL 901637 (Del. Super. Ct. Mar. 26, 2007).
This case arose from defendant’s acquisition of SF Holdings and relates to disagreements over the amount of SF Holdings’ working capital adjustments and, by extension, its purchase price. The plaintiff, chairman and CEO of SF Holdings, brought this action in his capacity as the shareholders’ representative for fraud in the inducement, breach of contract, and unjust enrichment.
Shortly after the parties entered into the merger agreement—and days before closing—they found themselves deadlocked and unable to reach an agreement on the working capital adjustments. To resolve their differences, the parties appointed a neutral auditor as provided in the merger agreement, which further stated that the auditor’s decision would be final, binding, and conclusive, making no mention of appeal or reconsideration. The auditor resolved several issues in favor of the purchasing company (defendant), and plaintiffs’ action followed.
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Posted on April 9, 2007 by R. Christian Walker
Luscavage v. Dominion Dental USA, Inc., No. 06C-07-219 RRC, 2007 WL 901641 (Del. Super. Ct. Mar. 20, 2007).
Two dentists brought a claim for tortious interference with contract against their former employer after they each lost their new consulting contracts with Blue Cross/Blue Shield of Delaware. Both plaintiffs had worked for defendant Dominion Dental USA for several years, and both were subject to agreements with the company: (1) one plaintiff had signed a one-year employment agreement several years before, which contained a six-month non-compete; (2) the other had signed an independent contractor agreement, which also prohibited soliciting or otherwise interfering with defendant’s employees. Both plaintiffs terminated these agreements when they resigned.
Upon leaving, the two dentists obtained consulting contracts with Blue Cross in Delaware, but the agreements were quickly and unexpectedly terminated. The plaintiffs allege that Dominion Dental USA caused Blue Cross to terminate their agreements and consequently tortiously interfered with their contracts.
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Posted on April 9, 2007 by R. Christian Walker
Wilmoth v. Kuhn, No. 06A-10-002-JEB, 2007 WL 925616 (Del. Super. Ct. Mar. 28, 2007).
Homebuyer entered into contract with defendant builder for purchase of a lot and construction of a home. The contract provided that the buyer’s obligations were contingent on being able to install an in-ground pool according to the buyer’s specifications. If such a pool could not be installed, the buyer could terminate and the seller had to return the deposit.
A month after the buyers signed the contract, they informed the seller that they were unable to build a pool of their choice and thus were terminating the agreement. They asked the seller to return their $50,000 deposit. The seller rejected the termination and refused to turnover the funds.
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Posted on April 9, 2007 by R. Christian Walker
Brasby v. Morris, No. 05C-10-022-RFS, 2007 WL 949485 (Del. Super. Ct. Mar. 29, 2007).
A homebuyer brought this suit for breach of contract, negligence, and fraud after the builders delayed construction of his new modular home. The initial sales contract did not set a date for completion, but the parties entered into a subsequent, separate agreement setting a specific deadline. The defendants assured plaintiff they would finish by this date, but the buyer became concerned upon learning that no physical structure had been erected. So he demanded written assurance of timely performance or return of his deposit. The defendants responded, but informed the buyer that construction was 30 days behind schedule.
The plaintiff, then, filed a complaint with the Delaware State Police seeking return of his deposit. And, the builders returned most of it. Soon thereafter, the buyer brought this action in Superior Court, and the builders moved for summary judgment.
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Posted on April 6, 2007 by Edward M. McNally
Deloitte & Touche USA LLP v. Lamela, C.A. No. 1542-VCP (Del. Ch. April 6, 2007).
Contracts not to compete upon termination of employment must contain a limit on how long they last. A "reasonable" time is permitted. However, what happens if the contract is violated? Should the time limit then be extended to make up for the violation? This decision holds that the period should be extended so that the former employer gets the full benefit of the time limit on competition.
Posted on April 2, 2007 by Edward M. McNally
Viking Pump, Inc .v Liberty Mutual Insurance Company, C.A. No. 1465-VCS (Del. Ch. April 2, 2007).
Perhaps no rule of contract construction is more often applied to ambiguous contracts than the rule that the parties' actions show their intent. This decision applies that maxim with full force to decide the parties' obligations over a 20 year old dispute on insurance coverage.
While this decision turns on its unique facts, the Court's reasoning illustrates a method of proceeding that has implications for all contract disputes. First, the Court carefully considered the business problems faced by the parties at the time they entered into their contract. Next it considered how a rational business would have resolved those problems to fit the business needs. Then the Court reviewed what the parties actually did as evidence of what they intended their contract to mean.
Posted on March 29, 2007 by Edward M. McNally
Holman v Northwest Broadcasting LP, C.A. No. 1572-VCN (Del. Ch. March 29, 2007).
When a stockholder or, as here, a partner demands inspection of an entity's records, the usual test of what records are to be produced is what is "essential and necessary" to the proper purpose for that inspection. Here the partner seeking inspection rights had been given audited financial information already. Thus, the Court had to decide if he needed more than those audited reports to accomplish his proper purpose, a valuation of his partnership interests.
As to those items in the audited report that were in enough detail to be used for valuation purposes, the Court denied further inspection. However, the result was different in the case of the audited reports' treatment of executive compensation. In that case, the Court concluded, the information was too general to be useful. How the compensation was allocated was important to any determination of whether that cost could be cut and the entity's value thereby increased. Therefore, the Court ordered that further information breaking down that cost be provided.
Posted on March 26, 2007 by Edward M. McNally
Troy Corporation v. Schoon, C.A. No. 1959-VCL (Del. Ch. March 26, 2007).
Forum selection clauses will be upheld by Delaware courts. However, when the dispute that is the subject of litigation in Delaware is not clearly subject to a contract clause requiring the dispute to be litigated elsewhere, the Delaware courts will not enforce such an unclear contract provision to bar litigation here.
In this decision, the contract required any litigation to be filed in federal court in New York. However, the federal courts lacked jurisdiction over the dispute set out in the complaint filed in Delaware. Thus, the Court of Chancery held that the forum selection clause was not enforceable.
This result illustrates the need to carefully draft forum selection clauses as they will not be read expansively.
Posted on March 15, 2007 by Morris James
Levy v. Sterling Holding Co., LLC, 2007 WL 582555 (D.Del. Feb. 13, 2007).
In this shareholder derivative action, the plaintiff shareholder sued two defendants, both of whom occupied board positions with the corporation, for allegedly purchasing stock in the corporation and then selling it at a profit within six months, in violation of Section 16(b) of the Securities and Exchange Act of 1934. After each side filed cross-motions for summary judgment, the SEC adopted Amendments to SEC Rules 16b-3 and 16b-7, which exempt certain transactions from the prohibitions of Section 16(b). Defendants argued that the transaction that formed the basis of Plaintiff’s complaint, whereby Defendant’s preferred stock in the corporation was “automatically” converted to common stock upon completion of an IPO, was an exempt “reclassification” transaction under the SEC Rules. Conversely, Plaintiff argued that the exemption did not apply. The Court found that the SEC had acted within its power in exempting reclassification transactions from Section 16(b), and that as a result of that exemption, Defendants were entitled to judgment as a matter of law.
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Posted on March 14, 2007 by Morris James
Rimmax v. RC Components, Inc., 2007 WL 521214 (D.Del. Feb. 21, 2007).
Plaintiff asserted breach of contract, fraud, and intentional interference with contractual relations, arising out of a purported agreement between the parties to manufacture wheel covers for motorcycles. Under Plaintiff’s theory, Plaintiff and Defendant agreed to manufacture the covers based on allegedly confidential information and proprietary technology that Plaintiff provided. Plaintiff asserted that Defendant breached their contract to manufacture and supply the covers, then misappropriated Plaintiff’s confidential information, proprietary technology, and actual and potential contractual relations. The District Court of Delaware granted Defendant’s motion for summary judgment, finding that Plaintiff had not provided sufficient evidence on any of its claims to withstand the motion.
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Posted on March 14, 2007 by Edward M. McNally
In re Netsmart Technologies, Inc., C.A. No. 2563-VCS, 2007 WL778612 (Del. Ch.).
When a company is to be sold, then the board of directors have so-called Revlon duties that basically come down to getting the best price. There is no set methodology or procedure the board must employ. However it proceeds, its actions will be subject to a level of increased scrutiny by a reviewing court. In other words, the normal business judgment rules do not apply in such a case. This important decision illustrates what the Court of Chancery expects a board in "Revlon land" to do.
Here the board was faced with two possible sets of potential buyers for their company: (1) so-called strategic investors who would acquire the company to run it as part of their other business interests and (2) private equity investors who would let current management run the company after taking it private. The board never really explored the possibility of a sale to strategic investors and, apparently, preferred a sale to private equity from the outset. Only one bidder stayed the course and the court was faced with a complaint that the price was not high enough. After finding some disclosure problems with the proxy materials, the Court held that the stockholders should be given an amended disclosure statement that included more financial information and enjoined the meeting until that was done. More importantly, the Court also ordered that the stockholders be told that their board had not really pursued a sale to strategic investors.
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Posted on March 1, 2007 by Edward M. McNally
Valeant Pharmaceuticals International v. Jerney, C.A. No. 19947 (Del. Ch. March 1, 2007).
Payment of bonuses to officers and directors often seems so routine that extra care is not required to be sure they are fair. This case shows what can go wrong when fair process and fair amounts are not properly considered.
Because each member of the board was to receive a bonus under the plan in issue, the bonuses were subject to the rigorous entire fairness review by the Court. That involves testing to see if the process used to approve the bonuses was fair in the sense of using appropriate safeguards to protect the corporation's interests and fair in the sense that the amounts involved were within a range of reasonableness. These bonuses failed on both counts.
To begin with, the committee to whom the bonus plan was referred consisted of persons who would receive a bonus and a majority of the committee were closely allied with the CEO who was targeted for a $30 Million bonus under the plan. The consultant they hired came in after the plan was set up and was really only asked to justify the amounts involved.
Second, the amounts were extremely high compared to other bonuses and were for work that had not just been done already before the plan was announced but that had in a sense already been the subject of prior bonuses. All in all, this was just too much and the Court voided the bonuses.
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Posted on February 28, 2007 by Edward M. McNally
Ortsman v. Green, C.A. No. 2670-N (Del. Ch. February 28, 2007).
There is sometimes uncertainty as to what should be included in a disclosure statement that seeks stockholder approval of a merger. This brief opinion makes it clear that the basis for an investment banker's fees should be included, particularly when the fee is dependent in some degree on the merger's completion.
Posted on February 23, 2007 by Edward M. McNally
Louisiana Municipal Police Employees' Retirement System et al v. Crawford, C.A. No. 2635-N (Del. Ch. February 16, 2007).
In Delaware's corporate law, the doctrine of independent legal significance has a great importance. Basically, this means that if a transaction is authorized by any provision of our law, then it may go forward even if, in substance, it may seem to violate some other provision of that law. Thus, for example, a merger that really seems to be a sale of assets is still valid if it complies with the terms of the statute governing mergers. Here, the strength of that doctrine is called into question.
To make the merger of Caremark and CVS more competitive to a third party offer for Caremark, the directors of Caremark resolved to pay a special dividend to the Caremark stockholders. The problem was that the dividend was conditioned on those stockholders approving the merger with CVS. The plaintiffs argued that this dividend was really a cash payment as part of the merger consideration and thus triggered stockholder appraisal rights that occur when stockholders receive cash in a merger. The Court of Chancery agreed with the plaintiffs and rejected application of the doctrine of independent legal significance.
The result clearly was influenced by the evidence that the Caremark directors were motivated to declare the dividend to make the merger go through and thereby receive large personal benefits in the form of change of control payments. The point then is that when the so-called "independent" event is really tied to personal interest and not to just getting a deal done, the Court is less likely to give it recognition as truly independent.
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Posted on February 22, 2007 by Morris James
Chase Manhattan Bank v. Iridium Africa Corp., 2007 WL 518440 (D.Del. Feb. 16, 2007)
In this breach of contract case, the defendant members of a bankrupt LLC asserted various defenses to their alleged contractual obligation to make capital contributions after the bankruptcy. The plaintiff lender had made an $800 million dollar loan to the LLC, and asserted that the members were contractually obligated to continue capital contributions despite the bankruptcy. The District Court entered summary judgment for the plaintiff on its breach of contract claim, but delayed entering final judgment until the parties could brief remaining “open issues”. The defendants argued that the plaintiff’s alternate theory of recovery should be dismissed as moot prior to a final entry of summary judgment for the plaintiff, that the plaintiff was not entitled to attorneys’ fees, and that the Court’s grant of summary judgment had left unresolved various defenses asserted by the defendants. The Court concluded that the entry of summary judgment was appropriate without addressing the plaintiffs’ alternate theories of recovery and did not leave any defenses unresolved, and that the plaintiff was contractually entitled to attorneys’ fees. The Court therefore found that the entry of final judgment for the plaintiff was appropriate.
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Posted on February 13, 2007 by Edward M. McNally
Louisiana Municipal Police Employees Retirement System v. Crawford, C.A. No. 2635-N (Del. Ch. February 13, 2007).
The question sometimes comes up of whether a stockholder meeting should be postponed to permit supplemental proxy materials to be sent and read by the stockholders. Here, the Court did extend the meeting based on the facts presented to it. Hence, this decision provides guidance on this issue.
Posted on February 8, 2007 by Edward M. McNally
Perelegos v. Atmel Corporation, C.A. No. 2320-N (February 8, 2007).
The actions of special committees of a board are often questioned, but this decision strongly affirmed the power of a properly organized and functioning special committee. Indeed, given that the committee here removed the corporation's founder as its CEO, there can be few corporate actions more important than the act upheld here.
There are still limits on that power, however, as the Court of Chancery also held that the board could not cancel the special stockholders' meeting called by the fired chairman to review the acts of the Special Committee. This reflects the strong Delaware respect for the rights of stockholders to vote on who should be on the board.
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Posted on February 6, 2007 by Edward M. McNally
In Re Tyson Foods, Inc., C.A. No. 1106-N (Del. Ch. February 6, 2007).
The Court of Chancery applies a three year statute of limitations to claims asserting breach of fiduciary duty. However, there are several theories that extend that time, such as for fraudulent concealment of the facts that would provide notice of the claim. This decision explains those theories in a comprehensive way. Moreover, the decision applies this law to the detailed facts presented in this case. That is useful as it is not always easy to understand when the Court will extend the time to sue.
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Posted on February 6, 2007 by Edward M. McNally
Ryan v. Gifford C.A. No. 2213-N (Del. Ch. February 6, 2007).
Backdating of stock options has long been under fire. This decision spells out the legal theories under Delaware law that support a breach of fiduciary duty claim for backdating. In addition, the opinion also seems critical of similar practices such as "springloading" option grants. Moreover, by characterizing the backdating of options as constituting "bad faith", under the facts presented in this case, the opinion removes the protection of the director exculpation provisions provided in many charters.
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Posted on February 2, 2007 by Edward M. McNally
AHS New Mexico Holdings, Inc. v. Healthsource Inc., C.A. No. 2120-N (Del. Ch. February 2, 2007).
It is often the case that a merger agreement or sale of stock will provide for an adjustment to the closing price based on post-closing events. This decision holds that in such cases the procedures for submitting any dispute are enforceable and absent agreement of the parties will include all of their disputes over the adjustment. This later point is important because it permits the parties to reach preliminary agreements on some parts of the dispute while preserving their right to take the whole dispute to the chosen forum for resolution if all points are not resolved by negotiations.
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Posted on January 31, 2007 by Edward M. McNally
Country Life Homes Inc. v. Shaffer, C.A. No. 2288-S (Del. Ch. January 31, 2007).
It is sometimes asked if an arbitration award really has the finality of res judicata. This decision holds that the first arbitration award in a dispute is a final award that bars any later arbitration award by another tribunal. The Court did permit the party opposing the first award to contest the jurisdiction of that arbitrator. When that challenge failed, so did that party's case.
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Posted on January 30, 2007 by Morris James
Creedon Controls, Inc. v. Banc One Bldg. Corp., 2007 WL 149002 (D.Del. Jan. 22, 2007)
In this opinion, the District Court granted one co-defendant’s motion for summary judgment while denying the other’s. Defendant Banc One was involved in construction of two data centers, and contracted with Defendant Forest to coordinate all electrical power and data connections work on the project. Forest then contracted with Plaintiff as an electrical subcontractor on the project. Plaintiff later filed suit against both defendants, alleging that their inefficiency and improper behavior resulted in significant delays and cost increases. Banc One moved for summary judgment as to Banc One because it had no contractual relationship with Plaintiff and no agency relationship with Forest could be established, and therefore it was not liable for damages to Plaintiff. Forest moved for partial summary judgment, arguing that its contract with Plaintiff expressly precluded damages for delay, and that it was merely an agent of Banc One and therefore could not be held liable for damages. The court granted Banc One’s motion, finding that there was no contractual relationship with Plaintiff and no jury could reasonably find that Forest served as Banc One’s agent. The court denied Forest’s motion, however, finding that there were genuine issues of material fact as to how the alleged delays arose and whether the contract provision precluding delay damages was enforceable.
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Posted on January 29, 2007 by Edward M. McNally
Hough Associates Inc. v. Hall, C.A. No. 2385-N (Del. Ch. January 17, 2007).
While it is common for the courts to enforce non-compete agreements against the signatories to those agreements, it is less common for third parties to get dragged into the enforcement as well. Here, when a non-party to the agreement knew of its terms, actively assisted in the violation of the agreement and would itself have profited from that violation, the Court of Chancery had little pause in holding the agreement should be enforced against that third party.
Posted on January 23, 2007 by Edward M. McNally
Sample v. Morgan, C.A. No. 1214-N (Del. Ch. January 23, 2007).
It is a rare case where the Court of Chancery finds grounds for a claim of waste. The standard to be met is very strict. This is such a case. Here the Inside Directors caused their corporation to issue them rights for 200,000 shares for the grand total of $200, all while knowing that the shares had a value of over $5 per share if not more. To make matters worse, the Inside Directors tried to implement this scheme by asking the stockholders to approve it through seriously misleading disclosures and then used a conflicted process to have the actual issuance of the shares approved at the board level. It is hard to see how they could have done a worse job in trying to secure their option rights.
The decision notes that even informed stockholder approval of an option plan does not give management a blank check to issue options under any circumstances. There still must be an informed process that takes due care in the decision to actually issue the options.
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Posted on January 23, 2007 by Morris James
Magten Asset Mgmt. Corp. v. Paul Hastings Janofsky & Walker LLP, No. 04-1256-JJF (D.Del. Jan. 12, 2007)
In this opinion, the District Court of Delaware found that both Montana’s substantive fraudulent transfer law and Plaintiff’s inability to establish standing warranted granting Defendant’s motion for judgment on the pleadings. Plaintiff, a creditor of a Montana limited liability company by virtue of an indenture agreement, sued Defendant, alleging that Defendant assisted the LLC in transferring assets to its parent corporation in order to defraud the LLC’s creditors. Defendant moved for judgment on the pleadings, arguing that as a non-transferee of the assets, it could not be held liable for any alleged fraudulent transfer under Montana’s fraudulent transfer act, and that as a creditor of the LLC, Plaintiff did not have standing to bring its derivative claims against Defendant on behalf of the LLC. The court agreed with Defendant, and granted the motion for judgment on the pleadings.
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Posted on January 22, 2007 by Edward M. McNally
FGC Holdings Limited v. Teltronics, C.A. No. 883-N (Del. Ch. Jan. 22, 2007).
In this precedent setting decision, the Court of Chancery held that a party prevailing in a Section 225 proceeding to compel his recognition as a director was not entitled to his attorney fees as a matter of right. The Court noted that no prior decision had dealt with the circumstance where the plaintiff seeking fees in a Section 225 case was not already a director at the time the suit was filed. In that situation, the Court held that Section 145 indemnification of fees did not apply because Section 145 requires the party seeking indemnification to be or have been a "director". That the plaintiff won recognition of his right to be a director did not make him a director automatically for purposes of indemnification under Section 145.
This case involves some odd facts that may distinguish it from other Section 225 litigation. Here, the corporation was limited to five directors by its charter and had five sitting directors when the plaintiff was elected by the preferred stockholder. Perhaps for that reason the Court concluded that his election alone was not enough to make him a director.
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Posted on January 19, 2007 by Morris James
Rimmax Wheels LLC v. RC Components, 2007 WL 81829 (D.Del. Jan. 9, 2007)
In this order denying Defendant’s motion to transfer venue, the District Court reviewed the applicable standards and guidelines employed to evaluate motions to transfer. Plaintiff, a Delaware limited liability company holding patents for motorcycle rims, sued Defendant, a Kentucky corporation engaged in the manufacturing of motorcycle rims, for breach of contract, fraud, and intentional interference with contractual relations. Defendant moved for transfer of venue to the Western District of Kentucky, contending that it was the locale of the parties’ contractual negotiations, Defendant’s business, and two essential witnesses who refused to appear in Delaware to testify. After reviewing the standards developed by the U.S. Supreme Court, Third Circuit Court of Appeals, and District Court of Delaware, the court denied Defendant’s motion to transfer, finding that Delaware had a substantial connection to the case.
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Posted on January 17, 2007 by Edward M. McNally
Cypress Associates LLC v. Sunnyside Cogeneration Associates Project C.A. No. 1607-N (Del. Ch. January 17, 2007).
It is often plead that a party to a contract has acted unreasonably in withholding consent if the contract requires for the other party to take certain action. This decision holds that such a pleading, even as an affirmative defense where vagueness is a tradition, must state facts that support the claim. The opinion is also enlightening in applying long settled corporate law principles that a party to a contract has the right to act in its own self-interest in exercising its contractual rights.
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Posted on January 17, 2007 by Edward M. McNally
Psilos Group Partners, L.P. v. Towerbrook Investors L.P., C.A. No. 1479-N (Del. Ch. January 17, 2007).
When the terms of a contract do not quite cover what one party, in retrospect, wished was included, there is a great temptation to argue the court should rewrite the deal to include what the disappointed party wants. Naturally, the courts reject such attempts, as in this case, when the other party to the contract objects to its rights being altered after the fact. This case illustrates this scenario. The court's method of analysis included not just reviewing the contract terms, but understanding the economics behind the deal. These facts show that the "reformation" the plaintiff sought would not have been agreed to had the parties thought about it when the contract was signed. That is important in denying the claim to change the contract terms, absent fraud or mistake.
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Posted on January 8, 2007 by Edward M. McNally
Tenneco Automotive Inc. v. El Paso Corporation, C.A. No. 18810-NC (Del. Ch. January 8, 2007).
When all else fails, claims of tortious interference with contact and fraudulent inducement seem to be the last resort to remedy a seeming inequity in how a contract has worked out. This case is an example of a plaintiff with a wrong in search of a remedy and having a hard time finding one.
The Court again limits the scope of a claim for tortious interference with contract by holding that a defendant cannot be charged with interfering with its own contract. Hence, the claims against that defendant were dismissed.
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Posted on December 21, 2006 by Edward M. McNally
ATR-Kim Eng Financial Corp. v. Araneta, C.A. No. 489-N (Del. Ch. December 21, 2006).
Commentators sometimes wonder when director inattention will ever be so bad so as to warrant finding directors liable in the absence of self-dealing. This was just such a case. Briefly, the board consisted of a majority owner who picked a relative and an employee to constitute the other members of the board of directors. The Court concluded that the two non-controlling directors basically did nothing to carry out their duties to the entity and just accepted at face value everything they were told by the controlling stockholder. As a result, the Court found all the directors liable when the controlling stockholder looted the entity.
The decision is particularly interesting in that it may be an extension of the Delaware Caremark decision to no longer require a "red flag' to hold directors liable for failure to oversee the corporate entity's operations. That extension would apply when there was especially bad conduct and an utter failure by the board to meet or in any way supervise the management of the entity.
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Posted on December 21, 2006 by Edward M. McNally
In Re William Lyon Homes Shareholders Litigation, C.A. No. 2015-N (Del. Ch. December 21, 2006).
When there are two competing class or derivative actions, there may arise a conflict between them. This is particularly so when one is settled and the settlement will affect the right to proceed in the other litigation. That conflict may generate a fight among plaintiff's counsel over the fees to be awarded by the Court in the settlement. That is what occurred here.
Such fee split cases are governed by the rules set out in In re Infinity Broad. Corp. Shareholders Litigation, 802 A2d 285 (Del. 2002). In effect, this requires the Court to allocate the fees among the claimants based on the Court's views of their respective contributions to the settlement.
The plaintiff in a related California case that sought some of the fees to be awarded ended up with nothing for failure to justify their claim.
On December 21, 2007, the Delaware Supreme Court reversed, in part, the Court of Chancery decision. The Supreme Court held that there was enough in the record to support a presumption that the plainitff in the California case had contributed to a price rise that benefited the class and remanded for further proceedings .
Posted on December 19, 2006 by Morris James
PNC Bank v. Sills, 2006 WL 3587247 (Del. Super. Ct. Nov. 30, 2006)
In this opinion denying Defendants’ motion to vacate confessed judgment against them, the Superior Court examined whether the Defendants had satisfied any of the considerations relevant to whether an entry of confessed judgment should be vacated. Defendants guaranteed a loan that Plaintiff made to a Delaware limited liability company for a boat. Plaintiff recorded a mortgage on the boat, and upon the limited liability company’s default, initiated proceedings in Superior Court to confess judgment against Defendants. After Defendants failed to appear to object to the entry of judgments, the Court issued final judgments against them. The mortgaged boat was then sold at a court approved judicial sale for less than the outstanding loan balance, and Plaintiff initiated proceedings to execute upon the confessed judgment to recover the deficiency. Defendants filed an objection to execution and the motion to vacate the confession of judgment under Superior Court Rule 60(b). The Court found that Defendants had received proper notice of the confessed judgment, had no meritorious defense to the confessed judgment, and did not use reasonable diligence in filing the motion to vacate. The motion was therefore denied.
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Posted on December 15, 2006 by Edward M. McNally
Union Oil Company of California v. Mobil Pipeline Company, C.A. No. 19395-N (Del. Ch. December 15, 2006).
In this fact intensive decision the Court of Chancery reviewed the Delaware law on contract construction and remedies. It upheld the general rule that the unilateral mistake of one party to a contract that is not known by the other party will not justify the cancellation of the contract on the basis of that mistake.
Posted on December 15, 2006 by Edward M. McNally
B.F. Rich Co., Inc. v. Gray, C.A. No. 1896-N (Del. Ch. December 15, 2006).
After losing a case involving the right to vote shares that were a controlling block, the loser sought a stay to permit an appeal to the Delaware Supreme Court. The Court of Chancery denied the stay after applying the usual standards for such stays. The decision is interesting because the Court was faced with a change in control of the Delaware entity as a result of its decision and the obvious impact that might have on corporate affairs was carefully considered by the Court.
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Posted on December 14, 2006 by Morris James
Tropical Nursing, Inc. v. Ingleside Homes, Inc., 2006 WL 3579075 (Del. Super. Ct. Dec. 11, 2006).
In this opinion granting Defendant’s motion for summary judgment, the Superior Court evaluated the liquidated damages provision contained in Defendant’s contract with Plaintiff. Plaintiff had a non-exclusive agreement with Defendant to provide temporary nursing employment services to Defendant on an “as needed” basis. Timecards that the temporary nurses were required to have signed by Defendant contained a clause that restricted Defendant’s ability to hire the nurses, and provided for a “work release payment” in the event that Defendant breached that was equivalent to 500 times the hourly billing rate for the employee. Defendant sought a ruling from the court that the provision was an unenforceable penalty clause. The Superior Court found that the provision did not meet the standards for an enforceable liquidated damages clause, and therefore granted Defendant’s motion for summary judgment.
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Posted on December 14, 2006 by Morris James
Tropical Nursing, Inc. v. Accord Health Serv., Inc., 2006 WL 3604783 (Del.Super. Ct. Dec. 7, 2006).
In this breach of contract case, the Superior Court found that Defendant became contractually bound to Plaintiff based on actual and apparent authority it granted to both its permanent and temporary employees, and subsequently breached those contracts. Plaintiff was a provider of temporary nursing staff, and supplied temporary nurses to Defendant’s healthcare facility. Plaintiff’s contract claim was based on the terms provided for on the back of the temporary nurses’ timecards, which stated that Defendant would not interfere with the temporary nurse’s contractual relationship with Plaintiff, and if it did so Defendant would immediately pay a “work release payment”. Plaintiff alleged that Defendant breached these contracts with respect to 14 former employees of Plaintiff’s that Defendant had hired. Defendant argued that the nursing supervisors who signed the timecards did not have the authority to contractually bind Defendant to their terms. The Court found that Defendant had in fact given the supervisors actual and apparent authority to bind Defendant to the terms of the timecards, and Defendant was therefore in breach when it did not honor those terms.
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Posted on December 14, 2006 by Morris James
Tulstar Prods., Inc. v. Ionsep Corp., 2006 WL 3604782 (Del. Super. Ct. Dec. 7, 2006)
In this breach of contract case, the Superior Court evaluated Defendant’s counterclaim that it had an exclusive distributorship contract with Plaintiff that was breached, thus entitling it to offset the amount of that contract from any amount owed to Plaintiff. Plaintiff, a chemical distributor, sued Defendant, a chemical process developer, alleging that Defendant owed almost $175,000 in past due invoices for orders of Plaintiff’s product. Defendant counterclaimed that Plaintiff owed Defendant $250,000 under the alleged exclusive distributorship contract. After reviewing the testimony and evidence produced at trial, the Superior Court found that there was inadequate support for a finding that the parties had agreed to an exclusive distributorship contract, and therefore awarded Plaintiff its claimed damages for the past due invoices, and dismissed Defendant’s counterclaim with prejudice.
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Posted on December 12, 2006 by Edward M. McNally
Shamrock Activist Value Fund LP v. iPass Inc., C.A. No. 2462-N (Del. Ch. December 12, 2006).
When seeking to inspect corporate records, the stockholder needs to have a reasonable purpose for doing so. If the stated purpose is to investigate wrongdoing, there must be a real basis to suspect wrongdoing or the demand will be denied. Here the demand was at least partially deficient because allegations of improper conduct seemed to be little more than that the company had not met its predicted financial results. The plaintiff escaped dismissal of its suit on narrow grounds that there were also allegations of a failure to carry out a plan that was more definite than just a prediction, something closer to a promise that was broken.
Posted on December 12, 2006 by Edward M. McNally
State of Delaware v. Philip Morris USA, Inc. C.A. No. 2088-N (December 12, 2006).
By this decision Delaware joins the vast majority of other states in ordering arbitration over the disputes arising out of the State's agreement with tobacco companies.
Posted on December 12, 2006 by Raj Srivatsan
Remote Solutions Co., Ltd. v. FGH Liquidating Corp., Civil Action No. 06-004-KAJ, 2006 WL 3498657 (D. Del. Dec. 5, 2006).
Plaintiff filed a Motion for Reconsideration and to Amend the Court’s earlier Memorandum Order in which it denied the plaintiff’s motion to vacate or modify an arbitration award for failing to demonstrate a proper basis for subject matter jurisdiction. The plaintiff now sought to have the Court amend its order so it could cure the jurisdictional defect. The Court granted the motion to the extent that the plaintiff could renew its prior motion to vacate or modify the arbitration award by demonstrating proper subject matter jurisdiction.
The Court also permitted the motion to relate back to the date of the original filing. It further permitted the defendant to move independently for confirmation of the arbitration award regardless of the course of action chosen by plaintiff.
Posted on December 12, 2006 by Edward M. McNally
Edix Media Group Inc. v. Mahani, C.A. No. 2186-N (Del. Ch. December 12, 2006).
This decision is noteworthy for its careful analysis of what relief is appropriate for a breach of an agreement not to compete. The Court distinguished between the broader duties owed by employees from those more limited duties owed by independent contractors. The relief awarded was the product of a very specific analysis that tailored that relief to the harm proved to have been inflicted.
Posted on December 7, 2006 by Raj Srivatsan
Cantor v. Perelman, Civil Action No. 97-586-KAJ, 2006 WL 3462596 (D. Del. Nov. 30, 2006).
Plaintiff and defendants filed motions to exclude the testimony and reports of several experts. The Court granted the motions to exclude the entire proposed testimony of one expert from both parties. The motions were denied with respect to all other experts in all other respects.
This action originates from a plan of reorganization in bankruptcy litigation involving Marvel Entertainment Group, Inc. (“Marvel”) and the Trustees of the MAFCO Litigation Trust (“Trust”) created as part of the Reorganization Plan. The Trust was created to pursue breach of fiduciary duty and unjust enrichment claims against defendants comprising Perelman, a controlling stockholder and chairman of Marvel, and other directors of the Marvel companies. The instant opinion is connected to the issue of three tranches of notes (“Notes”) issued in 1993 and 1994 by Marvel, raising $553.5 million by using Marvel stock as collateral. Plaintiffs alleged that the defendants breached their fiduciary duties by using Marvel resources to sell the Notes and including restrictions on the issue of debt or dilution of Perelman’s shareholding in those Notes.
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Posted on December 6, 2006 by Edward M. McNally
Konfirst v. Willow CSN Incorporated, C.A. No. 1737-N (Del. Ch. December 12, 2006).
Delaware law has long held that to qualify for appraisal rights after a merger, a stockholder must follow the statutory rules carefully. Here, many stockholders filed their demand for appraisal too late and the Court barred their claims for failure to file on time. Other stockholders failed to have their demands signed by all the record owners, another fatal defect.
Posted on December 6, 2006 by Edward M. McNally
Majkowski v. American Imaging Management Services LLC, C.A. No. 1797-N (Del. Ch. December 6, 2006).
The right to have attorneys fees paid in advance of the final result in litigation is illustrated by this recent decision. The Court held that an agreement to "hold harmless" does not give the right to advancement of legal fees. Instead, "hold harmless" language only confers the right to be indemnified at the end of the litigation.
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Posted on November 30, 2006 by
Pisano v. Delaware Solid Waste Auth., C.A. No. 05-C-03-132-FSS (Del. Super. Nov. 30, 2006).
In this opinion granting Defendant’s motion for summary judgment, the Superior Court rejected Plaintiff’s argument that Defendant had breached an alleged contract with Plaintiff to sell used waste-processing equipment, and found that Plaintiff’s argument that Defendant granted apparent authority to a third party to sell the equipment unconditionally lacked merit. Plaintiff alleged that he had entered into an unconditional contract with a third party serving as Defendant’s agent to acquire the equipment for $150,000, and that Defendant breached that contract when it later sold some of the equipment to another party. Defendant argued that it did not have a contractual relationship with Plaintiff, and that Plaintiff’s argument that the third party had authority to act on Defendant’s behalf was clearly unfounded. The Superior Court concluded that even viewing the facts in a light most favorable to Plaintiff, there was no basis for a jury to determine that Defendant had breached any contract with Plaintiff or had given the third party authority to act on Defendant’s behalf.
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Posted on November 29, 2006 by Edward M. McNally
In Re SS&C Technologies, Inc. Shareholders Litigation, C.A. No. 1525-N (Del. Ch. November 29, 2006).
The Court of Chancery for over 30 years has cautioned against reaching a settlement of a class or derivative case and closing the transaction that was the subject of the litigation without having first secured court approval of the settlement. The concern is that the closing may make the court's approval a moot question. Here, the settlement involved additional disclosures in connection with the stockholder vote and payment of attorney fees, but the Court was not asked to approve the settlement before the transaction closed. After the fact, the Court declined to approve the settlement.
There is no clear solution to the problems presented when there is a need to close a deal before a hearing may be scheduled, with the usual 45 days notice to the class. At a minimum, the Court should be notified of the settlement and probably should be asked for leave to close the deal before the settlement hearing occurs. This is particularly true when the settlement does not involve any post-closing relief, such as future corporate governance provisions.
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Posted on November 29, 2006 by Raj Srivatsan
Pell v. E.I. DuPont de Nemours & Co. Inc., Civil Action No. 02-21 KAJ, 2006 WL 3391375 (D. Del. Nov. 22, 2006).
Plaintiffs filed a Motion for Reconsideration and/or Alteration in Judgment pursuant to Fed.R.Civ.P. 59(e). The Court had earlier found for plaintiffs under an equitable estoppel theory of relief involving misrepresentation but had denied the plaintiffs’ request for restitution for unduly low pension payments made to him. Plaintiffs now sought to have the Court reconsider its earlier holding that the defendants did not owe them compensation for unduly low pension payments because - allegedly - the Court had viewed the governing ERISA provision – Section 502(a)(3) - more restrictively that the Supreme Court did in Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002).
The Court denied the motion because there were no grounds presented for reconsideration. Specifically, the Court noted that the motion failed because the plaintiffs did not demonstrate: (1) an intervening change in the controlling law; (2) that new evidence was available; or (3) that there was clear error of law or fact present on the record or to avoid causing manifest injustice. Here, plaintiffs sought to implicate the “clear error of law or fact” provision but did not discharge the high burden required to prevail on such a motion. Accordingly, the Court denied the motion.
Posted on November 29, 2006 by Edward M. McNally
Esopus Creek Value LP v. Hauf, C.A. No. 2487-N (Del. Ch. November 29, 2006).
Delaware law requires an annual stockholder meeting. The SEC rules prohibit calling a stockholder meeting when the company is delinquent in its SEC filings. In this case and in its decision in Newcastle Partners LP v. Vesta Insurance Group, Inc., 887 A.2d 975 (Del. Ch. 2005), aff'd., 906 A.2d 807 (Del. Ch. 2005) the Delaware Court of Chancery has resolved this apparent conflict. Here, the Court held that a stockholder meeting should go forward with adequate disclosures to the stockholders entitled to vote on the proposed sale of substantially all of the company's assets. The Court ordered the company to apply to the SEC for an exemption from the rules prohibiting the calling of a meeting.
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Posted on November 27, 2006 by Edward M. McNally
A few recent articles have questioned the willingness of the Court of Chancery to award adequate fees in class and derivative litigation. These articles focus on one or two instances where fee requests were not met with full approval. This anecdotal approach is misleading. After all, it would be a sign of a failing system if every fee request were given blanket approval regardless of its merits.
Two more recent decisions by the Court of Chancery show it is fully responsive to appropriate fee requests and is willing to award large fees when appropriate. In the McKesson/HBOC litigation, Chancellor Chandler awarded the plaintiff's attorneys $10 Million for their years of hard work on behalf of McKesson in a derivative suit. More recently, Vice Chancellor Strine in the Hollinger case awarded plaintiff's counsel $2,500,000 in fees for his work in a case where the actual litigation work was fairly brief, but the results were outstanding.
Both of these cases were what are known as Caremark cases alleging that the Board had failed to perform its oversight duty to avoid accounting and other problems. That type of case is fairly characterized as among the most difficult to prove, given the high standard to establish liability. Thus, when the plaintiffs won a good settlement, their attorneys were rewarded, fairly and even generously.
In short, bring a good case, fight hard, achieve a decent result and the Court of Chancery will reward your effort. That is all we should expect.
Posted on November 22, 2006 by Edward M. McNally
Allied Capital Corporation v. GC-Sun Holdings, LP, C.A. No. 1954-N (Del. Ch. November 22, 2006).
This is the first decision that applies the law of civil conspiracy in the context of a parent and its subsidiaries. While there is authority that entities under common control cannot be held to have conspired together, that is not now the law of Delaware. This holding is particularly important in the way it may be applied to deal with coordinated conduct by related entities. The implications include that civil conspiracy may take the place of other legal theories, such as veil piercing, that previously were used to hold parent entities responsible for the wrongful conduct of their subsidiaries.
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Posted on November 20, 2006 by
Gibbs v. Fairbanks Capital Corp., C.A. No. 04C-06-258-JRJ (Del. Super. Nov. 20, 2006).
In this opinion denying Defendant’s motion for summary judgment, the Superior Court rejected Defendant’s argument that the affirmative defense of res judicata barred Plaintiffs’ claims for damages. Plaintiffs, residential mortgage customers of Defendant, sued for breach of contract, consumer fraud, defamation, and violation of the Uniform Deceptive Trade Practices Act. After Defendant failed to answer the complaint, the Court entered default judgment against it, and Defendant’s subsequent motion for an order vacating that judgment was denied. Defendant then moved for summary judgment as to Plaintiffs’ damages claims, arguing that res judicata barred the claims because Plaintiffs were class members in a similar suit in Massachusetts, and could not relitigate the same damages claims in the Delaware action. The Superior Court denied Defendant’s motion for summary judgment, concluding that it “[could not] assert res judicata as an affirmative defense under the particular circumstances….”
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Posted on November 20, 2006 by Raj Srivatsan
American Seed Co., Inc. v. Monsanto Company, Civ. No. 05-535-SLR, 2006 WL 3276831 (D. Del. Nov. 13, 2006).
Plaintiffs brought a class action alleging that the defendant and its subsidiaries illegally maintained monopolistic practices in four product markets by driving competing biotechnology corn products out of the market through illegal financial incentives and bundled rebate programs. These programs allegedly enabled the defendants to charge monopoly prices to farmers and retailers.
Plaintiffs sought to certify three categories of classes pursuant to Fed.R.Civ.P. 23(b)(3): (1) a group of national direct purchasers of the products whose claims would be brought under federal antitrust law; and (2) groups of purchasers in Iowa and Minnesota, with claims under their respective state laws. The plaintiffs further identified various subclasses within each class on the basis of certain characteristics of the corn products purchased. The Court examined the challenges connected with the procedural requirements under R.23(a) in a detailed manner. First, the Court noted that if the plaintiffs were not direct purchasers of the corn seed, they may not be proper representatives of the national direct purchasers' class nor under the plaintiffs’ own definitions of class member. Second, the Court further noted that if the plaintiffs were direct purchasers, they may still not have suffered direct injury if they passed on the excess charges to their customers. However, because the Court denied certification on alternate grounds – namely under R. 23(a)(2) and (3) - it declined to address the standing issues.
The plaintiffs primarily relied on their expert witness to prove that common questions predominated in this case and they advanced the Bogosian presumption to demonstrate common impact injury, citing In re Linerboard Antitrust Litig., 305 F.3d 145, 151 (3d Cir. 2002)(in turn citing Bogosian v. Gulf Oil Co., 561 F.2d 434, 455 (3d Cir. 1977)). To this end they advanced their expert’s damage formulas for the dual purpose of damage measurement and common injury. The Court however rejected the plaintiffs’ claim because they did not furnish any factual basis demonstrating how the expert’s formulas could provide proof on damages and common injury. This is because the Bogosian presumption of impact requires additional evidence of class-wide impact to sustain class certification. In short, the Court rejected the plaintiffs’ expert’s common impact theory because it was not factually supported. Accordingly, the Court denied the plaintiffs’ motion for class certification.
Posted on November 15, 2006 by Raj Srivatsan
Weisler v. Barrows, C.A. No. 06-362 GMS, 2006 WL 3201882 (D. Del. Nov. 6, 2006).
Plaintiff, a shareholder of Sycamore Networks, Inc. (“Sycamore”), a Delaware corporation with its principal place of business in Massachusetts, brought this derivative action against several of its directors and officers, including its chairman, CEO and CFO. The complaint alleged six counts: (1) a count against each director for section 14(a) violations of the Securities and Exchange Act of 1934 (“Exchange Act”); (2) one count of disgorgement against four directors under section 304 of the Sarbanes-Oxley Act of 2002 (“Oxley Act”); (3) one count of breach of fiduciary duty against all directors; (4) one count of unjust enrichment against five directors; (5) one count of gross mismanagement against all defendants; and (6) one count of waste of corporate assets against all defendants.
The defendants moved to transfer the matter pursuant to 28 U.S.C. § 1404(a) and the Court granted the motion because it would convenience the parties and witnesses and serve the interests of justice.
The plaintiff alleged that the defendants had jointly and severally breached their fiduciary duties of care, loyalty, good faith, and candor by failing to: (1) discover or prevent the intentional manipulation of stock option grants between 1999 and 2004; (2) prevent the misreporting of earnings that was caused by the manipulation of the option grants; (3) oversee the administration of Sycamore’s stock-based compensation plans; (4) ensure Sycamore operated in compliance with applicable state and federal laws pertaining to dissemination of financial statements; (5) ensure the company did not engage in any improper or illegal practices; and (6) ensure that the company’s financial statements were compliant with GAAP. The conduct is alleged to have violated section 14(a) of the Exchange Act and section 304 of the Oxley Act.
The Court permitted the transfer of the matter on its individualized consideration of the motion under section 1404(a) and on whether it would convenience the parties and witnesses and serve the interests of justice. The Court also held that it was the defendants’ burden to establish the need for transfer. The Court observed that the standard for transfer did not demand a demonstration of compelling circumstances; rather, the defendants only needed to show that the case would be better off if transferred to the other jurisdiction. That inquiry required a “multi-factor balancing test” that consisted of not only the convenience of the parties and the witnesses but also the examination of certain public and private interests. The Court listed the private interests as: (1) a plaintiff’s choice of forum; (2) the defendant’s preference; (3) where the claim arose; (4) the convenience of the parties and witnesses; and (5) the location of the books and records. The Court listed the public interests as: (1) the judgment’s enforceability; (2) practical trial considerations making it easy, expeditious or inexpensive; (3) the administrative difficulty presented in the two fora; (4) local interest in deciding the controversy at home; and (5) the public policies of the fora under consideration. The Court found that the private and public factors weighed in favor of transfer and therefore permitted the defendants’ motion.
Posted on November 15, 2006 by Edward M. McNally
In Re Primedia Inc. Derivative Litigation, C.A. No. 1808-N (Del. Ch. November 15, 2006).
This case dealt with when directors would be considered interested in a deal so as to preclude the application of the business judgment rule and permit the suit to proceed. Many of the directors were affiliated with the controlling stockholder who had purchased the corporation's preferred stock at a deep discount just before the board voted to redeem that stock at its face value. That decision was justified, it was argued, because the coupon rate on the stock was higher than market rate. The Court held that might well be so, but at the pleading stage it was too soon to accept that as a justification for the purchase that gave the controlling stockholder a big gain. The decision is particularly interesting for its discussion of when directors are considered sufficiently connected to a controlling stockholder so as to preclude application of the business judgment rule.
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Posted on November 14, 2006 by Edward M. McNally
West Coast Management & Capital LLC v. Carrier Access Corporation, C.A. No. 2262-N (Del. Ch. November 14, 2006) is a classic example of what can go wrong in trying to plead a derivative suit. The Court of Chancery dismissed the complaint because the plaintiff had filed a prior complaint in federal court that had been dismissed for failure to establish that demand on the directors was excused. Here, the plaintiff tried to pursue a stockholder inspection claim to establish that demand was excused, but the Court held it was precluded from doing so by the dismissal of its prior complaint. This shows that a plaintiff better know what it is doing when it files a derivative suit because the chances to correct errors will be limited.
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Posted on November 12, 2006 by Raj Srivatsan
Davis v. Union Pacific Railroad Co., C.A. No. 06-128 KAJ, 2006 WL 3218707 (D. Del. Nov. 7, 2006).
Plaintiff, an incarcerated citizen of Nebraska, instituted a diversity-based class action for personal injuries allegedly sustained from lead poisoning from the soil in that state. Defendant, a Delaware corporation with its principal place of business in Nebraska, moved to dismiss for lack of subject matter jurisdiction. The Court dismissed the Complaint for lack of diversity under 28 U.S.C. § 1332 because both parties were citizens of Nebraska. The Court ruled that a corporation’s citizenship may be derived from its place of incorporation and its principal place of business.
Posted on November 10, 2006 by Raj Srivatsan
Millennium Validation Services, Inc. v. Thompson, C.A. No. 02-1430 (GMS), 2006 WL 3159821 (D. Del. Nov. 3, 2006).
Plaintiff, a Delaware corporation, and defendant filed motions to vacate/modify and confirm the arbitration award respectively. The Court granted the defendant’s motion to confirm the award. Defendant Thompson and two others founded Millennium Validation Services, Inc. (“Millennium”) with equal shareholding. Due to some differences, the two other members sought to compel defendant Thompson to withdraw from Millennium, by triggering some clauses under their Shareholder Agreement (“Agreement”). Subsequently, plaintiff sought to buy-out the defendant’s shareholding, with its valuation computed under the Agreement. In the interim, the plaintiff discovered through its agents that defendant was allegedly violating the terms of his non compete provisions of the Agreement because he was employed by a competitor. Plaintiff therefore suspended its buy-out of his shares.
Plaintiff then filed suit for breach of contract and interference with prospective contractual relations and the defendant cross-claimed for breach of fiduciary duty. Thereafter, the parties stipulated to binding arbitration. The independent arbitrator denied the plaintiff’s claims for lost profits, breach of contract and tortious interference and ordered it to pay defendant a far greater amount representing the buy-out value of his shares and accumulated interest, in addition to a loan that the defendant had advanced the plaintiff company. The arbitrator declined to amend or modify the award and the above cross-motions ensued.
The Court held that the limited grounds on which the arbitration award could have been vacated were absent in the present matter. Here, the plaintiff alleged that the arbitrator had exceeded his powers by revaluing the shares of the defendant, a matter solely governed by the Agreement. This argument was dismissed because the parties had agreed to arbitration of the entire dispute – a term that included the valuation of the shares too. Similarly, the Court found that plaintiff’s non-compete violation and other claims failed to assert any grounds for vacating the arbitration award. Finally, the Court dismissed plaintiff’s argument that it was impermissible for the arbitrator to order a subsequent hearing to determine attorney fees and costs because there was no authoritative support for that contention.
Posted on November 9, 2006 by Edward M. McNally
B.F. Rich Co., Inc v. Gray, C.A. No. 1896-N (Del. Ch. November 9, 2006) refused to consider the defense in Section 225 case that the plaintiff would hurt the corporation if he took it over. As the Court noted, the issues in Section 225 cases are tightly confined to the validity of the stockholder consent. Any abuse of the power gained by use of those consents is for a later proceeding.
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Posted on November 6, 2006 by Fotini A. Skouvakis
Stone v. Ritter __ A.2d __ (Del. Nov. 6, 2006)
As had been widely expected, the Delaware Supreme Court recently adopted the standard for director “oversight” liability of In re Caremark Int’l Inc. Deriv. Litig., 698 A.2d 959 (Del. Ch. 1996). The decision should provide comfort to directors of Delaware corporations concerned about the risk of liability for corporate wrongdoing about which they had no knowledge but which happened under their watch.
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Posted on November 6, 2006 by Edward M. McNally
Stone v. Ritter, C.A. No. 93, 2006 (Del. Supr. November 6, 2006).
The Supreme Court has issued the latest Delaware decision to interpret the duty to act in good faith. Indeed, it is possible to read Stone as holding there is no separate duty of directors to act in good faith. While that would be a mistake, the implications of this decision may be far reaching. At the very least, Stone upholds the conventional wisdom in Delaware that under Caremark the directors' duty to act is most easily triggered when there are red flags indicating something is wrong with the way the entity is being operated. A complaint that fails to plead those red flags has a good chance of being dismissed.
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Posted on October 17, 2006 by R. Christian Walker
Tinney v. Geneseo Communications, Inc., C.A. No. 03-1126-SLR (D. Del. Oct. 10, 2006).
In this securities action, the shareholder of a parent company, Airgate, brought a claim against the principal shareholders (the defendants) of a wholly owned subsidiary called iPCS for "short-swing trading" under Section 16(b) of the Exchange Act. Airgate purchased iPCS in a stock deal, in which the defendants received .1594 shares of Airgate common stock per iPCS share. Within six months of the transaction, though, the defendants sold nearly 4 million of their newly issued shares. Plaintiff argued that these sales constituted "short-swing trades" and sought damages in the amount of any profits realized. Defendants, in turn, brought a motion for judgment on the pleadings.
The Court ended up denying defendants' motion on the ground that a number of material issues of fact remained in the case. Nonetheless, in route to this holding based on the facts, the Court did resolve an interesting legal question involving federal securities law and Third Circuit precedent.
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Posted on October 16, 2006 by Edward M. McNally
Smith v. McGee, C.A. No. 2101-S (Del. Ch. October 16, 2006).
In this decision, the Court of Chancery discusses the application of Delaware's three year statute of limitations to claims for breach of fiduciary duty. The Court applied the statute to bar claims that arose three years before the suit was filed and declined to apply the potential saving rules such as when a claim is hidden from the plaintiff.
Posted on October 16, 2006 by Edward M. McNally
Bakerman v. Frank Importing Co. Inc., C.A. No. 1844-N (Del. Ch. October 16, 2006).
When directors own shares in both the parent and its subsidiary, the question arises whether they are disinterested in considering a demand under Rule 23.1 in a case challenging a transaction between the two entities. This decision holds that the Court will test their interest in the transaction by focusing on their interest in the dominant party and will not also take into account their interest in the entity on the other side of the transaction. This makes sense because otherwise the Court would need to do a complex balancing to see if the interest in the subsidiary was as important as the interest in the parent. That involves tax and other issues that are difficult to determine. Note, however, that after discovery, those interests may be balanced in deciding on the merits if the directors should be given the benefit of the Business Judgment Rule.
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Posted on October 12, 2006 by Edward M. McNally
Berger v. Intelident Solutions Inc., C.A. No. 1527-N (Del. Ch. October 12, 2006).
Under Delaware law, when a stockholder files suit over a merger she may be limited to appraisal rights when her concern is only over the price to be paid. It is often difficult to decide when a complaint is limited to the price and does not also deal with unfair dealing claims that are appropriate for class litigation. Here, the Court held that a complaint that alleged only 5 days notice of a merger and the right to seek appraisal did properly allege unfair dealing and could proceed as a class claim.
Posted on October 12, 2006 by Edward M. McNally
Polygon Global Opportunities Master Fund v. West Corporation, C.A. No. 2313-N (Del. Ch. October 12, 2006).
Stockholders may seek inspection of corporate records to investigate potential wrongdoing. However, as this case holds, when they have purchased their stock after the wrongdoing is alleged to have occurred, they lack standing to pursue a claim for breach of duty and the court will therefore deny their request to inspect records on that claim.
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Posted on October 11, 2006 by Edward M. McNally
ATS, Inc. v. Bachmann, C.A. No. 2374-N (Del. Ch. October 11, 2006).
Delaware corporations frequently ask the Court of Chancery to decide if a proposed course of action is appropriate, particularly when the board of directors' fiduciary duties are implicated. In this decision the Court focused primarily on when the Court may provide that guidance and when the matter is not ripe for judicial action. The Court has rejected becoming involved in hypothetical issues not framed by a real world transaction, but more of a "what if" set of questions. Here, the Court accepted one question for its review and rejected others, thereby illustrating how it will deal with those situations.
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Posted on October 11, 2006 by Edward M. McNally
Energy Partners Ltd. v. Stone Energy Corporation, C.A. No. 2402-N (Del. Ch. October 11, 2006).
The Court of Chancery may be called upon to decide the scope of a board of director's duties in appropriate cases. Here, the Court interpreted a common merger agreement provision that limited the board's options in considering third party bids while the merger was pending. The Court held the provision permitted contact with the new bidder.
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Posted on October 10, 2006 by R. Christian Walker
Shamrock Holdings v. Arenson, C.A. 06-62-SLR, 2006 WL 2802913 (D. Del. Sept. 29, 2006).
This case involved a dispute between the Class A and Class B members of a Delaware LLC called ALH Holdings. The dispute arose after ALH faced financial trouble and the Class A members voted to sell the company over the objections of the Class B members, who eventually threatened to sue.
To preempt such a suit, the Class A members brought an action for a declaratory judgment that, among others, they did not breach their fiduciary duties or the LLC's operating agreement. In response, the Class B members counterclaimed, alleging breaches of the same. Plaintiffs subsequently moved for summary judgment as to four of the counts in their complaint, and they moved to dismiss the defendants' counterclaim. The Court denied the motion to dismiss and denied the motion for judgment on the pleadings in part (and granted it in part).
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Posted on October 4, 2006 by Edward M. McNally
Seinfeld v. Verizon Communications Inc., C.A. No. 624 (Del. Supr. September 25, 2006).
The Delaware Supreme Court has affirmed that the "credible basis" test applies to determine if a stockholder is entitled to inspect corporate records to investigate alleged wrongdoing. The stockholder argued that Delaware should permit his records inspection even if he lacked enough facts to convince the trial court that he had a credible basis to believe that the corporation was paying three top officers inappropriate compensation. He asserted that to require any real proof of his claims before inspection was an insurmountable burden. Both the Court of Chancery and now the Supreme Court rejected his argument and noted that there is considerable precedent granting inspection rights to show that this remedy is available in the right circumstances.
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Posted on October 2, 2006 by Patricia R. Uhlenbrock
Fuller v. Gemini Ventures, LLC, C.A. No. 05C-06-019-RFS (Del. Super. Ct. Oct. 2, 2006).
Plaintiff moved for summary judgment on its breach of contract claim, notwithstanding another agreement (the "Release") subsequently executed between the parties that purported to release each of them from any claims related to the contract and cancel the terms of the contract.
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Posted on September 21, 2006 by Patricia R. Uhlenbrock
Premier Parks, Inc. v. TIG Insurance Co., C.A. No. 02C-04-126-PLA, 2006 WL 2709235 (Del. Super. Ct. Sept. 21, 2006).
The parties filed cross-motions for summary judgment on counterclaims in an ongoing declaratory judgment action. The plaintiff, TIG Insurance Company ("TIG"), sought a declaration that it was only liable to pay an allocated share of a global settlement that its insured, Six Flags, Inc. ("Six Flags") negotiated in a class action civil rights lawsuit that alleged that Six Flags had engaged in discriminatory practices at one of its amusement parks. TIG also sought a declaration that it was not responsible for covering the attorneys' fees that Six Flags incurred in defending the class action and negotiating the settlement.
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Posted on September 18, 2006 by R. Christian Walker
Millett v. Truelink, Inc., C.A. No. 05-599, 2006 WL 2583100 (D. Del. Sept. 7, 2006).
The plaintiffs in this case were several individuals who brought suit for breach of contract and violations of the Delaware Consumer Fraud Act ("DCFA") and Credit Reporting Agencies Act ("CRAA"), among other claims, after purchasing credit-monitoring services from defendant Truelink.
Truelink filed a motion to dismiss the DCFA and CRAA claims under 12(b)(6). And plaintiffs brought a motion to amend their complaint to substitute a claim under the California Consumer Legal Remedies Act ("CCLRA"). The District Court denied Truelink's motion to dismiss and plaintiffs' motion to amend the complaint to add a CCLRA claim, but did grant plaintiffs leave to amend their complaint to add a claim under the Kansas Consumer Protection Act.
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Posted on September 18, 2006 by Patricia R. Uhlenbrock
AT&T Corp. v. Clarendon America Insurance, C.A. No. 04C-11-167, 2006 WL 2685081 (Del. Super. Ct. Sept. 18, 2006).
This case is part of a larger insurance coverage dispute involving Directors and Officers and Company Liability ("D&O") coverage purchased from certain of the defendants by plaintiff AT&T Corp. ("AT&T") and the company of which AT&T was the majority stockholder, the now-bankrupt At Home Corporation ("At Home"). AT&T sought D&O coverage in connection with several underlying shareholder suits brought against it and certain directors and officers of AT & T and At Home. The court previously decided the potential coverage liability under the AT&T D&O policies but not the At Home policies. See AT & T Corp. v. Clarendon America Ins. Co., C.A. No. 04C-11-167 (JRJ), 2006 WL 1382268 (Del. Super. Ct. Apr. 13, 2006, amended Apr. 25, 2006). At issue in this case are the D&O policies issued by the five defendant insurers to At Home, including the primary insurer and the four excess insurers (collectively, the "At Home Insurers"). The At Home Insurers moved to dismiss AT&T's complaint.
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Posted on September 15, 2006 by Edward M. McNally
W.L. Gore & Associates, Inc. v. Wu, C.A. No. 263-N (Del. Ch. September 15, 2006).
The extent to which a court will enjoin the violation of a confidentiality agreement covering trade secrets is often questioned. In this decision, the Court of Chancery issued an injunction that for ten years barred the defendant from working in a business that might permit him to use the trade secrets he had stolen from his employer. In part, the remedy was based on the useful life of the stolen materials.
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Posted on September 15, 2006 by Edward M. McNally
Bowen v. E.I. DuPont de Nemours & Co. Inc. C.A. No. 580, 2005 (Del. Supr. September 15, 2006).
The Supreme Court has upheld the decision of the Delaware Superior Court that rejected the testimony of an expert for the plaintiffs in a major toxic tort suit arising out of Benlate exposure to humans. The plaintiffs claimed that as a result of exposure to benlate while pregnant that their children had suffered serious birth defects. The plaintiffs' theory depended on the testimony of an "expert" that skin exposure would cause the fetus in turn to be exposed to benlate.
The Superior Court after an exhaustive hearing ruled that the plaintiffs' expert testimony failed to meet the standards set for by the United States Daubert decision. It was this ruling that the Supreme Court affirmed.
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Posted on September 12, 2006 by Edward M. McNally
Braddock v. Zimmerman, C.A. No. 489 (Del. Sup. September 12, 2006).
The Delaware Supreme Court has clarifed the rules as to when a plaintiff in a derivative suit must make a demand upon filing an amended complaint. The Court holds that if the derivative litigation has been properly instituted an amendment to the complaint does not need to be the subject of a demand on the board of directors as to those claims already "validly in litigation". Thus, even if the majority of the board has changed and is now independent under Rule 23.1 standards, no demand need be made in those circumstances.
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Posted on September 8, 2006 by Edward M. McNally
Citrin v. International Airport Centers LLC, C.A. No. 2005-N (Del. Ch. September 7, 2006).
This decision awards interest on the fees due to a corporate officer who was wrongly denied advancement of those fees. While this award of interest is the normal rule, the decision is interesting because it dealt with an instance where the corporate defendant had discouraged the plaintiff from even submitting the fees in dispute and then argued that failure to submit a bill precluded interest when the plaintiff prevailed. Not surprising, this effort to avoid interest failed for want of any equity.
Posted on September 7, 2006 by Edward M. McNally
North American Catholic Educational Programming Foundation, Inc. v. Gheewalla, C.A. No. 1456-N (Del. Ch. September 1, 2006).
This is another in a series of Court of Chancery decisions that limit the claims that creditors may make based on the theory the directors owe the creditors a duty when their corporation is insolvent or in the vicinity of insolvency. Ever since the famous footnote in Credit Lyonnais Bank Nederland, N.V. v. Pathe Communications Corp., 1991 WL 277613 (Del. Ch. Dec. 30, 1991), creditors have argued that directors should owe them a fiduciary duty to take their interests into account when the creditors are the residual interest holders in a corporation that is insolvent or nearly so. A series of recent decisions have limited those creditor arguments. See e.g. Production Resources Group, L.L.C. v. NCT Group, Inc., 863 A.2d 772 (Del. Ch. 2004) [holding most creditor claims must be brought as derivative claims]. This new decision further limits creditor claims by holding that creditors may not bring a direct claim for breach of fiduciary duty based on the theory the entity is in the vicinity of insolvency. Further, the decision holds that for clearly insolvent companies, only creditors whose claims are beyond fair dispute may claim the directors owe them a duty.
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Posted on August 25, 2006 by Edward M. McNally
Superior Vision Services, Inc. v. Reliastar Life Insurance Company, C.A. No. 1668-N (Del. Ch. August 25, 2006).
This decision answers the question of when a minority shareholder may block a dividend payment pursuant to the authority to do so in the company's certificate of incorporation. The Superior Vision charter provided that a dividend could not be paid absent the consent of 2/3 of the shareholders. As a 44% owner, the defendant refused to consent to the dividend. The company sued alleging that the defendant had violated a fiduciary duty to consent to the dividend and its duty of good faith and fair dealing.
The Court first held that absent actual control over the board of directors, a minority shareholder would not be deemed to be in control of the board just because it can block a board decision to pay a dividend. As a result, the Court concluded that the defendant did not owe a fiduciary duty to the company or its shareholders. In addition, the Court held that when, as here, the certificate of incorporation confers a power to veto a transaction and does not condition the exercise of that right, then there is no duty to act reasonably in that regard. Hence, the duty of good faith and fair dealing was not implicated and the Court dismissed the complaint.
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Posted on August 24, 2006 by Joseph S. Naylor
Benihana of Tokyo, Inc. v. Benihana, Inc., No. 36, 2006, 2006 WL 2465412 (Del. Aug. 24, 2006).
The Delaware Supreme Court affirmed post-trial ruling by Court of Chancery that $20 million issuance of preferred stock to a third-party holding company was authorized by the corporate charter and that the directors acted properly in approving that transaction.
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Posted on August 24, 2006 by Edward M. McNally
Gentile v. Rossette, C.A. No. 573, 2005 (Del. Supr. August 17, 2006).
This Delaware Supreme Court decision significantly clarifies the Court's Tooley decision that governs when a claim is a derivative claim. Because a derivative claim must meet significant pleading requirements under Court of Chancery Rule 23.1, this decision affects much of the corporate litigation in the Delaware Court of Chancery and merits careful reading.
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Posted on August 24, 2006 by Joseph S. Naylor
Appriva Shareholder Litigation Co. v. ev3, Inc., C.A. No. 05C-11-208 JOH, 2006 WL 2555348 (Del. Super. Ct. Aug. 24, 2006).
Plaintiff entity controlled by certain former stockholders of acquired corporation sued acquirer alleging breach of merger agreement and fraud. Upon motion by defendant acquirer, the court dismissed the action on ground that plaintiff lacked standing.
The court noted that the merger agreement appointed two individuals as shareholder representatives who were required to act in concert, one of whom the complaint reflected was not affiliated with plaintiff in any way. The court also noted that the merger agreement did not permit assignment of the shareholder representatives' rights without defendants' consent, which was never given. Finally, the court rejected plaintiff's argument that it be permitted to bring the action as a third-party beneficiary as inconsistent with the merger agreement's express terms.
Posted on August 23, 2006 by Joseph S. Naylor
Moore v. O'Conner, C.A. No. 01C-02-103 MJB, 2006 WL 2442027 (Del. Super. Ct. Aug. 23, 2006).
Doctor sued former colleague for money allegedly owed pursuant to agreements the parties entered into upon the separation of their ophthalmology practice. Defendant counterclaimed for various alleged breaches of those same agreements, including (1) plaintiff's alleged misfiling or changing the labels on defendant's patients charts to reflect plaintiff as the treating physician; (2) plaintiff's alleged promise not to operate under the parties' prior trade name; (3) plaintiff's failure to return to defendant any of the amounts he paid to join the practice; (4) plaintiff's failure to list defendant as a Medicare provider; and (5) plaintiff's failure to include an agreed-upon automated telephone message on her office telephone.
After trial and post-trial briefing, the court held that defendant was bound by the parties' agreement even though he was not aware of several of the terms at issue, including a provision requiring defendant to pay plaintiff a $30,000 "good will payment." The court also rejected most of defendant's counterclaim, finding no evidence of much of the alleged misconduct. The court did find, however, that plaintiff's failure to include an agreed-upon automated telephone message on her office telephone was a breach of the parties' agreement and that defendant's loss of patients was directly attributable to that breach. The court awarded defendant $128,102 in actual damages on this basis.
Posted on August 23, 2006 by
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Hillman v. Hillman, C.A. No. 1557-N (Del. Ch. August 23, 2006, modified,November 16, 2006).
When a general partner is dismissed as the limited partnership's general partner, the DRULPA is not clear on what happens to the interest of that former general partner. After a close reading of the statute and its legislative history, the Court of Chancery concluded that the former general partner is entitled to be paid back his partnership interest, but otherwise has no continuing interest in the limited partnership. The decision affects partnerships that have not provided for the result of a general partner dismissal in the partnership agreement. Note also, this decision deals solely with a general partner who is dismissed, not one who withdraws and is then subject to other sections of the statute.
Posted on August 22, 2006 by Joseph S. Naylor
Aurigemma v. New Castle Care LLC, C.A. No. 05C-04-113 MJB, 2006 WL 2441978 (Del. Super. Ct. Aug. 22, 2006).
Plaintiff sued defendant medical facility for breach of an alleged oral agreement under which plaintiff was to serve as defendant's medical director from October 1, 2003, until October 1, 2004. Plaintiff claimed that this oral agreement was made on September 4, 2003. The court granted defendant's motion for summary judgment on the ground that, even if it had reached an oral agreement with plaintiff, such agreement would be unenforceable under the statute of frauds because it could not be performed within a year.
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Posted on August 22, 2006 by Edward M. McNally
Blue Chip Capital Fund II Limited Partnership v. Tuberger, C.A. No. 1611-N (Del. Ch. August 22, 2006).
The Court of Chancery frequently is called upon to interpret a corporate certificate of incorporation. In this decision, the Court held that a certificate provision permitting a corporation to withhold a reserve for contingent liabilities in connection with calculating the liquidation preference for preferred shareholders did not automatically authorize the board to hold back the highest possible amount, even if doing so was unreasonable based on objective factors. The Court also held that the authority granted by 8 Del C. §281 to hold back a reserve for continent liabilities did not authorize the board to do so under the charter. Instead, the terms of the certificate need be interpreted on its own terms.
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Posted on August 18, 2006 by Edward M. McNally
In re PNB Holding Co. Shareholders Litigation, C.A. No. 28-N (Del. Ch. August 18, 2006).
As it has several times in recent years, the Court of Chancery has decided a case combining appraisal rights and a class claim for inequitable treatment in a merger. The Court held that when directors get together to freeze out the other stockholders the entire fairness test applies even when they do not own a majority of the stock. This follows because the interests of those directors in remaining shareholders differs from the other shareholders who will be frozen out. Absent some insulating procedure such a majority of the minority vote, the directors then have the burden of proving the merger was entirely fair.
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Posted on August 17, 2006 by Edward M. McNally
In re Grupo Dos Chiles LLC, C.A. No. 1447-N (Del. Ch. August 17, 2006).
In a rare case awarding fees for bad faith litigation, the Court stressed that litigants who change their sworn testimony to gain an advantage face a fee award if the Court is convinced they lied. The Court will look to the surrounding circumstances to assess if a lie has occurred.
Posted on August 17, 2006 by Edward M. McNally
Trenwick America Litigation Trust v. Ernst & Young LLP, C.A. No. 1571-N, 2006 WL 2333201 (Del. Ch. Aug. 10, 2006).
The Delaware courts have struggled for the last fifteen years over the scope of the duties of directors to creditors when their company is in the vicinity of insolvency. In two landmark decisions, the first in 2004, and just recently, the Court of Chancery sought to define the limits of that duty. Indeed, in this decision the Court rejected the very idea that there is a duty to avoid taking risks that may have the effect of deepening the insolvency of a Delaware corporation, at least in most circumstances.
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Posted on August 9, 2006 by Edward M. McNally
Wynnefield Partners Small Cap Value L.P. v. Niagara Corp., C.A. 1261-N, 2006 WL __________ (Del. Ch. Aug. 9, 2006).
The normal rule in a books and records case is that a stay of the inspection will be granted when there is an appeal. In this case, however, the Court of Chancery denied a stay because the records related to a stockholder meeting that was about to occur. Subsequently, the Supreme Court granted the stay of inspection but ordered an expedited appeal to be able to issue an opinion before the stockholders' meeting.
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Posted on August 4, 2006 by Edward M. McNally
Horizon Personal Communications, Inc. v. Sprint Corp., C.A. No. 1518-N, 2006 WL 2337592 (Del. Ch. Aug. 4, 2006).
There is no duty that is more often cited and so little understood as that requiring a contracting party to act in good faith and deal fairly with the other contracting parties. In this case the Court of Chancery exhaustively examined the contract between the parties, determined what was required to act in good faith, and fairly awarded an injunction to preclude a breach of that duty. In doing so, the Court's analysis provides a road map for tracking the duty to act in good faith in the performance of a contract.
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Posted on August 3, 2006 by Edward M. McNally
Kosseff v. Ciocia, C.A. No. 188-N, 2006 WL 2337593 (Del. Ch. Aug. 3, 2006).
In this decision, the Court dealt with a complaint attacking the transaction implemented to settle a proxy contest. The proxy contest was settled by an agreement that put the dissidents on the board and had the CEO resign. However, the CEO was given the right to buy certain lucrative businesses of the company, a right he later exercised. The complaint alleged that this deal was improvident. After reviewing the complaint, the Master declined to grant a motion to dismiss.
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Posted on August 2, 2006 by Edward M. McNally
Acciptier Life Sciences Fund L.P. v. Helfer, C.A. No. 2057-N, 2006 WL 2252376 (Del. Ch. Aug. 2, 2006).
The Court of Chancery has upheld the use of a press release to announce a stockholder meeting date and to trigger the provisions of a ten day advance notice bylaw. The plaintiff's employees read the press release, which mostly focused on financial results, but they neglected to notice it also announced the annual meeting date. Thus, the plaintiff failed to get the names of its nominees to the company in the time required by a bylaw provision triggered by the notice of meeting.
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Posted on August 1, 2006 by Edward M. McNally
Facchina v. Malley, C.A. No. 783-N, 2006 WL 2328228 (Del. Ch. Aug. 1, 2006).
In this case the Court of Chancery has again affirmed that Delaware law applies to the internal affairs of a Delaware LLC. The LLC was the result of a merger of a California corporation into a Delaware LLC. The California entity had a stockholders' agreement that the defendants wanted to enforce. The Court rejected their arguments because the California entity had ceased to exist in the merger.
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Posted on July 31, 2006 by Joseph S. Naylor
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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Posted on July 25, 2006 by Edward M. McNally
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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Posted on July 12, 2006 by Edward M. McNally
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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Posted on July 11, 2006 by Edward M. McNally
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.
Posted on July 10, 2006 by Joseph S. Naylor
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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Posted on July 6, 2006 by Edward M. McNally
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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Posted on July 6, 2006 by Edward M. McNally
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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Posted on June 30, 2006 by Edward M. McNally
Thoughtworks, Inc. v. SV Investment Partners, LLC, C.A. No. 1695-N, 2006 WL 1903127 (Del. Ch. June 30, 2006).
It is often said that preferred stock has only the rights granted to it in the certificate of incorporation. This case illustrates that the Court of Chancery will not, however, hesitate to enforce those rights when the certificate of incorporation is clear. Here, the certificate stated that the preferred was entitled to be redeemed and to consent to an extension of the company line of credit. The Court enforced those rights.
Posted on June 29, 2006 by Edward M. McNally
Harbinger Capital Partners Master Fund I, Ltd. v. Granite Broadcasting Corporation, C.A. No. 2205-N, 2006 WL 1875918 (Del. Ch. June 29, 2006).
The Court of Chancery has held that convertible preferred stock, even with a mandatory redemption date, is still to be considered equity under the Delaware General Corporation Code. This remains true even if under the revised GAAP rules the preferred would be treated as debt.
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Posted on June 21, 2006 by Edward M. McNally
Teachers' Retirement System of Louisiana v. Aidinoff, C.A. No. 20106, 2006 WL 1725572 (Del. Ch. June 21, 2006).
In this decision the Court of Chancery extensively discusses the legal theories under which the plainitff may seek a recovery from two of the entities alleged to have helped the AIG Chairman profit at the expense of AIG. In effect, the Court held that if as alleged these entities were set up to profit by doing what AIG might have done for itself, then their profits are subject to recovery under several theories such as the imposition of a constructive trust. The opinion is a good source of legal theory for recovery in such cases.
Posted on June 21, 2006 by Edward M. McNally
Augenbaum v. Forman, C.A. No. 1569-N, 2006 WL 1716916 (Del. Ch. June 21, 2006).
In this decision, the Court of Chancery awarded $225,000 in attorney fees for the additional disclosures that the plaintiff achieved as part of the settlement of litigation attacking a merger.
Posted on June 21, 2006 by Joseph S. Naylor
Casey v. Friends of the Capital Theater, Inc., C.A. No. 04C-03-022 JTV, 2006 WL _____ (Del. Super. Ct. June 21, 2006).
Plaintiff sued former employer for breach of contract and wrongful discharge. The court ruled that plaintiff had resigned pursuant to a resignation agreement between the parties, which was binding upon both parties. The court also ruled, however, that the employer had failed to make severance payments required under that same agreement. After granting the employer a set off based on property that plaintiff took with him when he left and unemployment benefits plaintiff received, the court found that plaintiff was entitled to approximately $18,000.
Posted on June 19, 2006 by Edward M. McNally
Wynnefield Partners Small Cap Value LP v. Niagara Corp., C.A. No. 1261, 2006 WL 1737862 (Del. Ch. June 19, 2006).
This is Section 220 action where the principal issue is whether the plaintiff had satisfied the criteria to inspect records related to alleged wrongdoing. The Court of Chancery held that merely alleging that wrongdoing had occurred was not sufficient to warrant inspection of corporate records. However, in some areas the Court held that sufficient facts had been alleged to justify record insepction.
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Posted on June 12, 2006 by Edward M. McNally
Wendell Brown v. LiveOps, Inc., C.A. No. 1991-N, 2006 WL 1667652 (Del. Ch. June 12, 2006).
In another rejection of artificial limits on the right to advancement, the Court of Chancery has rejected the argument that there is no right to advancement of legal fees to defend a suit that seeks recovery for post termination conduct.
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Posted on June 7, 2006 by Joseph S. Naylor
Millsboro Fire Company v. Construction Management Service, Inc., C.A. No. 05-06-137 MMJ, 2006 WL 1867705 (Del. Super. Ct. June 7, 2006).
Plaintiff fire company sued its contractor on a significant renovation and improvement project, alleging numerous design and workmanship defects. The defendant contractor in turn filed a third-party complaint against several parties hired by plaintiff who were involved in the design and management of the project, alleging negligence, breach of contract, and negligent misrepresentation. The third-party defendants subsequently filed a motion for summary judgment, which was granted.
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Posted on June 7, 2006 by Edward M. McNally
Minnesota Invco of RSA #7, Inc. v. Midwest Wireless Holdings LLC, C.A. No. 1887-N, 2006 WL 1596675 (Del. Ch. June 7, 2006).
In this case, the Court of Chancery was required to interpret complex agreements between the members of a Delaware limited liability company. The Court held that the defendant holding company had the right to "drag along" holders of a minority interest in an operating subsidiary of the holding company in connection with the sale of the holding company.
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Posted on June 6, 2006 by Edward M. McNally
Eureka VIII LLC v. Niagara Falls Holdings LLC C.A. No. 1203-N, 899 A.2d 95 (Del. Ch. June 6, 2006).
This case illustrates the ability of the Court of Chancery to fashion a remedy that is non-traditional and fits the exact circumstances of the case before it. Here the remedy for the breach of a LLC agreement is to hold the breaching party, who is no longer a member in the LLC but only an assignee, with limited rights.
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Posted on June 5, 2006 by Edward M. McNally
Gildor v. Optical Solutions, Inc., C.A. No. 1416-N, 2006 WL 1596678 (Del. Ch. June 5, 2006).
It is often not clear what a corporation is to do when it cannot find a missing stockholder. While 8 Del. C. §230 answers that question for stockholder meetings, what to do in other circumstances is less clear. In this decision, the Court of Chancery held that the corporation should at least look through its records to try to find the missing stockholder to give him notice of the right to acquire corporate stock. The failure to try harder led the court to extend the stockholder's time when he finally appeared.
Posted on June 5, 2006 by Edward M. McNally
Williamson v. Cox Communications, Inc., C.A. No. 1663-N, 2006 WL 1686375 (Del. Ch. June 5, 2006).
For the first time, the Court of Chancery has ruled that the power to veto a transaction may constitute the power to control a Delaware corporation. This is significant because a controlling stockholder has fiduciary duties to the other stockholders. While the facts of this case are probably unique and its implication for the litigants are unclear at this early stage, the complaint has withstood a motion to dismiss.
Posted on June 5, 2006 by Edward M. McNally
Lions Gate Entertainment Corp.v. Image Entertainment Inc., C.A. No. 2011-N, 2006 WL 1668051 (Del. Ch. June 5, 2006).
The Court of Chancery has again ruled that provisions in corporate bylaws or certificates of incorporation that violate the Delaware General Corporation Law are invalid. Thus, the Court struck down a bylaw provision that attempted to give the directors the power to amend the bylaws when that power was not conferred by the certificate of incorporation as required. The Court also voided a certificate of incorporation provision that tried to give the directors alone the right to amend the certificate.
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Posted on June 2, 2006 by Edward M. McNally
Elite Cleaning Company, Inc. v. Capel, C.A. No. 690-N, 2006 WL 1565161 (Del. Ch. June 2, 2006).
In this precedent setting case, the Court of Chancery refused to enforce a non-compete agreement against a janitor of the Elite Cleaning Company, apparently concluding his services were not so elite after all.
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Posted on June 2, 2006 by Edward M. McNally
Kevin McGovern, et. al. v. General Holding, Inc., et. al., C.A. No. 1296-N (Del. Ch. June 2, 2006).
In this action to recover for the diversion of partnership property, the Court of Chancery fashioned a unique remedy by ordering that the partnership be sold by a receiver so as to realize the special value of its technology.
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Posted on June 1, 2006 by Liza H. Sherman
Federal Insurance Company v. Lighthouse Construction, Inc., 230 F.R.D. 387 (D. Del. 2005).
A property insurer brought a subrogation action against a building contractor to recover for loss caused by a roof collapse. The contractor sought leave to filed third-party complaint against erection contractor. Insurer also sought leave to filed a claim against it.
The District Court held:
(1) the contractor was entitled to add third-party claim of contractual indemnification against erection contractor;
(2) the insurer could not assert claim against third-party defendant after expiration of two-year statute of limitations; and
(3) insurer's amendment of complaint to add erection contractor would not relate back to subrogation action against building contractor.
Posted on May 31, 2006 by Katherine J. Neikirk
Posted on May 26, 2006 by Katherine J. Neikirk
Gatz v. Ponsoldt, C.A. No. 174-N, 2006 WL 1510467 (Del. Ch. May 26, 2006).
Plaintiffs asserted direct claim arising from recapitalization. Defendants moved to dismiss, arguing that Plaintiffs' claim was actually derivative, not direct, and Plaintiffs had failed to make demand or establish demand was excused.
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Posted on May 24, 2006 by Katherine J. Neikirk
Posted on May 24, 2006 by Katherine J. Neikirk
Anglo American Security Fund, L.P. v. S.R. Global Int'l Fund, L.P., C.A. No. 20066-N, 2006 WL 1494360 (Del. Ch. May 24, 2006).
Plaintiffs and defendants brought cross-motions for summary judgment on claims arising from disputes over interpretation of limited partnership agreement ("LPA").
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Posted on May 23, 2006 by Patricia R. Uhlenbrock
In re Veritas Software Corp. Securities Litig., C.A. No. 04-831-SLR (Consol.) (D. Del. May 23, 2006).
Defendants moved to dismiss a consolidated securities class action that alleged violations of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 on the grounds that the plaintiffs failed to allege fraud with particularity as required by the Private Securities Litigation Reform Act of 1995 (the "PSLRA").
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Posted on May 22, 2006 by Patricia R. Uhlenbrock
Childcraft Education Corp. v. Alice's Home, et al., C.A. No. 05-461 (GMS) (D. Del. May 22, 2006).
Plaintiff filed complaint alleging breach of contract, miappropriation of trade secrets and unjust enrichment claims. Defendants moved to dismiss the action for lack of personal jurisdiction.
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Posted on May 22, 2006 by Katherine J. Neikirk
Lillis v. AT&T Corp., C.A. No. 717-N, 2006 WL 1468709 (Del. Ch. May 22, 2006).
Plaintiffs moved pursuant to Court of Chancery Rule 12(c) for judgment on the pleadings on one count of their complaint, which sought attorneys' fees and expenses incurred in bringing the case.
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Posted on May 18, 2006 by Katherine J. Neikirk
Gesoff v. IIC Indus. Inc., C.A. No. 19473, 2006 WL 1458218 (Del. Ch. May 18, 2006).
Plaintiff filed a class action, claiming a merger was the subject of unfair dealing and produced an unfair price. Another plaintiff filed a statutory appraisal claim based on the same merger.
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Posted on May 18, 2006 by Jason C. Jowers
AT&T Corp. v. Clarendon America Ins. Co., C.A. No. 04C-11-167(JRJ), 2006 WL 1360934 (Del. Super. Ct. May 18, 2006).
On April 25, 2006, the Superior Court granted summary judgment in favor of multiple defendants. The plaintiff, AT&T, moved to certify an appeal pursuant to Rule 42, and the Superior Court granted AT&T leave to file and interlocutory appeal. On May 31, 2006, the Delaware Supreme Court accepted the interlocutory appeal as well.
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Posted on May 18, 2006 by Katherine J. Neikirk
McGovern v. General Holding, Inc., C.A. No. 1296-N, 2006 WL 1468850 (Del. Ch. May 18, 2006).
Plaintiffs brought action individually and on behalf of limited partnership against 90% owner of limited partnership for, among other things, breach of fiduciary duty and breach of limited partnership agreement.
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Posted on May 16, 2006 by Katherine J. Neikirk
Sutherland v. Dardanelle Timber Co., C.A. No. 671-N (Del. Ch. May 16, 2006).
Defendant objected to Master in Chancery's report granting relief to Plaintiff on majority of her requests in Section 220 action. Plaintiff objected to Master in Chancery's narrowing the scope of documents she demanded.
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Posted on May 12, 2006 by Jason C. Jowers
Street Search Partners, L.P. v. Ricon Int'l., L.L.C., C.A. No. 04C-09-191-PLA, 2006 WL 1313859 (Del. Super. Ct. May 12, 2006).
Following the court's earlier decision granting defendant's motion to dismiss, the plaintiff moved for reargument. Because the court did not misapprehend the law or the facts in its previous decision, the motion for reargument was denied.
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Posted on May 10, 2006 by Katherine J. Neikirk
Posted on May 10, 2006 by Katherine J. Neikirk
Posted on May 9, 2006 by Jason C. Jowers
In re Asbestos Litigation, C.A. No. 77C-ASB-2, 2006 WL 1231123 (Del. Super. Ct. May 9, 2006).
DaimlerChrysler Corporation ("Chrysler") moved in limine to exclude plaintiffs' friction products (ie. brake and clutch products) causation expert witnesses as unreliable under the Daubert standard. The Court denied Chrysler's motion.
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Posted on May 9, 2006 by Katherine J. Neikirk
Khanna v. McMinn, C.A. No. 20545-NC, 2006 WL 1388749 (Del. Ch. May 9, 2006).
Defendants moved to dismiss class and derivative complaint under Court of Chancery Rules 23.1 and 12(b)(6). Defendants also moved to disqualify the plaintiffs, to strike portions of the complaint and for continued sealing of the complaint.
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Posted on May 8, 2006 by Patricia R. Uhlenbrock
Cherry Line, S.A. v. Muma Services f/k/a Murphy Marine Services, Inc., C.A. No. 03-199-JJF, 2006 U.S. Dist. Lexis 29818 (D. Del. May 8, 2006).
Defendant filed a motion for sanctions and for dismissal for failure to prosecute.
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Posted on May 8, 2006 by Katherine J. Neikirk
Shadewell Grove IP, LLC v. Mrs. Fields Franchising, LLC, C.A. No. 1691-N, 2006 WL 1375106 (Del. Ch. May 8, 2006).
Plaintiff Shadewell Grove IP, LLC sought declaratory judgment, specific performance and damages resulting from Defendant Mrs. Fields Franchising, LLC's alleged breaches of three licensing agreements.
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Posted on May 2, 2006 by Jason C. Jowers
I.U. North America, Inc. v. A.I.U. Ins. Co., 896 A.2d 880 (Del. Super. Ct. 2006).
This case involved claims for breach of contract and for declaratory judgment and ancillary relief to determine the responsibility for payment of liabilities incurred as a result of numerous claims and actions seeking to recover damages allegedly due to exposure to asbestos resulting from the conduct of the plaintiffs. The plaintiffs, the insureds, argued that a settlement agreement to resolve coverage issues arising out of asbestos claims required insurer to indemnify insureds for payments on behalf of defaulting parties to settlements. The plaintiffs moved for summary judgment, and the Superior Court found that the settlement agreement did not require insurer to reimburse insureds for payments on behalf of defaulting parties.
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Posted on April 28, 2006 by Patricia R. Uhlenbrock
AES Puerto Rico, L.P. v. ALSTOM Power, Inc., C.A. No. 04-1282-JJF, 2006 WL 1154786 (D. Del. Apr. 28, 2006).
Plaintiff alleged that defendant breached an accelerated corrosion warranty in the parties' agreement and that plaintiff suffered damages as a result. Defendant moved for partial summary judgment, claiming that any warranty liability was subject to a condition precedent in the parties' contract, which condition was never met.
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Posted on April 26, 2006 by Joseph S. Naylor
Berger v. Intelident Solutions, Inc., No. 596, 2005, 2006 WL 1132079 (Del. Apr. 26, 2006).
Plaintiff, a minority shareholder in a Florida corporation, filed a breach of fiduciary duty action in connection with a freeze-out merger. The sole defendants were a Nevada limited partnership, which was the ultimate controlling entity of the Florida corporation, and a Delaware corporation formed to serve as an intermediate holding company in connection with the merger. Defendants moved to dismiss based on forum non conveniens, arguing that forcing them to litigate in Delaware would impose an overwhelming hardship. The Court of Chancery granted that motion, finding that the dispute would be more appropriately litigated in Florida and that Defendants had met the exacting standard applied in assessing forum non conveniens motions.
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Posted on April 26, 2006 by Fotini A. Skouvakis
Delaware Open MRI Radiology Associates, P.A. v. Kessler, C.A. No. 275-N, 2006 WL 1215096 (Apr. 26, 2006).
This case was described by Vice Chancellor Strine as "another progeny of one of our law's hybrid varietals: the combined appraisal and entire fairness action." The court was tasked with determining whether the share price in a squeeze-out merger was fair, and, if not, what the extent of the underpayment to the minority shareholders was. The court found that the merger price was unfair, and finding no difference between the award the petitioners/plaintiffs would receive in appraisal or in equity, the court awarded an amount equivalent to petitioners' pro rata share of the company's appraisal value on the date of the merger.
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Posted on April 25, 2006 by Jason C. Jowers
AT&T Corp. v. Clarendon America Ins. Co., C.A. No. 04C-11-167 (JRJ), 2006 WL 1382268 (Del. Super. Ct. April 25, 2006).
This was an insurance coverage case involving Directors and Officers and Company ("D & O") liability policies purchased by plaintiff AT & T Corp. ("AT & T") and At Home Corp. ("At Home") from various primary and excess insurers. AT & T sought coverage, including indemnity, payment of defense fees, costs, and settlements or judgments, relating to several underlying shareholders suits brought against AT & T and certain officers and directors of AT & T and At Home. The defendants brought motions for partial summary judgment, alleging that AT & T's clams fell outside the scope of coverage under the D & O policies. Ultimately, the court granted the defendants' motions.
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Posted on April 19, 2006 by Fotini A. Skouvakis
American Homepatient, Inc. v. Collier, C.A. No. 274-N, 2006 WL 1134170 (Del. Ch. Apr. 19, 2006).
Plaintiff alleged that a former employee of plaintiff breached a confidentiality and non-compete agreement (the "Non-Compete"), that the former employee and his new employer both breached a related settlement agreement (the "Settlement" and collectively with the Non-Compete, the "Agreements"), and that the new employer tortiously interfered with the Non-Compete and prospective business relations. Plaintiff sought damages and injunctive relief. The court concluded that while the Agreements were enforceable, they were not breached by defendants and there was no tortious interference.
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Posted on April 14, 2006 by Fotini A. Skouvakis
Oliver v. Boston University, C.A. No. 16570-NC, 2006 WL 1064169 (Del. Ch. Apr. 14, 2006).
Defendant Boston University ("BU") was the controlling shareholder of Seragen, a financially troubled biotechnology company. Plaintiffs, a group of former minority stockholders of Seragen's common stock, challenged certain transactions before Seragen was merged and the process by which the merger proceeds were divvied up. The plaintiffs contended that the BU defendants breached their fiduciary duties to Seragen's common shareholders by approving various financial transactions, which were not fair to the common shareholder as a matter of price and process. The Court of Chancery awarded damages in excess of $4.8 million plus interest for breaches of the fiduciary duty of loyalty.
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Posted on April 12, 2006 by Fotini A. Skouvakis
Regal Entertainment Group v. Amaranth LLC, C.A. No. 1226-N, 2006 WL 948257 (Del. Ch. Apr. 12, 2006).
Plaintiff, Regal Entertainment Group, asked the Court of Chancery to grant its motion for certification of defendant class. Plaintiff is the issuer of a series of convertible notes under an indenture and defendant Amaranth is one of the largest holders of these notes. After a public dispute regarding Regal's method of calculating the number of shares of common stock upon conversion, Regal filed a lawsuit against Amaranth seeking a declaration that its calculation was correct. Amaranth counterclaimed that its calculation of conversion was correct. The only objection that Amaranth raised to the motion for certification was that its status as a hedge fund should relieve it of the obligation to serve as the representative of a defendant class. The court granted Regal's motion for class certification finding that Amaranth is well-positioned to represent the class as it seeks to advance an interpretation of the calculation provisions of the indenture contrary to Regal's, which affects all noteholders.
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Posted on April 10, 2006 by
Delaware Insurance Guaranty Association v. Pickering, C.A. No. 04C-09-240 (MMJ), 2006 WL 1067317 (Del. Supr. April 10, 2006).
Prior to death, decedent Logan sought worker's compensation benefits arising from injury caused by occupational exposure to asbestos while employed by H. C. Moore. When the employer's worker's compensation carrier could not be identified, the Delaware Industrial Accident Board (the "Board") ordered Delaware Insurance Guaranty Association ("DIGA") to appear and defend Logan's claim. DIGA moved for Summary Judgment. The Court entered judgment in favor of DIGA on the grounds that 18 Del. C. § 4204 authorized only the payment of valid covered claims existing prior to (or shortly after) an order of liquidation of an insolvent insurer.
Authored by:
Jason C. Jowers
302-888-6860
jjowers@morrisjames.com
Posted on April 5, 2006 by Fotini A. Skouvakis
Levy v. Hayes Lemmerz International Inc., C.A. No. 1395-N, 2006 WL 985361 (Del. Ch. Apr. 5, 2006).
The plaintiffs in this case sought indemnification for a settlement of claims against them for $27.5 million, paying $7.2 million out of their own pockets. The plaintiffs were former outside directors of a public company engaged in the automobile supply trade who were sued by both stockholders and bondholders of that company for various statutory violations and breaches of fiduciary duty when the company was forced to reveal that some of its financial statements contained materially misleading information. The corporation that the plaintiffs served ("Old Hayes") entered Chapter 11 bankruptcy and emerged as the operating subsidiary of a new entity ("New Hayes"). When the plaintiffs sought indemnification for the settlement under the old corporation's bylaws, their individual indemnification plans, and the bankruptcy reorganization plan, both Old Hayes and New Hayes refused. The Court of Chancery dismissed the plaintiffs' claims as to New Hayes, which the court found as a matter of law had no obligation to indemnify its predecessors' former directors and officers; however, the court denied the motion to dismiss as to the old company because the directors had a right to proceed with their claim for indemnification against Old Hayes.
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Posted on April 5, 2006 by Fotini A. Skouvakis
Feldman v. Cutaia, C.A. No. 1656-N, 2006 WL 920420 (Del. Ch. Apr. 5, 2006).
This action involved a series of transactions in which the Telx defendant directors allegedly granted themselves a significant equity stake in the company for little or no consideration. Plaintiff alleged that these transactions significantly diluted his equity position. This action also involved a self tender-offer by the company for $5 million worth of its securities. Defendant argued that plaintiff did not make a demand on the Telx board before proceeding with the derivative action and that the complaint did not plead with particularity facts that created a reasonable doubt as to the ability of the Telx board to independently consider such a demand. The Court of Chancery denied the defendants' motion to dismiss and permitted the plaintiff to proceed with his derivative suit.
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Posted on April 3, 2006 by Fotini A. Skouvakis
Ramone v. Lang, C.A. No. 1592-N, 2006 WL 905347 (Del. Ch. Apr. 3, 2006).
This case involved a dispute between two businessmen who hoped to work together on a project to open a swim and fitness center, but who failed to achieve this despite months of efforts and negotiations. Plaintiff and defendant intended to formalize their relationship in a written LLC agreement. Ultimately, defendant closed on the property for himself, frustrated by his inability to reach a final agreement with plaintiff. Plaintiff sued for breach of contract, breach of fiduciary duty, and promissory estoppel. The Court of Chancery found that there was no contract between the parties and that the parties were not partners, therefore defendant did not owe any fiduciary duties. The court did, however, find that plaintiff had a claim for promissory estoppel and awarded reliance damages.
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Posted on March 31, 2006 by Patricia R. Uhlenbrock
Seinfeld v. Barrett, C.A. No. 05-298-JJF, 2006 WL 890909 (D. Del. Mar. 31, 2006).
Plaintiff filed a derivative action against defendants, alleging that they violated Section 14(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 14a-8 and breached their fiduciary duties under Delaware law by making false and misleading statements in connection with a proxy statement issued by the defendants in March 2005. Plaintiff moved for summary judgment, and defendants moved to dismiss for lack of subject matter jurisdiction and for failure to comply with Rule 23.1.
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Posted on March 30, 2006 by Jason C. Jowers
Spanish Tiles, Ltd. v. Hensey, C.A. No. 05C-07-025 RFS, 2005 WL 3981740 (Del. Super. Ct. March 30, 2006).
Plaintiff Spantis Tiles, Ltd. D/b/a Terra Tile and Marble ("Terra Tiles") and Plaintiff Steel Buildings, Inc. d/b/a Northern Steel buildings, Inc. ("NSB") brought an action against Kurt and Ken Hensey (the "Henseys") for breach of contract, tortious interference with contracts and prospective contracts, violation of the Deceptive Trade Practices Act, common law fraud, unlawful practice and defamation. The defendant moved to dismiss for failure to state a claim and moved for a more definite statement. The court denied both motions.
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Posted on March 29, 2006 by Fotini A. Skouvakis
In re Triarc Companies, Inc. S'holders Litig., C.A. No. 16700, 2006 WL 903338 (Del. Ch. Mar. 29, 2006).
After the voluntary dismissal of a class action, plaintiffs petitioned the Court of Chancery for attorneys' fees and expenses. The court found that plaintiffs' counsel was entitled to fees for the preparation of the amended complaint and litigation efforts undertaken before the action that caused the voluntary dismissal. Plaintiffs' counsel was not entitled to fees for their work in connection with the original complaint nor for their work performed after the claims in the amended complaint were mooted.
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Posted on March 28, 2006 by Fotini A. Skouvakis
Big Lot Stores, Inc. v. Bain Capital Fund VII, LLC, C.A. No. 1081-N, 2006 WL 846121 (Del. Ch. Mar. 28, 2006).
In 2000, in a sponsored management buyout, a corporation sold a subsidiary business that operated a chain of toy stores (KB Toys) in exchange for $257.1 million in cash and a $45 million note due in 2010. In 2002, the new owners refinanced the business and distributed approximately $120 million to the buyout sponsor, affiliates, two officers and directors of the subsidiary that invested in the buyout, and others. In 2004, the KB Toys filed for Chapter 11 bankruptcy. Plaintiff Big Lots, Inc, an unsecured creditor and holder of the $45 million note, brought this action asserting direct claims of breach of fiduciary duties, fraud, and civil conspiracy. The plaintiff sought recovery for the amount due on the note and restitution for alleged unjust enrichment. The Court of Chancery dismissed the complaint namely because the claims were derivative in nature, not direct, and thus belong to the bankruptcy estate.
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Posted on March 27, 2006 by
Freudenberg Spunweb Company v. Fibervisions L.P., C.A. No. 04C-03-073 (FSS), 2006 WL 1064173 (Del. Super. Ct. Mar. 27, 2006)
Plaintiff sued Defendant for breach of contract claiming raw materials provided by Defendant to Plaintiff's customers were defective. Defendant agreed to provide polypropylene staple fiber for Plaintiff's state-of-the-art factory, but the raw materials routinely clogged the machinery. Plaintiff sought more than $10 million in damages.
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Posted on March 24, 2006 by
Sonitrol Corp. v. Signature Flight Support Corp., C.A. No. 05C-07-302, 2006 WL 1134775 (Del. Super. March 24, 2006)
Signature entered into multiple contracts with Sonitrol pursuant to which Sonitrol would install electronic security equipment and provide security services at various locations. Signature accepted the services and equipment, but failed to pay approximately $491,523.59 for certain equipment and services.
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Posted on March 22, 2006 by Patricia R. Uhlenbrock
Flowserve Corp. v. Burns Int'l Servs. Corp., C.A. No. 04-1294-JJF, 2006 WL 739886 (D. Del. Mar. 22, 2006).
Plaintiff filed a complaint seeking a declaratory judgment of its right to indemnification in asbestos litigation under the terms of a stock purchase agreement executed by its predecessor-in-interest, which had acquired a subsidiary of Borg-Warner Corp. ("BWC"). Defendant Burns International Services Corp. ("Burns"), which had purchased BWC's insurance assets at a liquidation sale, filed a counterclaim alleging that its indemnification obligations to plaintiff only arose out of a later letter agreement, and that once BWC's insurance was exhausted, plaintiff had to pay the costs of defending and resolving the asbestos claims. During the pendency of the instant case, plaintiff informed Burns that (i) it had terminated the counsel chosen by Burns to defend the asbestos claims; (ii) it was choosing its own counsel; and (iii) it was directing its new counsel to file third-party complaints against defendants and to pursue global settlements in the underlying asbestos cases (together, the "threatened actions"). Burns then sought a temporary restraining order and preliminary injunction to enjoin plaintiffs from taking the threatened actions.
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Posted on March 21, 2006 by Fotini A. Skouvakis
Carlson v. Hallinan, C.A. Nos. 19808, 19466, 2006 WL 771722 (Del. Ch. Mar. 21, 2006).
This case involved a direct and derivative action arising out of a dispute between two men engaged in the business of making short term, unsecured loans. Plaintiffs asserted direct claims for breach of contract and derivative claims for breach of fiduciary duties. Specifically, plaintiffs alleged that defendant Hallinan breached an oral contract with plaintiffs by paying himself and another defendant executive compensation. Plaintiffs also asserted that the defendants breached fiduciary duties they owed nominal defendant CR Services Corp. by paying themselves an excessive amount of executive compensation. The Court of Chancery found, among other things, that Hallinan breached the oral contract with plaintiffs and defendants committed multiple breaches of their fiduciary duties to CR because they failed to meet the entire fairness standard regarding their compensation.
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Posted on March 17, 2006 by Fotini A. Skouvakis
Highland Legacy Ltd. v. Singer, C.A. No. 1566-N, 2006 WL 741939 (Del. Ch. Mar. 17, 2006).
A large shareholder brought a derivative action alleging that the directors committed corporate waste by approving exorbitant fees to unqualified financial advisers. The defendants moved to dismiss the complaint under Court of Chancery Rule 23.1 for failure to allege with particularity facts establishing demand futility. The court's review of the complaint revealed that plaintiff did not allege with particularity facts from which the court could reasonably conclude that the majority of the directors were disabled from impartially considering a demand. The court therefore granted defendants' motion to dismiss under Rule 23.1.
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Posted on March 14, 2006 by Patricia R. Uhlenbrock
Shamrock Holdings of Ca., Inc. v. Arenson, C.A. No. 04-1335-SLR, 2006 U.S. Dist. LEXIS 9835 (D. Del. Mar. 14, 2006).
Plaintiff Shamrock Holdings of Ca., Inc. ("Shamrock") was a Class A member of ALH Holdings, Inc. ("ALH"), a Delaware limited liability company, and the other plaintiffs were employees and/or members of ALH's Supervisory Board (the "Board"). In connection with the failure of ALH's business, and its investors' subsequent loss of their investments, plaintiffs filed an action in the Court of Chancery seeking a declaration that (i) they did not breach ALH's operating agreement; (ii) they did not breach their fiduciary duties as ALH employees, members or Board members; (iii) they had relied in good faith on the advice of experts and professionals in making their decisions; (iv) they were not liable to the defendants under the terms of a consulting agreement; and (v) they were entitled to advan
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Posted on March 14, 2006 by Fotini A. Skouvakis
OSI Systems, Inc. v. Instrumentarium Corp., C.A. No. 1374-N, 2006 WL 656993 (Del. Ch. Mar. 14, 2006).
In this case, plaintiff buyer and defendant seller in the sale of a business argued over the type of contractual arbitration that should be used to solve a disagreement over the form of arbitration each preferred. The Court of Chancery granted seller's motion on the pleadings because buyer's claims were for breaches of representations and warranties, which fell under the indemnity provisions of the contract and the form of arbitration set forth in those provisions must be used by buyer.
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Posted on March 10, 2006 by Fotini A. Skouvakis
Horbal v. Three Rivers Holdings, Inc., C.A. No. 1273-N, 2006 WL 668542 (Del. Ch. Mar. 10, 2006).
Plaintiffs, founders of a Health Management Organization, alleged that their co-investors abused their positions by siphoning off tens of millions of dollars from the HMO in the form of disguised salaries and corporate perquisites; plaintiffs call these "de facto dividends." The Court of Chancery granted defendants' motion to dismiss because plaintiffs did not adequately allege self-dealing, the center of a de facto dividend claim.
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Posted on March 10, 2006 by Fotini A. Skouvakis
In re Grupo Dos Chiles, LLC, C.A. No. 1447-N, 2006 WL 668443 (Del. Ch. Mar. 10, 2006).
This case involved a dispute over the membership and future of a Delaware limited liability company. Petitioner sought a reformation of the LLC's certificate of formation to the effect that he and Respondent were members of the LLC. Applying a "substance over form" approach, the Court of Chancery concluded that the petitioners were members of the LLC by interpreting the LLC agreement and turning to documentary evidence regarding the parties' portrayal of their relationship.
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Posted on March 8, 2006 by Patricia R. Uhlenbrock
Hartman v. Pathmark Stores, Inc., C.A. No. 05-403-JJF, 2006 U.S. Dist. LEXIS 9349 (D. Del. Mar. 8, 2006).
Plaintiff filed a class action complaint against defendants, alleging violations of Section 14(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and breach of the fiduciary duty of loyalty by the directors of Pathmark Stores, Inc. ("Pathmark") in connection with a transaction between Pathmark and The Yucaipa Companies, LLC ("Yucaipa"). Plaintiff also moved for appointment as lead plaintiff, with his counsel as lead counsel. Defendants moved to dismiss the complaint.
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Posted on March 8, 2006 by Fotini A. Skouvakis
Cypress Associates, LLC v. Sunnyside Congregation Associates Project, C.A. No. 1607-N, 2006 WL 668441 (Del. Ch. Mar. 8, 2006).
This case involved a dispute between a bondholder and the borrower that succeeded to most of the issuer's duties and rights. The parties argued over the extent to which the borrower could amend certain contracts without approval from the bondholders. Plaintiff bondholder refused to provide its assent to an amendment the borrower desired because it believed that the amendment would lower the value of its bonds. The other bondholders supported the amendment. The Court of Chancery denied in part and granted in part the borrower's motion to dismiss.
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Posted on March 2, 2006 by Patricia R. Uhlenbrock
HSMY, Inc. v. Getty Petroleum Mktg., Inc., C.A. No. 05-818-JJF, 2006 U.S. Dist. LEXIS 8268 (D. Del. Mar. 2, 2006).
Plaintiff filed a complaint for breach of contract, breach of the covenant of good faith and fair dealing, fraud, and violations of Article 2 of the Uniform Commercial Code, the Delaware Retail Gasoline Sales Law ("DRGSL") and the Delaware Deceptive Trade Practices Act ("DDTPA") in the Delaware Superior Court. Defendant removed the case to the U.S. District Court for the District of Delaware and moved to dismiss the complaint. Plaintiff subsequently amended its complaint.
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Posted on February 28, 2006 by Raj Srivatsan
Harry A. Akande v. Transamerica Airlines, Inc., et al., C.A. No. 1039-N, 2006 WL 587846 (Del. Ch. Feb. 28, 2006).
This is a motion to amend the Complaint under Court of Chancery Rules 15(a) and 15(aaa) for the third time before the Court of Chancery, involving a foreign judgment enforcement action. Plaintiff sought to withdraw his petition for receivership and add factual predicates to various claims he made. In an earlier hearing, the Court of Chancery permitted plaintiff's motion for discovery and converted the defendants' motion for dismissal upon plaintiff's motion to one of summary judgment.
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Posted on February 22, 2006 by Raj Srivatsan
Canadian Commercial Workers Industry Pension Plan v. Eric Alden, et al., C.A. No. 1184-N, 2006 WL 456786 (Del. Ch. Feb. 22, 2006).
In this derivative action brought against four former directors and officers of Case Financial, Inc., the nominal defendant, the two remaining defendants moved to dismiss after two others settled. Plaintiff alleged breach of loyalty, breach of the Caremark duty of oversight, corporate waste and common law fraud. The Court of Chancery partly granted the motions.
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Posted on February 22, 2006 by Raj Srivatsan
Madison Real Estate Immobbilien-Anlagegesellschaft Beschrankt Haftende KG v. GENO One Financial Place L.P. and GENO Auslandsimmobilien GmbH, No. Civ.A. No. 1928-N, 2006 WL 456779 (Del. Ch. Feb. 22, 2006).
The plaintiff is a German entity organized under that country's laws, as is the second named German limited liability defendant. The latter party is also a general partner in the first defendant entity. The plaintiff was one of two bidders that made an unregulated tender offer for a part of the first-named defendant's Delaware limited partnership interest. Plaintiff filed a motion in the Court of Chancery for expedited injunction proceedings, seeking to enjoin the defendant's general partner from approving any transfer agreements related to the tender offers.
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Posted on February 16, 2006 by Raj Srivatsan
In re Cencom Cable Income Partners, L.P., C.A. No. 14634-NC, 2006 WL 452775 (Del. Ch. Feb. 16, 2006).
This Court of Chancery action arose out of a breach of fiduciary duty claim filed on Oct. 20, 1995. Defendants unsuccessfully moved to dismiss for failure to prosecute under Court of Chancery Rule 41.
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Posted on February 14, 2006 by Raj Srivatsan
Abry Partners V, L.P., et al. v. F&W Acquisitions LLC, et al., C.A. No. 1756-N, (Del. Ch. Feb. 14, 2006) (published at 891 A.2d 1032 (Del. Ch. 2006).
This is plaintiffs' suit for rescission of a corporate acquisition contract. The seller moved to dismiss the case for failure to state a claim. The court focused on the law and policy of the unambiguous bar to recessionary relief and limitations in damage recovery for misrepresentations through the contract's exclusive indemnity-limiting provision.
The court reconciled the power of privately ordered contracts allocating risk between the parties and Delaware's public policy disfavoring a bar on recessionary remedies and damages for willful misrepresentations. Additionally, the court examined the elective remedies available to the plaintiff-buyer.
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Posted on February 13, 2006 by Raj Srivatsan
David B. Shaev Profit Sharing Account v. C. Michael Armstrong, et al., C.A. No. 1449-N, 2006 WL 391931 (Del. Ch. Feb. 13, 2006).
The facts here were litigated in In re Citigroup Inc. Shareholders Litigation, 2003 Del. Ch. LEXIS 61 (Del. Ch. June 05, 2003), aff'd, Rabinowitz v. Shapiro, 839 A.2d 666 (Del. 2003) (TABLE). That case involved alleged knowledge of fraudulent relationships between Citigroup and its former clients Enron and WorldCom and alleged breach of fiduciary duties. Both actions were dismissed under Rule 23.1 as conclusory.
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Posted on February 10, 2006 by Raj Srivatsan
Ramunno v. Capano, et al., C.A. No. 18798-NC, 2006 WL 375541 (Del. Ch. Feb. 10, 2006).
This is a fiduciary claim based action to appraise the fair value of real property brought by the trustee of four trusts that held a 12.1% interest in that property held by the defendant entity and its two majority interest holders, after that entity's merger into a new Delaware limited partnership.
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Posted on February 10, 2006 by Patricia R. Uhlenbrock
Cantor v. Perelman, C.A. No. 97-586-KAJ, 2006 WL 318666 (D. Del. Feb. 10, 2006).
Plaintiffs alleged that defendants Perelman, Bevins and Drapkin, all of whom were directors of Marvel Entertainment Company ("Marvel") and were the only directors of each of Marvel's five holding companies, breached their fiduciary duties by causing Marvel and its holding companies to issue three tranches of notes, for which they received $553.3 million in proceeds and pledged all of their stock in Marvel as collateral. Plaintiffs alleged that none of the proceeds of the loan went to Marvel or were used for its benefit. Marvel was unable to repay the notes and subsequently filed for bankruptcy protection. Plaintiffs named Marvel's remaining directors as defendants and claimed that they aided and abetted Perelman, Bevins and Drapkin in breaching their fiduciary duties. Plaintiffs also alleged that the defendants artificially inflated Marvel's earnings by booking the fees resulting from various licensing agreements as income at the time the licensing agreements were executed, but never collecting the fees and writing them off. Plaintiffs sought a jury trial, which defendants opposed.
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Posted on February 9, 2006 by Raj Srivatsan
In re Serena Software, Inc. S'holders Litig., C.A. No. 1777-N, 2006 WL 375599 (Del. Ch. Feb. 09, 2006).
This is a motion for expedited proceedings for a preliminary injunction pertaining to certain disclosure claims not made public in SEC-filed proxy statements soliciting shareholder vote for an agreement for sale of the corporation at $24 per share. Class actions were earlier filed in the Delaware Court of Chancery and California's Superior Court challenging the sale transaction as a director-interested one.
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Posted on February 9, 2006 by Raj Srivatsan
Unisuper Ltd., et al. v. News Corporation, et al., C.A. No. 1699-N, 2006 WL 375433 (Del. Ch. Feb. 09, 2006).
Defendants filed cross-motions requiring depositions of thirteen named plaintiffs' under Ch. Ct. R. 30(b)(6) in either Delaware or New York. Plaintiffs filed motions for protective orders, to limit the numbers of deponents and contended depositions could occur outside the United States via videoconferencing.
The plaintiffs' Australian company had reincorporated in Delaware.
Plaintiff sought equitable relief requesting its shareholders to be permitted to vote on a poison pill's extension. The court treated this matter as a representative one, rather than an individual shareholder suit.
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Posted on February 7, 2006 by Katherine J. Neikirk
Deloitte & Touche USA LLP v. Lamela, C.A. No. 1542-N, 2005 WL 2810719 (Del. Ch. Oct. 21, 2005).
Plaintiffs sought a preliminary injunction against Defendant to prevent him from soliciting any current, former or prospective clients that he had contact with while employed by Plaintiffs.
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Posted on February 7, 2006 by Patricia R. Uhlenbrock
Hyland v. Harrison, C.A. No. 05-162-JJF, 2006 WL 288247 (D. Del. Feb. 7, 2006).
Dr. Stephen Blau, the lead plaintiff in a securities class action pending in the U.S. District Court for the Northern District of Illinois (the "Illinois Action"), moved to intervene in the later-filed present action in Delaware that alleged similar claims against the defendants by the Delaware plaintiffs, after he learned that the Delaware plaintiffs had filed several amici curai briefs seeking to have the Illinois court vacate its order appointing Dr. Blau as lead plaintiff and to transfer the Illinois Action sua sponte to Delaware. Dr. Blau also sought to have the Delaware district court stay the Delaware action in order to allow the first-filed Illinois Action to proceed.
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Posted on February 7, 2006 by Patricia R. Uhlenbrock
In re AstroPower Inc. Securities Litig., C.A. No. 03-260-JJF, 2006 WL 288120 (D. Del. Feb. 7, 2006).
Plaintiffs alleged that defendants violated Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 by fraudulently overstating AstroPower's revenue in press releases and in SEC filings, and that, as a result, they had purchased their AstroPower stock at artifically inflated prices. Plaintiffs also alleged that the defendants qualified as "controlling persons", as that term is defined in Section 20 of the Exchange Act, of AstroPower and therefore liable to plaintiffs. Defendant Thomas J. Stiner, a Chief Financial Officer, Senior Vice President and director of AstroPower, moved to dismiss the complaint as to him.
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Posted on February 2, 2006 by Patricia R. Uhlenbrock
Eames v. Nationwide Mutual Insurance Co., C.A. No. 04-1324-KAJ, 412 F. Supp. 431 (D. Del. 2006).
Plaintiffs filed a proposed class action alleging that defendant Nationwide Mutual Insurance Company ("Nationwide") misrepresented to class members the limits of liability of the Personal Injury Protection ("PIP") coverage that was included in Nationwide's automobile policies. Nationwide moved to dismiss for failure to state a claim.
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Posted on February 1, 2006 by Raj Srivatsan
Richard W. Vague v. Bank One Corporation, et al., C.A. No. 18741, 2006 WL 290299 (Del. Ch. Feb. 01, 2006).
In this post-trial opinion, the court examines an untimely claim on stock-options against employer-corporation after expiration of contractually agreed limitations period and the corporation's claim against another employee for violation of duties related to the claim of options.
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Posted on January 31, 2006 by Jason C. Jowers
AT&T Wireless Services, Inc. v. Federal Ins. Co., 03C-12-232 WCC, 2006 WL 267135 (Del. Super. Ct. Jan. 31, 2006).
In 2002 AT & T Wireless Services, Inc. ("AWS") merged with TeleCorp PSC, Inc. Following the merger the TeleCorp shareholders filed a derivative action alleging that the TeleCorp directors had breached their fiduciary duties. The Court of Chancery approved a settlement of $47.5 million. AWS filed an action in Superior Court seeking reimbursement from TeleCorp's insurance carries and its own primary insurer, Faraday Capital Limited ("Faraday"), and its excess insurer, National Union Fire Insurance Company ("National Union"). AWS voluntarily dismissed Faraday. Subsequently, pursuant to Rule 12(b)(6), the insurers moved to dismiss, and the court granted their motions to dismiss the claims relating to reimbursement for the settlement. However, the court denied TeleCorp's primary insurer's motion to dismiss the claim for defense costs.
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Posted on January 31, 2006 by Jason C. Jowers
Wit Capital Group, Inc. v. Benning, No. 568, 2004, 2006 WL 249983 (Del. Jan. 31, 2006).
The plaintiffs sued the defendants, Wit Capital Group Inc. and Wit Capital Corporation ("Wit"), securities broker/dealers, alleging that the defendants breached their account agreement by failing to allow the plaintiffs to purchase certain IPO shares. The plaintiffs argued, pursuant to Superior Court Civil Rule 23(b)(3), that common questions of law or fact predominated over questions affecting individual class members. Reversing the Superior Court's decision to certify a class, the Delaware Supreme Court found that the plaintiffs failed to show fact of common injury affecting all plaintiffs.
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Posted on January 31, 2006 by
Hutchison v. Bruehl, C.A. No. 05C-07-047 (JTV), 2006 WL 1149151 (Del. Super. Jan. 31, 2006)
Plaintiff's father had an interest in gas and oil property in West Virginia from which he received royalties through an agent in Maryland. When her father died, the right to the royalties passed to Plaintiff. Agent failed to make payments until Plaintiff took steps to stop payment through the agent and have checks sent directly to her. She then sued to recover the funds kept by the agent in the interim. Defendant agent moved to dismiss, claiming Delaware lacked personal jurisdiction over him as a Maryland resident.
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Posted on January 27, 2006 by Jason C. Jowers
Gilliland v. St. Joseph's at Providence Creek, C.A. No. 04C-09-042, 2006 WL 258259 (Del. Super. Ct. Jan. 27, 2006).
After the board of directors of an LLC terminated the plaintiff, the plaintiff filed suit, alleging, among other things, that the board's actions were void. The defendants moved to dismiss plaintiff's suit. The court found that one of the directors was immune from suit pursuant to 10 Del. C. § 8133, which grants immunity to an organization's volunteers. Another defendant, the LLC from which plaintiff had been terminated, argued that the claim against it should be dismissed because the board's actions were voidable rather than void. However, there was no indication that the Board had ever ratified the voidable acts. The Court directed the Plaintiff to file a more definite statement as to what it was claiming against that defendant.
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Posted on January 26, 2006 by Raj Srivatsan
Stone, et al. v. Ritter, et al., C.A. No. 1570-N, 2006 WL 302558 (Del. Ch. Jan. 26, 2006).
This matter involved an attempt to institute a derivative proceeding against fifteen current and former director defendants of AmSouth Bancorporation for alleged failures of fiduciary duties through insufficient internal control systems to guard against statutory violations under the Bank Secrecy Act and the Anti-Money Laundering Regulations. The defendants filed a motion to dismiss and it was granted by the court for insufficiency of pleading under Chancery Court Rule 23.1.
On November 6, 2006, the Delaware Supreme Court affirmed this decision.
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Posted on January 24, 2006 by Jason C. Jowers
Delaware Ins. Guar. Ass'n v. Christiana Care Health Services, Inc., No. 244, 2005, 2006 WL 196382 (Del. Jan. 24, 2006).
The Delaware Insurance Guaranty Association ("DIGA") sought reimbursement from Christiana Care Health Services ("CCHS") pursuant to one of the Delaware Insurance Guaranty Association Act's provisions for claims paid on behalf of an insolvent insurer. In this case the insolvent insurer had insured a corporation that merged into CCHS. The Superior Court granted CCHS's motion for summary judgment, finding that CCHS was not an "insured" under the insurance policy. Reversing the lower court, the Delaware Supreme Court found that a court must consider the purpose and intent of 18 Del. C. § 4211 when determining if a company is an "insured." A court may not rely on terms in an insurance policy that are inconsistent with the purpose and intent of Section 4211. The Supreme Court found that CCHS became an insured after the named insured merged into the defendant, and CCHS is obligated to reimburse DIGA pursuant to Section 4211.
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Posted on January 24, 2006 by Patricia R. Uhlenbrock
Blechner v. Daimler-Benz AG, C.A. No. 04-331-JJF, 2006 WL 167835 (D.Del. Jan. 24, 2005).
Plaintiffs, on behalf of themselves and other foreign shareholders who invested in securities of DaimlerChrysler AG, filed a class action complaint alleging securities fraud in connection with the merger of Chrysler Corporation and Daimler-Benz AG. Defendants moved to dismiss the complaint.
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Posted on January 24, 2006 by Raj Srivatsan
Douzinas, et al. v. American Bureau of Shipping, Inc., et al., C.A. No. 1496-N (Del. Ch. Jan. 24, 2006) (published at 888 A.2d 1146 (Del. Ch. 2006).
Minority shareholders brought a breach of fiduciary duty action against the managing member of the LLC. Additionally, they plead aiding and abetting conspiracy and unjust enrichment claims against defendants' affiliate entities. Relying on Delaware Supreme Court precedent, the defendants insist all claims require mandatory arbitration under the LLC agreement. The court agreed.
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Posted on January 23, 2006 by Raj Srivatsan
Joyce C. Delucca v. KKAT Management, L.L.C. et al., C.A. No. 1384-N, 2006 WL 224058 (Del. Ch. Jan. 23, 2006).
This case was decided on a motion for judgment on the pleadings. Plaintiff sought to obtain advancement of attorney fees allegedly contractually agreed, to defend a New York action and fees on fees for initiating and prosecuting this action. The plaintiff was sued in the New York action by affiliates-entities of her then employer.
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Posted on January 23, 2006 by Raj Srivatsan
Radiancy, Inc. v. Zion Azar, et al., C.A. No. 1547-N, 2006 WL 224059 (Del. Ch. Jan. 23, 2006).
This is a summary judgment motion for advancement of legal fees made by defendant-officers. Their corporation alleged fraud, fiduciary violations and usurpation of corporate opportunity against defendants as a bar to advancement. Defendants replied with counterclaims under their respective employment contracts. The motion was granted and denied in part.
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Posted on January 20, 2006 by Raj Srivatsan
Unisuper, Ltd. v. New Corporation, C.A. No. 1699-N (Del. Ch. Jan. 20, 2006).
Opinion and order granting interlocutory appeal on two contract issues, after court dismissed corporate allegations of fraud, negligent misrepresentation and fiduciary duty breach.
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Posted on January 18, 2006 by Jason C. Jowers
Caudill v. Sinex Pools, Inc., C.A. No. 04C-10-090 WCC, 2006 WL 258302 (Del. Super. Ct. Jan. 18, 2006).
In his complaint, the plaintiff, Ken Caudill, alleged that Sinex Pools, Inc. breached its contract to build Caudill an in-ground swimming pool. Subsequently, plaintiff amended his complaint to include Romie Bishop and Shirley Bishop, individually, based on the theory that Sinex Pools, Inc. was not a legal entity. The Bishops moved for summary judgment, arguing that Sinex Pools, Inc., while not formally incorporated, amounted to a de facto corporation. A de facto corporation is a company that was not properly incorporated despite a good faith and bona fide effort, but is still treated as a corporation by the courts. Granting the Bishops' motions for summary judgment, the Superior Court found that they had met the three-pronged test to establish a de facto corporation.
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Posted on January 12, 2006 by Jason C. Jowers
Barker Capital LLC v. Rebus LLC, C.A. No. 04C-10-269 MMJ, 2006 WL 246572 (Del. Super. Ct. Jan. 12, 2006).
The plaintiff, Barker Capital LLC ("Barker"), a Delaware LLC, sued Rebus LLC ("Rebus"), also a Delaware LLC, Mark A. Fox ("Fox"), and Twinlab Corporation ("Twinlab"), a Delaware corporation, alleging breach of contract, quantum meruit, tortious interference with contract, and unjust enrichment. Rebus and Barker entered into an Engagement Agreement, pursuant to which Barker would act as Rebus' nonexclusive financial advisor to identify and consummate a transaction to purchase two medical newsletters. Under the terms of the Engagement Agreement, Barker was entitled to an Advisory Fee in the amount of 2.5% of the transaction's value. Both sides moved for summary judgment. The court found that Barker was entitled to 2.5% of a $12 million loan associated with the deal, but was not entitled to a percentage of a $35 million loan connected with the deal. The court also found against the plaintiff on the quantum meruit claim because the plaintiff had been made whole when the court ruled in his favor on the breach of contract claim. Turning to the tortious interference claim, which was only alleged against Fox, the court found that it did not have the subject matter jurisdiction to pierce the corporate veil.
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Posted on January 10, 2006 by Raj Srivatsan
Willie Gary LLC. v. James & Jackson LLC., C.A. No. 1781, 2006 WL 75309 (Del. Ch. Jan. 10, 2006), aff'd, (Del. Mar. 14, 2006)(Berger, J.)
Plaintiff sought to enjoin defendant to remedy an alleged breach of the LLC Agreement and to specifically enforce the defendant's alleged promise to guarantee a debt of the LLC. Alternatively, plaintiff sought to dissolve the entity in which he owned 80% of stock because of an alleged decisional deadlock.
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Posted on January 10, 2006 by Raj Srivatsan
In re Tele-Communications Inc. Shareholders Litig., C.A. No. 16470, 2005 WL 3547674 (Del. Ch. Dec. 21, 2005), opinion revised and superceded by No. CIV. A. 16470, 2005 WL 3642727 (Del. Ch. Dec. 21, 2005), (revised Jan. 10, 2006)(Westlaw citation not available).
This summary judgment action originates from a Consolidated Amended Complaint that alleged nondisclosure of material information
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Posted on January 6, 2006 by Raj Srivatsan
Richard Y. Johnson & Son, Inc. v. Just-In Construction, Inc., et al., C.A. No. 1735-S, 2006 WL 75308 (Del. Ch. Jan. 06, 2006).
This case involved the issue of a TRO to prevent defendant from alienating goods and effects and imposition of a constructive trust pursuant to 6 Del. C. §3501 under a claim of breach of fiduciary duties, to capture receipts to defray vendors and contractors retained to complete DMV related work.
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Posted on January 5, 2006 by Raj Srivatsan
Posted on January 4, 2006 by Raj Srivatsan
Ubiquitel Inc. and Ubiquitel Operating Co. v. Sprint Corp, et al., C.A. No. 1489-N, 1518-N, 2006 WL 44424 (Del. Ch. Jan. 04, 2006).
and
Horizon Personal Communications, Inc. et al. v. Sprint Corp., et al., C.A. No. 1518-N (Del. Ch. Jan. 04, 2006).
These cases pertain to summary judgment and a request for declaratory judgment involving an anticipatory breach of a commercial agreement concerning a merger transaction.
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Posted on December 29, 2005 by Raj Srivatsan
Bank of America, N.A. (USA) v. US Airways, Inc., No. Civ. A. 05-793-JJF, 2005 WL 3525680 (D.Del. Dec. 21, 2005).
This is an action founded on tort and breach of contract.
The Court granted defendants' motion to transfer the action to the Eastern District of Virginia and denied, without ruling, plaintiff's motion for expedited remand to the Delaware Court of Chancery.
Defendants include three Delaware entities: US Airways, Inc., US Airways Group, Inc., and America West Airlines, Inc. The first two defendants maintained their principal place of business in Virginia. America West, Inc., maintained its principal place of business in Arizona. Additionally, Juniper Bank intervened as a defendant.
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Posted on December 23, 2005 by Joseph S. Naylor
Crescent/Mach I Partnership, L.P. v. Turner, C.A. No. 17455-NC, 2005 WL 3618279 (Del. Ch. Dec. 23, 2005).
Former stockholders who were cashed out in connection with merger sued the corporation's former controlling stockholder and the acquirer for breach of fiduciary duty and aiding and abetting breach of fiduciary duty, respectively. Plaintiffs complained of numerous side deals, allegedly negotiated by the controlling stockholder. Plaintiffs also complained that the controlling stockholder breached his fiduciary duty by supplying growth projections that he knew to be unduly pessimistic and inconsistent with management's view. Defendants moved for summary judgment, which the court granted in part and denied in part.
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Posted on December 23, 2005 by Joseph S. Naylor
Bonham v. HBW Holdings, Inc., C.A. No. 820-N, 2005 WL 3589419 (Del. Ch. Dec. 23, 2005).
Former stockholders sued acquirer for release of $25 million held in escrow for purpose of indemnification for breach of warranty claims and other relief. The acquirer moved to dismiss the complaint on the grounds that it properly and timely noticed claims for breach of warranty and other issues, Plaintiffs failed to allege that those claims were made in bad faith, and certain of the claims were subject to mandatory arbitration under the terms of the stock purchase agreement.
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Posted on December 22, 2005 by Liza H. Sherman
Bally Total Fitness Holding Corp. v. Liberation Investments, L.P., Liberation Investments, Ltd., Liberation Investment Group, LLC and Emanuel R. Pearlman, 2005 WL 3525679 (D.Del., December 22, 2005).
The District Court for the District of Delaware granted Defendants' Motion to Dismiss Plaintiff's Preliminary Injunction application. At issue were SEC mandated disclosures in advance of the annual shareholders' meeting.
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Posted on December 21, 2005 by Liza H. Sherman
Bank of America, N.A. (USA) v. US Airways, Inc., 2005 WL 3525680, (D.Del., December 21, 2005).
The District Court for the District of Delaware granted Defendants' US Airways, Inc., US Airways Group, Inc. and America West Airlines, Inc. Motion to Transfer to the Wastern District of Virginia and declined to rule on Plaintiff's competing Motion for Expedited Remand to Vice Chancellor Strine of the Delaware Chancery Court.
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Posted on December 20, 2005 by Katherine J. Neikirk
Henke v. Trilithic Inc., C.A. No. 13155, 2005 WL 2899677 (Del. Ch. Oct. 28, 2005).
Plaintiff, who was a stockholder of Trilithic, Inc., brought an appraisal action against Defendant Trilithic under 8 Del. C. §262.
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Posted on December 20, 2005 by Joseph S. Naylor
Unisuper v. News Corp., C.A. No. 1699-N, 2005 WL 3529317 (Del. Ch. Dec. 20, 2005).
In the context of converting from an Australian corporation to a Delaware corporation, News Corp.'s board adopted a policy that if a shareholder rights plan was adopted following reincorporation, the plan would have a one-year sunset clause unless shareholder approval was obtained for an extension. The policy also provided that if shareholder approval was not obtained, the company would not adopt a successor shareholder rights plan having substantially the same terms and conditions. Several weeks later, News Corp.'s board adopted a poison pill in response to a specific third-party takeover threat. One year later, the board extended the poison pill without a shareholder vote, in contravention of its prior policy.
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Posted on December 15, 2005 by Joseph S. Naylor
Penn Mart Supermarkets, Inc. v. New Castle Shopping LLC, C.A. No. 20405-NC, 2005 WL 3502054 (Del. Ch. Dec. 15, 2005).
Liquor store chain acquired leasehold rights in commercial shopping center under a Bankruptcy Court order that authorized it to operate one of its typical stores. In addition to alcohol products, those chain stores also sold food products and a wide range of products typically sold in supermarkets. Tenant who operated supermarket in same shopping center sued landlord and liquor store to enforce provision in its lease protecting it from competition by other tenants in the operation of a supermarket and in the sale of food or food products intended for off-premises consumption.
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Posted on December 14, 2005 by Joseph S. Naylor
UbiquiTel v. Sprint Corporation, C.A. No. 1489-N, 2005 WL 3533697 (Del. Ch. Dec. 14, 2005, rev'd Dec. 19, 2005).
UbiquiTel was the exclusive operator of Sprint's wireless network in several states pursuant to a management agreement. In December 2004, Sprint announced that it intended to merge with Nextel and that Nextel or its successor entity would be taking over much of the work that had previously been performed by UbiquiTel. In response, UbiquiTel sued Sprint and Nextel alleging a number of claims, including tortious interference and civil conspiracy against Nextel. Nextel moved to dismiss for failure to state a claim.
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Posted on December 14, 2005 by Joseph S. Naylor
Laties v. Wise, C.A. No. 1280-N, 2005 WL 3501709 (Del. Ch. Dec. 14, 2005).
In 2001, Defendant corporate executive received bonuses and other compensation near $9 million as CEO, due in some part to the corporation's reported profits that year. Several years later, after that executive's departure, the corporation restated its 2001 performance from a $93 million profit to a $447 million loss. Plaintiff brought a derivative claim against executive for unjust enrichment, and against the present directors of the corporation for breach of fiduciary duty and waste. Defendants moved to dismiss under Court of Chancery Rule 23.1.
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Posted on December 14, 2005 by Joseph S. Naylor
In re Instinet Group, Inc. Shareholders Litig., C.A. No. 1289-N, 2005 WL 3501708 (Del. Ch. Dec. 14, 2005).
Following the court's approval of settlement of derivative claims, Plaintiffs' counsel applied for an allowance of $1,450,000 in contingency fees and $173,031.07 in costs. Defendants agreed that Plaintiffs' attorneys were entitled to some award of fees and expenses, but objected to counsel's request as excessive under the circumstances on the grounds that (1) the litigation benefits achieved were modest, (2) the case settled at an early stage, and (3) Plaintiffs' counsel litigated the case ineffectively.
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Posted on December 14, 2005 by Joseph S. Naylor
Brady v. i2 Technologies Inc., C.A. No. 1543-N, 2005 WL 3691286 (Del. Ch. Dec. 14, 2005).
A former executive and director sought advancement of his expenses in connection with the defense of certain proceedings based on a standard corporate advancement provision in a 1996 indemnification agreement. Defendant corporation argued that an integration clause in a subsequent 2002 severance agreement, which stated that the 2002 agreement expressed the entire agreement between the parties "with respect to the subject matter hereof," abrogated the advancement obligation imposed by 1996 agreement.
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Posted on December 13, 2005 by Joseph S. Naylor
Kaung v. Cole National Corporation, C.A. No. 163-N, 2005 WL 3462250 (Del. Ch. Dec. 13, 2005).
On remand in an advancement action, Plaintiff filed a motion requesting an award of his attorneys' fees and costs incurred in prosecuting his claim. In the previous proceeding, the Court of Chancery had held that Plaintiff was not entitled to advancement and ordered Defendant to repay fees that had already been advanced to him. On appeal, however, the Delaware Supreme Court held that the Court of Chancery erred in reaching the recoupment issue prematurely, rather than leaving it for a later proceeding in which Plaintiff's ultimate right to indemnification could be decided.
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Posted on December 13, 2005 by Joseph S. Naylor
Kaufman v. Computer Associates International, Inc., C.A. No. 699-N, 2005 WL 3470589 (Del. Ch. Dec. 13, 2005).
A beneficial stockholder filed a books-and-records action pursuant to 8 Del.C. §220 seeking documents relating to the corporation's decision to settle certain derivative and federal class action litigation in a manner that allegedly benefited the individual wrongdoers at the corporation's expense. A special litigation committee acting on behalf of the corporation moved to stay this action until it completed its investigation on this issue, which had become the subject of new derivative litigation in New York brought by different plaintiffs.
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Posted on December 12, 2005 by Raj Srivatsan
Money Centers Of America, Inc. v. Regen, No. Civ. A. No. 04-1516-KAJ, 2005 WL 3309610 (D.Del. Dec. 6, 2005).
This Memorandum Order ruled on three motions related to the Court's Order of October 17, 2005 ("October Order"): (1) reconsideration or, in the alternative, alter or amend judgment; (2) Protective Order related to depositions; and (3) stay, pending appeal. The October Order granted relief to plaintiffs Money Centers of America, Inc., and Available Money Inc., to reopen the Order to allow the settlement agreement between the parties to be entered on the record and permitted defendant Available Money to take additional discovery.
The Court ruled that: (1) defendant Coast ATM and Mrs. Regen would not be liable to the extent of the attorney fees and costs incurred with regard to the October motion to reopen the judgment; (2) that Coast ATM's motion for reconsideration was appropriate; (3) denied the relief requested as moot with respect to the relief sought from earlier Delaware-based depositions; and (4) denied Defendant Mr. Regen's motion to the extent that it would have relieved him from bearing all attorney fees and costs related to the October Order.
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Posted on December 9, 2005 by Raj Srivatsan
In re Molson Coors Brewing Company Securities Litig., 233 F.R.D. 147 (D.Del. Dec. 2, 2005).
This Memorandum Order deals with the appointment of lead counsel in three purported class claims for alleged violations of federal securities laws. The actions were consolidated by the Court. The class claims ensued from the 2005 merger and agreement between Molson, Inc., ("Molson"), the third largest brewer in Canada and Adolph Coors Company ("Coors"), the third largest brewer in the U.S., creating the Molson Coors Brewing Company ("Molson Coors").
The Court held that the Metzler Group would act as lead plaintiff and its counsel would be lead counsel.
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Posted on December 8, 2005 by Joseph S. Naylor
Benihana of Tokyo, Inc. v. Benihana, Inc., C.A. No. 550-N, 2005 WL 3753046 (Del. Ch. Dec. 8, 2005).
Stockholder sought rescission of an agreement to issue $20 million of preferred stock to a third-party holding company. Plaintiff alleged that the transaction violated 8 Del. C. - 151 and corporation's certificate of incorporation by granting the holding company shares with preemptive rights and was therefore void as ultra vires. Plaintiff also alleged that a majority of the corporation's directors breached their fiduciary duties in approving the transaction and that the transaction had an improper primary purpose to dilute Plaintiff's interest in the corporation and entrench certain director defendants. Plaintiff further alleged that the acquirer aided and abetted the director defendants in their actions.
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Posted on December 8, 2005 by Joseph S. Naylor
Matthews v. Groove Networks, Inc., C.A. No. 1213-N, 2005 WL 3529317 (Del. Ch. Dec. 8, 2005).
Subsequent to merger between corporate Defendant and Microsoft, common stockholder objected to payment of liquidation preference in favor of the corporation's preferred stockholders. The certificate of incorporation stated that, in the event of a merger, the preferred stockholders would be paid from the corporation's "Distributable Assets," "whether from capital, surplus or earnings." The certificate clarified that in the event of a sale of a majority of the corporation's assets, the Distributable Assets would be the net proceeds of such sale. But the certificate did not contain a corollary statement clarifying what would constitute Distributable Assets in the event of a merger. The common stockholder sued, arguing that the merger consideration was not intended to be part of the assets of the corporation.
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Posted on December 6, 2005 by Liza H. Sherman
Money Centers of America, Inc. v. Regen, 2005 WL 3309610, (D.Del., December 6, 2005).
Defendants filed a Motion for Reconsideration or, alternatively, to Alter or Amend Judgment, a Motion for a Protective Order regarding Depositions and a Motion for a Stay Pending Appeal. Defendants sought relief from an order entered granting a Motion to Reopen a proceeding, where Defendant Howard Regen failed to pay his portion of a settlement agreement.
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Posted on December 2, 2005 by Liza H. Sherman
In re Molson Coors Brewing Company Securities Litigation, 233 F.R.D. 147 (D.Del., December 02, 2005).
In a consolidated securities fraud actions, plaintiffs filed competing motions for appointment of lead plaintiff and approval of selection of lead counsel.
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Posted on November 23, 2005 by Joseph S. Naylor
Orloff v. Shulman, C.A. No. 852-N, 2005 WL 3272355 (Del. Ch. Nov. 23, 2005).
Dissident shareholder group filed individual and derivative complaint alleging that director defendants violated their fiduciary duties and committed waste by mismanaging and misappropriating corporate assets and by disseminating misleading information to the corporation's minority shareholders. Complaint further alleged that Defendants self-interestedly adopted an advancement bylaw and exculpatory charter provision. Defendants moved to dismiss based on res judicata, laches, lack of standing, forum non conveniens, failure to state a claim, and failure to plead facts excusing demand under Court of Chancery Rule 23.1.
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Posted on November 23, 2005 by Joseph S. Naylor
Seinfeld v. Verizon Communications, Inc., C.A. No. 1100-N, 2005 WL 3272365 (Del. Ch. Nov. 23, 2005).
Shareholder sought to compel inspection of books and record under 8 Del.C. -220 related to three senior executives' compensation, which Plaintiff claimed to be excessive and wasteful. Plaintiff's complaint claimed that those executives received total compensation of $205 million for ostensibly performing the same services as co-chief executives. The complaint also alleged that Verizon's long-term bonus plan was amended shortly after at least two of the three employee contracts were entered into, which caused a further increase in the executives' total compensation. After discovery, the parties cross-moved for summary judgment, and the court granted judgment in the company's favor.
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Posted on November 23, 2005 by Joseph S. Naylor
Rapoport v. The Litigation Trust of MDIP Inc., C.A. No. 1035-N, 2005 WL 3277911 (Del. Ch. Nov. 23, 2005).
Former directors moved to dismiss breach of fiduciary duty action brought against them by bankruptcy liquidation trust in Delaware District Court for lack of subject-matter jurisdiction. That same day, the former directors filed a parallel action in the Court of Chancery seeking a declaration that they did not breach their fiduciary duties in connection with the conduct challenged in the District Court action. Four months later, the directors' motion to dismiss was granted. The following day, the trust re-filed its breach of fiduciary duty action in Ohio state court. The directors moved to enjoin the trust from prosecuting the Ohio action. The trust cross-moved to stay or dismiss the Chancery action. The court denied both parties' motions.
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Posted on November 23, 2005 by Joseph S. Naylor
Dweck v. Nassar, C.A. No. 1353-N, 2005 WL 3272363 (Del. Ch. Nov. 23, 2005).
Plaintiff alleged that she and Defendant orally agreed as co-founders that corporation would have a four-member board of directors and that each party would appoint two directors. Plaintiff alleged that this agreement was later reduced to written drafts but never finalized or signed. Plaintiff further alleged that Defendant, who owned 52.5% of the corporation's outstanding stock, breached this agreement and his fiduciary duties when he terminated Plaintiff as CEO and President, installed his unqualified nephew in her stead, and added a fifth member to the board. Plaintiff also sought appointment of custodian under 8 Del.C. -226, suggesting that the company's board, when properly constituted with two directors per side, would be deadlocked. Defendant moved for partial judgment on the pleadings.
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Posted on November 22, 2005 by Joseph S. Naylor
Calpine Corporation v. The Bank of New York, C.A. No. 1669-N, 2005 WL 3454729 (Del. Ch. Nov. 22, 2005).
Plaintiff energy company attempted to use proceeds from sale of certain assets to fund a series of purchases of natural gas for burning in its power plants. Plaintiff's note holders objected to those purchases because the relevant indenture agreements only allowed sale proceeds to be used for certain purposes. In response to the note holders' objection, the indenture trustees refused to authorize release of any additional monies to Plaintiff for those purchases. Plaintiff subsequently sued the indenture trustees seeking declaration that corporation's past and proposed use of proceeds was permissible.
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Posted on November 22, 2005 by Jason C. Jowers
Rohn Industries, Inc. v. Platinum Equity LLC, 887 A.2d 983 (Del. Super. Ct. 2005), aff'd in part, rev'd in part, No. 591, 2005, 2006 WL 2988698 (Del. Oct 20, 2006).
The plaintiff, the seller, sued the buyer for breach of an asset purchase agreement that was governed by New York law. The agreement contained a provision that allowed the purchaser to terminate the deal if the purchaser "determines in good faith that there is a reasonable basis in law and in fact to conclude" that the buyer "could reasonably be anticipated to have any . . . material liability for any asbestos-related claim." Following a non-jury trial, the Superior Court found for the defendant, holding that the defendant acted in good faith.
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Posted on November 21, 2005 by Katherine J. Neikirk
Gentile v. Rossette, C.A. No. 20213-NC, 2005 WL 2810683 (Del. Ch. Oct. 20, 2005).
Plaintiffs, former shareholders of SinglePoint Financial, Inc. which merged into a subsidiary of Cofiniti, Inc., alleged that two former directors of SinglePoint breached their fiduciary duties in connection with the issuance of a large number of shares to one of the defendants and the merger. Defendants moved for summary judgment.
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Posted on November 4, 2005 by Joseph S. Naylor
In re LNR Propert Corp. Shareholders Litigation, C.A. No. 674-N, 2005 WL 3418631 (Del. Ch. Nov. 4, 2005, rev'd Dec. 14, 2005).
Former shareholders filed fiduciary class action in connection with a cash-out merger, naming corporation and former directors as defendants. The complaint alleged that the corporation's controlling shareholder negotiated to sell the company to a third-party investment firm in all-cash deal. The complaint further alleged that, as part of the transaction, the controlling shareholder and other members of company management agreed to invest approximately $184 million to acquire a 25% equity stake in the surviving entity. Defendants moved to dismiss for failure to state a claim.
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Posted on November 3, 2005 by Joseph S. Naylor
Mehiel v. Solo Cup Co., C.A. No. 1596-N, 2005 WL 3074723 (Del. Ch. Nov. 3, 2005).
Following the closing on a merger, several disputes developed between the shareholder representative of an acquired company and the acquirer involving working-capital-adjustment issues and the accuracy of seller's representations and warranties. The merger agreement contained two separate arbitration provisions for working capital adjustment disputes and disputes regarding the parties' respective representations and warranties. The acquirer first attempted to submit its disputes with the shareholder representative to arbitration as working-capital claims. The arbitrator refused to consider those claims, however, based on the acquirer's failure to comply with certain procedural requirements. In response, the acquirer submitted the same claims to the separate arbitrator for representation-and-warranty claims. The shareholder representative subsequently filed a complaint asking the court to issue an injunction barring the second arbitrator from hearing the disputed claims.
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Posted on October 27, 2005 by Katherine J. Neikirk
Posted on October 27, 2005 by Jason C. Jowers
Sheer Beauty, Inc. v. Mediderm Pharmaceuticals & Laboratories, C.A. No. 05C-02-174 MMJ, 2005 WL 3073670 (Del. Super. Ct. Oct. 27, 2005).
The plaintiff brought a claim against the defendant for breach of contract, fraudulent misrepresentation, negligent misrepresentation, consumer fraud, and breach of express and implied warranties. The defendant, whose principle place of business was in California, moved to dismiss for lack of personal jurisdiction, and the court granted the defendant's motion
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Posted on October 26, 2005 by Katherine J. Neikirk
Ishimaru v. Fung, C.A. No. 929, 2005 WL 2899680 (Del. Ch. Oct. 26, 2005).
Plaintiff, a member of Paradigm Financial Products International LLC, sought to assert a cause of action on behalf of Paradigm against Defendant Ivy Asset Management Corp. for breach of contract. Ivy Asset moved to dismiss for lack of subject matter jurisdiction.
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Posted on October 25, 2005 by Katherine J. Neikirk
Travelers Ins. Co. v. Nationwide Mut. Co., C.A. No. 20418, 2005 WL 2896713 (Del. Ch. Oct. 25, 2005).
Plaintiff, insurer of motorist, sued Defendant, insurer of tortfeasor, to enforce arbitration award. Defendant moved for summary judgment.
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Posted on October 25, 2005 by Raj Srivatsan
Morrison v. Madison Dearborn Capital Partners III, L.P.., 389 F.Supp.2d 596 (D.Del. 2005). .
This is a shareholder derivative action to recover short-swing profits derived from insider trading activity of XM Radio stock by a group of defendants ("MDP") and XM Radio ("XM"). Defendants filed Motions to Dismiss under Fed. R. Civ. P. 12(b)(6). Jurisdiction for the action was laid under 28 U.S.C. §1331 and 15 U.S.C. §78aa. Neither personal jurisdiction, nor venue was contested. The Court granted the Motions to Dismiss.
At issue was MDP's acquisition of 50,000 Redeemable Convertible Preferred Stock ("Preferred Stock") of XM at $1,000 per share, in 2000. The share exchange price was initially set at $26.50 per share of common stock. A trigger in the duly filed Certificate of Designations permitted adjustment of the conversion price to preserve the value of the conversion privilege on the occurrence of specified events. The specified events included stock-splits, issue of dividends or issue of common stock because they would dilute the conversion of preferred stock to common stock. Due to events prior to 2003, the preferred stock price was adjusted to $19.68 from $26.50, corresponding to an exchange of 50,000 preferred stock for 5.6 million shares of common stock. Within 6 months of the June 2003 conversion, MDP sold 2.7 million shares of XM stock unrelated to its preferred stock acquisition.
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Posted on October 22, 2005 by Raj Srivatsan
Ace Capital v. Varadam Foundation, 392 F.Supp.2d. 671 (D.Del. 2005).
This action arose under the admiralty and maritime jurisdiction of the Federal Court. Marine insurers Ace Capital filed in the United States District Court for the District of Delaware for declaratory judgment against the insured, Varadam Foundation, a Delaware corporation, and Jaime Jalife, the owner of the vessel, a citizen of Mexico. The suit was filed to seek a determination that the marine policy between the parties excluded coverage for damages sustained by the insured's vessel. Defendant Varadam moved to transfer the venue to Florida pursuant to 28 U.S.C. § 1404(a). The Court denied the motion applying the Jumara v. State Farm Ins. Co., 55 F.3d 873, 879 (3d Cir. 1995) balancing test.
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Posted on October 20, 2005 by Raj Srivatsan
Money Centers of America, Inc. v. Regen, No. Civ. A. 04-1516-KAJ, 2005 WL 2663709 (D.Del. Oct. 17, 2005).
Plaintiff filed a Motion To Vacate Dismissal and to enforce a Settlement Agreement that the parties had entered into earlier. Regen and Coast ATM (collectively "Defendants") contested subject matter jurisdiction. The Court vacated dismissal to the extent requested by the plaintiff. Plaintiff requested the court to: (1) reopen the case; (2) enter the settlement agreement ("Agreement") between the parties on the record; (3) permit plaintiff to depose Defendant Regen, his wife, Helene Regen, and a representative of Coast ATM ("Coast"), a joint defendant and; (4) permit Plaintiff Money Centers to recover its costs and attorney fees in connection with the case and this motion.
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Posted on October 19, 2005 by Katherine J. Neikirk
Chrin v. Ibrix Inc., C.A. No. 20587, 2005 WL 2810599 (Del. Ch. Oct. 19, 2005).
Plaintiff, a co-founder, stockholder and former employee of Defendant Ibrix, Inc., brought a complaint against Ibrix and Steven Orszag, a co-founder and chairman of the Ibrix board of directors, asserting claims relating to his termination and a stock repurchase agreement. Defendants moved to dismiss the complaint.
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Posted on October 17, 2005 by Liza H. Sherman
Money Centers of America, Inc. v. Regen, 2005 WL 2663709, (D.Del., October 17, 2005).
Plaintiffs brought a Motion to Vacate Dismissal and Enforce Settlement Agreement. Defendants contended the court lacked subject matter jurisdiction to rule on the Motion. The Court vacated dismissal for the limited purposes of entering the settlement agreement on the record and allowing Plaintiffs to take Defendants' depositions with regard to assets available to satisfy the settlement agreement.
Posted on October 14, 2005 by Katherine J. Neikirk
Blackmore Partners, L.P. v. Link Energy LLC, C.A. No. 454-N, 2005 WL 2709639 (Del. Ch. Oct. 14, 2005).
Plaintiff Blackmore Partners L.P. instituted cause of action against Defendant Link Energy LLC and its directors, alleging breaches of fiduciary duty in connection with the sale of Link's assets for a price likely to leave zero value to Link's equity investors. Defendants moved for summary judgment.
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Posted on October 13, 2005 by Liza H. Sherman
Brashears v. 1717 Capital Management, 2005 WL 2585247 (D.Del., October 13, 2005).
Plaintiff filed a motion for leave to file a second amended complaint. The Complaint alleged that Defendants 1717 Capital Management and Nationwide Mutual Insurance Co. d/b/a Nationwide Provident violated § 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j(b), and Securities and Exchange Commission Rule 10(b)-5 through their insurance sales practices. The Court denied Plaintiff's motion.
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Posted on October 6, 2005 by Liza H. Sherman
Ace Capital v. Varadam Foundation, 392 F.Supp.2d 671 (D.Del. 2005).
The United Stated District Court for the District of Delaware denied Defendants' Motion to transfer venue, finding that a clause in a marine insurance policy which governed service of suit did not mandate choice of venue.
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Posted on October 6, 2005 by Katherine J. Neikirk
Zimmerman v. Braddock, C.A. No. 18473-NC, 2005 WL 2266566 (Del. Ch. Sept. 8, 2005).
Plaintiff, a shareholder of priceline.com, Inc., moved for leave to amend his derivative complaint against directors of Priceline based upon three defendants' alleged insider trading and misappropriation of confidential information. Defendants argued amendment would be futile.
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Posted on October 5, 2005 by Katherine J. Neikirk
Ruggerio v. Poppiti, C.A. No. 18961, 2005 WL 2622716 (Del. Ch. Oct. 5, 2005).
Plaintiff, who was limited partner of partnership and sole stockholder of corporation controlled by Defendants, alleged that Defendants failed to report or account to him regarding his ownership interest in the entities, breached their fiduciary duties and commingled assets. Defendants counterclaimed for money loaned by limited partnership to corporation.
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Posted on October 5, 2005 by Liza H. Sherman
Morrison v. Madison Dearborn Capital Partners III, LP, 389 F. Supp. 2d 596 (D.Del. 2005).
A shareholder brough a derivative action to recover profits from short-swing insider trading of stock. The defendants moved to dismiss under Federal Rule 12(b)(6).
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Posted on September 30, 2005 by Raj Srivatsan
Ethypharm S.A. France v. Bentley Pharmaceuticals, Inc., 388 F.Supp.2d 426 (D.Del. 2005).
This action was brought by Ethypharm, a French pharmaceutical company and its Spanish subsidiary alleging fraud, violation of the Delaware Uniform Trade Secret Act ("DUTSA"), unjust enrichment and intentional interference with ongoing and prospective business relationships. Defendant Bentley Pharmaceuticals, Inc., a Delaware corporation, filed a Motion To Dismiss For Failure To Join An Indispensable Party, namely Belmac, a Spanish company, under Fed. R. Civ. P. 19(a) and (b) and a motion to dismiss the various common law claims.
The Court treated the motions as that of summary judgment and held that: (1) the defendant's subsidiary Spanish company, Belmac, was an indispensable party; (2) DUTSA preempted the unjust enrichment and fraud claims; and (3) the business tort claims could exist independent of the misappropriation claim because they were not preempted by DUTSA.
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Posted on September 29, 2005 by Jason C. Jowers
Shook & Fletcher Asbestos Settlement Trust v. Safety National Casualty Corp., 04C-02-087 MMJ, 2005 WL 2436193 (Del. Super. Ct. Sept. 29, 2005).
Plaintiff Shook & Fletcher Asbestos Settlement Trust, as Successor to Certain Assets and Liabilities of Shook & Fletcher Insulation Company ("Shook & Fletcher"), brought an action to establish coverage for asbestos bodily injury claims under three excess liability policies issued by Safety National Casualty Company, successor to Safety Mutual Casualty Corporation ("Safety"), for policy years 1983 through 1985. The parties moved for summary judgment on various issues, including the choice of law and what act "triggered" the insurance coverage. The court found that Alabama law governed the insurance policies. The Court also determined that a conflict between Delaware and Alabama law exists because Delaware has adopted the "continuous trigger" standard. Because the choice of law analysis favored Alabama, that state's "exposure trigger" standard governed.
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Posted on September 26, 2005 by Katherine J. Neikirk
Posted on September 26, 2005 by Liza H. Sherman
Ethypharm S.A. France v. Bentley Pharmaceuticals, Inc., 388 F. Supp. 2d 426 (D.Del. 2005).
United States District Court for the District of Delaware considered motions to dismiss for failure to join an indispensable party and a motion to dismiss various common law counts are precluded by the Delaware Uniform Trade Secret Act ("DUTSA").
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Posted on September 25, 2005 by Raj Srivatsan
Worldspan, L.P. v. Ultimate Living Group, LLC., 390 F.Supp.2d 412 (D.Del. 2005).
This action was brought under the Admiralty jurisdiction of the Federal Court. It claimed breach of a single-day maritime contract for charter of a motor yacht, unjust enrichment, conversion and violation of Delaware's Deceptive Trade Practices Act ("DTPA").
The Court denied defendant's motion to dismiss with respect to all but the DTPA claim which did not survive for lack of consumer standing against the seller of the chartered motor yacht services.
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Posted on September 20, 2005 by Katherine J. Neikirk
Flight Options Int'l, Inc. v. Flight Options, LLC, C.A. No. 1459-N, 2005 WL 2335353 (Del. Ch. Sept. 20, 2005).
Plaintiff sought preliminary injunction against consummation of Purchase Agreement pending arbitration of its substantive disputes with Defendant.
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Posted on September 20, 2005 by Katherine J. Neikirk
Posted on September 16, 2005 by Liza H. Sherman
Worldspan, L.P. v. The Ultimate Living Group, LLC, 390 F.Supp.2d 412 (D.Del., 2005).
United States District Court for the District of Delaware considered a motion to dismiss a claim alleging breach of a maritime contract for a one-day charter of a motor yacht, unjust enrichment, conversion and a violation of Delaware's Deceptive Trade Practices Act ("DPTA").
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Posted on September 15, 2005 by Raj Srivatsan
Federal Ins. Co. v. Lighthouse Constr., Inc., 230 F.R.D. 387 (D.Del. 2005).
A subrogation action was brought by a property insurer to recover for loss incurred by a roof collapse against a building contractor. The contractor sought leave of the Court to file a third-party complaint against the erection contractor. The insurer also sought leave to file a claim against the erection contractor.
The Court held that the contractor could file a third-party claim for indemnity against the erection contractor. However, the Court also ruled that the plaintiff-insurer was barred by a two-year statute of limitations from filing a third-party claim against the erection contractor.
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Posted on September 14, 2005 by Katherine J. Neikirk
FGC Holdings Ltd. v. Teltronics, Inc., C.A. No. 883-N, 2005 WL 2334357 (Del. Ch. Sept. 14, 2005).
Plaintiff FGC Holdings Limited, owner of Series B Preferred Convertible Stock in Defendant Teltronics, Inc. sought declaratory judgment that its Series B Director designee had an immediate right to sit on Teltronics' board of directors.
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Posted on September 13, 2005 by Liza H. Sherman
VFB LLC v. Campbell Soup Co., 2005 WL 2234606 (D.Del., September 13, 2005).
Plaintiff brought an action alleging that Defendant engineered a fraudulent transfer of over $600 million from Plaintiff's predecessor in interest, Vlasic Foods International, Inc., ("VFI"), to Defendant, that Defendant controlled VFI's directors and caused them to breach their fiduciary duties, that VFI paid illegal dividends to Defendant, that Defendant was VFI's alter ego, and that Defendant's Proof of Claim against VFI's bankruptcy estate was either voidable or should be equitably subordinated.
The Court dismissed the action in its entirety and found in favor of Defendant and against Plaintiff on all counts.
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Posted on September 9, 2005 by Katherine J. Neikirk
Rockwell Automation, Inc. v. Kall, C.A. No. 526-N, 2005 WL 2266592 (Del. Ch. September 9, 2005).
Plaintiff Rockwell Automation, Inc. filed complaint against Defendant, a former employee of Plaintiff, to obtain documents containing its confidential and proprietary information.
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Posted on September 9, 2005 by Katherine J. Neikirk
Frenz v. Gencor Indus., Inc., C.A. No. 1204-N, 2005 WL 2266594 (Del. Ch. Sept. 9, 2005).
Plaintiffs sought a temporary injunction barring the 2005 annual shareholder's meeting of Gencor Industries, Inc., or, in the alternative, to amend proxy materials to include a nominee for independent director.
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Posted on September 8, 2005 by Liza H. Sherman
Chase Manhattan Mortgage Corp. v. Advanta Corp., 2005 WL 2234608(D.Del., Sept. 8, 2005).
Plaintiffs filed an action alleging that Defendant Advanta engaged in (1) federal securities fraud in violation of § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j; (2) Delaware securities fraud in violation of 6 Del. C. § 7323(a)(2); (3) common law fraud; (4) negligent misrepresentation; and (5) breach of contract.
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Posted on August 30, 2005 by Raj Srivatsan
Polak v. Kobayashi, No. Civ. A. 05-330 JJF, 2005 WL 2008306 (D.Del. Aug. 22, 2005).
Plaintiff filed a motion to remand a matter involving several Delaware state law claims, alleging lack of subject matter jurisdiction and because complete diversity of citizenship did not exist. Alternatively, plaintiff claimed that the Court should decline to exercise jurisdiction on the Burford abstention doctrine. Defendant filed a motion to remove the case pursuant to 28 U.S.C. §§ 1441 and 1446 to the District Court for the District of Hawaii. The court denied the motion to remand.
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Posted on August 25, 2005 by Raj Srivatsan
China Three Gorges Project Corp. v. Rotec Industries, Inc., No. Civ. A. 04-1510 JJF, 2005 WL 1813025 (D.Del. Aug. 2, 2005).
This action involves a Petition to Confirm a Foreign Arbitral Award filed by Petitioner China Three Gorges Project Corporation ("China Gorges") and respondent's Motion to Dismiss or in The Alternative, To Modify The Foreign Arbitral Award. The Court granted the petition to confirm the award and denied the respondent's motions.
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Posted on August 23, 2005 by R. Christian Walker
Lillis v. AT&T Corp., C.A. No. 717-N, 2005 WL 2149748 (Del. Ch. Aug. 23, 2005).
Plaintiffs, former owners of options to purchase shares in AT&T Wireless Services, Inc. ("Wireless"), brought suit against Wireless and AT&T Corp., seeking compensation for the value of their options, which were canceled when Wireless merged with Cingular Wireless Corp. Plaintiffs were officers and directors of MediaOne Group, Inc., a broadband telecommunications company, which AT&T purchased. At MediaOne, plaintiffs were to receive stock options as part of their compensation under the 1994 Stock Plan. After AT&T acquired MediaOne, AT&T exchanged the MediaOne options for new options in AT&T and, subsequently, for options in Wireless.
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Posted on August 22, 2005 by R. Christian Walker
Haywood v. Ambase Corp., C.A. No. 342-N, 2005 WL 2130614 (Del. Ch. Aug. 22, 2005).
Plaintiffs Haywood and Cronin were beneficial owners of defendant AmBase Corporation's ("AmBase") common stock. Ambase was a publicly held Delaware corporation, and its primary purpose at the time was to pursue pending litigation against the United States government based on the impact of the Financial Institutions Reform, Recovery and Enforcement Act. Richard Bianco was the chairman and chief executive officer of AmBase.
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Posted on August 19, 2005 by R. Christian Walker
Andaloro v. PFPC Worldwide, Inc., C.A. No. 20289, 2005 WL 2045640 (Del. Ch. Aug. 19, 2005).
Andaloro v. PFPC Worldwide, Inc., C.A. No. 20336, 2005 WL 2045640 (Del. Ch. Aug. 19, 2005).
This was a consolidated appraisal and equitable fiduciary duty action (the court did not address the fiduciary claim in this opinion). It arose out of a merger in which PFPC Worldwide, Inc. ("PFPC"), was acquired by its parent PFPC Holding Corp. ("Holding"), which held over 98% of PFPC's stock before the merger. (The merger was also approved by PFPC's ultimate parent and Holding's immediate parent, PNC Financial Services Group, Inc. ("PNC").) The merger resulted in the elimination of the minority shareholders' position in PFPC for $34.26 per share.
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Posted on August 18, 2005 by R. Christian Walker
In re: Silver Leaf, LLC, C.A. No. 20611, 2005 WL 2045691 (Del. Ch. Aug. 18, 2005).
Plaintiff and the defendants formed Silver Leaf, LLC ("Silver Leaf") to market a new vending machine that was to produce French fries. In connection with the formation of the entity, the parties signed a stock purchase agreement and a sales and marketing agreement with Tasty Fries, which owned the manufacturing rights to the vending machines. After the relationship between the parties deteriorated, Tasty Fries terminated the sales and marketing agreement over a dispute related to the stock purchase agreement.
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Posted on August 18, 2005 by Jason C. Jowers
AT&T Wireless Services, Inc. v. Federal Ins. Co., 2005 WL 2155695 (Del. Super. Ct. Aug. 18, 2005).
The Plaintiff filed a notice of partial dismissal in an attempt to dismiss certain defendants. The defendants who were purportedly dismissed moved to quash the notice of dismissal. The court found that one defendant insurer could be dismissed because the entire action was being voluntarily dismissed. However, the court granted the motion to quash as to the other defendant because the dismissal only eliminated certain claims as opposed to the entire action. Plaintiff also sought leave of the court to dismiss a second group of defendants pursuant to Rule 41(a)(2). The court denied this motion.
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Posted on August 12, 2005 by R. Christian Walker
Homan v. Turoczy, C.A. No. 19220, 2005 WL 2000756 (Del. Ch. Aug. 12, 2005).
Plaintiffs bought a small printing and copying business from defendants, who ran the business successfully for 19 years. However, plaintiffs were not so successful. A year after the sale they filed for bankruptcy, closed down the business, and liquidated the company's assets. In their complaint, plaintiffs alleged that the defendants and their agent fraudulently misrepresented the condition of the business and thus sought rescission of the sales agreement. The court held that by waiting over a year before suing, the plaintiffs forfeited any right to seek actual rescission. As a result, the court's opinion after trial only considered whether plaintiffs were entitled to an award of damages for fraud.
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Posted on August 11, 2005 by R. Christian Walker
Griffin Corp. Services v. Jacobs, C.A. No. 396-N, 2005 WL 2000775 (Del. Ch. Aug. 11, 2005).
Counterclaim plaintiffs Jacobs, Dobrzynski, Stewart, and Stewart Management Company ("SMC") asserted that Griffin Corporate Services ("Griffin") and other counterclaim defendants interfered with their existing contract and prospective business relationships and engaged in common law and statutory unfair trade practices. They also asserted that Griffin breached its confidentiality agreement with SMC and made misrepresentations to SMC. The counterclaim defendants moved to dismiss.
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Posted on August 10, 2005 by Raj Srivatsan
Golub v. Hilb, Rogal & Hobbs Co., 379 F.Supp.2d 639 (D.Del. 2005).
Ninety-Nine shareholders represented by members of Hobb Group, L.L.C., and Hobbs IRA Corporation ("Sellers") entered into an agreement with defendant to sell its outstanding membership interest units for $270,000,000. Sellers alleged that the defendant company had not disclosed information that it knew before the closing. The defendant company moved to dismiss the Complaint. The Court granted the motion because the Complaint did not fall into the Delaware carve-out and therefore required dismissal.
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Posted on August 1, 2005 by Jason C. Jowers
Street Search Partners, L.P. v. Ricon Int'l, L.L.C., C.A. No. 04C-09-156 PLA, 2005 WL 1953094 (Del. Super. Ct. Aug. 1, 2005).
The plaintiff brought a breach of contract action against two defendants on the theory that the plaintiff was a third party beneficiary to the contract between the defendants. One of the defendants moved to dismiss the suit for failure to state a claim. The court determined that one defendant subjectively intended for the plaintiff to benefit from the contract. However, the court determined that the other contracting party did not intend to benefit the plaintiff. Furthermore, there was no evidence from the contract that the parties intended for the plaintiff to be a beneficiary. Consequently, the court dismissed the plaintiff's claims that were based on it being a third party beneficiary to the contract.
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Posted on July 26, 2005 by Jason C. Jowers
Royal Indem. Co. v. General Motors Corp., C.A. No. 05C-01-223 RRC, 2005 WL 1952933 (Del. Super. Ct. July 26, 2005).
Royal Indemnity Company ("Royal") sought a declaratory judgment to determine whether it had an obligation to General Motors ("GM") in relation to insurance purchased by GM over the course of several decades from Royal. GM filed a motion to dismiss on forum non conveniens grounds, and the Court denied the motion to dismiss.
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Posted on July 25, 2005 by R. Christian Walker
Weil v. Morgan Stanley DW Inc., 877 A.2d 1024 (Del. Ch. 2005).
Plaintiff consumer brought an action on behalf of himself and others similarly situated alleging that defendant Morgan Stanley breached its fiduciary duties and that HarrisDirect, the buyer of its online brokerage business, aided and abetted in the breach. The two defendants moved to dismiss under Rule 12(b)(6) for failure to state a claim.
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Posted on July 19, 2005 by R. Christian Walker
Romero v. Career Educ. Corp., C.A. No. 793-N, 2005 WL 1798042 (Del. Ch. July 19, 2005).
Plaintiff shareholder brought an action against Career Education Corporation ("CEC"), a Delaware corporation, seeking to compel inspection of certain books and records. CEC moved to dismiss the complaint or to stay.
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Posted on July 13, 2005 by R. Christian Walker
Deephaven Risk ARB Trading Ltd. v. UnitedGlobalCom, Inc., C.A. No. 379-N, 2005 WL 1713067 (Del. Ch. July 13, 2005).
Plaintiff Deephaven Risk ARB Trading Ltd. ("Deephaven"), an investment fund, sought to compel inspection of defendant UnitedGlobalCom's ("UGC") books and records to investigate possible wrongdoing in connection with a rights offering. In response, UGC moved to dismiss the complaint, challenging Deephaven's status as a beneficial owner and the purpose for its demand. The court denied UGC's motion.
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Posted on July 12, 2005 by Raj Srivatsan
Shockley v. Adams Golf, Inc., No. Civ.A. 99-371-KAJ, 2005 WL 3654346 (D.Del. June 27, 2005).
This is a securities class action. The background to this case is provided in In re Adams Golf, Inc. Securities Litigation, 176 F.Supp.2d 216, 219-22 (D.Del. 2001), aff'd in part, rev 'd in part, 381 F.3d 267, 270-72 (3d Cir. 2004). In the present opinion, the Court resolved two remaining issues related to class certification. Pursuant to oral arguments on plaintiff's motion for class certification on May 17, 2005, the Court granted the motion but reserved its decision as to both: the appropriate time period applicable for defining the class of securities holders bringing an action under Section 11 of the Securities Act of 1933, 15 U.S.C. § 77l(a)(2); and the "nature of a subclass with respect to any liability under section 12(a)(2)" of the Securities Act of 1933, "including the appropriate time period for defining the subclass."
The Court held that July 10, 1998, the date when the Registration Statement became effective was the start date of the class. Similarly, October 22, 1998, signifying the last date when the class had typical claims was the end-date for the class.
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Posted on July 11, 2005 by R. Christian Walker
Flight Options Int'l, Inc. v. Flight Options, LLC, C.A. No. 1459-N, 2005 WL 2335353 (Del. Ch. July 11, 2005).
Plaintiff Flight Options International, Inc. ("FOI") sought a preliminary injunction against defendant Flight Options LLC ("the Company"), a Delaware limited liability company.
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Posted on July 7, 2005 by R. Christian Walker
Examen, Inc. v. VantagePoint Venture Partners 1996, C.A. No. 1142-N, 2005 WL 1653959 (Del. Ch. July 7, 2005).
Johnson v. VantagePoint Venture Partners 1996, C.A. No. 1260-N, 2005 WL 1653959 (Del. Ch. July 7, 2005).
This case arose out of an earlier dispute in which VantagePoint Venture Partners ("VantagePoint"), an investor holding the majority of a series of preferred stock in Examen, Inc. ("Examen"), a Delaware corporation, sought to veto a merger between Examen and a Delaware subsidiary of Reed Elsevier Inc. VantagePoint argued for a determination that under California law the holders of the series of preferred stock issued by Examen had a right to a class vote in the merger. But the Court of Chancery held that California law did not apply and that all of the stockholders were permitted to vote on the proposed merger.
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Posted on July 7, 2005 by R. Christian Walker
Forsythe v. CIBC Employee Private Equity Fund, C.A. No. 657-N, 2005 WL 1653963 (Del. Ch. July 7, 2005).
Plaintiffs Forsythe and Tesche, who were unitholders in a Delaware limited partnership, brought an action to inspect the books and records. At the close of trial, two issues remained for post-trial briefing: (1) whether the plaintiffs stated a proper purpose; and (2) whether plaintiffs had a right to demand inspection of documents held or under the control of an entity other than the general partner.
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Posted on July 6, 2005 by R. Christian Walker
Nutzz.com v. Vertrue Inc., C.A. No. 1231-N, 2005 WL 1653974 (Del. Ch. July 6, 2005).
Plaintiff Nutzz.com ("Nutzz") sought a preliminary injunction against defendant Vertrue Inc. ("Vertrue"), a company with which Nutzz contracted to develop an online membership program for NASCAR fans. After Vertrue terminated the agreement (claiming that Nutzz missed deadlines and promotion requirements), it sent an email to 1,200 Nutzz members advertising Vertrue's own membership program as an upgrade. Nutzz claimed that Vertrue's actions constituted a breach of their confidentiality agreement and a misappropriation of trade secrets.
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Posted on July 1, 2005 by R. Christian Walker
Mason v. Network of Wilmington, Inc., C.A. No. 19434-NC, 2005 WL 1653954 (Del. Ch. July 1, 2005).
Plaintiff won an employment discrimination suit against Network Personnel, Inc. ("Personnel"), a Delaware corporation solely owned by defendant Barry Schlecker ("Schlecker"). But plaintiff was unable to collect on the judgment, so she sought to recover from Schlecker personally by piercing the corporate veil and recovering from his new company, Network of Wilmington ("Network"), under a theory of successor liability. The parties filed cross-motions for summary judgment.
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Posted on June 30, 2005 by Liza H. Sherman
IN RE FREEPORT-MCMORAN SULPHUR, INC. SHAREHOLDER LITIGATION., C.A. No. 16729, 2005 WL 1653923 (Del.Ch. June 30, 2005)
In a shareholder class action, the plaintiffs sought relief alleging an unfair exchange ratio in a stock-for-stock merger of two public companies. The defendants moved for summary judgment. The Court of Chancery denied Defendant's Motion.
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Posted on June 26, 2005 by Raj Srivatsan
Segen v. Comvest Venture Partners, LP., C.A. No. 04-822 JJF, 2005 WL 1320875 (D.Del. June 2, 2005).
This opinion decided two motions to dismiss the Complaint. The motions were filed by two sub-groups of defendants, referred to as the "ComVest Defendants" and the "Priddy Defendants" for convenience. The Court denied both motions because they relied upon the same grounds and arguments.
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Posted on June 24, 2005 by Liza H. Sherman
In re Toys "R" Us Shareholder Litigation, C.A. No. 1212-N, 877 A.2d 975 (Del. Ch. June 24, 2005)
The Court of Chancery considered a motion to enjoin a vote of the stockholders of Toys "R" Us, Inc. to consider approving a merger with an acquisition vehicle formed by a group led by Kohlberg Kravis Roberts & Co. Pursuant to the terms of the merger agreement, the Toys "R" Us stockholders would receive $26.75 per share for their shares. The $26.75 per share merger consideration constituted a 123% premium over the price of TRU stock when merger negotiations began in January 2004. Plaintiffs charged the board did not act reasonably in pursuit of the highest attainable value. The Court of Chancery denied the motion to enjoin a stockholder vote on the proposed merger, saying stockholders could stop the merger by voting if they thought it was unfair
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Posted on June 23, 2005 by Jason C. Jowers
Bowen v. E. I. du Pont de Nemours and Co., Inc., C.A. No. 97C-06-194 CH, 2005 WL 1952859 (Del. Super. Ct. June 23, 2005), aff'd, 906 A.2d 787 (Del. 2006).
In this case, the plaintiffs, eight minor children and their parents, alleged that the children suffered from birth defects because of an agricultural product called Benlate. Alleging that certain of the experts for one of the plaintiffs were unqualified and that their opinions were unreliable, the defendant brought a Daubert motion pursuant to Delaware Rule of Evidence 702 to exclude their testimony regarding one of the minor children. The Court found for the defendants, and excluded the experts' testimony
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Posted on June 22, 2005 by Jason C. Jowers
Immedient Corp. v. HealthTrio, Inc., C.A. No. 01C-08-216 RRC, 2005 WL 1953027 (Del. Super. Ct. June 22, 2005).
The plaintiff brought an action for breach of contract, and the defendant counterclaimed for fraudulent misrepresentation. Following a non-jury trial, the Court found that the defendant breached the contract, and had waived its right to claim fraudulent misrepresentation on part of the plaintiff.
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Posted on June 21, 2005 by Liza H. Sherman
Paul A. Flynn v. CIBC World Markets Corp., C.A. No. 976-N, 2005 WL 1538337 (Del. Ch. June 21, 2005)
In an action for summary adjudication pursuant to 8 Del. C. Sec. 145(k), Plaintiff's claim of right to advancement and reimbursement of legal fees was dismissed because the Plaintiff was not an employee of the defendant.
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Posted on June 20, 2005 by Raj Srivatsan
iGames Entertainment, Inc. v. Chex Services, Inc., C.A. No. 04-180-KAJ, 2005 WL 3657156 (D.Del. June 9, 2005).
This matter springs from a commercial dispute. The present opinion pertains to plaintiff's Daubert Motion seeking to exclude a part of the proposed expert testimony of defendants' expert. The expert intended to testify on accounting matters. The Court granted plaintiff's motion holding that the challenged parts of the proposed testimony failed the test of relevancy.
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Posted on June 20, 2005 by Liza H. Sherman
Roy E. Disney v. The Walt Disney Company, C.A. No. 234-N, 2005 WL 1538336 (Del. Ch. June 20, 2005).
The Court of Chancery considered the confidentiality of certain documents on remand from the Supreme Court. Plaintiff moved to lift a confidentiality designation placed on ten documents.
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Posted on June 17, 2005 by Jason C. Jowers
Reading Int'l, Inc. v. St. Francis, C.A. No. 02C-10-223 SCD, 2005 WL 1654343 (Del. Super. Ct. June 17, 2005).
The plaintiffs brought an action for fraud, alleging that the value of certain equipment the plaintiffs purchased in 1996 was not as the defendants represented. One of the defendants moved to dismiss, arguing that the statute of limitations had expired. Treating the motion to dismiss as a motion for summary judgment, the court dismissed the action against the defendant because the statute had expired.
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Posted on June 12, 2005 by Raj Srivatsan
In Re Litigation Trust of MDIP, Inc., No. Civ.A. No. 03-779GMS, 2005 WL 1242157 (D.Del. May 25, 2005).
The Court considered six motions in this action: (1) motion to dismiss Count I, seeking to recover damages from directors for breach of fiduciary duties of care, duty and loyalty and to dismiss Count II, asserting a claim for damages against director Rapoport; (2) a motion for partial summary judgment on both counts above; (3) a motion to strike the plaintiff's summary judgment affidavits; (4) a motion to strike the plaintiff's jury demand; (5) a motion in limine for exclusion of evidence and testimony not disclosed in plaintiff's responses and contention interrogatories; and (6) a motion in limine to preclude evidence relating to events that took place prior to August 6, 1998. The Court granted the motions to dismiss Counts I and II but denied the other motions as moot to the extent they related to Counts I and II.
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Posted on June 6, 2005 by Liza H. Sherman
In Re Cox Communications Inc. Shareholders Litigation, C.A. No. 613-N, 879 A.2d 604(Del. Ch. June 6, 2005)
Vice Chancellor Strine ruled on a fee request in a case arising out of a proposal by the Cox Family to take Cox Communications private. The Family proposed a merger on fully negotiable terms with an opening bid of $32. The proposal was immediately followed by a flurry of class action lawsuits, as well as the formation of a special committee to review and evaluate the terms of the offer. The Family tentatively agreed with a special committee of independent directors to a price of $34.75 per share subject to approval by a majority of the minority stockholders and conditioned on settlement of the outstanding lawsuits, a final fairness opinion, and agreement on the terms of a final merger agreement.
Counsel for the plaintiffs eventually agreed that the $34.75 price accepted by the special committee was fair, accepted the other terms of the transaction, and agreed to settle their claims. After settlement, the Cox family agreed not to oppose a request by plaintiffs' counsel for payment of attorneys' fees of up to $4.95 million. Certain Cox stockholders, however, did object to the fee request and the Court of Chancery heard their obections.
The Court slashed a $4.95 million fee request to an award of $1.275 million and advised the plaintiff's bar to consider that award "generous."
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Posted on June 6, 2005 by Liza H. Sherman
Shamrock Holdings, et al. v. The Walt Disney Co., et al., C.A. No. 1330-N, 2005 WL 1377490 (Del. Ch. June 6, 2005)
Plaintiff dissident shareholders seek to void the result of a corporate election of directors, to compel the company to make full and fair disclosure of the CEO selection process, and (following such disclosure) compel another election of directors. Defendants filed a motion to dismiss Plaintiffs' complaint. The Court of Chancery denied the Motion.
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Posted on June 2, 2005 by Liza H. Sherman
Amalgamated Bank v. UICI, C.A. No. 884-N, 2005 WL 1377432 (Del. Ch. June 2, 2005)
Plaintiff Amalgamated Bank brought an action under 8
Del. C. § 220 to inspect the books and records of UICI, a corporation in which it was a shareholder.
The Court of Chancery permitted Plaintiff's inquiry, despite the request encompassing documents likely only to reveal time-barred and other precluded causes of action.
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Posted on May 27, 2005 by Liza H. Sherman
Rosser v. New Valley Corporation, et al., C.A. No. 17272-N, 2005 WL 1364624 (Del. Ch. May 27, 2005)
Defendants filed a motion for summary judgment where Plaintiff alleged proposed internal recapitalization favored director shareholders. Plaintiff challenged the adequacy of the fairness opinion, the disclosures to shareholders and the sufficiency of the Proxy Statement because it failed to disclose separate valuations of New Valley's various assets and lines of business
The Court of Chancery granted the Defendants' motion for summary
judgment.
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Posted on May 26, 2005 by Liza H. Sherman
Tafeen v. Homestore, Inc., C.A. No. 023-N, 2005 WL 1314782(Del. Ch. May 26, 2005)
The Court considered the motion of defendant Homestore for a stay pending appeal of the Court's rulings which ordered Homestore to pay director Tafeen's advancement fees and assessed the costs of the Special Master's services against Homestore.
The Court denied the Motion.
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Posted on May 25, 2005 by Jason C. Jowers
Estate of Foraker v. Larrimore, C.A. No. 04C-03-041, 2005 WL 1953075 (Del. Super. Ct. May 25, 2005).
The court was faced with the question of whether a partnership had terminated or whether it had merely dissolved and was still in the process of "winding up." The partnership had been granted a right of first refusal on a piece of property. Subsequently, the partners entered into an agreement terminating the business and dividing the debts and assets between the partners. When the owners of the property attempted to sell, one of the former partners desired to exercise the partnership's right of first refusal. The owner brought and action against the partner, and the court found that the partnership had was already terminated rather than being merely dissolved and in the process of "winding up." The court also found that the right of first refusal had terminated with the partnership.
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Posted on May 25, 2005 by Jason C. Jowers
Tekmen & Co. v. Southern Builders, Inc., C.A. No. 04C-03-007 RFS, 2005 WL 1249035 (Del. Super. Ct. May 25, 2005).
The defendant contracted to build a hotel on the plaintiff's property. Following completion of the structure, the defendant had to return on numerous occasions to repair leaks. Eventually, the plaintiff filed a complaint, arguing that it was entitled to compensatory and punitive damages for breach of contract, negligence, and breach of warranty. The defendant moved to dismiss, claiming that under the terms of the contract all disputes must first be submitted to the architect and any remaining claims must be heard in binding arbitration. The court granted the defendant's motion to dismiss.
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Posted on May 24, 2005 by Liza H. Sherman
W.C. McQuaide, Inc. v. Leland R. McQuaide, et al., C.A. No. 612-N, 2005 WL 1288523 (Del. Ch. May 24, 2005)
Court considered a motion to dismiss or stay this action in favor of an earlier filed case in Pennsylvania. The Court concluded that
the Pennsylvania Action was first-filed and that this case should be stayed pending resolution of that action.
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Posted on May 17, 2005 by Liza H. Sherman
Raphael F. Nevins v. George Bryan, et al., C.A. No. 19975-NC, 885 A.2d 233(Del. Ch. May 17, 2005)
This was an action under 8 Del. C. § 225 to determine the proper directors and members of the Center for the Advancement of Distance Education in Rural America ("CADERA" or the "Corporation").
The court found that the appointment of the Director Defendants was proper and adequate.
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Posted on May 12, 2005 by Raj Srivatsan
Eames v. Nationwide Mut. Ins. Co., No. CIV.A. 04-1324-KAJ, 2005 WL 1385130 (D.Del. Apr. 27, 2005).
The plaintiffs filed a Motion to Remand a proposed class action involving insurance issues. The defendant removed the action from the Delaware Superior Court under 28 U.S.C. § 1441, diversity jurisdiction. The plaintiffs alleged that because the amount requirements under 28 U.S.C. § 1332 ($75,000) were not met, the action merited remand. The Court denied plaintiffs' motion.
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Posted on April 30, 2005 by Raj Srivatsan
Kalk v. Fairfield Language Technologies, No. Civ.A. 04-1486-JJF, 2005 WL 945715 (D.Del. Apr. 22, 2005).
Pro se Plaintiff, a resident of Delaware, filed a Complaint against defendants' alleging tort claims. Defendants' filed a Motion to Dismiss the Complaint. The background to the suit involved violation of an alleged non-competition covenant by Plaintiff. Plaintiff alleged that subsequently, Defendants' caused the termination of his employment from Auralog, Inc., by sending a letter to them. Plaintiff filed this Complaint which alleged Tortious Interference with Contract and Conspiracy Against Rights.
Plaintiff claimed that the court had subject matter jurisdiction under diversity of citizenship. However, Plaintiff failed to allege sufficient facts to demonstrate personal jurisdiction over the defendants'. Accordingly, the court granted the Motion to Dismiss for lack of personal jurisdiction because: (1)Defendant Fairfield Language Technologies et al was a Virginia incorporated entity with its principal place of business in that state; (2) its President and Chairman, Defendant Eugene Stoltzfus, resided and worked in Virginia; (3) Defendant Kathryn S. Fairfield, its General Counsel likewise was a resident and worked in Virginia; and (4) none of the Defendants' had "purposefully availed" business in Delaware.
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Posted on April 30, 2005 by Raj Srivatsan
Tracinda Corp. v. Daimlerchrysler AG, No. Civ.A. 00-993-JJF, 2005 WL 927187 (D.Del. Apr. 20, 2005).
This opinion relates to plaintiff's motion for sanctions for defendants' late production of documents in discovery. The matter was referred to a Special Master for a hearing in 2003. The Special Master found for the plaintiff who then filed the present motion for relief including: (1) witness Valade be barred from testifying about matters included in the delayed production unless his responses were required by the plaintiff's or the Court's questions; (2) that two witnesses be recalled to testify at trial; and (3) that the defendants be ordered to pay plaintiff's fees and costs incurred towards resolving the matters connected with the late production of the Valade documents.
The Court denied plaintiff's request to bar Valade's testimony and permitted him to testify on all matters. It dismissed the second relief as moot because the parties had agreed to permit recall of the two witnesses. The Court however granted plaintiff's motion and awarded all costs and fees associated with the delayed production of the Valade notes.
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Posted on April 29, 2005 by Fotini A. Skouvakis
Frontier Oil Corporation v. Holly Corporation, 2005 WL 1039027 (Del. Ch. April 29, 2005).
Frontier Oil Corporation and Holly Corporation are petroleum refiners that sought to merge. In conducting its due diligence review of Frontier, Holly discovered that activist Erin Brockovich was planning to bring a toxic tort suit claiming that an oil rig that had been operating for decades on the campus of Beverly Hills High School caused the students to suffer from a disproportionately high incidence of cancer. This raised concerns for Holly because a subsidiary of Frontier had previously operated the Beverly Hills drilling facility. Although the terms of the merger agreement were modified to address the situation, including broadening the representation to apply to litigation that would reasonably be expected to have a material adverse effect ("MAE") on Frontier, the court found that substantial litigation costs were not a MAE and therefore the contract could not be rescinded.
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Posted on April 29, 2005 by Fotini A. Skouvakis
In re J.P. Morgan Chase & Co. S'holder Litig., 2005 WL 1076069 (Del. Ch. April 29, 2005), aff'd, 2006 WL 585606 (Del. Mar. 8, 2006).
J.P. Morgan Chase & Co. ("JPMC") and Bank One agreed to a business combination that was expected to create the second largest financial institution in the country. JMPC paid a premium over the market share price for Bank One, effectively making JPMC the acquirer and the Bank One the target. After the merger was completed, the stockholders of the acquirer sued its directors, alleging breaches of fiduciary duty with regard to the acquisition. Their claims stemmed from the allegation that the directors paid too much for the acquired bank. The defendants moved to dismiss the complaint on the basis that the claims were derivative, not direct, and that demand was not excused. The court granted defendants motion to dismiss.
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Posted on April 27, 2005 by Raj Srivatsan
Tracinda Corp. v. DaimlerChrysler AG, 364 F.Supp.2d 362 (D.Del. 2005).
Tracinda Corporation ("Tracinda"), a Nevada entity with its principal place of business in California and engaged in investing in companies and then Chrysler's largest shareholder, brought this action against defendants comprising DaimlerChrysler AG, Daimler-Benz AG ("Daimler"), Jurgen Schrempp and Manfred Gentz (collectively "Defendants") and citizens of Germany alleging: (1) violations of securities laws; (2) common law fraud; and (3) conspiracy in connection with the 1998 merger between Chrysler Corporation ("Chrysler") and Daimler-Benz AG ("Daimler-Benz"). After a thirteen day bench trial, the Court held that: (1) personal jurisdiction did not exist over the German corporation; (2) the German company and its CEO were subject to the proxy solicitation statute although the American manufacturer solicited proxies; (3) pre-merger oral statements of the CEO did not attract liability; and (4) the documents memorializing the merger did not misrepresent that it was a merger between equals.
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Posted on April 27, 2005 by Jason C. Jowers
Thomas v. Hobbs, C.A. No. 04C-02-010 RFS, 2005 WL 1653947 (Del. Super. Ct. Apr. 27, 2005).
The Plaintiff brought an action for breach of contract against the defendant limited liability company and against the sole member of that defendant limited liability company personally. The member moved for summary judgment, arguing that she could not be held personally liable for the actions of the defendant limited liability company. The court granted the defendant member's motion.
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Posted on April 26, 2005 by Raj Srivatsan
J-Squared Technologies, Inc. v. Motorola, Inc., 364 F.Supp.2d 449 (D.Del. Apr. 13, 2005).
Plaintiff brought this suit alleging: (1) breach of contract; (2) promissory estoppel; (3) negligent misrepresentation; (4) breach of the duty of good faith and fair dealing; and (5) violation of Arizona's Consumer Fraud Act. Plaintiff sought compensatory and punitive damages. The defendant moved to transfer the action to the District of Arizona or alternatively dismiss the case under Fed.R.Civ.P. 9(b) and 12(b)(6).
The Court denied the motion in part and granted it in part with respect to the Arizona Consumer Fraud Act and punitive damages claim. The Court declined to dismiss the negligent misrepresentation and estoppel claims.
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Posted on April 25, 2005 by Fotini A. Skouvakis
Finkelstein v. Liberty Digital, Inc., 2005 WL 1074364 (Del. Ch. April 25, 2005).
This appraisal case involved the fair value of shares of a company, Liberty Digital, Inc., that was merged with an acquisition subsidiary of Liberty Media Corporation and survived the merger as a wholly owned subsidiary of Liberty Media. What was atypical about this appraisal case was that the parties were able to stipulate to the value of all but one of Liberty Digital's assets.
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Posted on April 21, 2005 by Fotini A. Skouvakis
California Public Employees' Retirement System v. Coulter, 2005 WL 1074354 (Del. Ch. April 21, 2005).
Defendant Lone Star Steakhouse & Saloon, Inc. agreed to make change of control payments to certain employees if a majority of its board of directors ceased to be "Existing Directors." "Existing Directors" were those directors in office at the time of the change of control agreements and those new directors who were approved by Existing Directors. The views of new directors who were not approved as Existing Directors would not be considered in determining whether subsequent new directors would be considered Existing Directors. The question is whether such a provision contravenes the teachings of Carmody v. Toll Brothers, Inc., 723 A.2d 1180 (Del. Ch.1998), which concluded that directors may not be granted distinctive voting powers unless they are authorized by the certificate of incorporation, something Lone Star's certificate of incorporation does not do.
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Posted on April 18, 2005 by Fotini A. Skouvakis
CAPROC Manager, Inc. v. The Policemen's & Firemen's Retirement System of the City of Pontiac, 2005 WL 937613 (Del. Ch. April 18, 2005).
This case stemmed from a dispute between shareholders of the Delaware limited liability company, CAPROC LLC, which is governed by a Limited Liability Company Agreement. Defendants sought to remove CAPROC Manager as the Managing Shareholder of CAPROC and purport to have done so by a majority shareholder vote. In response to Defendants' actions, CAPROC Manager and CAPROC brought this suit for, among other things, entry of a status quo order and a declaration under 6 Del. C. - 18-110 that CAPROC Manager remain the Managing Shareholder of CAPROC. The court granted Defendants motion to dismiss in favor of arbitration because Plaintiffs' claims were subject to arbitration under the LLC Agreement.
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Posted on April 10, 2005 by Raj Srivatsan
Tracinda Corp. v. DaimlerChrysler AG, 362 F.Supp.2d 487 (D.Del. 2005).
Tracinda Corporation ("Tracinda"), a Nevada entity with its principal place of business in California, was engaged in investing in companies and at the time was Chrysler's largest shareholder. Tracinda brought this action against defendants comprising of DaimlerChrysler AG, Daimler-Benz AG ("Daimler"), Jurgen Schrempp and Manfred Gentz, (collectively "Defendants") who were citizens of Germany alleging: (1) violations of securities laws; (2) common law fraud; and (3) conspiracy in connection with the 1998 merger between Chrysler Corporation ("Chrysler") and Daimler-Benz AG ("Daimler-Benz"). In this Memorandum Opinion, the Court examined a number of evidentiary objections brought by both parties. The objections included: expert opinion testimony, statements made by the CEO of the German manufacturer that were published in a newspaper, investment banker documents discussing business combination scenarios between the merger parties, third-party research reports, meeting notes on the merger, failure to include charts and privileged attorney-client matters.
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Posted on April 5, 2005 by Fotini A. Skouvakis
NuCar Consulting, Inc. v. Doyle, 2005 WL 820706 (Del. Ch. April 5, 2005).
Plaintiff NuCar Consulting, Inc., claimed that Defendants, former employee Timothy Doyle and Doyle's newly created company, Dealer Rewards, Inc., misappropriated certain of NuCar's trade secrets. NuCar requested that the court determine whether Defendants misappropriated NuCar's trade secrets under the Delaware Uniform Trade Secrets Act and the extent to which NuCar should receive monetary damages or injunctive relief for the alleged misappropriation. NuCar also sought an award of attorney's fees pursuant to 6 Del. C. - 2004 for Defendants' allegedly willful and malicious misappropriation. The Court granted NuCar's request for a permanent injunction prohibiting Defendants' further use of the contract used for automotive deals and found Defendants liable for $69,750 in unjust enrichment damages for their misappropriation of the potential client list. Finally, the Court found that Defendants' misappropriation was willful and malicious and awarded NuCar its reasonable attorney's fees expended on its misappropriation of trade secrets claims.
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Posted on April 1, 2005 by Fotini A. Skouvakis
Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 872 A.2d 611 (Del. Ch. 2005).
Wal-Mart brought suit against all the parties involved in its purchase of corporate-owned life insurance ("COLI") policies. Its complaint alleged a broad range of legal and equitable claims against the insurance brokers and providers, all seeking to recover from them the losses it incurred in connection with this risky tax avoidance scheme. On consolidated motions to dismiss brought by the insurers and brokers, the court concluded that the retailer failed to state a claim upon which relief could be granted. The court, therefore, granted the defendants' motions to dismiss.
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Posted on March 31, 2005 by Fotini A. Skouvakis
Examen, Inc. v. VantagePoint Venture Partners 1996, 873 A.2d 318 (Del. Ch. 2005).
The plaintiff, a Delaware corporation, sought a judicial declaration that Delaware law governed a stockholder vote on a pending merger because if the vote was governed by Delaware law, common stockholders and preferred stockholders would vote on the merger as a single class. The defendant, a large venture capital firm owning 83% of the corporation's preferred stock, argued that California law controlled because if California law were to apply in determining the voting rights of the Delaware corporation's stockholders in connection with the proposed merger, the preferred stockholders would have the right to vote as a separate class, effectively giving the defendant a veto over the merger. The court granted plaintiff's motion for judgment on the pleadings finding that Delaware law applied because this case was governed by the internal affairs doctrine.
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Posted on March 30, 2005 by Jason C. Jowers
Wilmington Savings Fund Society v. Chillibilly's, Inc., C.A. No. 03C-11-021 THG, 2005 WL 730060 (Del. Super. Ct. March 30, 2005), aff'd, 886 A.2d 1279 (Del. 2005).
Wilmington Savings Fund Society ("WSFS"), the plaintiff, sought replevin of certain collateral it claimed pursuant to a contract it held with Chillibilly's Incorporated ("Chillibilly's") and Joseph Jeffery Stein Corporation ("Stein Corp.") WSFS also alleged fraud, misrepresentation, and various other claims. Essentially, WSFS argued that it was induced into extending a loan to Chillibilly's based on certain misrepresentations by the principal of Stein Corp., Jeffrey Stein. Stein Corp. moved for summary judgment. The Court denied the motion as to replevin of items Stein Corp. had earlier conceded belonged to WSFS pursuant to its security interest. However, the court granted summary judgment as to the other claims.
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Posted on March 24, 2005 by Jason C. Jowers
DCV Holdings, Inc. v. ConAgra, Inc., C.A. No. No. 98C-06-301-JEB, 2005 WL 698133 (Del. Super. Ct. March 24, 2005).
The Plaintiffs brought an action against ConAgra, Inc. ("ConAgra") and E. I. Du Pont de Nemours and Co. and Du Pont Chemical and Energy Operations, Inc. (collectively "DuPont"). The Plaintiff alleged that the defendants committed common law fraud. In a bench trial, the Superior Court found for the defendants.
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Posted on March 22, 2005 by Fotini A. Skouvakis
State ex rel. Brady v. Pettinaro Enterprises, 870 A.2d 513 (Del. Ch. 2005).
Attorney General brought consumer protection action under the Consumer Fraud Act, the Deceptive Trade Pratices Act, and the Health Spa Regulation against developer of condominium complex, alleging, among other things, that developer misled condominium purchasers into believing that clubhouse was part of the complex. Developer moved to dismiss action on the basis that the statute of limitations barred the Attorney General's claims and for failure to state a claim under the Deceptive Trade Practices Act. The court granted in part and denied in part Defendants' motion to dismiss.
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Posted on March 15, 2005 by Fotini A. Skouvakis
The Capital Group Companies, Inc. v. Armour, 2005 WL 678564 (Del. Ch. Mar. 15, 2005).
A Delaware corporation brought suit against the two trustees of a trust, who are husband and wife, seeking a declaration that certain contractual stock transfer restrictions alleged to apply to shares of its common stock owned by the trust were valid and enforceable. The two defendants were parties to a divorce proceeding and, in connection with that proceeding, the wife claimed an interest in the stock owned by the trust. The issue was whether the stock transfer restrictions could reasonably operate to prevent the transfer to, or disposition in favor of, the wife of any legal or beneficial interest in the stock.
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Posted on March 12, 2005 by Raj Srivatsan
Benitec Australia Ltd. v. Promega Corp., No. Civ. A. 04-889 JJF, 2005 WL 549552 (D.Del. Mar. 8, 2005).
The defendant filed a Motion For a Preliminary Injunction seeking to preserve its rights as an exclusive licensee for the duration of the law suit brought by plaintiff against defendant Promega Corporation ("Promega"). The Court denied the injunction.
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Posted on March 10, 2005 by Fotini A. Skouvakis
Kier Construction, Ltd. v. Raytheon Co., 2005 WL 628498 (Del. Ch. Mar. 10, 2005).
This action arouse out of a construction subcontract between plaintiff, Kier Construction, Ltd. ("Kier"), and a non-party, Raytheon Engineers & Constructors, UK Ltd. ("REC UK"). Kier claimed it was owed over $12 million for work performed under the subcontract. Kier contended that the contract with REC UK was transferred to defendants, Raytheon Company ("Raytheon") as part of a transaction in which Raytheon sold REC UK and other subsidiaries to Morrison Knudsen Corporation. Kier contended that Raytheon, as REC UK's assignee, was directly liable to Kier for the work it performed under the subcontract.
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Posted on March 10, 2005 by Raj Srivatsan
Shamrock Holdings of California, Inc. v. Arenson, No. Civ. 04-1339-SLR, 2005 WL 400198 (D.Del. Jan. 27, 2005).
Plaintiffs commenced an action for declaratory relief pursuant to 10 Del. C. §§ 6501 et seq. (2004) in the Delaware Court of Chancery. The defendants had earlier threatened to sue the plaintiffs for "millions of dollars." The defendants removed the action to the federal court and filed separate motions to dismiss which were stayed under mutual stipulations, pending resolution of plaintiffs Motion to Remand. The Court ordered the defendants to supplement the record with respect to certain corporate members of defendants SELK and Laurel Equity Group, LLC. The Court also admonished the defendants that a failure to timely supplement the record would result in the grant of plaintiffs' Motion to remand.
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Posted on March 4, 2005 by Fotini A. Skouvakis
Gilliland v. Motorola, Inc., 873 A.2d 305 (Del. Ch. 2005).
Plaintiff sought a class-wide "quasi-appraisal" remedy for minority stockholders eliminated in a short-form merger. Statutory appraisal was impractical for two reasons. First, formalistically, the minority stockholders no longer owned shares in the merged subsidiary and without the shares, they could not make the demand required by the appraisal statute. Second, from a practical standpoint, the two-year delay made it impossible to recreate the factual context necessary to have statutory appraisal. Therefore, Vice Chancellor Lamb granted the quasi-appraisal remedy and outlined its procedure.
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Posted on March 4, 2005 by Jason C. Jowers
Scottsdale Indem. Co. v. Lloyd, 04C-04-024 THG, 2005 WL 516852 (Del. Super. Ct. Mar. 4, 2005).
A corporation's commercial liablility insurer petitioned the court for a determination as to whether the policies automobile exclusion prevented coverage for damages arising from an accident involving one of the corporation's officers. The insurer moved for summary judgment, and the Superior Court found that the automobile exclusion did apply.
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Posted on March 3, 2005 by Fotini A. Skouvakis
Amaysing Technologies Corp. v. CyberAir Communications, Inc., 2005 WL 578972 (Del. Ch. March 3, 2005).
Amaysing Technologies Corp. ("ATC") brought an action for breach of a loan agreement against CyberAir Communications, Inc. ("CyberAir"). CyberAir filed a third-party complaint alleging various misrepresentations and frauds against Robert Mays, Jr., and Raymond Atilano, both of whom were officers and shareholders of ATC, and Med Fadel, an agent of ATC (together referred to as "Third-Party Defendants"). Third-party Defendants filed a motion to dismiss under Court of Chancery Rule 12(b)(2) for lack of personal jurisdiction, which the court granted.
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Posted on March 1, 2005 by Jason C. Jowers
TIG Ins. Co. v. Premier Parks, Inc., C.A. No. 02C-04-126 PLA, 2005 WL 468300 (Del. Super. Ct. Mar. 1, 2005).
This case involved whether TIG Ins. Co. ("TIG") met its contractual obligations to provide adequate counsel to defend Premier Parks, Inc. ("Six Flags") in an employment discrimination case. After intially granting plaintiff's motion to compel discovery, the court limited its ruling on reargument after it became clear that complying with the court's order would require manual searches of files rather than simple electronic searches.
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Posted on February 28, 2005 by Raj Srivatsan
Benihana of Tokyo, Inc. v. Benihana, Inc., et al., C.A. No. 550-N (Del. Ch. Feb. 28, 2005).
This case deals with several motions to dismiss on several grounds, the upholding of personal jurisdiction under a conspiracy or aiding/abetting theory and plaintiff's request for a declaratory judgment.
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Posted on February 28, 2005 by Raj Srivatsan
Bbdova, LLC v. Automotive Technologies, Inc., 358 F.Supp.2d 387 (D.Del. 2005).
This is a diversity suit between plaintiff, a New Jersey limited liability corporation authorized to do business in Delaware with its principal place of business in Newark, Delaware and a Connecticut corporation with its principal place of business in that state. Defendant operated a business of franchising third parties to own and operate retail wireless stores. The plaintiff filed for declaratory judgment, challenging the validity of the Franchise Agreement and its Amendment. The defendant removed the case to the Federal District Court for the District of Delaware and then sought to either dismiss the case or transfer it to a court in Connecticut. The Court approved the forum selection clause and ordered transfer.
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Posted on February 28, 2005 by Jason C. Jowers
MerchantWired, LLC v. Transaction Network Services, Inc., 02C-08-244 FS, 2005 WL 468241 (Del. Super. Ct. Feb. 28, 2005).
The plaintiff brought a breach of contract action against the defendant when the defendant refused to close on the purchase of the plaintiff's business. The defendant moved for summary judgment, claiming that the plaintiff failed to meet two pre-closing conditions. Rejecting this argument, the court denied the defendant's motion for summary judgment.
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Posted on February 25, 2005 by Raj Srivatsan
Jurimex Kommerz Transit G.M.B.H. v. Case Corp., No. Civ.A. 00-083 JJF, 2005 WL 440621 (D.Del. Feb. 18, 2005).
Plaintiffs filed a motion to compel deposition testimony of defendant's subsidiaries in a matter involving an international transaction. The motion was granted in part and denied in part.
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Posted on February 23, 2005 by Jason C. Jowers
Midland Red Oak Realty, Inc. v. Friedman, Billings & Ramsey & Co., Inc., C.A. No. 04C-05-091 CLS, 2005 WL 445710 (Del. Super. Ct. Feb. 23, 2005).
Plaintiffs Midland Oak Realty, Inc. and MRO Southwest, Inc. ("MRO") sued Defendants Friedman, Billings, Ramsey & Co., Inc. ("FBR") and Velasco Group, L.L.C. ("Velasco") for breach of a real-estate financing contract. FBR moved to dismiss based on an indemnification provision. The Superior Court denied FBR's motion to dismiss, holding that the indemnification provision's language made it applicable only after a court had reached a decision on the merits of the claim.
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Posted on February 23, 2005 by Raj Srivatsan
Nicholas A. Ruggerio v. Estate of Michael A. Poppiti, Sr., et al., C.A. No. 18961-NC, 2005 WL 517967 (Del. Ch. Feb. 23, 2005).
This is an action for breach of fiduciary duties, commingling of assets and a failure to account involving two Delaware limited partnerships. Defendants brought an unsuccessful motion to dismiss. The court however granted their summary judgment motion for claims predating June 18, 1998 but denied judgment as to all other claims.
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Posted on February 23, 2005 by Jason C. Jowers
Enigma Information Retrieval Systems, Inc. v. Radian, Inc., C.A. No. 04C-06-069 FSS, 2005 WL 445568 (Del. Super. Ct. Feb. 23, 2005).
Plaintiff, Enigma Information Retrieval Systems, Inc. ("Enigma"), brought breach of contract and tortious interference claims against Defendants, Radian, Inc. and Portal Dynamics, Inc., military contractors that helped supply light armored vehicles. Enigma acted as the subcontractor for the defendants and provided the computer software for training manuals and parts catalogs. The defendants claimed to have terminated Enigma for poor performance. Radian moved to dismiss the damages claim, and the court denied the motion to dismiss, finding that the arguments were premature.
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Posted on February 17, 2005 by Raj Srivatsan
Belanger v. Fab Indus., Inc., et al., C.A. No. 054-N, 2005 WL 493593 (Del. Ch. Feb. 17, 2005).
The court granted defendant's motion for protective order in a case arising out of a dissolution petition under 8 Del. C. §275.
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Posted on February 16, 2005 by Jason C. Jowers
W.R. Berkley Corp. v. Hall, C.A. No. 03C-12-146WCC, 2005 WL 406348 (Del. Super. Ct. Feb. 16, 2005).
The Plaintiff brought an action in the Superior Court to enforce a provision under the Stock Option Plan (the "Plan") and subsequent agreements. Under the provisions of the Plan, if a former employee engaged in "Noncompetitive Action" within six months of termination and exercised stock options within that time frame, the company could recapture the profits. The court found the agreement to be enforceable, and granted the plaintiff's motion for summary judgment.
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Posted on February 12, 2005 by Raj Srivatsan
J-Squared Technologies, Inc. v. Motorola, Inc., No. Civ.04-960-SLR, 2005 WL 388599 (D.Del. Feb. 4, 2005).
Plaintiff brought suit alleging: (1) breach of contract; (2) promissory estoppel; (3) negligent misrepresentation; (4) breach of the duty of good faith and fair dealing; and (5) violation of Arizona's Consumer Fraud Act. Plaintiff sought compensatory and punitive damages. The defendant moved to transfer the action to the District of Arizona or alternatively dismiss the case under Fed.R.Civ.P. 9(b) and 12(b)(6). The Court denied the Motion to Transfer.
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Posted on February 11, 2005 by Raj Srivatsan
Posted on February 10, 2005 by Raj Srivatsan
Damage Recovery Systems, Inc. v. Tucker, No. Civ. 02-1647-SLR, 2005 WL 388596 (D.Del. Feb. 2, 2005).
Defendant filed a motion for re-argument in a matter involving breach of contract and breach of fiduciary duties. The plaintiff prevailed on its Motion for Summary Judgment. Defendant then filed this motion which the Court denied.
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Posted on February 9, 2005 by Raj Srivatsan
Posted on February 8, 2005 by Raj Srivatsan
Damage Recovery Systems, Inc. v. Tucker, No. Civ. 02-1647-SLR, 2005 WL 388597 (D.Del. Feb. 2, 2005) .
Plaintiff filed an action in 2002 alleging that the defendant had breached: (1) a non-compete covenant in his Consulting Agreement with Plaintiff; and had (2) aided and abetted the breach of fiduciary duties owed by plaintiff's former officer. Plaintiff sought compensatory and punitive damages and the defendant demanded a jury trial on both claims. While plaintiff moved to strike the defendant's demand for jury trials, the defendant filed a Memorandum stating that he was not opposed to the denial of a jury trial to the extent the parties Consulting Agreement provided. The Court denied the requests for a jury trial on both claims.
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Posted on February 4, 2005 by Jason C. Jowers
Interim Healthcare, Inc. v. Spherion Corp., 884 A.2d 513 (Del. Super. Ct. 2005), aff'd, 886 A.2d 1278 (Del. 2005).
In this case, the purchasers of a home health care company brought an action against the seller to recover for multiple alleged breaches of a stock purchase agreement ("Agreement") and recovery under indemnification provisions. Following a non-jury trial, the court found for the plaintiff on certain claims, and awarded the plaintiff $1,070,719.47 in damages.
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Posted on February 4, 2005 by Raj Srivatsan
Posted on February 3, 2005 by Raj Srivatsan
Encompass Services Holding Corp. v. Prosero Incorp. f/k/a FacilityPro.com Corp., C.A. No. 578-N, 2005 WL 332810 (Del. Ch. Feb. 03, 2005).
This is a 8 Del. C. §262 share appraisal case brought by a "debtor in possession" after the dismissal of its earlier filed adversarial proceeding in the bankruptcy court.
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Posted on February 2, 2005 by Raj Srivatsan
George D. Orloff, et al. v. Lloyd J. Shulman, et al., C.A. No. 852-N, 2005 WL 333240 (Del. Ch. Feb. 02, 2005).
Minority shareholders of LLC brought a derivative suit for corporate waste and breach of fiduciary duties. Defendants filed a motion to stay discovery pending the resolution of a motion to dismiss. The court granted it.
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Posted on January 31, 2005 by Jason C. Jowers
Alstom Power Inc. v. Duke/Fluor Daniel Caribbean S.E., C.A. No. 04C-02-275 CLS, 2005 WL 407206 (Del. Super. Ct. Jan. 31, 2005).
The plaintiff brought a breach of contract action in Superior Court. The defendant moved to dismiss for lack of personal jurisdiction. The court accepted the plaintiff's argument that it was appropriate for the court to exercise personal jurisdiction based on a forum selection clause in the contract.
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Posted on January 31, 2005 by Raj Srivatsan
B. Lewis Productions, Inc. v. Bean, No. 02-93-KAJ, 2005 WL 273298 (D.Del. Jan. 28, 2005).
The central dispute in this Memorandum Order that dealt with a motion in limine was which statute of limitations applied: Delaware's three year statute or New York's six year statute. Plaintiff brought a breach of contract and fraud action under the diversity jurisdiction of the Court. Plaintiff, counterclaim defendant and third-party defendant Butch Lewis ("Lewis"), a Delaware citizen, filed a motion in limine to prevent Vaughn Bean ("Bean"), a defendant and a citizen of Illinois, from introducing evidence of damages at trial predating February 4, 1999, under statute of limitation grounds. The Court denied the motion.
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Posted on January 28, 2005 by Raj Srivatsan
Oliver, et al. v. Boston University., et al., C.A. No. 16570-NC (Del. Ch. Jan. 28, 2005).
Plaintiff filed a motion to amend its answer to limit its liability exposure to its shareholders in a publicly traded corporation, by asserting an affirmative defense under the law of Massachusetts.
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Posted on January 28, 2005 by Raj Srivatsan
Tenneco Automotive Inc., et al. v. El Paso Corp., et al., C.A. No. 18810-NC (Del. Ch. Jan. 28, 2005).
This is an insurance contract related action brought by plaintiff, who also sought an injunction demanding notice under certain insurance policies. Plaintiff also sought a declaratory judgment that the insurance settlement agreement did not impair their rights and a permanent injunction.
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Posted on January 26, 2005 by Raj Srivatsan
In re Freeport-McMoran Sulphur, Inc. Shareholder Litig., C.A. No. 16729, 2005 WL 225040 (Del. Ch. Jan. 26, 2005).
This discovery-related action involves a claim of access to defendant-corporation's documents listed in its privilege log through a motion to compel. The court granted the motion in part, but denied production of the shareholder repurchase document.
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Posted on January 24, 2005 by Raj Srivatsan
Certainteed Corp. v. Celotex Corp., et al., C.A. No. 471, 2005 WL 217032 (Del. Ch. Jan. 24, 2005).
Plaintiff brought a breach of contract action against defendant sellers under their asset purchase agreement for indemnification of losses and other related claims.
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Posted on January 24, 2005 by Raj Srivatsan
Jacques Pomeranz, et al. v. Museum Partners, L.P., C.A. No. 20211, 2005 WL 217039 (Del. Ch. Jan. 24, 2005).
In this motion to dismiss opinion, the court examines whether the claims were tolled or untimely and held against the plaintiff. The plaintiff had instituted contract claims, fiduciary duty violation claims and a breach of the limited partnership agreement claim against the defendant-partners.
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Posted on January 24, 2005 by Raj Srivatsan
Little Switzerland, Inc. v. Patrick J. Hopper, C.A. No. 590 (Del. Ch. Jan. 24, 2005)(published at 867 A.2d 955).
This case involved a request for an injunction filed by the employer-corporation seeking to stop an arbitration of a contractual claim by a plaintiff-employee. The employee sought significant payments under a Change in Control transaction that allegedly triggered a clause vesting the right to payment in the employee. The court held the claim was time-barred under 10 Del. C. §8111 and not 10 Del. C. §8106.
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Posted on January 24, 2005 by Raj Srivatsan
Posted on January 20, 2005 by Raj Srivatsan
Kuck v. Veritas Software Corp., No. Civ. 04-831-SLR, 2005 WL 123744 (D.Del. Jan. 14, 2005).
Defendant filed a Motion to Transfer in a matter involving securities violations. The defendants sought to transfer the matter to the Northern District of California. The Court denied the defendants' motion.
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Posted on January 12, 2005 by Raj Srivatsan
DeMarie v. Neff, C.A. No. 2077-S, 2005 WL 89403 (Del. Ch. Jan. 12, 2005).
This post-trial letter opinion involved plaintiff's request for specific performance of an agreement to sell land.
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Posted on January 12, 2005 by Raj Srivatsan
CC Investors Corp. v. Raytheon Co., No. Civ. A. 03-114-JJF, 2005 WL 81591 (D.Del. Jan. 07, 2005).
This opinion considered a Motion For Leave To File Its First Amended Answer and Counterclaim filed by Defendant Raytheon Travel Air Company ("Travel Air"). Travel Air filed the motion to amend its answer to include a counterclaim against CC Investors Corp. ("CCI"), the plaintiff in this action. This counterclaim intended to allege that CCI had misappropriated Travel Air's trade secrets violating the Kansas Uniform Trade Secrets Act ("Kansas UTSA"), Kan. Stat. Ann. §§ 60-3320 et seq. The Court granted Travel Air's motion.
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Posted on January 10, 2005 by Raj Srivatsan
Westchester Fire Ins. Co. v. Household Intern., Inc., No. Civ. A. 02-1328 JJF, 2005 WL 23351 (D.Del. Jan. 5, 2005), aff'd, 167 Fed.Appx. 895 (3d Cir. 2006).
In this opinion the Court considered: (1) Plaintiff's Motion For Protective Order; (2) Defendants' Motion To Compel Discovery Relating To Financial Institutions Endorsement; (3) Defendants' Motion To Compel Deposition Of Westchester's Corporate Representative Witness; and (4) Defendants' Motion To Compel Discovery Relating To Westchester's Denials And Defenses.
The Court denied all of defendants motions and held plaintiff's motion moot.
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Posted on January 6, 2005 by Raj Srivatsan
Randall Jacobson and Technology Development Corp. (USA), Ltd. v. Alfred Ronsdorf, C.A. No. 518-N, 2005 WL 29881 (Del. Ch. Jan. 06, 2005),aff'd, 2006 WL 212194 (Del. Ch. Jan 26, 2006) (TABLE).
Plaintiff-corporation, its president and major stockholder sought to enjoin defendant, a purported stockholder and former officer from acting as an officer or pursuing any claim against any officer, shareholder or contractor of the plaintiff company. Plaintiff also pursued a declaratory judgment that defendant was not an officer or director of the plaintiff under 8 Del. C. §225 and further sought to specifically enforce a stock-transfer agreement with defendant. Defendant sought to dismiss for lack of personal and subject matter jurisdictions and for forum non conveniens.
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Posted on January 6, 2005 by Raj Srivatsan
All Pro Maids, Inc. v. Susan Layton, et al., C.A. No. 058-N, 2005 WL 82689 (Del. Ch. Jan. 11, 2005).
This opinion discusses a post-judgment motion objecting to the form of the judgment and order relating to prejudgment and post-judgment interest awards pursuant to 6 Del. C. §2301.
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Posted on January 6, 2005 by Raj Srivatsan
Posted on January 6, 2005 by Jason C. Jowers
Best Drywall Inc. v. Feeheley, C.A. No. 03C-04-005 (Del. Super. Ct. Jan. 6, 2005)
The plaintiff brought an action against a former officer for fraud, unjust enrichment, and breach of fiduciary duty. The defendant moved to dismiss based on doctrine of res judicata because a similar case had been brought and dismissed for failure to prosecute in the Court of Chancery. The Superior Court granted the motion to dismiss.
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