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

In The Matter of Krafft-Murphy Company Inc., C.A. 6049-VCP (November 9, 2011)

This decision upholds the power of the Court of Chancery to appoint a receiver for a dissolved Delaware corporation to collect on the corporation's insurance polices covering asbestos claims. This may be done even more than 10 years after formal dissolution and provides a way to pursue insurance coverage despite the general law that prohibits direct claims against an insurer.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In re Cencom Cable Income Partners L.P. Litigation, C.A. 14634-VCN (June 3, 2011, revised June 6, 2011)

In this case the limited partnership agreement had a detailed method for dissolving the entity and paying the proceeds to the limited partners, including how to set the sale price if its assets were sold to a related party.  The General Partner approved such a sale and followed the prescribed method.  When the plaintiff argued the result was less than optimal, the Court held that was too bad when the partnership agreement was followed.  In short, the "contract" among the partners was again enforced.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Share Link

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.

• Email This
• Print
• Comments
• Share Link

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.

• Email This
• Print
• Comments
• Share Link

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.

• Email This
• Print
• Comments
• Share Link

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.

• Email This
• Print
• Comments
• Share Link

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.

• Email This
• Print
• Comments
• Share Link

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.

• Email This
• Print
• Comments
• Share Link

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.

• Email This
• Print
• Comments
• Share Link

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.

• Email This
• Print
• Comments
• Share Link

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.

• Email This
• Print
• Comments
• Share Link

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.

• Email This
• Print
• Comments
• Share Link

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.

• Email This
• Print
• Comments
• Share Link

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.

• Email This
• Print
• Comments
• Share Link