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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Court Of Chancery Clarifies Fee For "Volunteer"
Raul v. Astoria Financial Corporation, C.A. No. 9169-VCG (June 20, 2014) Delaware has long recognized that a stockholder may earn an attorney fee for asserting a valid claim on his corporation's behalf, even if that claim does no go into litigation. But is there a limit on that law? This decision explains that a mere "volunteer" who points out how her corporation might benefit from some action does not thereby have her attorney fees paid. Only a valid "claim" merits a fee award. A "claim" must assert some actionable wrong doing, not just a way to do business better. ShareCourt Of Chancery Explains Basis To Expedite
Supreme Court Upholds Oral Resignation
Avoiding the Entire-Fairness Standard of Review
Authored by Lewis Lazarus This article was originally published in the Delaware Business Court Insider | June 18, 2014 The Delaware Supreme Court's recent affirmance in Kahn v. M&F Worldwide, No. 334, 2013 (Del. Mar. 14, 2014),referred to as MFW,allows controlling stockholders to avoid the entire fairness standard of review if at the outset of a self-dealing transaction the controlling stockholder effectively relinquishes control over the outcome to an independent committee of disinterested directors and a nonwaivable, fully informed vote of a majority of the minority stockholders. In that circumstance, reasoned the Supreme Court, the transaction would reflect arm's-length bargaining and afford an independent majority of the stockholders the opportunity to decide for themselves whether to approve the transaction. More › ShareCourt Of Chancery Establishes Post-Judgment Interest Rate
Sequoia Presidential Yacht Group LLC v. FE Partners LLC, C.A. 8270-VCG (June 12, 2014)
What is the post-judgment rate of interest when there is a contract rate? This decision holds that the contract rate applies, at least in matters over $100,000.
ShareCourt Of Chancery Explains How To Decide If The Implied Covenant Applies
Court Of Chancery Grants Reformation
Miller v. National Land Partners LLC, C.A. 7977-VCG (June 11, 2014)
Rare is it that a party convinces a court to grant it reformation of a contract. This is that case. The result was made easier when both parties to the contract agreed it omitted key language that warranted reformation. The plaintiff, an outsider to the contract but who was hurt by its reformation, had those bad facts to overcome.
ShareDistrict Court Considers Status Of Disclosure Claims
In re Caterpillar Inc. Derivative Litigation, No. 12-1076-LPS-CJB (June 10, 2014)
This comprehensive decision is particularly interesting because it considers whether a disclosure claim is subject to the normal Rule 23.1 demand rules. Normally, disclosure claims are thought of as direct claims based on the violation of the stockholder's right to cast an informed vote. But when, as here, the plaintiff chooses to assert a derivative claim for an alleged disclosure claim, he must also meet the normal demand rules. The plaintiff argued that there was no business judgment involved in making the disclosures at issue and, hence, the demand rules should not apply. The federal court rejected that argument, relying largely on non-Delaware cases.
ShareSupreme Court Bars Fees For Dismissed Case
Crothall v. Zimmerman, No. 608, 2013 (June 9, 2014)
In what the Court itself characterized as an unusual case, the Supreme Court denied a fee to the lawyers for a plaintiff who won a small victory for their plaintiff stockholder. Unfortunately for the lawyers, their client sold his holdings and thereby lost any standing to pursue the case, making it moot. The Court held that when it is the plaintiff who moots his own case, the lawyers do not get a fee even for success. Of course, the facts are truly odd in that the plaintiff victory was indeed very small and he lost most of the rest of his claims as well. But the point remains that if your client bails out on you, the fee you want may not be what you get.
ShareStandard to Allege Mismanagement in Motion to Dismiss Section 220 Complaint
Authored by Albert H. Manwaring, IV
This article was originally published in the Delaware Business Court Insider | June 4, 2014
Section 220 of the Delaware General Corporation Law permits a stockholder to inspect the books and records of a corporation, provided that the demand for inspection meets certain form and manner requirements, and the inspection is sought for a proper purpose—e.g., one reasonably related to the interests of stockholders. It is well established that the investigation of corporate mismanagement or wrongdoing is a proper purpose under DGCL Section 220. But, to state a proper purpose to investigate mismanagement or wrongdoing of a corporation, a stockholder must allege a "credible basis" to infer "possible" mismanagement or wrongdoing. The Court of Chancery has noted that the "credible basis" standard has, however, the lowest possible burden of proof under Delaware law. More ›
ShareCourt Of Chancery Explains "In Connection With" Test
Rizk v. Tractmanager, Inc., C.A. 9073-ML (May 30, 2014)
Often corporate bylaws or charters provide for advancement of attorney fees to directors and officers for acts taken in connection with "their duties to the company or by reason of their service as an officer or director." Then when it comes time to pay up to former officials, the company tries to avoid its obligation by arguing the underlying litigation involved an employment contract and is not "in connection with" or by reason of performing their official duties. This decision by a Master in Chancery reviews the case law and explains why that defense usually does not work.
ShareCourt Of Chancery Upholds Service By Mail
Sustainable Energy Generation Group v. Photon Energy Projects B.V., C.A. 8524-VCP (May 30, 2014)
This decision upholds service of process by mail under the Hague Convention.
ShareCourt Of Chancery Denies Request For A "No Trade" Agreement
The Ravenswood Investment Companies L.P. v. Winmill & Co. Inc., C.A. 7048-VCN (May 30, 2014)
Inspection of a company's records may not be conditioned on an agreement not to trade the company's stock following the inspection.
ShareCourt Of Chancery Rejects Delaware Securities Act Claim
Eurofins Panlabs Inc. v. Ricerca Biosciences LLC, C.A. 8431-VCP (May 30, 2014)
This decision holds that the Delaware Securities Act does not apply to trades outside of Delaware, even those between Delaware corporations. The opinion also has some useful descriptions of what constitutes a basis for a fraud claim.
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