Court Of Chancery Explains When A Lie Is Just A Lie
Touch Of Italy Salumeria & Pasticceria LLC v. Bascio, C.A. 8602-VCG (January 13, 2014)
In this case, the defendant quit his employment, lied to his co-owners about why and then set up a competing business. However, the LLC agreement did not have any limitation on competing with it. As a result, while the court was quick to condemn the lie, it held that competing was permitted. This is an example of how people in business together often feel there are some unwritten ethical rules that a court will enforce even if they are not part of the parties' agreement. At least in the area of competition, that is just not so. You need to get it in writing to enforce an obligation to not compete after some one leaves your employment. Of course, this does not mean that there are no fiduciary or other duties that may require a course of conduct not spelled out in writing. Hence, this decision should not be read too broadly
ShareMorris James Elects Brett M. McCartney, Eric J. Monzo & David J. Soldo as Partners
Morris James LLP is pleased to announce that Brett M. McCartney, Eric J. Monzo and David J. Soldo, have been elected partners effective January 1, 2014. The new partners are part of the Business Representation group in the areas of corporate litigation, bankruptcy and creditors’ rights and commercial litigation.
“The addition of this new group of partners strengthens our ability to offer exceptional service and value to our clients,” said David H. Williams, Managing Partner. Mr. Williams also congratulated the new partners for the manner in which they have distinguished themselves in the legal community.
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ShareCourt Of Chancery Denies Advancement For Predecessor Liability
Grace v. Ashbridge LLC, C.A. 8348-VCN (December 31, 2013)
In general, a successor entity is not liable for its predecessor's obligations when there has been a fundamental change in the identity of the entity. Here, the Court held that the conversion of a corporation into an LLC did not make the LLC obligated to advance attorney fees for claims that arose out of actions taken while a director of the predecessor corporation. The decision turned on the terms of the LLC's advancement provisions in its operating agreement. Hence, if you want to include a right to advancement for actions taken for the predecessor entity, you had better say so. Note also that the result may well have been different for a claim for indemnification after a merger because the merger statute provides that obligations of an entity in a corporate merger pass to a resulting entity after a merger.
ShareCourt Of Chancery Explains Scienter Requirement In Insider Trading Claim
Silverberg v. Gold, C.A. 7646-VCP (December 31, 2013)
Under Delaware law, a so-called Brophy claim seeks to recover the profits made by trading on insider information. Showing that material insider information was available is not too hard. What is harder is showing the intent to use that information, the scienter requirement. After all, an insider may trade for a variety of reasons, such as a favorable public announcement of good future prospects. Here the Court explains, in the context of a motion to dismiss, how to interpret the circumstances surrounding insider trades to find that they were done with the intent to benefit from the insider information. Among the key facts are the timing of the trades in reference to obtaining the information, the failure to disclose the insider information until after the trades are completed, and the size of the trades in comparison to any prior trading.
ShareChancery Awards Advancement to Officer Accused of Self-Dealing
Authored by Lewis H. Lazarus
This article was originally published in the Delaware Business Court Insider | December 25, 2013
Delaware entities generally provide broad advancement and indemnification rights to encourage directors and officers to serve. Absent such protection, managers bear the costs of defense for claims against them arising out of acts they perform in carrying out their company duties. Qualified officers and directors likely would be reluctant to serve or too risk-averse if every official act they performed were subject to litigation that the manager had to pay personally to defend. More ›
ShareFormer Director Loses Right To Inspect
King v DAG SPE Managing Member Inc., C.A. 7770-VCP (December 23, 2012)
This decision holds that after a director ceases to be a director, he loses any statutory or other right as a director to inspect a corporation's books and records.
ShareCourt Of Chancery Denies Anti-Suit Injunction
The Court of Chancery has again denied a request for an anti-suit injunction. This time the Court noted that the litigation sought to be enjoined would actually continue by a party not before the Court. Hence, the injunction was not going to accomplish an end to duplicative litigation.
ShareCourt Of Chancery Explains Equitable Tolling
In re Primedia Inc. Shareholders Litigation, C.A. 6511-VCL (December 20, 2013)
This decision explains when the doctrine of equitable tolling will save a complaint from being dismissed because it was filed too late. If the plaintiff would not have been able to discover the key facts supporting a claim by inspecting the company's books and records, equitable tolling of the applicable limitations period will apply until those facts come to light. That is particularly helpful in a Brophy claim alleging the use of insider information where the knowledge of the insider may not become apparent until that insider's records are disclosed.
ShareSuperior Court Explains Forum Selection Rules
This opinion has a good summary of Delaware law on forum selection clauses, motions to dismiss for improper venue, and stays in favor of another forum.
ShareCourt Of Chancery Explains "Inadvertent" Disclosures
Jefferson v Dominion Holdings Inc., C.A. 8663-VCN (December 13, 2013)
The term "inadvertent" is frequently used in confidentiality and quick-peek agreements to permit the claw back of privileged documents that have been "inadvertently" produced. In a rare case, the Court of Chancery concluded that there was inadvertent production, even though the documents were used in questioning a witness.
ShareAn Evolving Approach to Multijurisdictional Litigation
Authored by Edward M. McNally
This article was originally published in the Delaware Business Court Insider | December 11, 2013
The Delaware Court of Chancery continues to evolve its approach to multijurisdictional litigation. Exactly what that court will do next is uncertain. Its most recent decisions seem to rebut the prediction it would enjoin forum-shopping plaintiffs to prevent them from abusing the legal system by filing suits in multiple jurisdictions over the same controversy to try to pressure corporate defendants. More ›
ShareRule 5.1 Gets Its First Major Test
Authored by Peter B. Ladig
This article was originally published in the Delaware Business Court Insider | July 11, 2012
When the Delaware Court of Chancery adopted Rule 5.1 in late 2012, the court took great pains to inform the public that Rule 5.1 represented a significant departure from the practices under former Rule 5(g). Notwithstanding this admonition from the court, until the court issued opinions addressing the new aspects of Rule 5.1, particularly what type of information met the "good cause" standard articulated in the rule, there was little guidance to flesh out exactly how the court would apply the new rule. More ›
ShareCourt Of Chancery Suggests Equity May Aid When Dissolution Waived
Huatuco v Satellite Heathcare, C.A. 8465-VCG (December 9, 2013)
As this decision affirms, it is possible to waive the right to a judicial dissolution in an LLC agreement. However, the decision also notes that the Court may use its equitable powers to remedy an abuse of power. This possible "escape valve" may be hard to invoke given the respect the Delaware Courts have for the right to contract away one's rights in an LLC agreement.
ShareCourt Of Chancery Explains Privilege Rulings
MPEG LA L.L.C. v. Dell Global B.V., C.A. 7016-VCP (December 9, 2013)
This is a useful decision because it collects the relevant rules for deciding if there is a privilege for communications that include a mixture of business and legal advice. If the business advice can be segregated from the legal advice, the communication should be produced with the legal advice redacted. If the business advice predominates and segregating it from the legal advice is not possible, the communication should be produced. But if the business advice cannot be said to predominate and segregating the legal advice is not possible, the communication may be withheld.
ShareCourt Of Chanery Explains Damages Calculation For Consent Breach
Fletcher International Ltd. v. ION Geophysical Corporation, C.A. 5109-CS (December 4, 2013)
What are the damages when a party's right to consent to a transaction is violated? There is no easy answer to that question that involves predicting what might have been won in fair negotiations for that consent. Nonetheless, here the Court explains how it determines what are the reasonable expectations of the non-breaching party.
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