Delaware Business Litigation Report

Court Of Chancery Explains Corporate Opportunity Doctrine

In Re MobilActive Media LLC, C.A. 5725-VCP (January 25, 2013)

This is an essential decision for anyone dealing with the corporate opportunity doctrine.  Under that doctrine, a fiduciary who takes an opportunity that might have been instead given to his corporation (or LLC or LLP) is liable for any gain made by him as a result.  One prime defense to such a claim is that the entity lacked the means to develop  the opportunity itself and thus suffered no real harm when it lost that opportunity.  This decision significantly undercuts that defense.

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What's Behind the Chancery Court's New Rule 5.1

Authored by Peter B. Ladig
This article was originally published in the Delaware Business Court Insider | January 23, 2013

On January 1, Court of Chancery Rule 5.1 became effective, replacing the now-deleted Rule 5(g). The adoption of Rule 5.1 represents a fundamental change to most aspects of the handling of confidential filings in the Court of Chancery. As with any rule, the drafters attempted to craft the rule to account for almost all situations, cognizant of the fact that application of the rule likely would reveal unintended consequences that would need to be addressed in the future. Until the court has sufficient information to determine whether any amendments are necessary, an understanding of the purpose behind certain of the changes in the handling of confidential filings may help bridge any unintended gaps. While the factors listed below are by no means exhaustive, the key tenets behind Rule 5.1 should provide some guidance in uncertain situations. More ›

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Court Of Chancery Explains Special Committee Standard Of Care

Gerber v. EPE Holdings LLC, C.A. 3543-VCN (January 18, 2013)

It is now common for LLC and LLP agreements to have provisions permitting a "special committee" to approve  transactions with a controller.  What the limits are of that form of protection is the subject of this interesting opinion.  As the Court points out, surely not every committee approval, no matter how onerous, can immunize the transaction from judicial review.  Here, even when the transaction did not get an independent adviser's review and was at a price reflecting a startling run up in value for the underlying assets, the complaint failed to allege facts sufficient to state a claim that the approval was in bad faith.  More was required.

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Court of Chancery Discusses Expedited Proceedings

The Renco Group Inc. v. MacAndrews AMG Holdings LLC, C.A. 7668-VCN (January 18, 2013)

This decision provides a good review of when the Court will expedite a proceeding.

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Agreement to Indemnify Does Not Include Fees

Bear Stearns Mortgage Funding Trust 2007-AR2 v. EMC Mortgage LLC,  C.A. 6861-CS (January 15, 2013, revised January 17, 2013) As this decision points out, an agreement to indemnify against loss does not necessarily mean that the indemnitee also recovers its attorney fees. This decision was substantially modified on 1/12/15 Share

Delaware Supreme Court Radically Changes Discovery Scheduling Practice

Authored by Edward M. McNally
This article was originally published in the Delaware Business Court Insider | January 9, 2013

In four decisions issued on the same day, January 2, the Delaware Supreme Court has radically changed the common practice among Delaware lawyers concerning discovery schedules in Delaware litigation. Not only do these opinions change how lawyers will handle discovery in Delaware cases, but they also potentially will affect how Delaware's trial courts control their dockets. Much more formal, active case management will be the result. There are severe consequences for those lawyers who do not follow these new procedures. More ›

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Court Of Chancery Awards Fees Separately For Disclosure And Settlement

In re MoneyGram International Inc. Shareholder Litigation, C.A. 6387-VCL (January 7, 2013)

This is a somewhat unusual fee award because of the way the Court did the calculation of the amount. The court divided the award into two parts, one for the additional disclosures and the second part for the settlement fund created by the plaintiff's efforts. The disclosure award is also larger than typical awards for added disclosures.

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Court Of Chancery Explains Bad Faith Claim

In re Novell Inc. Shareholder Litigation, C.A. 6032-VCN (January 3, 2013)

This decision well explains what may constitute a claim that a merger was entered into in bad faith. Such a claim is necessary to sustain a complaint when the majority of the directors are independent and disinterested.  Deal protection devices such as termination fees are not enough to show bad faith, at least when their terms are typical of such provisions.

Here the complaint adequately pled bad faith by alleging that the board favored 1 of 2 bidders for no good reason. For example, if the losing bidder made the highest offer, there must be some reason to not take its bid.  If not, the the board may be said to have acted in bad faith because that would knowingly violate its duty to get the best deal.

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Court Of Chancery Permits Limits On Advancement

Miller v Palladium Industries Inc., C.A. 7475-VCN (December 31, 2012)

This decision illustrates the need for careful drafting of bylaws regarding advancement rights.  The plaintiff claimed entitlement to mandatory advancement under the Company's bylaws.  However, the bylaws also provided that advancement was required "unless" the Board decided otherwise. The Court held that the word "unless" made advancement discretionary.  In contrast, a different bylaw that made advancement subject to board approval has been held to be mandatory so long as the request met the board's technical requirements as to the form of the requested advancement.  A word can make a lot of difference.

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Supreme Court Refines Rule On Failure To Follow Scheduling Order

The Delaware Supreme Court has issued 4 opinions that significantly refine the rules set out only 2 years ago in the Drejka decision on when a case may be dismissed for failing to meet the timetable in a scheduling order.  See Christian v. Counseling Resource Associates Inc., No. 460, 2011 (January 2, 2013);    Hill v. DuShuttle, No. 381, 2011 (January 2, 2013);   Adams v Aidoo, No. 177, 2012 (January 2, 2013) and Keener v. Isken, No. 609, 2011 (January 2, 2013). The Christian decision is perhaps the most significant.  From now on, if a party fails to meet a deadline for discovery, the opposing party will be precluded from objecting unless the opposing counsel alerts the Court to the failure and asks for formal relief.  Note that the Supreme Court's wording is very broad because it says that the first failure to object to a delay means the opposing party has "waived the right to contest any late filings by opposing counsel from that time forward." Literally then, all future delays are waived.  This seems too broad to be taken literally. For example, a failure to object to a 2 day delay on a minor matter should not preclude a failure later to provide an expert report.  Nonetheless, the current, somewhat lax, informal extensions are now a thing of the past.

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Supreme Court Requires Opt Out Class Action

In re Celera Corporation Shareholder Litigation, No. 212, 2012 (December 27, 2012)

The Delaware Supreme Court has required opt out rights in a class action settlement.  The objector that wanted to opt out was a major stockholder, the claims being settled were only damage claims and the class representative had acted in a way that called into question if it had adequately represented the class. Thus, this decision may be an abnormality and opt out rights will still continue to be rarely granted.  But, we shall see.

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Court Of Chancery Expands Entitlement To Injunction

AM General Holdings LLC v. The Renco Group Inc., C.A. 7639-VCN (December 21, 2012)

This is an interesting decision because it may extend the circumstances where the Court of Chancery will issue a preliminary mandatory injunction requiring the payment of money.  It is often said, perhaps wrongly, that there is an adequate remedy by the award of damages that precludes issuing an injunction requiring such a payment.  Here, however, the parties' contract contained a provision recognizing that irreparable harm would occur if the payment was not made and the failure to make the payment also frustrated a key provision in the parties' contract governing how their entity would be operated.  That was enough to get the injunction.

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Court Of Chancery Explains LLP Law

Metropolitan Life Insurance Company v. Tremont Group Holdings Inc., C.A. 7092-VCP (December 20, 2012)

While not having anything new, this decision is an excellent summary of the law on LLP agreements, such as their exculpation provisions.

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Court Of Chancery Explains Reach Of Post Sale Indemnification

Winshall v. Viacom International Inc., C.A. 6074-CS (December 12, 2012)

What claims does an indemnification clause in a sale of a company actually cover?   This decision is useful in interpreting a typical indemnification clause to point out that it does not cover future events absent  clear language.

Affirmed, Del Supr. 39, 2013 ( October 7, 2013).

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Court Of Chancery Again Upholds Fiduciary Duties In An LLC

Feeley v.  NHAOCG LLC, C.A. 7304-VCL (November 28, 2012)

For years the Court of Chancery has repeatedly held that the controllers of an LLC owe fiduciary duties to the members -  at least absent an express disclaimer of those duties in the LLC Operating Agreement.  Then on November 7, 2012 in the Gatz Properties decision, the Delaware Supreme Court said "not so fast" and indicated in no uncertain terms that the fiduciary duties of an LLC controller were not yet decided under Delaware law.  Well in this decision, the Court of Chancery decided that so long as the Supreme Court continued to not rule on the question,  the Court of Chancery would continue to hold those duties exist.  Maybe this will force the Supreme Court to decide that issue.

This decision is also interesting for its ruling on when a claim must go to arbitration.  If the claim might have been brought even without the contract having the arbitration clause in existence, then it need not be arbitrated.

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