Delaware Business Litigation Report

Supreme Court Clarifies Fraud Disclaimers

RAA Management LLC v. Savage Sports Holdings Inc., C.A. 577, 2011 (May 18, 2012)

It is common in sales of a company to have a non disclosure agreement containing a waiver of any claim, including a fraud claim, by the buyer that is based on any representation not specifically included in the final agreement of sale.  In other words, there may be no reliance on any oral representation or even any written materials unless the final agreement says the buyer is entitled to rely on that representation.  This Delaware Supreme Court decision squarely upholds such provisions.

After all, the result could hardly have been otherwise in this case.  For here, the would be buyer never actually agreed to buy, but only to take a look.  When it found out the facts, it walked away except to demand payment for its expenses.  To let a possible buyer recover expenses based on claims it had disclaimed going into the due diligence room seems unwise.

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Court Of Chancery Explains Right To Reformation

ASB Allegiance Real Estate Fund v. Scion Breckenridge Managing Member LLC, C.A. No. 5843-VCL  (May 16, 2012)

This is an excellent review of when a contract may be reformed by a court to correct a drafting mistake known by just 1 of the parties who remains silent in the face of the other party's obvious mistake about what the contract says.  Reformation is particularly appropriate when there is strong evidence from past dealings over what the parties intended to be in the contract and when the error makes no economic sense.

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Confirming a Settlement That Your Client Hates

Authored by Edward M. McNally
This article was originally published in the Delaware Business Court Insider | May 16, 2012

Representing clients in class or derivative litigation is often tricky when a settlement is on the table. Your duty is to protect the class members or the entities that are your true clients.

But what happens when the class representative or nominal plaintiff does not agree with you? The usual solution to this dilemma, at least when considering a proposed settlement, is to take the dispute to the court for it to resolve. After all, the court will require that the class or other stockholders receive notice of the proposed settlement and will hear and decide any objection to it. What could be simpler? More ›

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Court Of Chancery Crafts Settlement Options

Forsythe v. ESC Fund Management Co. (U.S.) Inc., C.A. 1091-VCL (May 9, 2012)

When the Court tasked with reviewing a settlement proposal in a derivative action is faced with apparently well-intentioned objectors who want to go to trial and not settle, deciding what to do is not easy.  This decision comes up with an ingenious solution - let the objectors "buy the settlement."   This is accomplished by giving the objectors time to put up a bond to effectively guarantee the recovery of the settlement amount and then permit the objectors to take over the litigation and go to trial.

It will be interesting to see if the objectors take the Court up on its proposal.  After all, the recovery in any derivative suit goes first to the entity involved.  Any one who funds such litigation needs to be aware of the risk that sharing in the recovery is its only reward.

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Court Of Chancery Enjoins Proxy Contest For Violation Of NDA

Martin Marietta Materials Inc. v. Vulcan Materials Company, C.A. 7102-CS (May 4, 2012)

Non-disclosure agreements are often used and frequently ignored.  Well not any more.  This decision enjoins a proxy contest for 4 months because the bidder violated a NDA in its proxy materials.  This unique remedy will make it much more important to carefully draft and to honor NDAs.

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Court Of Chancery Applies Corporate Law To Statutory Trust Case

Protas v. Cavanagh, C.A. 6555-VCG (May 4, 2012)

This decision answers the question of what law will apply to decide if a beneficiary of a Delaware statutory trust may bring a derivative suit.  The court held that the established law under the DGCL and Rule 23.1 applies.  Hence, the beneficiary must show that either the director defendants are conflicted or that there is a substantial basis to believe that they will be liable because their actions are so outlandish that they are not protected by the business judgment rule.

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Delaware's Business Courts Seek Comments

Authored by Edward M. McNally
This article was originally published in the Delaware Business Court Insider | May 2, 2012

In May 2010, the Delaware Supreme Court established its Complex Commercial Litigation Division. The CCLD is a true "business court," intended to supplement and complement Delaware's pre-eminent court for business disputes, the Delaware Court of Chancery. Since it was established, more than 100 civil actions have been filed in the CCLD. More ›

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Court Of Chancery Explains Drag Along Rights

Dawson v. Pittco Capital Partners L.P., C.A. 3148-VCN (April 30, 2012)

This is an interesting decision because it explains the limits of drag along rights.  While some old case law and some new contract language try to spell out when a stockholder, creditor or other interested party may have their rights affected by a corporate transaction taken without their consent, this makes it clear that there needs to be very explicit authority to do so, particularly when we are talking about drag along rights that are contractually based.

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Court Of Chancery Values Smaller Company

Gearreald v. Just Care Inc., C.A. 5233-VCP (April 30, 2012)

This is an interesting appraisal case because it explains the issues dealing with valuing a smaller company.  As they are riskier, for example, a small company risk premium is proper in determining what its cost of capital should be.

 

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Superior Court Limits Savings Clause

Huffington v. T.C. Group LLC, C.A. N11C-01-030-JRJ-CCLD  (April 18, 2012)

Delaware has a savings statute that generally prevents the statute of limitations from expiring when a case is dismissed for technical reasons and then refiled in the right court.  But, as this decision points out, the savings statute has a much narrower scope than some might believe.  Thus, when as here, a case is filed in a jurisdiction other than that chosen by the parties in their contract and then dismissed for having violated the forum selection clause, the savings statute does not apply.

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Court Of Chancery Examines Advance Notice Bylaw

Icahn Partners LP v. Amylin Pharmaceuticals Inc., C.A. 7404-VCN (April 18, 2012)

An advance notice bylaw requires stockholders to tell their company substantially in advance of a stockholders' meeting if they want to nominate someone to to be elected as a director at that upcoming meeting.  But, under the Hubbard decision, sometimes the Court of Chancery will set aside such a bylaw when it is used in a way the Court finds is inequitable.  Here Carl Icahn is claiming that the Board changed its basic business strategy after the advance notice bylaw deadline has passed and it would be inequitable under those circumstances to bar him from nominating a slate of directors to bring the company back on course.  The Court has agreed to hear his claim.  The outcome will be interesting.

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2012 Federal Trial Practice Seminar: An Introduction to Federal Practice in the District of Delaware

The Delaware Chapter of the Federal Bar Association, in conjunction with the United States District Court for the District of Delaware, is pleased to announce another exciting new initiative.  On the evenings of Thursday, May 17 and Thursday, May 31, 2012, from 5:00 to 7:30 p.m., the District Court and FBA will sponsor a two-night seminar program entitled “The Federal Trial Practice Seminar Presents:  An Introduction to Federal Practice in the District of Delaware.”  The sessions will take place in Courtroom 2B at the J. Caleb Boggs Federal Building.

Attorneys who have been practicing in the District for three years or less are eligible to participate in this seminar.  One of the two seminar sessions will relate to an attorney’s interaction with opposing counsel and participation in the litigation process, while the other session will focus on an attorney’s interaction with the Court.  Each session will include a presentation from a speaker and a panel discussion.  The speakers and panel members will be current and/or former judges of the District Court.

Participation is limited to FBA members.  Current FBA members may register for the seminar by contacting Steve Brauerman via e-mail at sbrauerman@bayardlaw.com, by no later than May 14, 2012.  Those interested in participating in the seminar who are not currently FBA members may contact Mr. Brauerman at the e-mail address listed above to obtain additional information about FBA membership.

Space for the seminar is limited and applicants will be accepted on a first-come, first-served basis.  Applicants should be available to attend both sessions.  Admission to the seminar is free and the FBA expects to apply for Continuing Legal Education credit in Delaware for both sessions.

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Supreme Court Confirms Fee Award Principles

EMAK Worldwide Inc. v. Kurz,  No. 512, 2011 (April 17, 2012)

The Delaware Supreme Court has once again confirmed that substantial attorney fee awards may be appropriate even when the plaintiff has not won a large monetary recovery.  That is particularly so when the plaintiff has protected stockholder voting rights, as in this litigation.

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Failure to Plead Demand Futility Risks Losing Attorney Fees

Authored by Lewis H. Lazarus
This article was originally published in the Delaware Business Court Insider | April 11, 2012

When a defendant engages in arguably unlawful conduct, a plaintiff files an action to complain about and seek relief prohibiting the unlawful conduct, and the defendant thereafter changes its practices and moots the plaintiff's complaint, a plaintiff may be entitled to attorney fees based upon the benefit conferred. Absent such a rule, a plaintiffs counsel could undertake a contingent-fee case, incur fees to investigate and file the action and then wind up with no case and no compensation, even though the defendant had changed its practices in a manner consistent with the plaintiff's demand. More ›

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Court Of Chancery Explains When Director May Be "Interested"

In re Answers Corporation Shareholders Litigation, C.A. 6170-VCN (April 11, 2012)

Directors who are also officers have an interest in a merger when they are to retain their jobs in the merged company.  Delaware has recognized that this interest is inevitable in many cases and is usually not enough to make that director's vote for the merger considered an interested transaction. Of course, if future employment is negotiated improperly, the director may well be "interested," particularly if he both negotiates the merger and his future employment at the same time.

But what happens if he does not do so? Here the director/officer was deemed to be an interested director who had to prove the entire fairness of the deal because he knew he was about to be fired unless the deal was done soon.  This illustrates the importance of context.

Finally, the opinion is also interesting for its review of when circumstantial evidence is enough to show the acquiror had knowledge of possible fiduciary duty breaches so as to be an aider and abettor.

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