About This Blog
Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Subscribe to Blog
JDSupra RSS
Join us on LinkedIn
Follow us on TwitterTopics
Top Posts
Top News
- February 19, 2021
- October 30, 2020
- April 1, 2024
Archives
Morris James Blogs
Court Of Chancery Discusses Director Removal Statute
Shocking Technologies Inc. v. Michael, C.A. 7164-VCN (April 10, 2012)
A year or so ago, the DGCL was amended to permit the removal of a director by the Court of Chancery. While the grounds to do are broadly stated (including "breach of the duty of loyalty"), the statute requires that the director first have been convicted of a felony or been found in a prior case to have breached his duty of loyalty. There thus remains the question of whether director removal may be done without a prior action that establishes the grounds to do so.
This decision suggests that such a direct action for removal will be very hard to win, for the Court expressed serious concerns over whether it has that authority absent the statutory prerequisites. The question is still open to be squarely decided in another case.
ShareWhat to Do When the Injunction Is Denied but the Directors Made a Mistake
Authored by Edward M. McNally
This article was originally published in the Delaware Business Court Insider | April 4, 2012
Recently, the Delaware Court of Chancery has found wrongful conduct but denied the remedy plaintiffs sought. The El Paso case is a prime example.
The court found the board of directors and, particularly, El Paso's president had failed to act properly in negotiating a merger. Even the company's investment bankers had a conflict of interests, yet, despite critical language in its opinion, the court refused to enjoin the merger. More ›
ShareCourt Of Chancery Upholds Limited Review Permitted By LP Agreement
In Re K-Sea Transportation Partners LP Unitholders Litigation, C.A. 6301-VCP (April 4, 20120)
This is another example of how an LP agreement may limit the review of a transaction by a court at the request of a dissatisfied partner. The partnership agreement provided that the GP only needed to act in good faith in approving a sale and defined good faith, in part, as established by reliance on an expert's advice. Since that was present, the court dismissed the complaint.
ShareCourt Of Chancery Explains Special Benefit Rule
Frank v Elgamal, C.A. 6120-VCN (March 30, 2012)
It is well understood that when a controlling stockholder stands on both sides of a transaction with his controlled entity that he will need to show the transaction is entirely fair to the other owners. But when he receives such a special benefit so as to be on both sides of the deal is not always so easy to decide. After all, it is common such acquirors to want to retain management. If the insiders get an employment contract, do they stand on both sides of the negotiations? This decision helps to answer that question. In general, if the controllers get an equity interest in the surviving entity to a merger that is not shared with the other owners, then they are on both sides of the transaction and must show it is entirely fair.
ShareDelaware Superior Court Instructs How To Raise Choice Of Law
When must a litigant raise any issue over the choice of the law that governs a dispute? Right away is the answer. As this decision correctly holds, if the parties brief their issue under Delaware law, trying to argue later that some other jurisdiction's law applies is too late.
ShareSupreme Court Interprets Post Closing Payment Clause
BLGH Holdings LLC v. EXXCO LFG Holding LLC, Del., C.A. 531, 2011 (March 27, 2012)
When a post-closing adjustment is due after a merger is sometimes disputed, particularly when it depends on the closing of another deal. Here the Supreme Court concludes that when the payment is due on the closing of another "deal" that new deal needs only to close, not to be exactly what the parties might have contemplated when they signed the merger agreement. Thus, this is another example of "you-get-what-you bargained-for" in Delaware.
ShareCourt Of Chancery Explains "Acquiescence"
In re Celera Corporation Shareholder Litigation, C.A. 6304-VCP (March 23, 2012)
This is an important decision because it clarifies when a stockholder will be deemed to have acquiesced to a merger, thereby losing her right to continue to litigate. In short, voting for the merger or accepting a tender offer is acquiescence. Accepting the merger consideration when the merger is inevitable is not acquiescence.
This decision is also useful for its explanation of how the Court will calculate the fees to be awarded.
ShareDealing With Disputes Over the Reasonableness of Fees at the Advancement Stage
Authored by Peter B. Ladig
This article was originally published in the Delaware Business Court Insider | March 21, 2012
Like many aspects of Delaware corporate law, the law of a corporate director or officer's entitlement to advancement is not black and white, but it is probably one of the more well established areas of law.
The contours of the law in this area have been addressed so often that members of the Delaware Court of Chancery have on occasion expressed frustration with corporations advancing defenses to mandatory advancement provisions that have little merit to them. (See, e.g., Barrett v. American Country Holdings Inc. a 2008 opinion in which the court wrote: "The accumulation of cases like this, where the stockholders get it coming and going because of the corporation's refusal to honor mandatory advancement contracts, is regrettable, and at some point, a case of sufficient dollar value will arise such that a board is sued for wasting the corporation's resources by putting up a clearly frivolous defense.") More ›
ShareCourt Leaves it to Stockholders to Decide on El Paso Merger Transaction
Authored by Lewis H. Lazarus
This article was originally published in the Delaware Business Court Insider | March 14, 2012
Chancellor Leo E. Strine Jr. has long had a high regard for the ability of stockholders to decide for themselves what is in their own best interests. A corollary of that is judicial restraint when stockholders on full information of flaws and conflicts of interests in a sales process have the opportunity to approve or reject a merger transaction with a substantial 47.8 percent control premium, albeit one likely not as robust as a well-run sales process may have generated. More ›
ShareCourt Of Chancery Explains When Continuing Wrong Theory Applies
Buerger v. Appel, C.A. 6539-VCL (March 15, 2012)
After a board makes a decision that has consequences that last for years, the question arises of when the time to litigate over that decision expires. Some decisions hold that when the decision is not reviewable later, such as when a long term contract is awarded, the time to attack that contract starts to run out the day the contract is approved. Here, however, the Court noted that the company had the right to cancel the contract every year. Thus, the Court held that each time the board decided not to cancel the contract, it made a new business decision that was subject to court attack from the date the contract was not cancelled.
ShareCourt Of Chancery Appoints Receiver To Resolve Strategic Issues
Badii v. Metropolitan Hospice Inc., C.A. 6190-VCP (March 12, 2012)
In this case the Court appointed a receiver for an insolvent corporation under Section 291 of the DGCL. The Court reasoned that the appointment was needed to break a deadlock over whether to implement a proposed tax strategy when there was little time left to deal with the IRS. This illustrates when a receiver may be appointed to make business decisions.
ShareDelaware Chancery Court Appoints Receiver for LLC
Authored by Edward M. McNally
This article was originally published in the Delaware Business Court Insider | March 7, 2012
The Delaware Court of Chancery recently took the largely unprecedented step of appointing a receiver for a Delaware limited liability company. While Jagodzinski v. Silicon Valley Innovation Co. LLC is a short opinion, it has large implications. Here are just a few, but first it is necessary to focus on its odd facts. More ›
ShareCourt Of Chancery Again Denies Injunction Despite Breach Of Duty
In re Delphi Financial Group Shareholder Litigation, C.A. 7144-VCG (March 6, 2012)
For the second time in a month, the Court of Chancery has denied an injunction against a merger despite serious breaches of duty by the lead merger negotiator. Here the controlling stockholder refused to vote for the transaction unless he received a "bonus" in the form of more for his stock than the other stockholders were to receive on a per share basis. This odd demand arose out of some equally odd provisions in the certificate of incorporation where the controller had agreed to equal treatment in any merger but now sought to take back that provision. That was wrong, the Court held. However, the deal was too good to enjoin when there was no other deal on the table and none likely to arise later if an injunction stopped the show. Hence, out of concern for the minority stockholders, the Court let the deal go through and left the stockholders with a damage claim.
While some commentators have argued that such a result is wimpy, they do not seem to worry about the impact on stockholders of killing a deal that represents the golden goose. The threat of a damage remedy should be enough to deter such conduct in the future, just as it does in other contexts.
ShareCourt Of Chancery Limits Fraudulent Inducement Claims
Schonfeld Group Holdings LLC v. Trillium Holdings LLC, C.A. 6759-VCL (March 6, 2012)
It occurs more than you might think that a party to a release later claims that the release is not binding because she was fraudulently induced to sign it. Applying recent New York law, here the Court holds that if the release covers "unknown claims," then it cannot be set aside by an claim that it was fraudulently induced.
ShareCourt Of Chancery Explains Priority Rule In Merger Litigation
Dias v. Purches, C.A. 7199-VCG (March 5, 2012)
It is often thought that the jurisdiction where suit is first-filed will obtain priority over later filed actions. As this decision makes clear, that is not true when the litigation involves a representative action and Delaware corporate law applies. For in that case, the Delaware courts will apply the doctrine of forum non conveniens that gives only slight weight to where the first suit was filed. More important in class or derivative actions is Delaware's interest in applying its corporate law to Delaware entities.
Share
