Delaware Business Litigation Report

Court Of Chancery Explains Email Evidence Rule

Court Of Chancery Awards Damages In Corporate Opportunity Decision

Dweck v. Nasser, C.A. 1353-VCL (January 18, 2012)

This is a classic example of just about everything that you should not to do in running a closely-held company.  Everybody involved seems to have ignored his or her fiduciary duties.  Hence, it is a useful precedent because the breaches cover all sorts of misconduct, any one of which might be found in your case.

Another important point about this decision is its recognition that breaches of duty may be waived if not objected to, particularly when some benefit is received by the party who later objects to what was done.

Court Of Chancery Enjoins Loan Restructuring

Trilogy Portfolio Company Inc. v. Brookfield Real Estate Financial Partners LLC,  C.A. 7161-VCP (January 13, 2012)

This decision is an example of the growing Court of Chancery litigation over enforcement of loan agreements.  The court reviewed the recent deicisions over when to issue an injunction or instead leave the parties to a damages remedy.  Here the decision is affected by the procedural stance of the litigation because the burden the plaintiff must bear is somewhat less at the TRO stage and the decision fully explains how that affected its conclusion to issue an injunction.

Delaware Federal District Court Adopts ESI Discovery Guidelines

Morris James Welcomes Bryan Townsend as an Associate in its Corporate and Fiduciary Litigation Group

Mr. Townsend focuses his practice on litigation involving complex corporate, commercial and fiduciary matters. He clerked for Chancellor William B. Chandler III in the Delaware Court of Chancery from 2009-2010 after graduating from Yale Law School in 2009, where he served as Co-Editor-In-Chief for the Yale Journal on Regulation. Mr. Townsend earned an M.Phil. in Chinese Studies from the University of Cambridge in 2006 after attending Peking University (Beijing Daxue) in 2005, where he studied Chinese language, economics, and politics. He received three degrees from the University of Delaware: an Honors B.A. with Distinction in Philosophy and Biology in 2004, and an M.A. and Honors B.S. in Economics in 2003.

Mr. Townsend is a volunteer attorney for the Delaware Office of the Child Advocate, Delaware Volunteer Legal Services, and Widener Law School’s Veterans Law Clinic. He is a director on the board of the University of Delaware Alumni Association and served from 2004-2005 on the University’s Board of Trustees. Mr. Townsend is an ardent supporter of Special Olympics Delaware and is a volunteer Big Brother with Big Brothers Big Sisters of Delaware. For his commitment to leadership in the public service, Mr. Townsend was selected as a 2003 Harry S. Truman Scholar, one of seventy-six individuals nationwide to receive the honor. He is a member of the bars of Delaware (2010) and the United States District Court, District of Delaware (2011).

Court Of Chancery Upholds No Trading Rule

Steinhardt v. Howard-Anderson,  C.A. 58787-VCL (January 6, 2012)

A class representative may not trade in the stock held by his class members based on information he learns in the litigation.  That is the usual rule reflected in the typical confidentiality order entered in such cases in Delaware.  This decision collects several other unreported decisions following that rule and shows how to calculate the trading profits that must be returned to the class when the rule is violated.

Court Of Chancery Limits Implied Duties

Gerber v. Enterprise Products Holdings LLC, C.A. 5989- VCN (January 6, 2012)

This is an important decision because it reaffirms the ability in an LLC agreement to severely limit the right to sue.  Here the LLC agreement first said that if the committee appointed to review conflict of interest decisions did so,  then there was no right to sue for breach of fiduciary duty by the controllers. The Plaintiff tried to argue that the implied duty to act in good faith and fairly still meant the controllers could not have acted in good faith by submitting the conflicted transaction to the committee.  However, the LLC agreement also said that if the controllers acted after receiving expert advice the transaction was fair, then they were conclusively presumed to have acted in good faith. The Court agreed that cut off the claim based on implied duties.

Supreme Court Explains Contract Analysis

GMG Capital Investments LLC v. Athenian Venture Partners I, LP, No. 514, 2010 (January 3, 2012)

This decision is a clear explanation of how to determine if a contract is ambiguous on a point.  If it is, then evidence of the parties' intentions is necessary to decide what the contract provides.

Court Of Chancery Explains Right To Advancement For Pre-Merger Conduct

Danenberg v. Fitracks Inc., C.A. 6454-VCL (January 3, 2012)

Delaware officers and directors are usually entitled to have their litigation expenses advanced when they are sued for their conduct in those corporate capacities.  Exactly what conduct is alleged to be wrongful is key to determining if that right to advancement applies.  For example, if after a merger a director ceases to be a director, then he is not entitled to advancement for litigation over that conduct.  This decision illustrates how the Court will decide what conduct is involved in the underlying litigation so as to decide if advancement is required.

Court of Chancery Circulates Draft Practice Guidelines

 Authored by Edward M. McNally
This article was originally published in the Delaware Business Court Insider | December 28, 2011

The Delaware Court of Chancery has long followed unwritten practices that knowledgeable attorneys follow. Recently, the court began circulating a draft "Guidelines to Help Practitioners Litigating in the Court of Chancery."

A product of consultation between the court and its rules committee, the guidelines are still a work in progress. They should not be cited to the court and do not set a standard of conduct or practice that the court requires be followed.

Yet a wise attorney will follow these established practices, if only to avoid unnecessary conflict with the court or appearing to be ignorant of its traditions. This is a brief summary of the 18 pages of guidelines. More ›

Court Of Chancery Extends Stockholder Meeting Date

Sherwood v. Chan,  C.A. No. 7106-VCP (December 20, 2011)

There is nothing more sacred in Delaware corporate law than the right of the stockholders to elect directors.  This decision illustrates that point and what the Court of Chancery will do when it feels that right has been improperly infringed, including extending the meeting date.

Supreme Court Determines Interest Award

Brandywine Smyrna Inc. v. Millennium Builders Inc., No. 53, 201 (December 9, 2011)

 When a prevailing party is entitled to interest on its judgment has sometimes been confusing.  This decision affirming the general right to interest clarifies Delaware law.

Court Of Chancery Clarifies Pleading Rules For Bad Faith Claims

Clean Harbors Inc. v. Safety-Kleen Inc.,  C.A. 6117-VCP (December 9, 2011)

This decision clarifies the detail that must be pled to assert a claim that the defendant acted in "bad faith."  The short answer is that any set of facts that warrants such an inference is enough to state such a claim.

Court Of Chancery Provides More Guidance On Fee Awards

In re Compellent Technologies Inc. Shareholder Litigation, C.A. 6084-VCL (December 9, 2011)

How do you set the fee to be awarded when there is no monetary recovery in a representative action?  For example, if the litigation creates a benefit to shareholders by reducing deal protection measures to permit a possible topping merger bid, but no topping bid appears, what should be the fee?   Using studies that attempt to calculate the benefits of such litigation, this decision sets out a methodology to guide applicants.

Preferred Shareholder Must Look to Certificate of Incorporation to Prove Redemption Right, Supreme Court Reaffirms

Authored by Lewis H. Lazarus
This article was originally published in the Delaware Business Court Insider | December 7, 2011

When is a holder of preferred shares of a Delaware corporation entitled to have the corporation redeem its investment? In SV Inv. Partners LLC v. ThoughtWorks Inc., Nov. 15, the Delaware Supreme Court reaffirmed that question is answered by reference to the terms of the certificate of incorporation that establish the rights of the preferred stockholder and to the proof at trial.

At issue was a clause in the company's charter that required the company to redeem the entire amount of outstanding preferred stock "out of any funds legally available therefore and which have not been designated by the board of directors as necessary to fund the working capital requirements" of the company. The Court of Chancery had concluded that "funds legally available" meant funds that could be disbursed for redemption without violating the Delaware General Corporation Law, specifically Section 160 of the DGCL, or common law. The Court of Chancery had rejected the plaintiff's definition of "legally available funds" as meaning the same as "surplus."  More ›