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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Supreme Court Clarifies Inspection Rights
State Courts Continue to Wrestle With Jurisdictional Conflicts
Authored by Edward M. McNally
This article was originally published in the Delaware Business Court Insider | November 16, 2011
What happens when two courts in different states have the same case? Delaware courts, both state and federal, frequently face that question.
A Delaware entity may be sued in Delaware because that is its place of incorporation. Particularly in class action litigation, the Delaware entity may also be sued by a second plaintiff in another jurisdiction where that plaintiff resides, on the same claim brought in Delaware.
In just the last few weeks, the Delaware Court of Chancery and the federal District Court in Delaware have provided guidance of what they will do when faced with multijurisdictional litigation. More ›
ShareCourt Of Chancery Analyizes Class Conflicts
Garrett v. Zon Capital Partners LP, C.A. 5607-CS (November 10, 2011)
This is a rare Court of Chancery decision discussing when a class should be certified. The Court reviewed and dismissed the claim that there was a conflict of interest among class members, based on a funds flow analysis.
ShareCourt Of Chancery Explains Good Faith And Fair Dealing
Winshall v. Viacom International Inc., C.A. 6074-CS (November 10, 2011)
This is another case where a party tried to re-do a contract by claiming that the failure to give it more than it bargained for constituted a violation of the covenant of good faith and fair dealing. In rejecting that claim, the Court again explains the tight limits of that covenant. It just can not be used to make a new deal.
Affirmer, del Sup. 39, 2013 (October 7, 2013).
ShareCourt Of Chancery May Appoint A Receiver To Collect Insurance
In The Matter of Krafft-Murphy Company Inc., C.A. 6049-VCP (November 9, 2011)
This decision upholds the power of the Court of Chancery to appoint a receiver for a dissolved Delaware corporation to collect on the corporation's insurance polices covering asbestos claims. This may be done even more than 10 years after formal dissolution and provides a way to pursue insurance coverage despite the general law that prohibits direct claims against an insurer.
See also the Supreme Court's reversal of part of the Court's ruling at Anderson v. krafft-Murphy Company, Inc. Del Sup. C.A. 85, 2013 ( November 26, 2013).
ShareCourt Of Chancery Again Interprets The Step Transaction Doctrine
Coughlan v. NXPB, C.A. 5110-VCG (November 4, 2011)
It is sometimes important to decide if a series of transactions are to be coupled together to be treated as one. The so-called step transaction doctrine does that when applied. Here the Court used the step transaction to interpret an agreement that gave the selling stockholders the right to a bump up in the merger consideration and certain protections if company assets were sold before all the additional consideration was paid. This somewhat lenient application of the doctrine may signal its greater acceptance by the Court.
ShareOut of Many Can Come One: Supreme Court Considers Transaction Aggregation Doctrines
Authored by Peter B. Ladig
This article was originally published in the Delaware Business Court Insider | November 2, 2011
Recently, the Delaware Supreme Court issued an opinion resolving a dispute between an indenture trustee and the issuer of bonds pursuant to an indenture governed by New York law arising out of the issuer's business plan of divesting certain assets. While any example of the Supreme Court's analysis of a contractual provision is helpful to drafters of those contracts, it was the Supreme Court's emphasis on uniform interpretation of boilerplate provisions that makes this opinion noteworthy. More ›
ShareSuperior Court Explains Physical Evidence Requirement
Elegant Slummimg Inc. v. NGM, C.A. 810C-11-013-RFS (November 30, 2011)
This scholarly review of Delaware law explains the "physical evidence requirement" in some insurance policies.
ShareCourt Of Chancery Explains The Incorporation Basis For Personal Jurisdiction
Connecticut General Life Insurance Company v. Pinkas, C.A. 5724-VCN (October 28, 2011)
It is sometime claimed that the act of incorporating a Delaware corporation is enough to subject the incorporator to jurisdiction in Delaware. After all, an old case does do just that. But as this decision points out, the act of incorporating has to be an integral part of the actions that give rise to the claims asserted. That is not so easy to show and did not work in this case.
ShareCourt Of Chancery Explains What Is A Control Group
Dubroff v. Wren Holdings LLC, C.A. 3940-VCN (October 28, 2011)
What is a derivative claim is sometimes hard to decide but may be central to a plaintiff's right to bring suit. Under the Supreme Court's Gentile decision, a claim that the controlling stockholder has improperly diluted the minority shareholders' stock may be filed as a direct claim on behalf of those stockholders and does not have to pass the tough rules governing the filing of derivative litigation. Who then constiutes a "controlling stockholder?" This decision holds that a group may be in "control" for the purposes of the Gentile rule and explains how to decide if that control group exists.
The decision also further explains what sort of dilution qualifies to invoke Gentile, when disclosures after action by stockholder consent must be complete and that a pending class action tolls the statue of limitations until the class certification process is complete.
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Delaware's Court of Chancery Prevents Parties From Escaping Their Chosen Forum by Artful Pleading
Authored by Lewis H. Lazarus
This article was originally published in the Delaware Business Court Insider | October 26, 2011
Parties to a well-drafted contract can expect the Delaware courts to enforce the bargain reflected in their agreement, and that includes an agreement on forum selection. The Court of Chancery's Sept. 14 decision in ASDC v. The Richard J. Malouf All Smiles Grantor Retained Annuity Trust provides guidance to practitioners on how to draft and enforce a forum selection clause. The key takeaway is that a party who negotiates for dispute resolution in a Delaware forum can expect the Delaware Court of Chancery to enforce its forum selection and, where appropriate, enjoin the opposing party from going forward with litigation elsewhere.
That outcome, however, results only when the parties properly draft their forum selection clause not only to choose a forum that has jurisdiction, but also to provide that their clause covers all disputes that arise from or relate to their contract. In these circumstances, a Delaware court will specifically enforce the agreement and enjoin the breaching party from litigation elsewhere as the Malouf decision illustrates.
Why Alternative Entities May Not Protect Investors
Authored by Edward M. McNally
Originally published in the Delaware Business Court Insider on October 19, 2011
In recent years, limited liability companies and limited partnerships have become the preferred form of entity for new businesses. In Delaware, for example, there are now more LLCs and LLPs formed each year than Delaware corporations. There are various reasons for this development, particularly the flexibility of management these alternative entities permit. More ›
ShareSuperior Court Explains How To Calculate Fee Award
Relax Limited v. ANIP Acquisition Company, C.A. 10C-06-032 JRS CCLD (October 17, 2011)
A frequent issue is how to calculate a fee award when the prevailing party has only been partially successful. This decision turns on the unique provisions of English law, but is still an interesting exercise in awarding some but not all the fees to a party who only partially prevailed.
ShareCourt Of Chancery Awards $1.263 Billion In Damages
This is the largest monetary award in the history of the Court of Chancery, $1.263 Billion plus interest. Indeed, except for 1 other case decided outside of Delaware, it may be the largest breach of fiduciary duty case anywhere else. It certainly should end the claim that the Delaware courts always favor management.
The decision is particularly instructive about how a special negotiating committee should conduct or not conduct itself. For that reason alone it is required reading for anyone who cares about such things.
ShareCourt Of Chancery Explains What Is A Duty Of Loyalty Claim
In re Alloy Inc. Shareholder Litigation, C.A. 5626-VCP (October 13, 2011)
Delaware corporate law permits a Delaware corporation to exonerate directors from claims that they acted negligently. Those claims are known as "duty of care" claims. However, the same statute also states that claims for acting in bad faith [known as "duty of loyalty" claims] may not be so easily precluded. Hence, plaintiffs often seek to cast their complaints as duty of loyalty claims. Often, this takes the form of alleging that no loyal director could have been so stupid as to do what those directors are alleged to have done and so they must have been disloyal, not just negligent.
Well as this decision shows, it is just not that easy to plead a duty of loyalty claim. You need really strong facts, not just conclusions. This decision is a good example of how the Court analyzes those sorts of allegations and will dismiss a complaint that lacks the facts to sustain a duty of loyalty claim.
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