Delaware Business Litigation Report

Court Of Chancery Addresses "Blank Check Company" Agreement

Ruffalo v. TransTech Service Partners Inc., C.A. 5039-VCP (August 23, 2010)

This decision addresses the rights of investors in a so-called "blank check company" where a pool of money is raised to invest in some to-be determined business.  Not surprisingly,  the investors' rights are determined by what the certificate of incorporation provides. That may not be an easy matter to determine, as such "contracts' are, as here, complicated and not always clear.

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Court Of Chancery Clarifies Rules On Class Action For Fraud Claims

Dubroff v. Wren Holdings LLC, C.A. 3940-VCN (August 20, 2010)

This decision clarifies when a class action may be brought arising out of a claim based on the duty of disclosure.  Briefly, when there was no request for the stockholders to vote [such as when they just receive notice of a completed corporate action], then a plaintiff must prove "reliance, loss causation and damages."   As those elements of the claim may vary for each individual plaintiff, a class action is inappropriate.  Delaware does not recognize the "fraud on the market" theory in those instances.

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Court Of Chancery Finds Claim For Violation Of Section 141 Is Direct

Grayson v. Imagination Station Inc., C.A. 5051-CC (August 16, 2010)

Determining if a claim is direct or derivative is often difficult.  Here the Court explains that a claim asserting the directors are acting outside their authority in violation of the relationship set out in Section 141 of the Corporation Code is direct. The facts of this case are unusual as it involves a stockholder agreement whose apparent violation is at the center of the decision.

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Court Of Chancery Awards Fees For Contempt

Aveta Inc. v. Bengoa, C.A. 3598-VCL (August 13, 2010)

This is an interesting decision for its explanation of the criteria the Court will consider in reviewing a fee application. The Court held that when the fee award is under the terms of a contract, then the primary criteria is to make the applicant whole for the fees it paid. Of course, the fees must still be reasonable.

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Court Of Chancery Explains Pill Limits

Yucaipa American Alliance Fund II, L.P. v. Riggio, C.A. 5465-VCS (August 12, 2010)

In this important decision, the Court of Chancery explains the limits on what may be included in a poison pill.  Briefly, the pill must not preclude a successful proxy contest.  This may mean that a pill that is triggered by a very low threshold is invalid.  However, a pill that does preclude joint proxy solicitations seems permissible.  In any event, the Unocal test will be applied.

The Court's very careful analysis is well worth studying.  For as it makes clear, the process used to adopt the pill is important with, as usual, the role of independent directors being critical. The effect of the pill under the particular circumstances is also important and while the Court does seem willing to accept the judgment of the Board when the process is sound,  the facts will be reviewed in a sort of balancing test to see if a proxy contest is precluded by the pill.

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Court Of Chancery Reiterates Duty Of Attorneys

Phillips v. Firehouse Gallery LLC, C.A. 3644-VCL (August 9, 2010)

To its credit, the Court of Chancery has recently reminded attorneys of their obligations to cooperate in litigation.  Here it levied a $5,000 fee to be paid personally by a lawyer who failed to carry out that responsibility.

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Benchmark Litigation 2011 Names 5 Morris James Partners Among Top "Local Litigation Stars"

Morris James LLP is pleased to announce that five of its partners have been recognized among the top Delaware litigation attorneys in Benchmark Litigation 2011 - The Guide to America's Leading Litigation Firms and Attorneys.

Morris James’ Litigation Stars

Rich Galperin 
Clark Collins
Richard Herrmann
Lewis Lazarus
Edward McNally 

Benchmark Litigation focuses exclusively on litigation lawyers and firms in the United States.  Recommendations are based on extensive face-to-face and telephone interviews with the nation’s leading private practice lawyers and in-house counsel.

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18 Morris James Attorneys Selected by their Peers for Inclusion in The Best Lawyers in America® 2011

18 Morris James attorneys in 13 practice areas were recently selected by their peers for inclusion in The Best Lawyers in America® 2011.  New to the list are Mark D. Olson and Bruce W. Tigani from the firm’s Tax, Estates and Business practice.  The firm’s Real Estate Practice Group Chair, Richard Beck, has been named in this highly regarded publication since its inception in 1983. 

The Best Lawyers in America® 2011 has become universally regarded as the definitive guide to legal excellence.   Their rigorous research is based on an exhaustive peer-review survey in which more than 39,000 leading attorneys cast almost 3.1 million votes on the legal abilities of other lawyers in their practice areas.  The Morris James attorneys listed in the 2011 edition and the areas of law in which they are recognized include:

COMMERCIAL LITIGATION
• P. Clarkson Collins, Jr. (2005)
• Lewis H. Lazarus (2006)
• Edward M. McNally (2005)
• James W. Semple (2009)

CORPORATE LAW
• P. Clarkson Collins, Jr. (2005)
• Lewis H. Lazarus (2006)
• Edward M. McNally (2005)

ELDER LAW
• Mary M. Culley (2008)

EDUCATION LAW
• David H. Williams (2007)

FAMILY LAW
• Gretchen S. Knight (2007)

INFORMATION TECHNOLOGY LAW
• Richard K. Herrmann (2003)

INSURANCE LAW
• Mary B. Matterer (2009)

LABOR AND EMPLOYMENT LAW
• David H. Williams (2007)

PERSONAL INJURY LITIGATION
• Keith E. Donovan (2009)
• Dennis D. Ferri (2007)
• Richard Galperin (2005)
• Francis J. Jones, Jr. (2008)

REAL ESTATE LAW
• Richard P. Beck (1983)
• John Bloxom IV (2010)

TAX LAW
• Daniel P. McCollom (2007)
• Mark D. Olson (2011) *
• Bruce W. Tigani (2011) *

TECHNOLOGY LAW
• Richard K. Herrmann (2003)

TRUSTS AND ESTATES
• Mary M. Culley (2008)

* Indicates First Year on List
 

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Court Of Chancery Clarifies Right To Advancement By A Plaintiff

Baker v. Impact Holding Inc., C.A. 5144-VCP (July 30, 2010)

When may a former director obtain advancement of his attorney fees when he files suit?  A series of past decisions held that a counterclaim plaintiff may, in the right circumstances, obtain advancement for prosecuting his counterclaim and other decisions have upheld advancement for a plaintiff under a bylaw or other right that was broadly drafted to require such advancement.

However, when the bylaw or other contractual provision requires advancement for litigation "in defense" of a claim, this decision holds a plainitff may not obtain advancement for bringing suit on his behalf.

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Court Of Chancery Discusses Role Of Bankruptcy Appointee

Shandler v. DLJ Merchant Banking Inc., C.A. 4797-VCS (July 26, 2010)

This decision is interesting for its discussion of the role of an appointee of the bankruptcy court and the pursuit of post-bankruptcy derivative claims.

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Court Of Chancery Upholds Notice Requirement In Stockholder Agreement

TR Investors LLC v. Genger, C.A. 3994-VCS (July 23, 2010)

Stockholder agreements frequently provide that notice must be given before any stock subject to the agreement may be transferred.  Usually, the notice triggers a right to buy.  Here the Court, as expected, held that the failure to give the notice does not end the other party's right to buy, but the stock and informal notice is not good enough to comply with the formality required by the agreement.

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Court Of Chancery Upholds Insurance Claims Arising Out Of Madoff Scandal

Massachusetts Mutual Life Insurance Company v Certain Underwriters At Lloyds , C.A. 4791-VCL (July 23, 2010)

This decision holds that insurance in the form of an indemnity bond or a D&O policy may cover losses suffered as a result of the Madoff fraud.  The application of a bond to such claims may surprise some as Madoff was not an employee whose dishonesty was the cause of the loss. However, as the Court notes, the bond at issue was written very broadly and may well cover dishonesty of such third persons.

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Court Of Chancery Upholds Discretion Not To Invest

Related Westpac LLC v. JER Snowmass LLC, C.A. 5001-VCS (July 23, 2010)

For some reason probably rooted in human nature, parties to LLC agreements seem to think the agreement should provide that all the parties act "fairly" toward one another.  Of course, each party then defines what is "fair" by what they want to get out of the deal.  However, as this decision points out, when an agreement provides that a party has the discretion whether to advance additional funds or not, that is its choice to make.  Whether the choice is "fair" or not is irrelevant and the other parties to the agreement have no basis to complain about that decision.

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Court Of Chancery Holds Directors Subject to Contribution Claims

Hampshire Group Limited v. Kuttner, C.A. 3607-VCS (July 12, 2010)

This decision holds that the Unifrom Contribution Among Joint Tortfeasors Act applies to claims against directors. While at least 1 other court agreed with this point, this is the first Delaware decision on this issue.

This is important becaue it has serious implications to settlements with some but not all directors in derivative and class claims and as it may give leverage to former directors who are now on the outs.

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Court Of Chancery Explains Delaware Freeze Out Law

In Re CNX Corporation Shareholders Litigation, C.A. 5377-VCL (July 5, 2010)

Perhaps no area of Delaware corporate law is as confusing as that applicable when a company is taken private by a majority owner in a freeze out of the other shareholders.  This scholarly opinion explains that at least 3 different standards of review have been applied by the Court of Chancery in its review of such transactions.  As a result, the Court has certified its latest decision for appeal to the Delaware Supreme Court with a request that the law be clarified.

Until that clarification is issued, however, this is the definitive analysis of Delaware law in this area and deserves to be read, carefully.

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