Delaware Business Litigation Report

Chancery Finds That Delaware’s Trade Secrets Statute Preempts Unjust Enrichment Claim for Same Alleged Misconduct

250ok, Inc. v. Message Sys., Inc., C.A. No. 2020-0588-JRS (Del. Ch. Jan. 22, 2021)

This decision clarifies the scope of preemption of common law claims under the Delaware Uniform Trade Secret Act (“DUTSA”). Plaintiff asserted both a claim under the DUTSA and a claim for unjust enrichment, where both claims arose from the same alleged misconduct. The Court of Chancery concluded that a trade secret claim under the DUTSA “occupies the field” and preempts a claim for common law unjust enrichment. Applying Delaware precedent on the issue, the Court explained that preemption applies not just to tort-based claims, but to any “alternative common law claims.” And, as previous decisions have held, preemption applies at the dismissal stage even though the Court may later find that the DUTSA does not protect the information at issue. Accordingly, the Court of Chancery dismissed the unjust enrichment claim.

Share

Chancery Orders Production of Privileged Emails Transmitted Using Third-Party Accounts

In re WeWork Litigation, Consol. C.A. No. 2020-0258-AGB (Del. Ch. Dec. 22, 2020)

This Court of Chancery discovery ruling illustrates the risks associated with directors and officers using non-company email accounts to communicate about company business, particularly as it relates to confidentiality and the attorney-client privilege. More ›

Share

Chancery Addresses Standing Defense And Control Allegations In Abandoned Tender Offer Dispute

In re WeWork Litig., C.A. No. 2020-0258-AGB (Del. Ch. Dec. 14, 2020)

This decision is the companion to another dismissal opinion in same case of the same date and arising out of the same abandoned multi-step tender offer transaction between WeCompany (“WeWork” or the “Company”) and SoftBank Group Corp. and Vision Fund (AIV M1) L.P. (together, “Softbank”). A summary of the companion opinion is available here.  More ›

Share

Chancery Addresses Authority of Executives to Remove Managers of Affiliate Entities

Roccia v. Mugica, C.A. No. 2020-0641-MTZ (Del. Ch. Dec. 29, 2020)

The inherent authority of officers of Delaware companies generally extends to powers in the usual and ordinary course of the relevant company’s business. Officers otherwise gain authority through either express grants from the company’s governing body or implied grants based on past practice. In the LLC context, sources of an officer’s actual authority may include the LLC’s operating agreement and any employment agreement. In this decision, the Court of Chancery held that the plain language of a Delaware LLC’s operating agreement and the relevant employment agreement did not grant the President and CEO of a parent-entity the authority to act on the parent’s behalf to remove a member of the board of managers of a sub-entity. More ›

Share

7 Takeaways From Recent Del. Statutory Appraisal Litigation

Statutory appraisal remains an active area of litigation in Delaware, notwithstanding recent legislation¹ designed to reduce appraisal arbitrage and judicial decisions that established a prominent role for market-based evidence.

This article distills important considerations for practitioners and their clients from the 2020 appraisal decisions of the Delaware Supreme Court and Delaware Court of Chancery.
More ›

Share

Chancery Declines to Apply Stockholder Approval Requirement of DGCL § 271 to Agreement to Transfer All Assets in Lieu of Foreclosure

Stream TV Networks, Inc. v. SeeCubic, Inc., C.A. No. 2020-0310-JTL (Del. Ch. Dec. 8, 2020)

In this decision, the Delaware Court of Chancery reviews the history of requirements to approve transfers of all assets both at common law and under the Delaware General Corporation Law, and concludes that Delaware law does not require majority stockholder approval for an insolvent corporation’s transfer of assets to a secured creditor in lieu of a foreclosure. The Court thus rejected an attempt by the corporation’s founders, who owned a majority of its stock, to invalidate the corporation’s agreement in that regard.  More ›

Share

Chancery Resolves Dispute Between Competing Special Committees, Finding Second Committee Could Not Voluntarily Dismiss Suit Brought By The First Committee Under The Zapata Framework

In re WeWork Litigation, C.A. No. 2020-0258-AGB (Del. Ch. Dec. 14, 2020)

This decision addresses a matter of first impression arising out of a dispute pitting two special committees of the same company, WeCompany (“WeWork” or the “Company”), against one another over control of a lawsuit on the Company’s behalf. The lawsuit involved claims against the Company’s putative controlling shareholders, SoftBank Group Corp. and SoftBank Vision Fund (AIV MI) L.P. (together, “SoftBank”), for abandoning a multi-step agreement by which SoftBank committed to a $3 billion tender offer for WeWork’s shares in addition to providing equity and debt financing (the “Transaction”). The same two-member committee that negotiated the Transaction on the Company’s behalf (the “Transaction Committee”), initiated the lawsuit with the support of the Company’s management (including WeWork’s Chief Legal Officer) as well as the Company’s outside counsel, Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”) More ›

Share

Chancery Analogizes to Bylaw Provisions to Conclude that Noteholder was Bound to Forum Selection Clause in Amended Note

Mack v. Rev Worldwide, Inc., C.A. No. 2019-0123-MTZ (Del. Ch. Dec. 30, 2020)

Plaintiff loaned defendant $2.5 million through six secured convertible promissory notes. Each of the notes contained an exclusive forum selection clause requiring any disputes be litigated in Texas. They also contained a “Waiver and Amendment” provision which allowed the notes to be amended or modified upon the consent of the borrower and a majority in interest of the investors in the notes. In 2019, exercising the Waiver and Amendment provision, the defendant borrower, with the consent of the majority of noteholders, consolidated the outstanding notes and amended certain provisions. The new amended note contained the same exclusive forum provision requiring that disputes be litigated in Texas, but the plaintiff noteholder nonetheless asserted default and other claims arising from the notes in the Delaware Court of Chancery. Defendant borrower moved to dismiss, and the plaintiff countered that it had not executed or otherwise consented to the terms of new amended note, including its forum selection provision. More ›

Share

Superior Court Dismisses Tortious Interference with Contract Claim against Corporate Officer

American Bottling Co. v. Repole, C.A. No. N19C-03-048 AML CCLD (Del. Super. Dec. 30, 2020)

This case illustrates that a Delaware court will dismiss a claim against an officer for tortious interference with a contract to which his or her company is a party unless a plaintiff can assert non-conclusory allegations that the officer acted outside the scope of his or her agency. In this case, the plaintiff and defendant-company were parties to a distribution agreement. The plaintiff brought a claim for tortious interference with contract against the CEO and chairman of the defendant-company claiming that the CEO terminated the agreement to enrich himself and his management team to the detriment of the plaintiff.  More ›

Share

Chancery Excuses Demand Where General Partner and its Controller Faced Substantial Likelihood of Liability

Lipman v. GBP Capital Holdings, LLC, C.A. No. 2020-0054-SG (Del. Ch. Nov. 18, 2020)

In derivative actions, a plaintiff must either make a pre-suit demand or plead with particularity why demand should be excused. As this case shows, the facts that must be pled differ when the demand would be made upon the general partner in a limited partnership as opposed to a corporate board. More ›

Share

Chancery Dismisses First-Filed Action Involving Delaware Choice of Law and Forum Selection Clause for Forum Non Conveniens

Focus Fin. Partners, LLC v. Holsopple, C.A. No. 2020-0188-JTL (Del. Ch. Nov. 2, 2020)

Defendant moved on forum non conveniens grounds to dismiss an action brought by a recent hire’s former employer to enforce various provisions in an employment agreement, including restrictive covenants. The plaintiff had filed suit in Delaware five days prior to the former employee and his new employer filing suit in California for declarations that the restrictive covenants were invalid and unenforceable under California law.  More ›

Share

Superior Court CCLD Awards Sanctions For Unprepared Rule 30(b)(6) Deponent

Fortis Advisors, LLC v. Dematic Corp., C.A. No. N18C-12-104 AML [CCLD] (Del. Super. Nov. 18, 2020)

As this decision illustrates, Delaware trial courts have a variety of sanction options available when it comes to violations of court orders or discovery rules, such as the failure to adequately prepare a Rule 30(b)(6) deponent. Any sanction must be “just and reasonable” and tailored to the breaching party’s culpability and the complaining party’s prejudice. More ›

Share

Chancery Grants Books and Records Mismanagement Inspection Related to Rejected Financing Proposal Despite Potential Lack of Actionable Claim

Alexandria Venture Investments LLC v. Verseau Therapeutics Inc., C.A. No. 2020-0593-PAF (Del. Ch. Dec. 18, 2020)

This case highlights that the potential lack of an actionable claim generally is not a valid defense to a demand for books and records where the stockholder meets the low threshold of proving a credible basis to suspect wrongdoing. Plaintiffs sought to compel inspection of books and records of Verseau Therapeutics, Inc. (“Verseau”), pursuant to Section 220 of the Delaware General Corporation Law, to investigate whether Verseau’s directors violated their fiduciary duties by rejecting a financing proposal (made by the plaintiffs) to favor the interests of certain directors and affiliates. Verseau objected, arguing in part that plaintiffs did not have a credible basis to suspect wrongdoing because a majority of independent and disinterested Verseau directors had made all relevant decisions.  More ›

Share

Chancery Upholds Claim that CEO Breached Her Duty of Care Relating to a Misleading Proxy Statement

City of Warren General Employees’ Retirement System v. Roche, C.A. No. 2019-0740-PAF (Del. Ch. Nov. 30, 2020)

This case illustrates that an officer’s support for a sale of the corporation does not trigger the “entire fairness” standard where a majority of the members of the board of directors are not alleged to have been interested or lacked independence, and the plaintiff’s allegations otherwise do not support that the officer deceived the board. As also illustrated here, however, materially incomplete or inaccurate disclosures in a proxy statement may state a non-exculpated claim against officers for a breach of the duty of care. More ›

Share

Superior Court CCLD Grants Anti-Suit Injunction

American International Industries v. The Neslemur Company, C.A. No. N19C-04-258 MMJ CCLD (Del. Super. Dec. 10, 2020)

Anti-suit injunctions are an extraordinary form of relief. This decision illustrates the narrow circumstances where one may be warranted. Here, plaintiff American International Industries (“AII”) entered into an Asset Purchase Agreement (“APA”) with The Neslemur Company (“Neslemur”), in which the assets AII acquired later gave rise to third-party product liability claims against AII involving asbestos-contaminated talcum powder across the United States. AII sued Neslemur in the Delaware Superior Court for contractual indemnification under the APA. AII then sought to join Neslemur as a defendant in several pending tort actions in other jurisdictions, including California and New Jersey, seeking statutory and common law indemnification, as well as contribution. In response, Neslemur sought an anti-suit injunction in Delaware against AII to prevent AII from pursuing its indemnification claims in jurisdictions other than Delaware. More ›

Share