Delaware Supreme Court Clarifies When Books and Records Requests to Investigate Wrongdoing or Mismanagement Have a “Proper Purpose”
Section 220 of the Delaware General Corporation Law permits a stockholder to inspect corporate books and records for a “proper purpose” reasonably related to her interests as a stockholder. In AmerisourceBergen Corp. v. Lebanon Cty. Employees’ Ret. Fund, __ A.3d __, 2020 WL 7266362 (Del. Dec. 10, 2020), the Delaware Supreme Court held that a stockholder who has a “credible basis” to investigate potential wrongdoing or mismanagement need not identify a specific intended use or “end” for the information requested. In addition, the Court clarified that a stockholder need not show, as a matter of law, that the potential wrongdoing is actionable. Rather, a “credible basis” to suspect possible wrongdoing or mismanagement is sufficient. More ›
ShareDelaware Supreme Court Affirms CCLD Ruling Relying on Expert’s “Dual Hypothetical World” Damages Model for Measuring Business-Interruption Loss
XL Ins. Am., Inc., et al. v. Noranda Aluminum Holding Corp., No. 444, 2019 (Del. Oct. 2, 2020)
An aluminum manufacturer (the “Insured”) decided not to rebuild and resume operations at its facility following two operation-disabling accidents. The Insured made a claim pursuant to its “all risks” property-insurance policy (the “Policy”) to recoup certain amounts including business-interruption losses. The insurers (the “Insurers”) and the Insured each hired expert forensic accountants who, relying on different damages models, rendered widely divergent calculations of the Insured’s loss. Following a seven day trial in Superior Court wherein both parties’ experts presented their methodologies for calculating the business-interruption losses, the jury found in favor of the Insured. More ›
Enforcing a “Draconian” Bargain, Chancery Grants Motion to Dismiss Claims Arising from Right to Repurchase Interest Upon Termination
Moscowitz v. Theory Entertainment LLC, C.A. No. 2019-0780-MTZ (Del. Ch. Oct. 28, 2020)
This case illustrates that the Court will enforce parties’ agreements even if they reflect a bad bargain for one party. Plaintiff Todd Moscowitz, a co-founder of Theory Entertainment LLC (“Theory” or the “Company”), resigned from Theory without giving prior notice, which triggered a “for cause” termination provision under agreements he had entered into with the Company. The termination provision allowed Theory to repurchase Moscowitz’s entire equity stake for a fraction of its value. To avoid that potential outcome, Plaintiff’s resignation notice contained language purporting to preserve his membership interest in Theory and to render his resignation void ab initio if a court were later to determine otherwise. More ›
Chancery Enters Judgment for Seller On Post-Closing Milestone Payment Claim Because Buyer Failed to Establish Occurrence of Condition Subsequent
Shareholder Representative Services LLC v. Shire US Holdings, Inc., et al., C.A. No. 2017-0863 KSJM (Del. Ch. Oct. 12, 2020)
After the purchaser of a drug manufacturer failed to make a post-closing milestone payment required under the applicable merger agreement, the seller filed a two count complaint in the Court of Chancery for breach of contract and attorneys’ fees. In a post-trial opinion, Vice Chancellor Kathaleen St. Jude McCormick concluded that a condition subsequent that would have relieved the buyer of its milestone payment obligation had not, in fact, occurred. The Vice Chancellor entered judgment for the seller and awarded attorneys’ fees based upon a prevailing party provision of the merger agreement. More ›
Chancery Reaffirms Narrowed Application of Gentile
In re Terraform Power, Inc. Stockholders Litigation, C.A. No. 2019-0757-SG (Del. Ch. Oct. 30, 2020)
In Terraform Power, the Court of Chancery declined the defendants’ invitation to disregard the rationale of Gentile v. Rossette—the seminal decision on dual-natured direct and derivative stockholder claims under Delaware law. On a motion to dismiss, the Court concluded that the plaintiffs adequately plead a direct claim for relief under Gentile against a controlling stockholder for executing a private placement that increased the controller’s voting power for an allegedly inadequate price and correspondingly decreased the minority ownership stake and voting power. In doing so, the Court reaffirmed the Gentile’s continued, albeit narrow, application, unless and until the Delaware Supreme Court holds otherwise. More ›
Mindbody Deal Case Provides Conflict Takeaways For Boards
The Delaware Court of Chancery's recent decision in In re: Mindbody Inc. Stockholders Litigation1 is important reading for lawyers whose practices include evaluating, addressing and — when necessary — litigating potential management conflicts in M&A transactions.
There, the court applied enhanced scrutiny under the Delaware Supreme Court's 1986 Revlon Inc. v. MacAndrews & Forbes2 decision and its progeny, and held that stockholder-plaintiffs stated potentially viable claims concerning an executive's alleged liquidity and interest in future employment, his manipulation of the sale process and his commission of a "fraud on the board."
Chancery Questions Utility of Aronson Test, Dismisses Derivative Suit of Facebook Stockholder for Failure To Allege Demand Futility
United Food and Comm. Workers Union v. Zuckerberg, C.A. No. 2018-0671-JTL (Del. Ch. Oct. 26, 2020)
In its recent decision in United Food and Comm. Workers Union v. Zuckerberg, the Court of Chancery discussed the legal tests to demonstrate demand futility in derivative actions under the seminal cases of Aronson and Rales. Reconciling longstanding and recent case law, the Court ruled that demand futility turns on whether at the time of filing of the complaint, the majority of a board of directors is disinterested, independent, and capable of impartially evaluating a litigation demand to bring suit on behalf of a company. More ›
Chancery Invokes Internal Affairs Doctrine to Dismiss Dispute Over Former Delaware Corporation Brought Over Two Years After Its Migration to Nevada
Sylebra Capital Partners Master Fund, LTD v. Perelman, et. al., C.A. No. 2019-0843-JRS (Del. Ch. Oct. 9, 2020)
Defendant Scientific Games Corporation (the “Company”) is a gaming and lottery company that reincorporated in Nevada from Delaware in January 2018. The Company adopted new Nevada bylaws that, among other things, require stockholders to bring claims for breaches of fiduciary duties in Nevada. Because the Company operates in the gaming industry, the bylaws also require stockholders to meet “suitability” requirements and restrictions on sale set by gaming regulators in jurisdictions where the Company operates. Approximately four months before Plaintiffs filed suit, the Company filed suit in Nevada to force Plaintiffs to comply with an investigation into their suitability as stockholders. More ›
High Court Affirms Deal Price Was Reliable Indicator of Fair Value Despite Flawed Process
This case illustrates that, notwithstanding a flawed process for the sale of a company, the deal price may still provide a reliable indicator of the fair value of shares in an appraisal action. Petitioners had contended that the Court of Chancery abused its discretion in upholding a rushed sale process and in failing to make an upward adjustment to the deal price based on an increase in the company’s value post-signing. More ›
ShareChancery Rebukes Party for “Distracting” and “Detrimental” Rule 11 Arguments
POSCO Energy Co., Ltd. v. FuelCell Energy, Inc., C.A. No. 2020-0713-MTZ (Del. Ch. Oct. 22, 2020)
Under Court of Chancery Rule 15, a Delaware plaintiff may request leave from the Court to amend or supplement a complaint. Leave to grant such motions is “liberally granted, unless, in a narrowly construed exception, there is inexcusable delay and prejudice to the defendant.” This opinion involves an unsuccessful opposition to a motion to amend based, in part, on the argument that the original pleading violated Rule 11. More ›
ShareSuperior Court Rejects Insurers’ Motions to Dismiss Coverage Dispute Based upon Ripeness and Lack of Personal Jurisdiction
Energy Transfer Equity, L.P. v. Twin City Fire Insurance Co., et al., C.A. No. N19C-11-009 EMD CCLD (Del. Super. Ct. Sept. 28, 2020)
Plaintiffs-Insureds sought declaratory relief and damages for Defendants-Insurers anticipatory breach of directors’ and officers’ insurance policies. Defendant Twin City Fire Insurance Co. issued the primary policy, and the remaining Defendants issued excess coverage policies. Plaintiffs specifically sought insurance coverage related to litigation in the Court of Chancery (“Dieckman Action”), in which trial had occurred but no decision had been issued. More ›
Chancery Rejects Conspiracy Jurisdiction Over Foreign Defendant
Lacey v. Mota-Velasco, C.A. No. 2019-312-SG (Del. Ch. Oct. 6, 2020)
Under Istituto Bancario, a foreign defendant alleged to be part of a conspiracy may be subject to personal jurisdiction in Delaware, but only if the plaintiff alleges, among other requirements, and consistent with the Delaware long-arm statute and due process, an act in Delaware in furtherance of the conspiracy. Conspiracy jurisdiction is not an independent basis of jurisdiction but rather provides a framework by which the Delaware courts evaluate whether there are sufficient minimum contacts to justify the exercise of personal jurisdiction. More ›
ShareChancery Finds Warrant Issuance Triggered Stockholder Preemption Rights
Pursuant to a share purchase agreement, a plaintiff stockholder had preemption rights that entitled the stockholder to participate on a pro-rata basis if the defendant company issued common stock equivalents to a third-party buyer. Defendant issued warrants convertible into common stock to a nonparty. In consideration of plaintiff’s preemption rights, defendant made a proposal for plaintiff to provide the company with a loan in exchange for acquiring warrants, based on a blended version of the prices and other terms of the issuance to the nonparty. The proposal was, however, subject to approval by defendant’s board and the nonparty, and contingent upon defendant drawing down on the loan provided by plaintiff. Plaintiff filed suit in the Delaware Court of Chancery, seeking to enforce its preemption rights, and moved for partial judgment on the pleadings. More ›
ShareChancery Applies Contractual Shortening of Limitations Period for Breaches of Representations, Finds it Inapt to Fraud Claims and Enforces Clear Anti-Reliance Clause
Pilot Air Freight, LLC v. Manna Freight Systems, Inc., C.A. No. 2019-0992-JRS (Del. Ch. Sept. 18, 2020)
In a familiar fact pattern, an acquirer of a business brought suit against sellers claiming, inter alia, that the representations and warranties in the asset purchase agreement were untrue and, indeed, fraudulent when made. The sellers moved to dismiss on the basis of a provision they claimed shortened the limitations period for breaches of representations and warranties and an anti-reliance clause they claimed eliminated any potential claims for misrepresentations or omissions outside of the written agreement. More ›
Superior Court Dismisses Successor-by-Merger’s Claims Where Underlying Contract Contained Anti-Assignment Clause
MTA Royalty Corp. v. Compania Minera Pangea, S.A. DE C.V., C.A. No. N19C-11-228 AML CCLD (Del. Super. Sept. 16, 2020)
Plaintiff’s predecessor-in-interest conveyed mineral rights to Defendant. Under the agreement, Defendant owed a conditional additional $1 million at a future date. Before the payments became due, the predecessor was merged out of existence. As a result, Defendant asserted it had no obligation to pay the additional amount because the sale agreement included an anti-assignment provision that barred assignment absent Defendant’s consent, which was lacking. More ›