Delaware Business Litigation Report

Chancery Finds Lack of Personal Jurisdiction Over Employee Defendants in Stock Appreciation Rights Dispute

Highway to Health, Inc. v Bohn, C.A. No. 2018-0707-AGB (Del. Ch. Apr. 15, 2020).
To establish personal jurisdiction over a nonresident defendant under the Delaware long-arm statute, 10 Del. C. § 3104, a plaintiff must show that: “(1) there is a statutory basis for exercising personal jurisdiction; and (2) subjecting the nonresident defendant to jurisdiction in Delaware would not violate the Due Process Clause of the Fourteenth Amendment.”  More ›

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Delaware Superior Court Interprets Contractual Language Governing Earn-out Payment

B&C Holdings, Inc. v. Temperatsure Holdings, LLC, C.A. No. N19C-02-105 AML CCLD (Del. Super. Apr. 22, 2020).

As this decision demonstrates, Delaware courts will enforce the plain and ordinary meaning of contractual terms governing an earn-out payment, including the process by which a payment is to be calculated, noticed, and contested. More ›

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Court of Chancery Permits Targeted Jurisdictional Discovery to Seek Proof to Support Non-Frivolous Claim of Personal Jurisdiction

HM Life Ins. Co. v. Wilmington Sav. Fund Soc’y, FSB, C.A. No. 2018-0649-SG (Del. Ch. Apr. 9, 2020).

If a plaintiff has pled facts in its complaint to support a non-frivolous claim of personal jurisdiction over a defendant, the Court of Chancery may allow targeted jurisdictional discovery to seek proof that the Court has personal jurisdiction over a defendant in response to a motion to dismiss for lack of personal jurisdiction. More ›

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In a Books and Records Action, Court Critiques Defendant’s Motion to Dismiss, and Declines to Order Inspection of Documents Not Requested in the Plaintiff’s Demand

Paraflon Investments, Ltd. v. Linkable Networks, Inc., C.A. No. 2017-0611-JRS (Del. Ch. Apr. 3, 2020).

Sometimes it bears repeating that Section 220 actions are intended to be summary proceedings to evaluate a stockholder’s pre-suit demand to inspect a corporation’s books and records.  More ›

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Chancery Dismisses Claims Seeking to Compel a Dividend Declaration and for Breach of the Duty of Care

Buckley Family Trust v. McCleary, C.A. No. 2018-0903-AGB (Del. Ch. Mar. 31, 2020).

This case involved a minority stockholder in a Subchapter S corporation seeking relief as a result of its dissatisfaction with management’s operating performance and the company’s unwillingness to pay dividends, matters which defendants contended were well within the exercise of their business judgment. The Court of Chancery granted defendants’ motion to dismiss the complaint. More ›

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Chancery Applies Borrowing Statute, Dismisses Plaintiff’s Fraud Claims as Time-Barred

CHC Investments, LLC v. FirstSun Capital Bancorp, C.A. No. 2018-0353-KSJM, (Del. Ch. Mar. 23, 2020).

On a motion to dismiss plaintiff’s claims for fraud, the Delaware Court of Chancery applied Delaware’s three-year statutory limitations period rather than Texas’s four-year period and dismissed plaintiff’s claims as time-barred. Narrowly interpreting the Delaware Supreme Court’s holding in Saudi Basic Indus. Corp. v. Mobil Yanbu Petrochemical Co., 866 A.2d 1, 16-18 (Del. 2005), the Court found that, except in circumstances where a party is forced to bring claims in Delaware, under Delaware’s “borrowing statute,” the shorter of Delaware’s statute of limitations and that of the foreign jurisdiction will apply.  More ›

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Minority Members Allegedly Exploited Contract Rights in Breach of Fiduciary Duties to Acquire Company Assets on the Cheap

Delaware law requires directors of a corporation to strive in good faith and on an informed basis to maximize the value of the corporation for the benefit of all of its stockholders, and not to prefer the interests of stockholders with contract rights or preferences. Consequently, where the interests of stockholders diverge from the contracts rights of other stockholders, directors and controlling stockholders may breach their fiduciary duty of loyalty by exploiting or opportunistically favoring their contract rights over the interests of the stockholders as a whole. More ›

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Chancery Denies Preliminary Injunction Based Upon Overbroad Restrictive Covenants

FP UC Holdings, LLC v. Hamilton, C.A. No. 2019-1029-JRS (Del. Ch. Mar. 27, 2020).

A party seeking a preliminary injunction must demonstrate a likelihood of success at trial. In a breach of non-compete action, this burden may not be met when economically unjustified restrictive provisions are “too broad as they would essentially prevent Defendant from operating … anywhere in the United States.” More ›

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Chemours v. DowDuPont: Chancery Requires Subsidiary to Arbitrate Separation Agreement Dispute with Parent Despite the Subsidiary’s Lack of “Real World” Consent to the Separation Agreement

The Chemours Co. v. DowDuPont Inc., et al., C.A. No. 2019-0351-SG (Del. Ch. Mar. 30, 2020).

The subsidiary-plaintiff, created after the reorganization of the parent-defendant, brought an action against its parent and related entities challenging the enforceability of the Separation Agreement memorializing the terms of the subsidiary’s spin-off, including its arbitration clause. According to the subsidiary, certain liabilities assigned to the subsidiary in the spin-off were “vastly and wrongfully underestimated” by the parent, and the subsidiary brought suit to limit its obligations for those liabilities. The defendants moved to dismiss for lack of subject matter jurisdiction because the Separation Agreement contained an arbitration clause.        More ›

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Delaware Court of Chancery Declares Board Action Void For Equitable Reasons, Finding Corporate Directors Deceived Other Board Members into Attending Board Meeting

Palisades Growth Capital II, L.P. v. Bäcker, C.A. No. 2019-0931-JRS (Del. Ch. Mar. 26, 2020).

In keeping with longstanding Delaware precedent, the Delaware Court of Chancery recently held that it may void an action by a board of directors – even where the action is not otherwise in violation of the corporate charter or the Delaware General Corporation Law (“DGCL”) – when equity so requires. More ›

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LLC May Not Reverse Decision to Enter into Contractual Call Option Buyout Process with Members

Walsh v. White House Post Productions, LLC, C.A. No. 2019-0419-KSJM (Del. Ch. Mar. 25, 2020).  

Parties to LLC agreements often provide for buyout provisions upon specified events, such as when a member ceases to be an employee. The provisions set forth a process by which the parties agree up front to a price to acquire the departing member’s interest. In this case, the Court prohibited an LLC from withdrawing from a contractually agreed-upon process to buy its members’ shares once the LLC initiated the process. More ›

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Chancery Enforces LLC Agreement Arbitration Clause and Finds that Member’s Resignation Did Not Prevent Enforcement

360 Campaign Consulting, LLC v. Diversity Communication, LLC, C.A. No. 2019-0807-MTZ (Del. Ch. Mar. 20, 2020).

Following a dispute between the two members of a Delaware LLC, Plaintiff filed an eleven (11) count complaint against the Defendant former member, the LLC, its manager and others. Defendant moved to dismiss for lack of subject matter jurisdiction based on an arbitration provision in the LLC Agreement. The Court’s threshold question was whether it (as opposed to an arbitrator) had jurisdiction to decide whether the dispute was arbitrable, an issue otherwise known as substantive arbitrability.  More ›

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Chancery Shifts Attorneys’ Fees Under Bad-Faith Exception Based on False Statements in Plaintiff’s Complaint and Obstruction of Discovery

Bay Capital Finance, L.L.C. v. Barnes and Noble Education, Inc., C.A. No. 2019-0539-KSJM (Del. Ch. Mar. 30, 2020).

With some limited exceptions, the American Rule requires parties to pay their own attorneys’ fees in litigation. One exception permitting a court to shift fees is bad-faith litigation conduct. False or misleading statements by parties in their pleadings and abuse or obstruction of the discovery process are two examples of conduct that may support shifting fees. More ›

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Delaware Supreme Court Holds that Federal Forum Selection Clauses for Securities Cases Are Valid in Delaware Corporate Charters

Salzberg v Sciabacucchi, No. 346, 2019 (Del. Mar. 18, 2020).

Reversing the Court of Chancery, the Delaware Supreme Court has concluded that federal forum selection clauses, requiring that litigation under the Securities Act of 1933 (“’33 Act”) may only be filed in federal courts, are allowable provisions in a Delaware corporation’s certificate of incorporation or bylaws.  More ›

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Chancery Finds the Common Interest Doctrine Shields Communications Between a Bankruptcy Litigation Trust and its Largest Unsecured Creditor

RCS Creditor Trust v. Schorsch, C.A. No. 2017-0178-SG (Del. Ch. Mar. 20, 2020). 

The common interest doctrine shields communications with a third-party from disclosure when the common interest invoked by the party asserting the privilege is in furtherance of a joint legal strategy or objective with the third-party, and not simply for a commercial purpose. More ›

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