Delaware District Court Applies Delaware Demand Standards
Butorin v. Blount, C.A. No. 15-283-LPS (D. Del. September 30, 2018)
In this decision, the Delaware Federal District Court applied the Delaware tests for deciding if demand is excused by the facts alleged in a derivative complaint. In dismissing the complaint, the Court held that simply pleading the Board should have known of business problems is not enough to excuse demand. The decision also notes several other defects in the complaint.
ShareCourt Of Chancery Upholds Waiver Of Appraisal
Manti Holdings LLC v. Authentrix Acquisition Co., C.A. 2017-0887-SG (October 1, 2018)
This decision upholds a contractual waiver of appraisal rights entered into at the time the investment was made. That is not new. However, what is important is the focus on the type of transactions that triggered the waiver, with a merger doing so but a stock sale not waiving the right to be carried along. Thus, the terms of the deal once again are critical.
ShareCourt Of Chancery Limits Non-Compete Agreement
Badger Holding LLC v. Kirsch, C.A. 2017-0147-SG (October 1, 2018)
As this decision points out, if a non-compete agreement conditions its enforcement on the employer’s performance of its end of the bargain, then a failure to do so renders the non-compete unenforceable.
ShareCourt Of Chancery Provides Definitive Explanation Of A Material Adverse Effect Clause
Akorn Inc. v. Fresenius Kabi AG, C.A. No. 2018-0300-JTL (October 1, 2018)
Merger agreements often permit the buyer to terminate items when a material adverse effect occurs. This 247 page opinion provides what may be the definitive analysis of such terms as “material adverse effect,” “reasonable best efforts” and “all actions necessary” that are often found in merger agreements. It is also a great source of the key reference materials that the Court of Chancery is increasingly turning to in interpreting what such terms mean in the real world. For example, it teaches that a MAE clause is focused on the target company’s own performance as different from the industry that it belongs to and explains the degree and length of a downturn needed to find an MAE. More ›
ShareAre Directors Liable for Unforeseen Calamities?
The answer to the question posed in the title to this article may seem devious to you. After all, the answer must be “no” if we want anyone to serve on a corporate board of directors. Yet this question continues to pop up as discussed in the recent decision of the Delaware Court of Chancery in Marchand v. Barnhill, C.A. No. 2017-0586-JRS (Sept. 27, 2018). More ›
Court Of Chancery Again Holds Deal Price Establishes Fair Value
In Re PLX Technology Inc. Stockholders Litigation, C.A. 9880-VCL (October 16, 2018)
This massive decision is a primer on Delaware director fiduciary duty. It covers just about all the important issues, with an enormous amount of citations and explanation. It is particularly helpful in showing how directors must meet their disclosure obligations, both to their other directors and to stockholders. It is, of course, very much a product of its unique facts. More ›
ShareCourt Of Chancery Declines To Approve Derivative Settlement
Stein v. Blankfein, C.A. 2017-0354-SG (October 23, 2018)
This is the rare decision that declines to approve the settlement of a derivative suit. The Court rejected the settlement because the proposed terms required the corporation, as a nominal defendant, to release breach of fiduciary duty claims against the director defendants in return for which those directors would agree to make disclosures already required by law. The Court viewed that agreeing to do what you had to do anyway as providing no real consideration for the release of the claims. This result illustrates the scrutiny the Court of Chancery applies to such settlements that affect corporate and stockholder rights.
ShareDelaware Supreme Court Affirms 'MFW' Dismissal; Clarifies Ab Initio Requirement
In 2014, the Delaware Supreme Court in Kahn v. MFW held that the business judgment standard could apply to review of a controlling stockholder merger if at the outset the controlling stockholder conditioned the squeeze-out transaction on negotiation and approval by a committee of independent and disinterested directors and the informed, uncoerced approval of a majority of the minority stockholders (dual stage approvals). The Delaware Supreme Court later affirmed a Delaware Court of Chancery transcript opinion holding that MFW could apply to a pleadings-stage dismissal where the controlling stockholder did not condition its initial proposal on the dual stage approvals, at least where the board, with the majority stockholder’s participation, did so in a resolution establishing a special committee to negotiate prior to any substantive negotiations. The question remained, however, how much latitude the court would afford a controlling stockholder who did not ab initio condition its merger transaction on the requisite dual stage approvals. In Flood v. Synutra International, C. A. No. 101, 2018 (Del. Oct. 9, 2018), the Supreme Court in a majority opinion provided additional guidance, holding that the MFW standard of review could apply to a transaction where the controlling stockholder did not from the beginning condition its transaction on the requisite dual stage approvals, as long as those conditions were established prior to any substantive economic negotiations. The court’s holding and its reasoning provide important guidance to transactional planners and litigators assessing whether to challenge a controlling stockholder merger transaction. More ›
Superior Court of Delaware CCLD Finds 6 Del. C. 1-308 Permits Parties to Reserve Their Rights Without Pleading Duress
In this decision by the Complex Commercial Litigation Division, the Court held, for the first time, that under 6 Del. C. 1-308, a party may make a payment with a reservation of rights under without having to plead duress. The Court held that this section was designed to permit parties to a contract – like the plaintiff here – to continue performance even while a dispute between parties is unresolved. In doing so, the Court held that Section 1-308 superseded the Supreme Court’s decision in Western Natural Gas Company v. Cities Service Gas Company, 201 A.2d 164 (Del. 1964) in that respect.
ShareDelaware Supreme Court Explains the Ab Initio Requirement of MFW
Flood v. Synutra Int’l, Inc., C.A. No. 101, 2018 (Del. Oct. 9, 2018)
Under Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014), commonly referred to as MFW, a controller may gain the benefit of business judgment review when it conditions a transaction—from the outset (i.e., ab initio)—on two procedural protections. Those involve approval by (i) an independent special committee and (ii) a majority of the minority stockholders. The point of the timing requirement is that the controller disables its influence from the beginning, instead of using the option as a bargaining chip when negotiating economic terms. More ›
ShareCourt of Chancery Explains Anti-Suit Injunctions
Village Green Holding LLC v. Holtzman, C.A. No. 2018-0631-TMR (Del. Ch. Oct. 5, 2018)
This decision provides an excellent summary on Delaware law concerning when the Court will enjoin litigation in another jurisdiction to enforce a contract’s forum selection clause, as the Court did in this case. It also notes a potential trap for the unwary in situations where the clause selects only a court lacking jurisdiction to hear the dispute, rendering the forum selection invalid. That may occur for Delaware forum selection clauses when the Court of Chancery is the sole selected forum but cannot hear the dispute because of its limited subject matter jurisdiction. To avoid that problem, it would be best to identify an alternative within the jurisdiction, or accept any court within the jurisdiction.
ShareCourt Of Chancery Explains Scope Of Non-Compete Agreement
Lyons Insurance Agency Inc. v. Wilson, C.A. 2017-0092-SG (September 28, 2018)
This is a good decision for its explanation of when a non-compete agreement will be enforced when it does not have a geographical limit. If the agreement speaks to not engaging “in competition with” the former employer, that provides a limit based on what customers the old employer had and is enforceable as a result.
ShareCourt Of Chancery Refines Choice Of Law Analysis For Employment Agreements
Nuvasive Inc. v. Miles, C.A. 2017-0720-SG (September 28, 2018)
Delaware will enforce non-compete agreements against former employees, but generally California law bars such agreements. This decision explains how to determine which state’s law applies by looking to how important is the public policy of each state on the issue before the Court. Because California does enforce a choice of Delaware law when that choice is the subject of negotiation, not coercion, the Delaware choice of law was upheld. Note that under a different California statue then in force, a contrary result was reached in the Ascension Insurance Holdings v.Underwood case.
ShareCourt Of Chancery Explains Limits On Duty To Know
Marchland v. Barnhill, C.A. 2017-0586-JRS (September 27, 2018)
When something bad occurs in a business, it now seems inevitable that the directors may be sued. The most popular form of suit now seems to be a securities claim based on a failure to have disclosed the danger the entity faced that has now come home to do it harm. This decision shows why securities claims are in fashion for those events. For as it points out, there is not liability under Delaware corporate law for simply failing to prevent harm to the corporation. Something more is needed to show the directors acted in bad faith, such as a red flag warning of the need to act to prevent the harm. Thus, the decision dismissed a complaint that only alleged the directors did not do as much as might have been done to prevent the bad events from harming their entity.
ShareCourt Of Chancery Rescinds LLC Agreement For Fraud In The Inducement
Trascent Management Consulting LLC v. Bouri, C.A. 10915-VCMR (September 10, 2018)
This is an interesting decision because it holds that an entity may bring a fraudulent inducement claim for statements made before it was formed when the statements caused it to be formed for a new business. It is also interesting because it awards attorney fees for lying during a trial.
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