Delaware Supreme Court Reverses DFC Global And Clarifies The Deal Price’s Role In Appraisal Litigation
DFC Global Corporation v. Muirfield Value Partners L.P., No. 518, 2016 (Del. Aug. 1, 2017)
Delaware law has long made clear that the deal price for a company, while relevant, does not necessarily equate to the “fair value” that petitioners are entitled to receive in an appraisal proceeding. A string of recent Court of Chancery decisions, however, adopted the deal price as fair value, reinforcing the view that the market price for an arm’s-length transaction achieved after a thorough sale process likely will be the best evidence of fair value. Two decisions in mid-2016 arguably departed from this line of cases in setting fair value above the deal price, although on different grounds: Dell and DFC Global. Both decisions have been widely-reported, hotly-debated, and appealed. More ›
ShareCourt of Chancery Decision Illustrates Flexibility In Rules Governing Trial
In Re Oxbow Carbon LLC Unitholder Litigation, C.A. No. 12447-VCL (Del. Ch. July 28, 2017)
This decision permits a rebuttal witness to testify in an unusual situation that illustrates the flexibility the Court of Chancery often employs when conducting a trial. Among the issues addressed is the order of proof, belated identification of a witness, sequestration orders, the witness-as-advocate rule, and the tactical considerations in calling an adverse witness in support of your case.
ShareCourt Of Chancery Declines To Enforce Agreement To Negotiate
Windsor I LLC v. CWCapital Asset Management LLC, C.A. No. 12977-CB (Del. Ch. July 31, 2017)
In this decision, the Court of Chancery declines to enforce an agreement to negotiate, applying Maryland law. The agreement set the rules of the road for any negotiations taking place between the parties, nothing more.
ShareCourt Of Chancery Upholds Duty Of Care and Loyalty Claims
H&N Management Group Inc. v Couch, C.A. No. 12847-VCMR (Del. Ch. Aug. 1, 2017)
This is a rare case involving apparent lack of care in approving a conflicted transaction and a failure to employ almost any safeguards to ensure fairness. It is worth reading just to see what not to do, particularly when dealing with a very significant business decision to the particular company.
ShareCourt Upholds Stockholder's Share Ownership and Books-and-Records Request
Companies often defend against stockholder requests to inspect books and records by contending that the plaintiff stockholder lacks a proper purpose or that his or her stated purpose is not the real purpose. Less common is a contention that the stockholder lacks standing because his or her shares were canceled due to misconduct harmful to the company, a remedy provided for in a stockholder agreement. Such a claim raises issues under Section 202 of the Delaware General Corporation Law as to the enforceability of the remedy where the restrictions set forth in the stockholder agreement were not conspicuously noted on the share certificate. The recent case of Henry v. Phixios Holdings, C.A. No. 12504-VCMR (July 10), provides guidance on the requirements to enforce a restriction on the ownership or alienability of shares of a Delaware corporation when the restriction is not conspicuously noted on the share certificate. As the Chancery Court held, such a restriction is not enforceable except upon proof that the stockholder had actual knowledge prior to purchase of the shares or subsequently agreed or voted to approve the restriction, proof that Phixios failed to provide. More ›
ShareCourt of Chancery Advocates New Test Governing Preclusion in Derivative Litigation
In re Wal-Mart Stores Inc. Delaware Derivative Litig., C.A. No. 7455-CB (Del. Ch. July 25, 2017)
This is an important decision holding that just because one derivative litigation was dismissed for failure to overcome the requirement of pre-suit demand on the board, it does not mean a similar derivative suit must be dismissed on the same grounds. Instead, under the rule advocated for in this decision, an earlier dismissal only affects the second suit if the first suit was dismissed after the plaintiff survived a demand futility motion or the board conceded that demand is excused. It is at that point which the plaintiff in the first suit was acting on the company’s behalf and its actions may bind other plaintiffs. Originally stated as dicta in the EZCORP decision, this rule, among other things, prevents ill-prepared and typically rushed derivative complaints from cutting off better prepared complaints. Previously, before a remand in this action, the Court had applied a rule that examined the “adequacy of representation” provided by the plaintiffs in the first suit. This “grossly deficient” representation standard generally favored defendants and made dismissal likely in the second suit. It remains to be seen whether the Delaware Supreme Court will adopt the EZCORP rule as endorsed by Wal-Mart.
ShareHow to Open the Door to Chancery
Sometimes more is not a good idea. That is the case when a complaint alleges multiple bases to invoke the jurisdiction of the Delaware Court of Chancery, but still fails to sustain that subject matter jurisdiction. The recent decision in Yu v. GSM Nation, Del. Ch. C.A. No. 12293-VCMR (July 7), shows why that can be a costly failure. For the plaintiff in the GSM case spent over a year trying to sustain the Court of Chancery's jurisdiction only to fail to do so. Had the plaintiff instead filed in the Delaware Superior Court's CCLD docket, he very well might have had a trial by the time his Court of Chancery complaint was dismissed. More ›
ShareCourt Of Chancery Explains Stock Restriction Law
Henry v. Phixios Holdings Inc., C.A. No. 12504-VCMR (July 10, 2017)
This is the rare decision explaining when restrictions on stock transfers (permitted by Section 202 of the DGCL) can be enforced. While the statute seems clear enough, the real lesson from this decision is that it might be difficult to show a stockholder had advanced knowledge of restrictions that are not on the stock certificate when no other written notice exists. Without such advanced knowledge or later assent by the stockholder, the restrictions are not enforceable.
ShareHigh Court Resolves $2B 'True Up' Dispute Against Acquirer
The Delaware Supreme Court's recent decision in Chicago Bridge & Iron v. Westinghouse Electric, resolved a $2 billion post-closing dispute about the interplay between common features of acquisition agreements: sellers' representations of the accuracy of the target's financial statements, and so-called "true up" provisions for purchase price adjustments for working capital changes between signing and closing. The Supreme Court harmonized the provisions by addressing, among other things, the limited purpose of true up provisions. It accordingly rejected the acquirer's attempt to raise longstanding accounting issues to obtain a large price adjustment through the true up process, when the purchase agreement barred the acquirer from any post-closing relief for breach of a similar warranty. More ›
ShareCourt Of Chancery Explains When Entire Fairness Applies To Option Grants And Voting Agreements
Williams v. Ji, C.A. No. 12729-VCMR (June 28, 2017)
While directors have the right to issue options, when the grant is to themselves and there are specific facts suggesting unfairness, those directors will have the burden of proving the grants were entirely fair in a stockholder challenge. The same is true when stock is issued conditioned on an agreement to vote that stock as the directors wish.
ShareCourt Of Chancery Explains Interrelationship Of MLP Exculpation Clauses
Morris v. Spectra Energy Partners (DE) GP, LP, C.A. 12110-VCG (June 27, 2017)
Master limited partnership agreements typically provide protection for the general partner who engages in a self-dealing transaction with the MLP. This decision reviews the existing precedent on how to apply those provisions, especially when a conclusive presumption of good faith is available to the GP. It also explains what language should be used to invoke at least the subjective standard of good faith that is most helpful to a GP using a conflicts committee. Hence, the decision is required reading for drafters of MLP agreements.
ShareCourt Of Chancery Addresses Material Adverse Change Clause In Commercial Contract
The Mrs. Fields Brand Inc. v. Interbake Foods LLC, C.A. 12201-CB (June 26, 2017)
A material adverse change or effect clause permits a party to avoid its contractual obligations under certain circumstances. Delaware courts have addressed so-called “MAC” clauses in the merger agreement context on a number of occasions. Under that precedent, the party claiming a MAC has a high burden of proof and the alleged adverse change to a company’s business must be unexpected, serious, and extend over a significant period of time. A short-term hiccup is not a MAC. This decision is notable because it largely extends this law to the commercial contract context.
ShareChancery Holds That Deal Price Is Fair Value in Massive Appraisal Fight
In In re Appraisal of PetSmart, one of Delaware's largest appraisal litigations in history, the Delaware Court of Chancery held that the deal price in PetSmart Inc.'s going-private transaction was the best evidence of fair value. This decision, along with the Court of Chancery's recent decision in In re Appraisal of SWS Group, where the court held that fair value was less than the deal price, will likely bring joy to deal lawyers across the country while confounding the plaintiffs bar. More ›
ShareStructural Coercion Negated Cleansing Effect Under 'Corwin'
Under the Delaware Supreme Court's decision in Corwin v. KKR Financial Holdings, 125 A.3d 304 (Del. 2015), business judgment review applies to cleanse a fiduciary challenge to a noncontrol transaction that was approved by an uncoerced, fully-informed, disinterested stockholder vote. Absent a claim of waste, the result of a Corwin-qualifying stockholder vote is dismissal. The Corwin doctrine is premised on the rationale that when a disinterested majority of stockholders approve a transaction, the vote represents their determination that the transaction is in the corporate interest, and Delaware courts will avoid second-guessing the stockholders' decision by applying the deferential business judgment rule. More ›
ShareCourt Of Chancery Explains Corwin Limits
Sciabacucchi v. Liberty Broadband Corp., C.A. 11418-VCG (May 31, 2017)
This is an important decision if only because it explains a further limitation on the Corwin rule that an informed uncoerced stockholder vote insulates a corporate transaction from attack. First, the decision explains when a minority stockholder is a “controller” for purposes of even being able to avoid Corwin. That decision does not apply to transactions with a controller. Merely being able to appoint some of the directors does not make one a controller, at least when the certificate of incorporation limits the power of that stockholder to dictate corporate action. More ›
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