Delaware Business Litigation Report

Court of Chancery Denies Director Full Inspection Rights

Bizzari v. Suburban Waste Services Inc., C. A. No. 10709-JL (Del. Ch. Aug. 30, 2016)

This is an almost unprecedented decision to limit the inspection rights of a corporate director. Directors generally have “essentially unfettered” access to the corporate records to fulfill their fiduciary roles.  Here, given the director’s improper motive to use the records to compete with or harm the corporation, the result is entirely justified under the bizarre set of facts.

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Advancement Rights of Present and Future Officers Under LLC Agreement

Advancement and indemnification rights are vital in attracting the best and brightest individuals to serve as managers of Delaware entities. Those rights are meant to provide managers of Delaware entities comfort when accepting positions that often lead to being named in litigation. In the limited liability company context, a manager's advancement and indemnification rights are often derived from the entity's operating agreement. And seeing as Delaware courts strive to enforce the express terms of an agreement, advancement and indemnification provisions must be drafted with precision. As discussed below, contractual limitations and qualifications on advancement and indemnification rights will be interpreted in a way that gives meaning to all terms in the agreement. More ›

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Court Of Chancery Explains Inspection Rights For A Statutory Trust

Grand Acquisition LLC v. Passco Indian Springs DST, C.A. 12003-VCMR (Del. Ch. Aug. 26, 2016, revised Sept. 7, 2016)

This is the first decision examining the right to inspect the records of a Delaware Statutory Trust. Applying settled law from decisions in the LLP and LLC context regarding whether to read statutory and contractual inspection rights as separate and independent, the Court held that a contractual right to inspection is not subject to the conditions in the trust statute (Section 3819) unless the Trust language says so.  The Court also held that defending against the inspection on the grounds of an improper purpose requires proof of probable harm to the trust if the Court allowed the inspection.

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Best Lawyers® 2017 Recognizes 19 Morris James Attorneys

Nineteen Morris James attorneys in twenty-six practice areas were selected by their peers for inclusion in The Best Lawyers in America 2017 edition. Morris James also has been recognized in four new practice areas, Personal Injury Litigation – Defendants, Arbitration, Corporate Governance Law and Mediation.  The Best Lawyers® list is based on an extensive survey involving detailed evaluations of leading lawyers by their peers. More ›

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Three Morris James Attorneys Named “Lawyer of the Year” by Best Lawyers®

Morris James LLP is pleased to announce that three of its partners were named Best Lawyers® 2017 “Lawyer of the Year” in their respective practices. The attorneys so recognized were Lewis H. Lazarus for Corporate Law Governance, Edward M. McNally for Litigation - Real Estate, and former partner and now Vice Chancellor Joseph R. Slights III for Mediation. More ›

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Court of Chancery Explains Tolling Law In Fiduciary Duty Case

AM General Holdings LLC v. The Renco Group, C.A. 7639-VCS (August 22, 2016)

In addition to explaining the seldom-used doctrines of mutual, running accounts and continuing wrongs as exceptions to the running of the statute of limitations, this decision is important for its review of when a claim of breach of duty may be tolled. A plaintiff cannot simply stand by without using means available to her to monitor her investment and then claim her case was tolled.  While it is still possible to show a claim was inherently unknowable or that the plaintiff justifiably relied on a fiduciary to not seek information, the more sophisticated the plaintiff the less those exceptions to the running of the statute of limitations will apply.

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Court: Derivative Claims Allowed to Be Asserted as Part of Merger Attack

It is well-settled under Delaware law that in a merger a stockholder loses standing to assert a purely derivative claim. That claim passes instead to the acquiring company. As an asset of a Delaware company, derivative claims should be valued in a merger transaction. Directors of a selling company, however, who fail to value derivative claims and who also bargain for their extinguishment following the merger are at risk of being found to have breached their fiduciary duty.

The Court of Chancery's recent decision in In re Riverstone National Stockholder Litigation, C.A. No. 9796-VCG (Del. Ch. July 28), instructs that a complaint asserting that directors, who faced personal liability on known derivative claims, both attributed no value to the derivative claims and bargained in a merger transaction that the buyer would not assert them, is sufficient to avoid dismissal based on the general rule of post-merger loss of standing, if the stockholder pleads the claims as part of a direct attack on the merger. More ›

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Court Of Chancery Dismisses Merger Litigation Under The Corwin Doctrine

City of Miami General Employees and Sanitation Employees Retirement Trust v. Comstock, C.A. 9980-CB (August 24, 2016), affirmed March 23, 2017

This decision applies the Corwin doctrine to dismiss a suit attacking a merger that received stockholder approval. It explains that approval by a fully-informed, uncoerced majority of disinterested and independent stockholders invokes the business judgment rule standard of review – leaving waste as the only grounds to attack the transaction. Interestingly, the decision still examined whether the plaintiffs had alleged a basis for entire fairness review.  Here, those allegations concerned whether a majority of the directors were either self-interested in the transaction or were manipulated by improper conduct.

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Court Of Chancery Determines Fee In A Transitory Property Case

Baker v. Sadiq, C.A. 9464-VCL (August 16, 2016)

When a derivative suit is settled in connection with a merger that cashed out minority stockholders, it makes sense to have the settlement proceeds go to those stockholders in proportion to their ownership. Thus, if they owed 10% of the stock and the majority owner is the party funding a settlement, the former stockholders get 10% of a settlement. How then is the attorney fee award for creating that benefit to be calculated? This decision holds that the fee should be based on just the amount of the actual benefit received by the former stockholders.

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Court Of Chancery Determines When Right To Advancement Vested In An LLC Agreement

Harrison v. Quivus System LLC, C.A. 12084-VCMR (August 5, 2016) (transcript )

This decision provides an excellent review of when the right to advancement under an LLC agreement vests so as to not be lost by the later discharge of the officer involved. Basically, when advancement is provided for upon becoming a covered person, the later discharge and suit against that person does not cause her to lose the right to have her fees advanced.  Importantly, in the LLC context – where the LLC Act defers to the parties’ choices in contracting – ultimately, the contractual language will control in any given case.  

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Court Of Chancery Enjoins Improper Suit in Another Forum

Stratcap Investments Inc. v. Mears,  C.A. 12548-CB (July 11, 2016)

This transcript ruling shows that the Court is not sympathetic to parties who make up excuses for violating the forum selection provisions of their contract.

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Court of Chancery Explains Some Consequences For Violating Forum Selection Agreement

CMS Investment Holdings LLC  v. Castle, C.A. 9468-VCMR (August 19, 2016)

This is a significant decision because it explains how filing suit somewhere other than in the contractually-designated jurisdiction does not toll the time to sue in the proper jurisdiction. Hence, if the improperly-filed suit is dismissed, it may be too late to bring suit in the proper jurisdiction.

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Are Appraisal Cases to Decline?

Among the most-discussed issues in corporate law today is whether appraisal actions should be curtailed. Triggered by above-merger price awards after deals were shopped in the market, the argument is that the appraisal process is being used unfairly and sometimes ends in a home-run result for plaintiffs. In response to those concerns, Delaware recently amended its appraisal statute to address some of the perceived abuses. But, before the reformers claim success too soon, recent developments may actually increase appraisal actions. First, some background is helpful in understanding these changes. More ›

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How to Determine Whether the Statute of Limitations or Laches Applies

Lawyers who practice in the Delaware Court of Chancery probably can recite the shorthand rule that, for most claims, the Court of Chancery will decide whether a claim is filed too late by application of the statute of limitations by analogy. In application, however, the rule is not quite that simple, nor is it applied consistently. In Kraft v. WisdomTree Investments, C.A. No. 10816-CB (Del. Ch. Aug. 3, 2016), the Court of Chancery waded through the murk to bring some clarity to the analysis. More ›

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Court of Chancery Awards Mootness Fee for “Helpful” Supplemental Disclosures

The Court of Chancery’s highly-publicized decision in In re Trulia, Inc. Stockholders Litigation, 129 A.3d 884 (Del. Ch. 2016) (Bouchard, C.) (discussed here) took aim at the problem of disclosure-only settlements and class-wide releases in M&A litigation.  Trulia announced the Court’s preferred approach for adjudicating disclosure claims – either (1) on a pre-closing preliminary injunction motion, or (2) on a mootness fee application after defendants moot plaintiffs’ claims with voluntary supplemental disclosures.  Trulia also warned that parties choosing the “suboptimal” disclosure-only settlement and class-wide release path should expect the Court to be “increasingly vigilant” in assessing the reasonableness of the “give” and “get.”  After Trulia, the Court will only approve disclosure-only settlements if the supplemental disclosures address a “plainly material” misrepresentation or omission and the release is “narrowly circumscribed.” 

When setting forth the “plainly material” standard for disclosure-only settlements in Trulia, Chancellor Bouchard noted that disclosures need not be plainly material to support a mootness fee award.  In the Chancellor’s words, awards in the mootness fee scenario “may be appropriate for supplemental disclosures of less significance than would be necessary to sustain approval of a settlement.”  Id. at 898 n.46.  The Court of Chancery has since adhered to this view in Louisiana Municipal Police Employees’ Retirement System v. Black, 2016 WL 790898 (Del. Ch. Feb. 19, 2016) (Noble, V.C.) (discussed here).  There, then-Vice Chancellor Noble awarded a mootness fee for disclosures that were material, “if not much more than material,” noting that “Trulia does not require a ‘plainly material’ inquiry in the mootness fee award context.”  Id. at *7 n.53.

No Court of Chancery opinion, however, addressed whether, post-Trulia, a disclosure must at least cross the threshold of materiality to support a mootness fee award until the recent decision in In re Xoom Corporation Stockholder Litigation, 2016 WL 4146425 (Del. Ch. Aug. 4, 2016) (Glasscock, V.C.).  In Xoom, Vice Chancellor Glasscock held that the standard for disclosures on a mootness fee application is whether the disclosure was helpful and there was a benefit to the class, and not whether the disclosure was material. More ›

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