Delaware Business Litigation Report

CorpCast Episode 9: 2015 Year in Review

Welcome back to CorpCast!  In this 2015 Year in Review, we discuss several important cases from the past year, starting with the tidal wave of antagonism in the Court of Chancery towards disclosure-only settlements ending with In re Trulia, Inc. Stockholder Litigation.  We then move to discuss several instances of “financial advisors behaving badly,” with a look at In re TIBCO Software Inc. Stockholders Litigation and RBC Capital Markets, LLC v. Jervis.  We’ll also take a look at opinions dealing with conflicted transactions, revisiting Corwin v. KKR Financial Holdings LLC and Delaware County Employees Retirement Fund v. Sanchez, as well as discussing In re Cornerstone Therapeutics Inc., Shareholder Litigation and In re Dole Food Co., Inc. Stockholder Litigation.  Finally, we’ll look to some contract actions, including 1 Oak Private Equity Venture Capital Limited v. Twitter, Inc. and SIGA Technologies, Inc. v. PharmAthene, Inc., and touch on the invalidation of company bylaws in In re Vaalco Energy Inc. Consolidated Stockholder Litigation.  More ›

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Morris James Partner Joseph R. Slights, III Nominated to Become Next Vice Chancellor of the Delaware Court of Chancery

Morris James LLP is pleased to announce that partner Joseph R. Slights, III has been nominated by Governor Jack Markell to become a Vice Chancellor of the Delaware Court of Chancery. The judicial nomination was announced on Monday, February 8^th.

“I am honored and grateful to have been nominated by Governor Markell to serve on the nation’s premier court for the resolution of business disputes – the Delaware Court of Chancery,” Slights stated. “If I am fortunate enough to be confirmed by the Senate, I look forward to serving the citizens and the State of Delaware as Vice Chancellor.” More ›

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Derivative Settlement With Benefit Personal to Plaintiff Rejected

In 1850, Abraham Lincoln prepared notes for a law lecture. He emphasized the importance of compromise because after litigation, "the nominal winner is often a real loser—in fees, expenses, and waste of time." Delaware law also favors the compromise and settlement of disputes, and that policy preference extends to class and derivative litigation. Settlements must be fair, however, and the courts in representative litigation have a special role to play in reviewing the give and the get to prevent abuse. In recent days, for example, practitioners have received clear guidance that a peppercorn of modest disclosure may not support a class settlement that includes a full release and dismissal of all breach of fiduciary duty claims. Similarly, as the recent case of Smollar v. Potarazu, C.A. No. 10287-VCN (Jan. 14, 2016), illustrates, even where a derivative settlement reflects real value to a Delaware entity, the Court of Chancery rarely will approve a settlement where an individual representative plaintiff receives a benefit personal to her that is not shared with the class she represents as that fact alone calls into question the fairness and reasonableness of the settlement. More ›

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Court Of Chancery Explains Section 115

Bonanno v. VTB Holdings Inc., C.A. 10681-VCN (February 8, 2016)

Section 115 of the Delaware General Corporation Law addresses forum selection provisions in corporate charters or bylaws. This decision explains how a contract may also select a forum, how to interpret such a contract and how such contractual provisions may be incorporated into other contracts.

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Court Of Chancery Explains When Disclosures Required Absent A Stockholder Vote

Doppelt v. Windstream Holdings Inc., C.A. 10629-VCN (February 5, 2016)

This is an interesting decision for two reasons. First, it explains when directors might have a duty to cause the company to make disclosures to the stockholders about transactions that do not require the stockholders’ vote.  Briefly, when a transaction not requiring a stockholders vote is so related to a transaction requiring their vote that the two matters are tied together, then the stockholders are entitled to be fully informed about both matters. More ›

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Court Of Chancery Imposes An “Incorporation Condition” On A Stockholder’s Books And Records Inspection

Amalgamated Bank v. Yahoo! Inc., C.A. 10774-VCL (February 2, 2016)

This is a precedent-setting decision in the books and records context. In it, the Court imposes an “Incorporation Condition” on the stockholder’s inspection. That is, a stockholder who establishes a credible basis to inspect corporate records for the purpose of investigating alleged wrongdoing must agree -- as a condition to the inspection -- that all the documents it inspects will be deemed incorporated by reference in any later-filed derivative complaint. More ›

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Court Of Chancery Addresses M&A Discovery

Hamilton Partners L.P. v. Highland Capital Management L.P.,  C.A. 6547-VCN (February 2, 2016)

Discovery of financial information in M&A litigation, including appraisal actions, often involves two issues: (1) how far back before the transaction should there be discovery and (2) is post-transaction discovery permitted? This decision provides some guidance on both issues.

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How to Answer When an Activist Calls

The increasing activist stockholder demands upon boards of directors call for careful responses. The recent Delaware Court of Chancery decision In re Ebix Stockholder Litigation, C.A. No. 8526-VCN (Del. Ch. Jan. 15, 2016), provides guidance on how to respond when the activist calls. Moreover, Ebix is being overlooked by many because most of the opinion focuses on the scope of releases contained in settlements of stockholder litigation. That itself is a hot topic that is part of the increased scrutiny the Court of Chancery is now giving to disclosure-only settlements. But while Ebix's discussion of the scope of releases is important, Ebix is worth a closer review for its guidance on activism. More ›

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Court Of Chancery Explains Director Right To Information And What Communications Qualify As Corporate Books and Records

Chammas v. NavLink, Inc., C.A. 11265-VCN (February 1, 2016)

This is one of those scarce cases dealing with director access to a corporation’s books and records. After all, Delaware law provides directors with an almost unlimited right to a corporation’s records needed for them to exercise their  fiduciary duties. Hence, these cases are rare. More ›

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Court Of Chancery Explains Section 205 Jurisdiction

Knoll Capital Management LP v. Advaxis Inc., C.A. 11417-VCN (January 29, 2016)

Under the fairly new provisions of Section 205 of the DGCL, the Court may validate certain “defective corporate acts,” including “any act or transaction purportedly taken by or on behalf of the corporation that is … within the power of a corporation …, but is void or voidable due to a failure of authorization.”  More ›

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Court Of Chancery Dismisses Case For Failure To Pursue Records

Thermopylae Capital Partners LP v. Simbol, Inc., C.A. 10619-VCG (January 29, 2016)

The Court of Chancery expects a plaintiff to supply those facts necessary to state a claim in reasonable detail, particularly when those essential facts might be obtained by an inspection of an entity’s records. Here the Court dismissed a complaint for its failure to state those facts that would have been evident from a records inspection and when the absence of those facts made the complaint  too difficult to understand.

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Court Of Chancery Explains When A Fee Award Is Timely

Avaya Inc. v. Charter Communications Holding Company LLC, C.A. 10568-VCN (January 29, 2016)

Normally, the Court of Chancery does not favor fee applications before the litigation is completed. When, as here, the underlying instrument that provides for a fee award does permit such an application, the Court may grant it even when there is litigation between the same parties pending elsewhere.

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Tension Between 'Aronson' Analysis and the Standard of Review

On Monday, just after the arrival of the blizzard of 2016 in Delaware, the Court of Chancery created its own momentous event with the release of its opinion in In re EZCorp Consulting Agreement Derivative Litigation, C.A. No. 9962 (Jan. 25, 2016). Spanning 91 pages, the opinion treats its subjects with a scholarly level of analysis, worthy of review in its entirety. Publication limits do not permit a complete review of the opinion in this space, but I can focus on one of the many important aspects of the opinion: the identification of a doctrinal tension between an Aronson demand futility analysis, from Aronson v. Lewis, 473 A.2d 805 (Del. 1984), and how to determine the standard of review. More ›

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Court of Chancery Targets “Deal Tax” Litigation By Increasing its Scrutiny of “Disclosure-Only” Settlements

            M&A lawsuits and so-called “disclosure-only” settlements – where stockholder plaintiffs drop their requests to enjoin a deal and grant defendants broad releases primarily in exchange for supplemental disclosures to stockholders, followed by requests for six-figure attorneys’ fee awards – have proliferated in recent years.  In turn, these lawsuits have faced increasing scrutiny from scholars, practitioners, and members of the judiciary, who assert that these ubiquitous settlements rarely yield genuine benefits for stockholders, threaten the loss of potentially valuable claims that have not been sufficiently investigated, and only serve the interests of opportunistic plaintiffs’ counsel and defendants happy to acquire a form of deal insurance through a broad release of class action claims challenging the merger. More ›

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Court Of Chancery Applies Entire Fairness To Controller Contract

In Re EZCORP Inc. Consulting Agreement Derivative Litigation,  C.A. 9962-VCL (January 25, 2016)

This is an important and useful decision for at least two reasons. First, the Court carefully analyzes past Delaware precedent to conclude that the entire fairness test applies not just to squeeze-out mergers, but also to other transactions where a controller obtains non-ratable benefits, such as contracts with an entity owned by a controller of the company. This is important because prior case law was inconsistent on the test it applied to such contracts.

Second, the opinion has an exhaustive review of Delaware law on how to determine if a director is interested for purposes of the demand futility standard to bring a derivative suit.

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