Delaware Business Litigation Report

Chancery Grants Injunction Under the Delaware Deceptive Trade Practices Act

Next Level Ventures, LLC v. AVID USA Technologies LLC, C.A. No. 2022-0699-MTZ (Del. Ch. March 16, 2023)
The Delaware Deceptive Trade Practices Act (the "DDTPA”), 6 Del. C. § 2531, et seq., prohibits confusing or creating misunderstanding as to "the source, sponsorship, approval, or certification of goods or services" as well as to the products' “affiliation, connection, or association with, or certification by, another." In this case, the plaintiff asserted violations of the DDTPA in connection with the defendants' allegedly misleading statements. This decision grants the injunction against all defendants but narrows it to fit the specific allegations.  More ›

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Chancery Dismisses Oversight Claim Based on Board’s Response to Red Flags

In re McDonald's Corp. Stockholder Derivative Litig., CA No. 2021-0324-JTL (Del. Ch. March 1, 2023)
A plaintiff can plead an oversight claim against a board by alleging particularized facts to support an inference that the directors either: (1) utterly failed to implement a reporting or information system or controls or (2) consciously failed to monitor or oversee the business and, as a result, disabled themselves from being informed of problems or risks that required their attention. A "prong-two" failure to monitor Caremark claim, or "red flags" claim, requires that the plaintiff plead that the board's information system generated red flags and that the board subsequently failed to respond and address the red flags. More ›

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Chancery Examines Director’s Personal Ties and Dismisses Duty of Loyalty Claim

In re Orbit/FR, Inc. S’holders Litig., C.A. No. 2018-0340-SG (Jan. 24, 2023)
This decision involved a stockholder challenge to a merger between Orbit and its controller, Microwave Vision. A certain director who served on a special committee was alleged to have breached his fiduciary duty of loyalty in approving the transaction, arising out of his alleged conflict as an employee beholden to the controller for his job. After admitting the allegation of an employment relationship was a mistake, the plaintiff shifted to alleging the director lacked independence based on his personal relationship with another director, who served on the boards of both Orbit and Microwave Vision. The two directors had been neighbors, their children were contemporaries, and they frequently went bicycling together years earlier. On a motion to dismiss, the Court of Chancery found that these "casual sharing of interests between neighbors” did not give rise to a conflict for the at-issue director and did not support a non-exculpated duty of loyalty claim against him.

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Delaware Supreme Court Affirms Delaware Choice-of-Law Ruling In Dismissal of D&O Liability Insurance Coverage Dispute

Stillwater Mining Company v. National Union Fire Insurance Company of Pittsburgh, PA et al., No. 24, 2022 (Del. Jan. 12, 2023)
This decision from Delaware Supreme Court addresses choice-of-law questions for D&O insurance contract disputes and cautions litigants to remain consistent in the positions they take before the trial court. The appellant here, an insured under a tower of directors and officers’ liability insurance policies, asserted that Delaware law applied to the claims in its original complaint for coverage of its defense costs in an appraisal action. Following a decision from the Delaware Supreme Court in another matter (In re Solera Ins. Coverage Appeals), which held that an insurer is not obligated to provide coverage for appraisal actions under a similar insurance policy, the insured amended its complaint and, in so doing, argued that Montana rather than Delaware law controlled. More ›

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Chancery Addresses Standards for Privilege Logs

Thermo Fisher Scientific PSG Corp. v. Arranta Bio MA, LLC, C.A. No. 2022-0608-NAC (Del. Ch. Jan. 18, 2022)
To assert privilege in Delaware, the asserting party must provide clear and specific reasons as to how and why privilege applies. Such that opposing counsel can comprehend the privilege asserted and challenge unsupported claims. This task is accomplished with a clear and concise privilege log listing all documents subject to privilege with individual descriptions for each. The mere presence of an attorney on the communication will not render that communication privileged, and documents must be appropriately redacted rather than simply withheld when non-privileged material exists alongside privileged legal advice. Delaware counsel should be involved in privilege log decisions. More ›

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Chancery Addresses When Third Parties Are Within the Scope of the Privilege

Police and Fire Ret. Sys. of the City of Detroit v. Musk, C.A. No. 2020-0477-KSJM (Del. Ch. January 31, 2023)
A communication is privileged under Delaware Rule of Evidence 502(b) if it is confidential and "made for the purpose of facilitating the rendition of professional legal services to the client." Rule 502(a)(2) defines a confidential communication as one "not intended to be disclosed to third persons other than those to whom disclosure is made in furtherance of the rendition of professional legal services to the client or those reasonably necessary for the transmission of the communication." Rule 502(b) makes clear that the presence of a client's "representative" does not waive confidentiality or break privilege, but the rule itself does not define "representative." More ›

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Chancery Finds Delaware’s Officer Consent Statute Extends Beyond “Formal Officers” to De Facto or Acting Officers

Harris v Harris, C.A. No. 2019-0736-JTL (Del. Ch. January 19, 2023)
Delaware's Officer Consent Statute provides for service of process on anyone who "accepts election or appointment as an officer of a corporation…or who after such date serves in such capacity." In this case, Vice Chancellor J. Travis Laster addressed an issue of first impression and found that the Statute can be used to serve process on a person who performs the duties of an officer regardless of the person's formal title or acceptance of the position. This decision allows plaintiffs to engage in jurisdictional discovery to determine whether the company's advisor acted as its de facto officer. More ›

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Chancery Orders an LLC to Provide Manager with Books and Records Comprising Informal Board Materials Related to Other Managers’ Actions

Bruckel v. TAUC Holdings, LLC, C.A. 2021-0579-MTZ (Del. Ch. Jan. 6, 2023)
Delaware law provides managers of an LLC with a right to inspect the company’s books and records for a purpose reasonably related to their management positions. In this Order, the Court emphasized that all managers of an LLC have equal access to the company's information. More ›

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Chancery Rules That Moving Situs of Trust to Delaware Supports Personal Jurisdiction Under the State’s Long-Arm Statute

Harris v. Harris, C.A. No. 2019-0736-JTL (Del. Ch. Jan. 12, 2023)
Three children filed suit against their mother and her associates, alleging they had seized control of a family-owned corporation and engaged in self-dealing, including via self-serving withdrawals from a family trust. Plaintiffs asserted claims for breaches of fiduciary duty, aiding and abetting those breaches, breach of a trust agreement, and tortious interference with the trust agreement. The general counsel of the company moved to dismiss the tortious interference claim against him, including for lack of personal jurisdiction. More ›

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Chancery Finds Personal Jurisdiction Under Conspiracy Theory of Jurisdiction Based on Trust Domestication

Harris v. Harris, C.A. No. 2019-0736-JTL (Del. Ch. Jan. 16, 2023)
Under the conspiracy theory of personal jurisdiction, when defendants conspire to engage in tortious activities, the Delaware-directed acts of one co-conspirator can be attributed to the other conspirators for the purpose of establishing personal jurisdiction under Delaware’s Long-Arm Statute.  Here, the plaintiffs alleged that the defendants acted in concert to support the domestication of a trust (specifically, a GRAT) in Delaware for purposes of a larger tortious scheme.  Based on these allegations, the Court of Chancery found there was sufficient support to support personal jurisdiction under the conspiracy theory, or minimally to allow for jurisdictional discovery.  But the Court also concluded that the discovery was unnecessary because there was evidence of spoliation, which allowed for a pleadings stage inference that the defendants were engaged in a conspiracy sufficient to support personal jurisdiction.

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Chancery Resolves Dispute About Competing Forum Selection and Arbitration Provisions

Fairstead Cap. Mgmt. LLC v. Blodgett, C.A. No. 2022-0673-JTL (Del. Ch. Jan. 6, 2023)
This case highlights the difficulties that can arise when relationships are governed by contracts with competing forum selection and arbitration provisions. Two LLCs brought claims against a former principal for breach of the respective LLC agreements, both of which contained Delaware forum selection clauses. In response, the principal sought an injunction barring the LLCs from proceeding outside of arbitration because the principal’s employment agreement contained a broad arbitration provision that encompassed all of the parties’ disputes. More ›

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Chancery Denies Motion to Dismiss Finding Primedia Argument Inapplicable

In Re Orbit/FR, Inc. Stockholders Litig., C.A. No. 2018-0340-SG (Del. Ch. January 9, 2023)
In In re Primedia, Inc. S’holders Litig., 67 A.3d 455 (Del. Ch. 2013), the Court examined whether a litigation asset being pursued derivatively was extinguished by the sale of the company to a third party that had no interest in pursuing the claim and had not valued the claim as an asset in the merger. Primedia sets forth certain stringent standards to assert a claim that the merger was unfair based on such a derivative claim. More ›

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Chancery Concludes Section 18-110 of the LLC Act Does Not Permit Standalone Books and Records Claims When Company Management Is Undisputed

Cardinale v. Feingold, 2023 WL 142510 (Del. Ch. Jan. 10, 2023)
In a dispute about the manager of a limited liability company, Section 18-110 of the LLC Act grants the Court of Chancery the statutory authority to order the production of books and records “relating to the issue.” Here, the plaintiff sought a declaration that he was the sole manager of six companies and also an order directing the defendants to turn over the companies’ books and records. The defendants, who had recently resigned as managers, confirmed that the plaintiff was the companies’ sole manager and asked the Court to dismiss the remainder of the action for lack of jurisdiction. The Court agreed. Because the identity of the companies’ manager was undisputed, the Court concluded it no longer had jurisdiction under Section 18-110 to order the production of books and records.

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Chancery Finds SPAC’s Sponsor and Board Potentially Violated Fiduciary Duties by Depriving Public Stockholders of the Information Material to the Stock Redemption Decision

Delman v. GigAcquisitions3 LLC, C.A. No. 2021-0679-LWW (Del. Ch. January 4, 2023)
Delaware law establishes that fiduciaries of a corporation cannot be exempted from "their loyalty obligation and the attendant equitable standards of review that [the] court will apply to enforce it." In this case, following last year's Multiplan decision (discussed here), stockholders alleged that a SPAC's sponsor and board members breached their fiduciary duties by failing to disclose information material to the stockholders' decision on whether to redeem the stock prior to the de-SPAC transaction. This decision denies the defendants' motion to dismiss and finds that stockholders properly brought the lawsuit as a class action based on the fact that the alleged harm they suffered was individually compensable. More ›

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Supreme Court Interprets an Alleged Irrevocable Proxy and Finds It Does Not Run with Shares and Bind Subsequent Owner

Daniel v. Hawkins, No. 184, 2022 (Del. Jan. 6, 2023)
Through an irrevocable proxy, the appellant held voting power for 100 shares of a partnership. The proxy had been a tool to immediately transfer the shares' voting power to the appellant, away from a beneficial owner experiencing legal troubles, to minimize the risk of tainted control harming the business pending transfer of beneficial ownership. Years later, with beneficial ownership having transferred for 75 shares, the appellee sought to purchase those shares free of the proxy. The appellant argued that the proxy was irrevocable and could not be relinquished. Appellee filed suit in the Court of Chancery, seeking a declaratory judgment that the irrevocable proxy did not apply to subsequent third-party owners. The Court of Chancery determined that the irrevocable proxy's plain language did not establish a grant of agency authority that ran with the shares. More ›

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