Court Of Chancery Requires Dismissal With Prejudice Of Withdrawn Derivative Suit
In Re Ezcorp Inc. Consulting Agreement Derivative Litigation, C.A. 9962-VCL (January 15, 2016)
When, after full briefing, the plaintiff decides that he cannot meet the heightened pleading rules of the recent Cornerstone case, may he just walk away without prejudice to his right to sue again later or must the suit be dismissed with prejudice not just to him but to all stockholders? More ›
ShareCourt Explains Rigorous 'Caremark' Pleading Requirements
A recent opinion containing the report and recommendation of the magistrate judge in the U.S. District Court for the District of Delaware, In re Chemed Shareholder Derivative Litigation, C.A. No. 13-1854-LPS-CJB (D.Del. Dec. 23, 2015), well illustrates the accepted wisdom that a Caremark claim is "possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment, as in In re Caremark International Derivative Litigation, 698 A.2d 959 (Del.Ch. 1996). As the Chemed case demonstrates, it is exceptionally difficult to even plead such a claim. In recommending that dismissal be granted on Rule 23.1 grounds (with leave to amend), the court carefully analyzed Delaware law and the requisite specificity necessary for a plaintiff to plead that directors "consciously failed to act after learning about evidence of illegality [such as becoming aware of] the proverbial 'red flag.'" More ›
Court Of Chancery Explores The Effect Of Federal Settlements On A Delaware Action And Applies Unocal To Bylaw Amendments
In re Ebix, Inc. S’holder Litig., Consol. C.A. No. 8526-VCN (Jan. 15, 2016)
This is an interesting decision for two reasons. More ›
ShareCourt Of Chancery Rejects Settlement Because Of Named Plaintiff Conflict
Smollar v. Potarazu, C.A. No. 10287-VCN (January 14, 2016)
This decision points out the hazard in providing a separate benefit to the named plaintiff in connection with the settlement of a derivative suit. In short, that is a bad idea and, as in this case, may cause the Court to reject even an otherwise good settlement because of concerns over the conflict of interest when the plaintiff may have agreed to a deal for his own benefit.
ShareChancery Defers to Indian Corporation's Delaware Choice of Venue
In the absence of a prior-filed action in another forum, Delaware state courts will respect a plaintiff's Delaware choice of forum when faced with a forum non conveniens defense, except in the "rare case" where a defendant demonstrates "overwhelming hardship and inconvenience if required to litigate in Delaware." The Delaware Supreme Court recently clarified the legal standard for the forum non conveniens defense in Martinez v. E.I. du Pont de Nemours & Co., 86 A.3d 1102 (Del. 2014). The Supreme Court explained in Martinez that the overwhelming-hardship standard for the forum non conveniens defense is not "insurmountable," but does require that defendants demonstrate "on balance, litigation in Delaware would represent a manifest hardship to [them]." To analyze hardship and inconvenience under the forum non conveniens legal standard, Delaware state courts are guided by the factors set forth by the Delaware Supreme Court in General Foods v. Cryo-Maid, 198 A.2d 681 (Del. 1964): (1) relative ease of access to proof; (2) availability of compulsory process of witnesses; (3) the possibility of a view of the premises; (4) whether the controversy is governed by Delaware law that a Delaware state court should more properly decide; (5) whether a similar action is pending in another jurisdiction; and (6) all other practical issues that would make the trial of the case easy, expeditious, and inexpensive. More ›
Is an Offset Allowed for Amounts Unrelated to the Claim Asserted?
The plaintiffs in Brace Industrial Contracting v. Peterson Enterprises (Del. Ch. Dec. 10, 2015) moved for partial summary judgment on the issue of whether the defendants could “self-help themselves to $3.457 million of the plaintiffs’ money as an offset against different purported unliquidated claims.”
The plaintiffs contended the defendants retained nearly $3.5 million in payments from the plaintiffs’ customers as an offset against claims the defendants asserted against the plaintiffs. The court found that it was not clear that the full claim amount was owed to the plaintiffs and that such issue should be decided following the impending trial. The court, however, did order the defendants to pay, and the plaintiffs to accept payment of, the amount the defendants conceded the plaintiffs were owed. More ›
ShareCourt of Chancery Explains When a Stockholder’s Right to Remove Directors May Be Limited to “For Cause” Only Removals
Section 141(k) of the Delaware General Corporation Law (DGCL) contains the default rule that a corporation’s stockholders have the right to vote to remove directors from the board “with or without cause.” Section 141(k) contains two exceptions to the default rule where the removal of directors may be limited to “for cause” only removals: (1) where the board is “classified” under Section 141(d) (i.e., has multiple classes of directors with staggered terms of service, in contrast to the default “straight” board having a single class of directors), or (2) where the stockholders have cumulative voting rights for director elections under Section 214 (rather than the default plurality voting rights). In accord with Court of Chancery precedent interpreting Section 141(k), Rohe v. Reliance Training Network, Inc., 2000 WL 1038190 (Del. Ch. July 21, 2000), a recent bench ruling by the Court of Chancery, In re Vaalco Energy Stockholder Litigation, C.A. No. 11775-VCL (Del. Ch. Dec. 21, 2015) (Laster, V.C.) (Transcript Opinion), invalidated a company’s charter and bylaw provisions that purported to limit the stockholders’ right to remove directors to “for cause” only removals where the company had an unclassified board consisting of a single class of directors and the stockholders had plurality voting rights for director elections. More ›
ShareSuperior Court Explains When Arbitration Is Binding
Airbase Carpet Mart Inc. v. Aya Associates Inc., No.. 15C-03-104 VLM (December 15, 2015)
As this decision explains, you can be bound by an arbitration clause even if you do not sign a contract containing such a provision. The issue is did you agree to be bound by that contract’s terms and if you did, then you are in for all of its terms.
ShareSuperior Court Explains Reliance Disclaimer Clauses
Pivotal Payments Direct Corp. v. Planet Payment Inc., No. 15C-02059-EMD CCLD (December 29, 2015)
A party to a contract may try to limit any future claims of fraudulent inducement by providing an anti-reliance clause in its contracts. As this decision explains, such clauses need to be carefully drafted and particularly need to address any oral statements made before the contract is signed. This decision is also useful for its coverage of the distinction between fraud and breach of contract claims based on whether the claim alleges fraudulent intent.
ShareCourt Of Chancery Explains Arbitration Timelines
SC&A Construction Inc. v. Potter, C.A. 10528-VCG (January 6, 2016)
This decision explains the timelines for seeking to vacate an arbitration award. It illustrates that an arbitration proceeding has its own rules that the parties better understand or lose their rights.
ShareMorris James Elects James A. Landon and Jonathan G. Strauss as Partners
Morris James LLP is pleased to announce that James A. Landon and Jonathan G. Strauss have been elected partners effective January 1, 2016. More ›
ShareDistrict Court Explains Caremark Proof Requirements In Pleading
In Re Chemed Corporation Shareholder Derivative Litigation, No. 13-1854-LPS-CJB (December 23, 2015)
To meet the pleading requirements to state a Caremark claim it is necessary that you show either the board ignored signs of wrongdoing or at least took no steps to prevent such wrongdoing. This decision contains an excellent review of when a court will attribute knowledge of wrongdoing to a board of directors in the absence of direct proof the board was aware of those bad acts.
ShareDistrict Court Explains When Suit Is Direct Or Derivative In The Alternative Entity Context
Gimaex Holding Inc. v. Spartan Motors USA Inc., No. 15-CV-00515-RGA (December 22, 2015)
Whether a claim is direct or derivative often determines if it will survive a motion to dismiss. Who would get the benefit of a recovery is one test applied to make that decision. But in the context of a partnership, that test has some weaknesses considering the wrongdoer will benefit from the recovery as a partner if the claim is cast as derivative. More ›
ShareCourt Of Chancery Limits Scope Of Review Under ADR Clause
PECO Logistics LLC v. Walnut Investment Partners L.P., C.A. 9978-CB (December 30, 2015)
Not infrequently, the parties to a complicated contract include a contractual provision on how to resolve any later disputes. For example, it is common to agree to use an accounting firm to resolve accounting disputes, such as what is due under a payout formula. But what is the scope of review of such a determination? More ›
ShareCourt Of Chancery Limits Contractual Right To An Injunction
AM General Holdings LLC v. The Renco Group Inc., C.A. Nos. 7639-VCN and 7668-VCN (December 29, 2015)
Practitioners often assume that if they provide a contractual right to an injunction for breach of contract, that the Court is obligated to find such a breach constitutes the irreparable harm that warrants an injunction. Not so fast, holds this decision. More ›
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