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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 134 posts from 2012.
Court Of Chancery Examines Advance Notice Bylaw
Icahn Partners LP v. Amylin Pharmaceuticals Inc., C.A. 7404-VCN (April 18, 2012)
An advance notice bylaw requires stockholders to tell their company substantially in advance of a stockholders' meeting if they want to nominate someone to to be elected as a director at that upcoming meeting. But, under the Hubbard decision, sometimes the Court of Chancery will set aside such a bylaw when it is used in a way the Court finds is inequitable. Here Carl Icahn is claiming that the Board changed its basic business strategy after the advance notice bylaw deadline has passed and it would be inequitable under those circumstances to bar him from nominating a slate of directors to bring the company back on course. The Court has agreed to hear his claim. The outcome will be interesting.
Share2012 Federal Trial Practice Seminar: An Introduction to Federal Practice in the District of Delaware
The Delaware Chapter of the Federal Bar Association, in conjunction with the United States District Court for the District of Delaware, is pleased to announce another exciting new initiative. On the evenings of Thursday, May 17 and Thursday, May 31, 2012, from 5:00 to 7:30 p.m., the District Court and FBA will sponsor a two-night seminar program entitled “The Federal Trial Practice Seminar Presents: An Introduction to Federal Practice in the District of Delaware.” The sessions will take place in Courtroom 2B at the J. Caleb Boggs Federal Building.
Attorneys who have been practicing in the District for three years or less are eligible to participate in this seminar. One of the two seminar sessions will relate to an attorney’s interaction with opposing counsel and participation in the litigation process, while the other session will focus on an attorney’s interaction with the Court. Each session will include a presentation from a speaker and a panel discussion. The speakers and panel members will be current and/or former judges of the District Court.
Participation is limited to FBA members. Current FBA members may register for the seminar by contacting Steve Brauerman via e-mail at sbrauerman@bayardlaw.com, by no later than May 14, 2012. Those interested in participating in the seminar who are not currently FBA members may contact Mr. Brauerman at the e-mail address listed above to obtain additional information about FBA membership.
Space for the seminar is limited and applicants will be accepted on a first-come, first-served basis. Applicants should be available to attend both sessions. Admission to the seminar is free and the FBA expects to apply for Continuing Legal Education credit in Delaware for both sessions.
ShareSupreme Court Confirms Fee Award Principles
EMAK Worldwide Inc. v. Kurz, No. 512, 2011 (April 17, 2012)
The Delaware Supreme Court has once again confirmed that substantial attorney fee awards may be appropriate even when the plaintiff has not won a large monetary recovery. That is particularly so when the plaintiff has protected stockholder voting rights, as in this litigation.
ShareFailure to Plead Demand Futility Risks Losing Attorney Fees
Authored by Lewis H. Lazarus
This article was originally published in the Delaware Business Court Insider | April 11, 2012
When a defendant engages in arguably unlawful conduct, a plaintiff files an action to complain about and seek relief prohibiting the unlawful conduct, and the defendant thereafter changes its practices and moots the plaintiff's complaint, a plaintiff may be entitled to attorney fees based upon the benefit conferred. Absent such a rule, a plaintiffs counsel could undertake a contingent-fee case, incur fees to investigate and file the action and then wind up with no case and no compensation, even though the defendant had changed its practices in a manner consistent with the plaintiff's demand. More ›
ShareCourt Of Chancery Explains When Director May Be "Interested"
In re Answers Corporation Shareholders Litigation, C.A. 6170-VCN (April 11, 2012)
Directors who are also officers have an interest in a merger when they are to retain their jobs in the merged company. Delaware has recognized that this interest is inevitable in many cases and is usually not enough to make that director's vote for the merger considered an interested transaction. Of course, if future employment is negotiated improperly, the director may well be "interested," particularly if he both negotiates the merger and his future employment at the same time.
But what happens if he does not do so? Here the director/officer was deemed to be an interested director who had to prove the entire fairness of the deal because he knew he was about to be fired unless the deal was done soon. This illustrates the importance of context.
Finally, the opinion is also interesting for its review of when circumstantial evidence is enough to show the acquiror had knowledge of possible fiduciary duty breaches so as to be an aider and abettor.
ShareCourt Of Chancery Discusses Director Removal Statute
Shocking Technologies Inc. v. Michael, C.A. 7164-VCN (April 10, 2012)
A year or so ago, the DGCL was amended to permit the removal of a director by the Court of Chancery. While the grounds to do are broadly stated (including "breach of the duty of loyalty"), the statute requires that the director first have been convicted of a felony or been found in a prior case to have breached his duty of loyalty. There thus remains the question of whether director removal may be done without a prior action that establishes the grounds to do so.
This decision suggests that such a direct action for removal will be very hard to win, for the Court expressed serious concerns over whether it has that authority absent the statutory prerequisites. The question is still open to be squarely decided in another case.
ShareWhat to Do When the Injunction Is Denied but the Directors Made a Mistake
Authored by Edward M. McNally
This article was originally published in the Delaware Business Court Insider | April 4, 2012
Recently, the Delaware Court of Chancery has found wrongful conduct but denied the remedy plaintiffs sought. The El Paso case is a prime example.
The court found the board of directors and, particularly, El Paso's president had failed to act properly in negotiating a merger. Even the company's investment bankers had a conflict of interests, yet, despite critical language in its opinion, the court refused to enjoin the merger. More ›
ShareCourt Of Chancery Upholds Limited Review Permitted By LP Agreement
In Re K-Sea Transportation Partners LP Unitholders Litigation, C.A. 6301-VCP (April 4, 20120)
This is another example of how an LP agreement may limit the review of a transaction by a court at the request of a dissatisfied partner. The partnership agreement provided that the GP only needed to act in good faith in approving a sale and defined good faith, in part, as established by reliance on an expert's advice. Since that was present, the court dismissed the complaint.
ShareCourt Of Chancery Explains Special Benefit Rule
Frank v Elgamal, C.A. 6120-VCN (March 30, 2012)
It is well understood that when a controlling stockholder stands on both sides of a transaction with his controlled entity that he will need to show the transaction is entirely fair to the other owners. But when he receives such a special benefit so as to be on both sides of the deal is not always so easy to decide. After all, it is common such acquirors to want to retain management. If the insiders get an employment contract, do they stand on both sides of the negotiations? This decision helps to answer that question. In general, if the controllers get an equity interest in the surviving entity to a merger that is not shared with the other owners, then they are on both sides of the transaction and must show it is entirely fair.
ShareDelaware Superior Court Instructs How To Raise Choice Of Law
When must a litigant raise any issue over the choice of the law that governs a dispute? Right away is the answer. As this decision correctly holds, if the parties brief their issue under Delaware law, trying to argue later that some other jurisdiction's law applies is too late.
ShareSupreme Court Interprets Post Closing Payment Clause
BLGH Holdings LLC v. EXXCO LFG Holding LLC, Del., C.A. 531, 2011 (March 27, 2012)
When a post-closing adjustment is due after a merger is sometimes disputed, particularly when it depends on the closing of another deal. Here the Supreme Court concludes that when the payment is due on the closing of another "deal" that new deal needs only to close, not to be exactly what the parties might have contemplated when they signed the merger agreement. Thus, this is another example of "you-get-what-you bargained-for" in Delaware.
ShareCourt Of Chancery Explains "Acquiescence"
In re Celera Corporation Shareholder Litigation, C.A. 6304-VCP (March 23, 2012)
This is an important decision because it clarifies when a stockholder will be deemed to have acquiesced to a merger, thereby losing her right to continue to litigate. In short, voting for the merger or accepting a tender offer is acquiescence. Accepting the merger consideration when the merger is inevitable is not acquiescence.
This decision is also useful for its explanation of how the Court will calculate the fees to be awarded.
ShareDealing With Disputes Over the Reasonableness of Fees at the Advancement Stage
Authored by Peter B. Ladig
This article was originally published in the Delaware Business Court Insider | March 21, 2012
Like many aspects of Delaware corporate law, the law of a corporate director or officer's entitlement to advancement is not black and white, but it is probably one of the more well established areas of law.
The contours of the law in this area have been addressed so often that members of the Delaware Court of Chancery have on occasion expressed frustration with corporations advancing defenses to mandatory advancement provisions that have little merit to them. (See, e.g., Barrett v. American Country Holdings Inc. a 2008 opinion in which the court wrote: "The accumulation of cases like this, where the stockholders get it coming and going because of the corporation's refusal to honor mandatory advancement contracts, is regrettable, and at some point, a case of sufficient dollar value will arise such that a board is sued for wasting the corporation's resources by putting up a clearly frivolous defense.") More ›
ShareCourt Leaves it to Stockholders to Decide on El Paso Merger Transaction
Authored by Lewis H. Lazarus
This article was originally published in the Delaware Business Court Insider | March 14, 2012
Chancellor Leo E. Strine Jr. has long had a high regard for the ability of stockholders to decide for themselves what is in their own best interests. A corollary of that is judicial restraint when stockholders on full information of flaws and conflicts of interests in a sales process have the opportunity to approve or reject a merger transaction with a substantial 47.8 percent control premium, albeit one likely not as robust as a well-run sales process may have generated. More ›
ShareCourt Of Chancery Explains When Continuing Wrong Theory Applies
Buerger v. Appel, C.A. 6539-VCL (March 15, 2012)
After a board makes a decision that has consequences that last for years, the question arises of when the time to litigate over that decision expires. Some decisions hold that when the decision is not reviewable later, such as when a long term contract is awarded, the time to attack that contract starts to run out the day the contract is approved. Here, however, the Court noted that the company had the right to cancel the contract every year. Thus, the Court held that each time the board decided not to cancel the contract, it made a new business decision that was subject to court attack from the date the contract was not cancelled.
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