Posts from 2013

Court Of Chancery Explains Special Committee Standard Of Care

Gerber v. EPE Holdings LLC, C.A. 3543-VCN (January 18, 2013)

It is now common for LLC and LLP agreements to have provisions permitting a "special committee" to approve  transactions with a controller.  What the limits are of that form of protection is the subject of this interesting opinion.  As the Court points out, surely not every committee approval, no matter how onerous, can immunize the transaction from judicial review.  Here, even when the transaction did not get an independent adviser's review and was at a price reflecting a startling run up in value for the underlying assets, the complaint failed to allege facts sufficient to state a claim that the approval was in bad faith.  More was required.

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Court of Chancery Discusses Expedited Proceedings

The Renco Group Inc. v. MacAndrews AMG Holdings LLC, C.A. 7668-VCN (January 18, 2013)

This decision provides a good review of when the Court will expedite a proceeding.

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Agreement to Indemnify Does Not Include Fees

Bear Stearns Mortgage Funding Trust 2007-AR2 v. EMC Mortgage LLC,  C.A. 6861-CS (January 15, 2013, revised January 17, 2013) As this decision points out, an agreement to indemnify against loss does not necessarily mean that the indemnitee also recovers its attorney fees. This decision was substantially modified on 1/12/15 Share

Delaware Supreme Court Radically Changes Discovery Scheduling Practice

Authored by Edward M. McNally
This article was originally published in the Delaware Business Court Insider | January 9, 2013

In four decisions issued on the same day, January 2, the Delaware Supreme Court has radically changed the common practice among Delaware lawyers concerning discovery schedules in Delaware litigation. Not only do these opinions change how lawyers will handle discovery in Delaware cases, but they also potentially will affect how Delaware's trial courts control their dockets. Much more formal, active case management will be the result. There are severe consequences for those lawyers who do not follow these new procedures. More ›

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Court Of Chancery Awards Fees Separately For Disclosure And Settlement

In re MoneyGram International Inc. Shareholder Litigation, C.A. 6387-VCL (January 7, 2013)

This is a somewhat unusual fee award because of the way the Court did the calculation of the amount. The court divided the award into two parts, one for the additional disclosures and the second part for the settlement fund created by the plaintiff's efforts. The disclosure award is also larger than typical awards for added disclosures.

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Court Of Chancery Explains Bad Faith Claim

In re Novell Inc. Shareholder Litigation, C.A. 6032-VCN (January 3, 2013)

This decision well explains what may constitute a claim that a merger was entered into in bad faith. Such a claim is necessary to sustain a complaint when the majority of the directors are independent and disinterested.  Deal protection devices such as termination fees are not enough to show bad faith, at least when their terms are typical of such provisions.

Here the complaint adequately pled bad faith by alleging that the board favored 1 of 2 bidders for no good reason. For example, if the losing bidder made the highest offer, there must be some reason to not take its bid.  If not, the the board may be said to have acted in bad faith because that would knowingly violate its duty to get the best deal.

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Court Of Chancery Permits Limits On Advancement

Miller v Palladium Industries Inc., C.A. 7475-VCN (December 31, 2012)

This decision illustrates the need for careful drafting of bylaws regarding advancement rights.  The plaintiff claimed entitlement to mandatory advancement under the Company's bylaws.  However, the bylaws also provided that advancement was required "unless" the Board decided otherwise. The Court held that the word "unless" made advancement discretionary.  In contrast, a different bylaw that made advancement subject to board approval has been held to be mandatory so long as the request met the board's technical requirements as to the form of the requested advancement.  A word can make a lot of difference.

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Supreme Court Refines Rule On Failure To Follow Scheduling Order

The Delaware Supreme Court has issued 4 opinions that significantly refine the rules set out only 2 years ago in the Drejka decision on when a case may be dismissed for failing to meet the timetable in a scheduling order.  See Christian v. Counseling Resource Associates Inc., No. 460, 2011 (January 2, 2013);    Hill v. DuShuttle, No. 381, 2011 (January 2, 2013);   Adams v Aidoo, No. 177, 2012 (January 2, 2013) and Keener v. Isken, No. 609, 2011 (January 2, 2013). The Christian decision is perhaps the most significant.  From now on, if a party fails to meet a deadline for discovery, the opposing party will be precluded from objecting unless the opposing counsel alerts the Court to the failure and asks for formal relief.  Note that the Supreme Court's wording is very broad because it says that the first failure to object to a delay means the opposing party has "waived the right to contest any late filings by opposing counsel from that time forward." Literally then, all future delays are waived.  This seems too broad to be taken literally. For example, a failure to object to a 2 day delay on a minor matter should not preclude a failure later to provide an expert report.  Nonetheless, the current, somewhat lax, informal extensions are now a thing of the past.

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