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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Morris James Blogs
Showing 169 posts from 2014.
Court Of Chancery Affirms Standing in Section 225 Case
Flaa v. Montano, C.A. 9146-VCG (February 24, 2014)
This decision affirms the standing of someone not yet elected to the board to seek relief under Section 225.
ShareCourt Of Chancery Affirms Power To Order Discovery Abroad
In re Activision Blizzard Inc. Stockholder Litigation, C.A. 8885-VCL (February 21, 2014)
Some countries, particularly in Europe, have laws that restrict the ability to get discovery of email and other materials. This careful decision explains when the Court of Chancery will order that discovery anyway. The opinion reviews the United States Supreme Court decisions and the laws of France on this subject.
ShareNo Fiduciary Duty to Repurchase Minority Stockholder Shares
Authored by Albert H. Manwaring, IV
This article was originally published in the Delaware Business Court Insider | February 19, 2014
In contrast to many jurisdictions that have recognized special fiduciary duties owed by majority stockholders to protect minority stockholders in closely held corporations, Delaware courts have not adopted a special fiduciary duty of a controlling or majority stockholder to minority stockholders in closely held corporations, or a fiduciary duty to buy back a minority stockholder's shares. Thus, declining to follow the approach of many other jurisdictions, Delaware law does not afford minority stockholders in a closely held corporation any greater protection than the fiduciary duties a controlling stockholder owes to a minority stockholder in a public corporation. More ›
ShareCourt Of Chancery Explains Loss Causation
Vichi v. Koninklijke Philips Electronics N.V., C.A. 2578-VCP (February 18, 2014)
This may be the longest opinion ever written by the Court of Chancery. In one sense, that is too bad because it has the best explanation of loss causation in any recent opinion. Briefly, if A invests in company ABC because of false representations about its earnings and then the value of ABC declines because all its officers die, A has lost money because he invested in ABC. However, his loss is not caused by the fraud but by the deaths of the officers. In that situation, A has not proved loss causation. This is an important point that is too often overlooked.
ShareCourt Of Chancery Affirms Entitlement To Interest
Huff Fund Investment Partnership v CKx, Inc., C.A. 6844-VCG (February 12, 2014)
Appraisal actions are increasing for several reasons. One reason is that the statutory rate of interest of 5% plus the federal discount rate paid to the stockholder is higher than that currently available elsewhere. Here the defendant offered to pay into court what it said was the fair value and thereby stop the accrual of interest. However, the Court held that the appraisal statute mandated interest be paid until the Court's judgment was paid.
ShareCourt Of Chancery Denies Advancement
White v. Kern, C.A. 7872-VCG (transcript, January 24, 2014)
This ruling illustrates an often overlooked point that the decision to advance attorneys' fees may constitute a self-dealing transaction when the party getting advancement is the party voting to do so. Hence, absent a proper basis, advancement is improper under those circumstances. Of course, when advancement is required by the bylaws, then it is required and acceptable even if the decision is made by the same parties whose fees are to be paid.
ShareDelaware Expands Insider-Trading Claims
Authored by Edward M. McNally
This article was originally published in the Delaware Business Court Insider | February 5, 2014
At the very end of 2013, the Delaware Court of Chancery issued a major insider-trading decision that has substantial implications for company officials selling their company stock. The decision in Silverberg v. Gold, Del. Ch. C.A. 7647-VCL (December 31, 2013), upholds using circumstantial evidence to establish that insiders were motivated by material nonpublic information to sell company stock. Silverberg's significance lies in the extent to which it draws inferences of wrongful conduct from some limited evidence. Thus, Silverberg may permit more insider-trading complaints to survive a motion to dismiss. More ›
ShareCourt Of Chancery Explains Nontransactional Damage Claims
OTK Associates LLC v. Friedman, C.A. 8447-VCL (February 5, 2014)
This interesting decision deals with 3 aspects of fiduciary litigation in Delaware. First, under the Supreme Court's CERBCO decision, even if a transaction is called off, a fiduciary who proposed the invalid deal may be held liable for the company's expenses. This happens so rarely that it is not clear how to apply CERBCO. Well, this decision explains how it applies. The decision also explains when demand is not excused before filing an amended complaint when the composition of the board has changed since the original complaint was filed. Briefly, the Court looks to see if the new complaint is really a new claim and if it is, then the new board's independence is tested to see if demand is excused. Finally, the decision explains when a forum selection clause is not enforceable to remove the court's power to decide a breach of fiduciary duty claim. When the forum selection clause deals with the parties' contract claims, it does not preclude a Delaware court from dealing with fiduciary duty claims.
ShareCourt Of Chancery Awards Fees For Non-monetary Benefits
In re McMoRan Exploration Co. Shareholders Litigation, C.A. 8132-VCN (February 5, 2014)
This is an interesting decision because it awards fees for some complicated non-monetary benefits the plaintiffs' counsel claimed to have achieved. How the Court analyzed the benefits is a guide to how it will do so in the future when the benefits go beyond mere additional disclosures.
ShareCourt Of Chancery Explains Good Faith Dealing Applications
American Capital Acquisition Partners LLC v. LPL Holdings Inc., C.A. 8490-VCG (February 3, 2014)
Disappointed parties to merger or asset purchase agreements sometimes try to get a redo of their deal by arguing the other side has violated the duty to act fairly and in good faith in the course of implementing their transaction. This decision explains when that will not work and when it may succeed. If the parties contracted with respect to the subject the plaintiff is complaining about, it will do little good to try to cast its complaint as a matter of fair dealing. It instead should have done a better job of contracting. On the other hand, when the matter in dispute was not focused on by the parties in their deal, they have a better chance of having the Court fill the gap with a fair dealing and good faith analysis.
ShareCourt Of Chancery Shows How A Late Stage Summary Judgment Motion Works
In Re Answers Corporation Shareholders Litigation, C.A. 6170-VCN (February 3, 2014)
This is an excellent review of Delaware law on how to carry out the sale of a company. Perhaps more novel, however, is how the Court deals with a summary judgment motion at a late stage of a case and where there are apparently conflicting factual claims. For after all discovery is done, the Court shows that it is more willing to weigh the evidence to some degree and rule that the plaintiff's' claims just do not get to trial.
ShareCourt Of Chancery Grants Specific Performance To Break Deadlock
Millien v. Popescu, C.A. 8670-VCN (January 31, 2014)
This is an interesting case because the Court grants specific performance of an somewhat vague contract and that breaks what would otherwise have been a stockholder deadlock. It has a good outline of the law of specific performance.
ShareAdvancement Denied to Board Chair Following LLC's Conversion
Authored by Lewis H. Lazarus
This article was originally published in the Delaware Business Court Insider | January 29, 2013
Advancement rights assure directors and officers that if they are sued for conduct arising out of their company service, the company will pay their attorney fees and costs as they are incurred. Without advancement rights, many people would not serve out of fear that their personal assets would be depleted in defending suits based on their conduct as directors or officers. For that reason, Delaware courts regularly enforce advancement rights, even after a finding of criminal guilt at the trial level, until the judgment is final and all appeals are exhausted. Nonetheless, mandatory advancement rights apply only if provided by charter, bylaw or contract. The recent case of Grace v. Ashbridge LLC, C.A. No. 8348-VCN (Del. Ch. Dec. 31, 2013), provides a cautionary tale that advancement rights that may have existed when the entity was a corporation do not necessarily survive intact when the entity converts to a limited liability company. More ›
ShareCourt Of Chancery Gets Tough On Delay
Sustainable Biofuels Solutions LLC v. Tekgar LLC, C.A. 8741-VCP (January 28, 2014)
Delays in discovery that affect the trial date will get a litigant in trouble with the Court. The Delaware Supreme Court has made this clear and required that scheduling orders be followed. This transcript makes this clear.
ShareSection 220 Complaint Dismissed Pursuant to Rule 12(b)(6)
Authored by Albert H. Manwaring, IV
This article was originally published in the Delaware Business Court Insider | January 15, 2014
Section 220 of the Delaware General Corporation Law permits a stockholder to inspect the books and records of a corporation, provided that the demand for inspection meets certain form and manner requirements, and the inspection is sought for a proper purpose—one reasonably related to the interests of stockholders. The Delaware Supreme Court and the Court of Chancery have firmly established that investigation of corporate mismanagement or wrongdoing is a proper purpose under Section 220. To state a proper purpose to investigate mismanagement or wrongdoing of a corporation, a stockholder must, however, allege a "credible basis" to infer possible mismanagement or wrongdoing. The "credible basis" standard has been described as having the "lowest possible burden of proof under Delaware law." Before filing a derivative action, the Supreme Court and the Court of Chancery have encouraged stockholders to use the tools at hand by first seeking inspection of a corporation's books and records in order to successfully plead derivative claims under Court of Chancery Rule 23.1. Further, a Section 220 action for books and records is a summary proceeding, for which the Court of Chancery counsels against moving to dismiss based on its expedited nature and the attendant limited time to adjudicate a dispositive motion before trial. More ›
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