Posts from 2014

Court Of Chancery Holds LLC Agreements Are Binding Even If Not Signed

Seaport Village Ltd. v. Seaport Village Operating Company LLC, C.A. 8841-VCL (September 24, 2014) In an opinion that should come as no big surprise, the Court of Chancery holds that the parties to an LLC agreement, including the LLC, are bound by the terms of that agreement even if they have not signed a written agreement. After all, that is what the statute says expressly.  In short, there is no statute of frauds that requires a writing to be bound to an agreement in this context. Share

Court Of Chancery Explains Contract Interpretation

Veloric v J. G. Wentworth Inc., C.A. 9051-CB (September 18, 2014) In what may be one of the most factually complicated cases in years, this decision is a good example of the Court of Chancery's method of interpreting a contract to make it make sense from a business point of view. It takes a certain clarity of mind to wade through the verbose contract language and surrounding facts and the Court pulls it off very well. The lesson is that technical legal  arguments are just not as persuasive as a common sense approach that fits the business reality of the parties. Share

Court Of Chancery Explains When Duplication Avoids Advancement Obligation

Pontone v. Milso Industries Corporation, C.A. No. 8842-VCP (August 22, 2014) If a party has 2 possible sources of reimbursement for her fees, may she choose which one to sue?  This decision deals with the case law on when a prior advancement of fees precludes a party from seeking advancement of new fees from a different party.  The short answer is that a party may chose who to seek advancement from when more than 1 source is obligated. The decision is also important for its analysis on when a claim may relate back to the time when the director was still a director, even if the claim also deals with post-directorship acts. That is important because the director is only entitled to advancement for acts related to his role as a director. Finally, the opinion is useful for its discussion on when counterclaims are subject to advancement. For example, a counterclaim for defamation may be subject to advancement. Share

Court Of Chancery Clarifies When To Share A Fee Award

In Re Orchard Enterprises Inc. Stockholder Litigation, C.A. No. 7840-VCL (August 22, 2014) Frequently both an appraisal action and a breach of fiduciary duty action proceed on parallel tracks.  When both obtain a recovery, the question arises of whether an attorney fee award in the fiduciary action should be split with the lawyers in the appraisal action. This decision says "no," at least based on the facts of this case where the appraisal parties did not attempt to act for the stockholders who did not seek appraisal. Share

Does the Business Judgment Rule Protect a Board's Stock Award?

Authored By Albert H. Manwaring, IV This article was originally published in the Delaware Business Court Insider | September 17, 2014 In In re 3Com Shareholders Litigation, C.A. No. 16721 (Del. Ch. October 25, 1999), the Delaware Court of Chancery emphasized that "when the shareholders knowingly set the parameters of the plan, approved it in advance, and directors implemented the plan according to its terms ... precedent in [the Court of Chancery] clearly establishes that ... director transactions made under a stock option plan approved by the corporation's shareholders are entitled to the benefit of the business judgment rule." Accordingly, when directors issue stock or cash awards in accordance with "definite" or "sufficiently defined" terms of an employee incentive or compensation plan approved by the shareholders, their decisions are subject to protection under the business judgment rule. More › Share

Chancery Court Confirms Fluctuating Interest Rate Is Appropriate

This article was originally published in the  In lengthy disputes where a judgment is entered as of a date several years in the past, prejudgment interest may constitute a more than trivial amount. In Levey v. Brownstone Asset Management, Consolidated C.A. No. 5714-VCL, the plaintiff, who prevailed at trial, sought to recover interest on the judgment amount at the constant rate of 10.25 percent from Jan. 26, 2006, forward. The defendants took the position that the interest rate should float, i.e., change whenever the Federal Reserve discount rate changed. The court agreed with the defendants and found that an award of a fluctuating rate of interest serves the dual purposes of compensating the judgment creditor for the loss of use of its capital during the pendency of the action and causes the disgorgement of the benefit the judgment debtor has enjoyed during the same period of time. More ›

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Will Chancery Court Remedy Your Problems in Another Tribunal?

Authored By Edward M. Mcnally This article was originally published in the Delaware Business Court Insider | September 3, 2014 Recently, in LG Electronics v. Interdigital Communications, Del. Ch. C.A. 9747-VCL (August 20, 2014), the Chancery Court declined to enjoin a litigant from violating a nondisclosure agreement in an arbitration proceeding. LG Electronics alleged that its opponent in that arbitration, Interdigital Communications, was using information that they had agreed to keep confidential and sought an injunction to prevent Interdigital from using those materials. The Chancery Court dismissed LG Electronics' complaint, however. In doing so, the court invoked the McWane doctrine, which permits a Delaware court to dismiss an action when there is a prior-filed action involving similar issues between those parties in another jurisdiction that is able to afford "prompt and complete justice."We are often asked to seek an injunction in the Delaware Court of Chancery to prevent a perceived abuse by our client's opponent in another tribunal. Those requests are not always far-fetched. After all, the Chancery Court will sometimes enjoin a litigant from proceeding in another forum in violation of a forum selection clause. And there are other examples of such Chancery Court intervention in other proceedings, such as to prevent vexatious plaintiffs from abusing process by repeatedly filing duplicative, meritless litigation. But those judicial interventions are rare. More › Share

Court Of Chancery Declines To Intervene In Arbitration

LG Electronics, Inc. v InterDigital Communications Inc., C.A. 9747-VCL (August 20, 2014) This is the first decision by the Court of Chancery that dismissed a case over which it has jurisdiction because an arbitration proceeding had been filed first.  As the court points out, this is unusual because the court usually dismisses cases in favor of arbitration when the court lacks jurisdiction to hear disputes subject to an arbitration provision.  Here, however, both the court and the arbitration panel had jurisdiction so that a dismissal on those grounds was not appropriate.  Instead, the Court applied the McWane doctrine whereby a case is dismissed when a first-filed proceeding elsewhere will do justice between the parties. The decision is interesting because it also holds that the court will not interfere in how another proceeding is being conducted.  While that may not always be true, it is a useful reminder of the limits of what the Court of Chancery will get involved in most of the time. Share

Lewis Lazarus Gives ABA Podcast

Partner Lewis Lazarus participated in a podcast on behalf of the Committee on Director and Officer Liability of the Business Law Section of the ABA discussing attorney-client privilege implications for directors and officers. Listen here.

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Delaware Supreme Court Adopts Exception to Attorney-Client Privilege

Authored By Albert H. Manwaring, IV This article was originally published in the Delaware Business Court Insider | August 13, 2014 In Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970), the U.S. Court of Appeals for the Fifth Circuit recognized a fiduciary exception to the attorney-client privilege "where the corporation is in suit against its stockholders on charges of acting inimically to stockholder interests, protection of those interests as well as those of the corporation and of the public require that the availability of the privilege be subject to the right of the stockholders to show cause why it should not be invoked in the particular instance." Thus, upon a showing of "good cause," Garner allows stockholders to invade the corporation's attorney-client privilege to prove fiduciary-duty breaches of directors, officers or those in control of the corporation. The Fifth Circuit listed the following factors relevant to show "good cause" under the Garner exception to the attorney-client privilege: "the number of shareholders and the percentage of stock they represent; the bona fides of the shareholders; the nature of the shareholders' claim and whether it is obviously colorable; the apparent necessity or desirability of the shareholders having the information and the availability of it from other sources; whether, if the shareholders' claim is of wrongful action by the corporation, it is of action criminal, or illegal but not criminal, or of doubtful legality; whether the communication is of advice concerning the litigation itself; the extent to which the communication is identified versus the extent to which the shareholders are blindly fishing; the risk of revelation of trade secrets or other information in whose confidentiality the corporation has an interest for independent reasons." More › Share

Chancery Court Reforms Management Agreements

This article was originally published in the  In Delaware, the Court of Chancery has the power to reform an agreement that "fails to express the [parties'] real agreement or transaction," as in Miller v. National Land Partners LLC, C.A. No. 7977-VCG, at 34 (Del. Ch. June 11, 2014), citing Amstel Associates LLC v. Brinsfield-Cavall Associates, (Del. Ch. May 9, 2002). However, for a plaintiff to obtain reformation based on a mutual mistake, he or she must demonstrate by "clear and convincing evidence" that the written agreement failed to reflect accurately the oral agreement reached by the parties. More ›

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Court Of Chancery Discusses Bylaw To Remove Officers

Salamone v. Gorman, C.A. No. 8770-VCN (July 31, 2014)  This is an unusual case involving a director deadlock created by a stockholder voting agreement, despite the presence of a majority stockholder. More ›

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Court Of Chancery Holds Corporation Does Not Owe Fiduciary Duty

Buttonwood Tree Value Partners L.P. v. R.L. Polk & Co. Inc., C.A. No. 9250-VCG (August 7, 2014) A Delaware corporation does not itself owe a fiduciary duty to its stockholders and may not be charged with aiding and abetting a breach of that duty by its directors.  This holding has ample precedent and is important because it may avoid the expansion of the company's disclosure obligations beyond the duty to avoid fraudulent disclosures. Share

Court Of Chancery Awards Fee Despite Confusion Over Causation

Sample v. Gumbiner C.A. No. 8873-VCN (July 31, 2014) In settling a class or derivative suit, the plaintiff's attorney will seek a fee if she has caused a corporate benefit, such additional disclosures in a merger.  But what happens when there is a dispute over why those added disclosures were made?  The Court, as here, is left with a causation dispute where the record is not clear.  This decision illustrates how a court will try to reason its way to a conclusion and, in effect, split the baby by lowering the fee when causation is not clear. Share

Modest Reflections on the State of Delaware Litigation

Authored By Edward Mcnally

This article was originally published in the Delaware Business Court Insider | July 30, 2014

Delaware's courts are going through a period of rapid change. While it is too early to decide whether those changes are for the better, some preliminary comments are possible. In general, the recent events are a cause for optimism that Delaware is maintaining its position as the best forum for corporate litigation. There is, however, one dark cloud on the horizon. More ›

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