Posts from 2015

CorpCast Episode 1: Sections, 204, 205 and In re Numoda

We’re trying something new, and we hope you’ll like it.  Morris James LLP’s Corporate and Fiduciary Litigation Group introduces CorpCast, a podcast discussing Delaware corporateand commercial law and practice.  In this first episode, we discuss In re Numoda Corporation S’holders Litig., C.A. No. 9163-VCN (Del. Ch. Jan. 30, 2015), the first written opinion from the Court of Chancery to apply recently amended sections 204 and 205 of the Delaware General Corporation Law.   More ›

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Delaware Prepares To Eliminate Fee-Shifting Bylaws And Charters

The Delaware State Bar Association is submitting new legislation that will prohibit the use of fee-shifting bylaws or corporate charters for litigation involving "intracorporate" disputes.  A copy of the proposed bill with commentary is available here.  The result would be to limit the Delaware Supreme Court's decision in ATP Tour Inc. v. Deutscher Tennis Bund, 91 A.3d 554 (Del. 2014) to its facts involving non-stock corporations.

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New Arbitration Act Prepared

The Delaware State Bar Association has prepared a new "Delaware Rapid Arbitration Act."  A copy with commentary is available here. The DRAA is designed to address the current problems with costs and delays that infect many arbitrations. It sets strict  limits on how long the arbitration should take and penalizes arbitrators who fail to act within those limits. It is expected that the DRAA will also avoid the extensive e-discovery that has more recently been permitted in arbitrations that are now closer to full-scale litigation. Arbitrator selection will also be streamlined. The DRAA requires that only parties who have signed an agreement to use its terms are subject to the DRAA. Hence, these arbitrations will not be available to cover stockholder or other representative litigation.

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Court Of Chancery Explains When Inspection Is Warranted

Fuchs Family Trust v. Parker Drilling Company, C.A. 9986-VCN (March 4, 2015) Everyone knows that a proper purpose is needed to justify inspection of a company's records and that investigating wrongdoing is such a proper purpose. But is it enough to just allege that alone, even when there is sufficient evidence that there was wrongdoing?  As this decision explains, it is also necessary that the inspection may lead to some sort of action. Here the wronging had already been addressed by a new board and further inspection of the company's records did not seem necessary.  Hence, inspection was denied.

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Derivative Action Stayed Pending $228.9M Appeal

When a company receives an adverse judgment holding it responsible for hundreds of millions in damages, shareholder derivative suits often follow. A typical claim is that had the board exercised proper oversight, the company and its stockholders would not have suffered such severe monetary losses. When a stockholder makes a demand on a board that it take action against the officers and directors allegedly responsible for the company's losses, the board is obligated to take a position on the demand following appropriate investigation. When and for how long the company is entitled to investigate depends upon the context. If, for example, a stockholder receives no response from a company for six or more months after delivery of a demand, the stockholder can file a derivative action and claim that the board's refusal to investigate is wrongful. Where the factual predicate underlying the claimed injury is not finally determined, however, as when a judgment for monetary liability is on appeal or the claimed losses are the subject of ongoing securities claims, the Delaware Court of Chancery typically will stay the derivative action. The Court of Chancery's well-reasoned transcript decision in Hays v. Dvorak, C.A. No. 9768-CB (December 15, 2014), illustrates the practical approach that guides the court's resolution of a motion to stay when the underlying factual predicate for the plaintiff's claim of injury may be reversed or substantially modified on appeal. More ›

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The Office Of The Child Advocate Recognizes Lewis H. Lazarus for Ten Years of Pro Bono Service

The Office Of The Child Advocate has recognized Lewis Lazarus with “deep appreciation” for ten years of pro bono service as an attorney guardian ad litem. The Office Of The Child Advocate noted that Mr. Lazarus “has made a difference in the lives of children and has enabled OCA to make great strides in the improvement of Delaware’s child welfare system.” The mission of the Office Of The Child Advocate is to safeguard the welfare of Delaware's children through educational advocacy, system reform, public awareness, training and legal representation; it succeeds on behalf of Delaware's children due to the tireless hours of volunteers. If you or someone you know is interested in volunteering, please visit their website here. Share

Court Of Chancery Upholds Privilege For Funding Agreement

Carlyle Investment Management Company L.L.C. v. Moonmouth Company S.A., C.A. No. 7841-VCP (February 24, 2015) Applying the Delaware "because of" test to determine what is covered by the work product privilege, this decision prohibits discovery of the funding agreement between a litigation funding firm and one of the parties to the litigation. This is the first time that issue has been decided by a Delaware court. Share

Court Of Chancery Requires Individuals To Provide Expert Testimony

In Re Dole Food Co. Inc. Stockholder Litigation, C.A. Nos. 8703-VCL and 9079-VCL (February 27, 2015) In this case of first impression, the Court held that a corporation could not be designated as the "expert" to testify on a party's behalf. Share

Court Of Chancery Upholds Time For Charging Lien

Sutherland v. Sutherland, C.A. 9575-VCN (February 26, 2015) An attorney charging lien may be filed late when the parties agree to that time to file. Share

Court Of Chancery Limits Drag-Along Rights

Halpin v. Riverstone National Inc., C.A. 9796-VCG (February 26, 2015) Whether drag-along rights can preclude an appraisal action for common stock has not been decided in Delaware.  Here, because the merger was completed before the drag-along rights were asserted, the Court did not have to decide that issue and instead just held the right was asserted too late. Share

Court Of Chancery Upholds Arbitration Clause In LLC Agreement After Conversion

3850 & 3860 Colonial Blvd LLC v. Griffin, C.A. 9575-VCN (February 26, 2015) This is an interesting decision because it deals with whether an LLC agreement requiring arbitration may be enforced even after the LLC was converted into a corporation that lacks such an arbitration clause.  The Court upheld the agreement to arbitrate. Share

Master Denies Limits On Trading Following Inspection

Southpaw Credit Opportunity Master Fund LP v. Advanced Battery Technologies Inc,. C.A. 9542-ML (February 26, 2015) A Master holds that the Court should not impose trading restrictions after a books and records inspection but should impose a confidentiality provision. Also interesting, the Master rejected the claim that China law prohibited inspection of a Delaware corporation's records. Share

Delaware Adopts Curative Procedures for Invalid Past Corporate Actions

Business lawyers frequently face mistakes their clients make in documenting what they want to accomplish in terms of corporate actions, such as issuing stock. Clients will ask for advice years after they have delivered stock certificates to investors, but without actually authorizing that stock in any formal way. That stock is not valid. What to do about that and similar miscues has long been a problem. More › Share

Rare Guidance on the Duty to Supplement Interrogatory Responses

One of the many things young lawyers are taught when preparing written responses to discovery is to reserve the right to supplement or amend the responses at a later date. This common reservation of rights is included and often forgotten. But this reservation of rights can turn into a requirement under the Delaware Court of Chancery rules under certain circumstances. Rule 26(e)(2) requires a party to "seasonably" supplement a discovery response if the party obtains information upon the basis of which (a) the party knows the response was incorrect when made or (b) the party knows the response was correct when made but is no longer true and a failure to supplement "is in substance a knowing concealment." Written discovery is often served early in the discovery process, so as the discovery record and other knowledge grows, it is often the case that answers given early in the case no longer become accurate. When the duty to supplement arises, and what a "seasonable" supplementation means has received scant attention in written opinions, which, not surprisingly, often leads to lawyers pushing the envelope on what "seasonably" means under the rule. In OptimisCorp v. Waite, C.A. No. 8773-VCP (Del. Ch. Jan. 28, 2015), however, the Court of Chancery had the opportunity to provide some rare guidance on when the duty to supplement arose and the outer limits of a "seasonable" supplement. More › Share

Court Of Chancery Enforces Section 273

In The Matter Of Bermor Inc., C.A. 8401-VCL (February 9, 2015) This decision reinforces that the joint venture statute for Delaware corporations, Section 273, requires the Court to dissolve the entity upon a deadlock. Absent extraordinary circumstances amounting to a fraud, the Court has no discretion to do otherwise. Share