Posts from 2015

Master in Chancery Explains Damages Needed to Justify Books and Records Based On Wrongdoing

Walther v. ITT Educational Services Inc., C.A. 8273-MA (February 10, 2015) When a stockholder seeks to inspect a company's records based on alleged wrongdoing, it is necessary to also show that wrongdoing has led to some damage to the entity. Otherwise, the inspection will be denied. Share

Court Of Chancery Upholds Arbitration Clause In Breach Of Fiduciary Duty Case

Lewis v. AimCo Properties L.P., C.A. 9934-VCP (February 10, 2015) This decision enforces an arbitration clause in an LLC agreement even when the claim asserted a breach of fiduciary duty. While not surprising in itself, the decision may also have broader implications about whether a bylaw with an arbitration provision may be enforced in a breach of fiduciary duty case. Share

Court Of Chancery Explains Conspiracy Theory Of Jurisdiction

Virtus Capital L.P. v. Eastman Chemical Company, C.A. 9808-VCL (February 11, 2015) This is a very useful decision because of its detailed explanation of the conspiracy theory of jurisdiction, which was first adopted in the famous Istituto Bancario case. As the decision makes clear, breaches of fiduciary duty claims are particularly suited for that theory and do not violate the corporate shield doctrine. Share

Choice-of-Law Agreements and Public Policy Enforceability Exception

Authored By P. Clarkson Collins, Jr. This article was originally published in the Delaware Business Court Insider | February 11, 2015 By statute, Delaware has affirmed the ability of parties to agree to have their rights, remedies, liabilities, powers and duties governed by the law of Delaware. Title 6, Section 2708 of the Delaware Code recognizes that the parties' contractual choice-of-law provision is itself a "significant material and reasonable relationship with this state and shall be enforced whether or not there are other relationships with this state." A recent decision of the Delaware Court of Chancery reveals that important limitations remain, however, on the ability of parties to enforce Delaware choice-of-law provisions. More › Share

Chancery Court Applies New Statutory Amendment Retroactively

Authored By Albert H. Manwaring, IV This article was originally published in the Delaware Business Court Insider | February 4, 2015 Before the newly enacted statutory amendment, 10 Delaware Code Section 8106(c), parties could shorten, but were not permitted to lengthen, an applicable limitations period by contract because an extension of the statute of limitations by agreement violated public policy. (See, e.g., Bonanza Restaurant v. Wink, C.A. No. S10C-10-018 RFS (Del. Super. Apr. 17, 2012), aff'd, 65 A.3d 616 (Del. 2013); and Shaw v. Aetna Life Insurance, 395 A.2d 384, 386-87 (Del. Super. 1978).) The Delaware General Assembly recently enacted 10 Delaware Code Section 8106(c), which was effective Aug. 1, 2014. Section 8106(c) now permits contracting parties to extend the three-year limitations period, applicable to most contract actions brought in Delaware, by agreement for up to 20 years from the time a cause of action accrues, in a written contract "involving at least $100,000." Section 8106(c) allows parties to define the time period in which suit may be brought in their contract by reference to traditional measures of time (e.g., months, days or years), but also provides flexibility for contracting parties to define such period of time "by reference to the occurrence of some other event or action, another document or agreement or another statutory period," or even "an indefinite period of time" up to 20 years from the time a cause of action accrues. More › Share

Court Of Chancery Explains Interrelationship Of Complaint Theories

The Renco Group Inc. v. MacAndrews AMG Holdings LLC, C.A. 7668-VCN (January 29, 2105) This decision explains how various liability theories in a complaint relate to one another so as not to be duplicative. For example, a breach of fiduciary duty claim will be dismissed when it relies on the same facts as a breach of contract claim. Moreover, a claim for violation of the duty to act in good faith and fairly may survive when it alleges a failure to uphold the reasonable expectations of the parties as to how a contract would operate. Note, however, that it would be a mistake to think that you can plead a violation of the covenant to act fairly in a very contract-based case. In a decision one day after Renco, the Court dismissed a claim based on the covenant when the contract language spelled out how the contract was to be implemented in more detail, leaving no gap for the covenant to fill. See  Fortis Advisors LLC v. Dialog Semiconductor PLC, C.A. 9522-CB (January 30, 2015). Share

Court Of Chancery Limits Implied Covenant Claims

Fortis Advisors LLC v. Dialog Semiconductor PLC, C.A. 9522-CB (January 30, 2015) When a contract spells out that  its obligations are to be carried out in a "commercially reasonable best efforts" manner, it will be harder to argue there is any gap that the covenant of good faith and fair dealing may fill.   That means the claim based on the implied covenant may be dismissed leaving the court to ponder what is "commercially reasonable."  This decision needs to be read in conjunction with The Renco Group Inc. v. MacAndrews AMG Holdings LLC, C.A. 7668-VCN (January 29, 2015) upholding a similar claim. Share

Court Of Chancery Explains Step-Transaction Theory

Ellis v. OTLP GP, LLC, C.A. 10495-VCN (January 30, 2015) Not infrequently a plaintiff will argue that 2 transactions are so interrelated that his rights have been violated by structuring the deal to take 2 steps to accomplish it.  An example is this case  of a purchase of a controlling interest at a premium followed by a cash out merger at a discount. This is a hard road to travel  and this decision explains what is needed to make the court consider 2 steps as if they were one. Briefly, one must be dependent on the other in such a way as to make the deal not possible unless both occurred. Share

Court Of Chancery Explains New Statutory Authority To Correct Corporate Mistakes

In Re Numoda Corporation Shareholders Litigation, C.A. 9163-VCN (January 30, 2015) This is an important decision because it explains the effect of the new Sections 204-205 to the DGCL. Those provisions permit the correction of corporate actions that failed to comply with the requirements of the DGCL, such as having a board resolution before issuing stock. The decision holds that the Court's authority is limited to when some actual "action" has occurred, not just a "water cooler discussion" and there must be some real evidence to confirm that action was intended to have the consequences the plaintiff asks the Court to confirm. Share

Court Of Chancery Adopts Merger Price In Appraisal Proceedings As Fair Value

In Re Appraisal Of Ancestry.com Inc., C.A. 8173-VCG (January 30, 2015) After a complete analysis of the usual issues in an appraisal case involving a DCF valuation, the Court here concluded that the result was close enough to the actual price paid in the merger to warrant adoption of the merger price as fair value. The merger followed an extensive market shop and lengthy negotiations that gave the Court confidence the agreed-to value was fair. Share

Court Of Chancery Explains Equitable Estoppel Jurisdiction

McWane Inc. v. Lanier, C.A. 9488-VCP (January 30, 2015) This decision explains how a non-party to a contract with a Delaware forum selection clause may still be subject to the Court's jurisdiction under an equitable estoppel theory. Briefly, if you claim benefits under that contract, you may be barred from contesting its forum selection provision. Share

Court Of Chancery Explains When Interest Is To Be Compounded

ReCor Medical Inc. v. Warnking, C.A. 7387-VCN (January 30, 2015) This decision orders compound interest on an attorney fee award and explains why, even if that is not always to be done. Share

Court Of Chancery Rejects Application Of Delaware Law

Ascension Insurance Holdings LLC v. Underwood, C.A. 9897-VCG (January 28, 2015) This is an important decision on choice of law. The Court held that the parties' choice of Delaware law to govern the terms of a noncompete agreement was unenforceable in the face of contrary public policy of California that limited such agreements. This result is arguably at odds with a Third Circuit decision that upheld the choice of Delaware law in a noncompete agreement despite the policy of Louisiana that limits such agreements - Coface Collections North America Inc. v Newton, 430 Fed. Appx. 162 (3rd Circ. June 6, 2011).  As the decision points out, limitations on former employees' right to work for a competitor are subject to a wide variety of state laws. Hence, the drafter of such agreements will now need to carefully consider what law to choose to apply to the agreement and cannot just adopt Delaware as binding in every case. Share

Court Of Chancery Denies Late Amendment To Complaint

Optimiscorp v. Waite, C.A. 8773-VCP (January 28, 2015) This decision is a primer on what not to do if you want to add claims to a complaint as the case develops. The lesson is to be sure that your discovery responses are both timely updated and sufficient to put the opposing side on notice and to move as early as possible to amend. Share

District Court Interprets Limitations Savings Statute

Hartsel v. The Vanguard Group Inc., C.A. 13-1128-SLR (D. Del. January 26, 2015) This is an interesting decision because it interprets the seldom-used Delaware Savings Statute [10 Del. C. Section 8118].  The court held that a derivative suit dismissed for failure to make a demand on the board is not saved from the expiration of the statute of limitations under the Savings Statute. Hence, a new suit that followed a demand of the board may be time barred. Share