Posts from 2016

Court Of Chancery Applies Demand Analysis To Changed Board

Sandys v. Pincus, C.A. 9512-CB (February 29, 2016)

This is an interesting decision because it applies the demand rules in a derivative case to an odd situation — when some but not all of the board members have changed between when the challenged conduct occurred and when the complaint was filed. The Court held that the demand rules need to be applied to the board in place when the complaint was filed. The changes in the board’s composition made it necessary for the analysis to consider the relationships of new to old board members, particularly as to the independence of the new members. The decision also is a good source for the facts that determine independence. Such facts as common board memberships or how the stock exchange rules apply do not show a lack of independence in themselves.

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Delaware Supreme Court Clarifies Director/Officer Implied Consent Statute and Rejects Hana Ranch

Hazout v. Tsang Mun Ting, No. 353, 2015 (Del. February 26, 2016)

Rejecting the Court of Chancery’s narrow reading of the director/officer implied consent statute in Hana Ranch, Inc. v. Lent, 424 A.2d 28, 30 (Del. Ch. 1980), an interpretation that had been followed by lower courts for decades, the Delaware Supreme Court ruled that a non-resident officer sued in Delaware is subject to personal jurisdiction in actions brought “by or on behalf of, or against” the corporation if that officer “is a necessary or proper party” to the case, even if the case does not involve an alleged breach of the officer’s fiduciary or statutory duties. More ›

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Chancery Analyzes Limits of 'Reasonable Conceivability'

In 2011, the Delaware Supreme Court in Central Mortgage v. Morgan Stanley Mortgage Capital Holdings, 27 A.3d 531, 537 (Del. 2011), unequivocally stated that the "pleading standard in Delaware to survive a motion to dismiss is reasonable 'conceivability.'" That standard remains the benchmark plaintiffs must meet when asserting claims subject to a motion to dismiss in Delaware. For stockholder plaintiffs, however, what is "reasonable" is often measured by what pre-suit investigation the plaintiff's counsel undertakes in support of the plaintiff's claims. Stated simply, if a stockholder plaintiff fails to utilize its Section 220 rights for books and records prior to filing a lawsuit, the plaintiff's claims better include all necessary facts that could have been discovered through a Section 220 demand. More ›

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Court of Chancery Explains Anti-Reliance Law

FdG Logistics LLC v. A&R Logistics Holdings Inc., C.A. 9706-CB (February 23, 2016)

Merger or company sale agreements frequently include clauses limiting what a buyer may rely upon after due diligence, particularly when there is some hold back of the merger or sale consideration that the buyer may seek to retain after the closing based on a misrepresentation claim. But as this careful decision explains, the elimination of reliance claims needs to be in a clause applying to the buyer, not just in a clause that tries to limit the representations from the seller. These clauses need very careful drafting and this decision explains how that should be done.

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Court Of Chancery Calculates Mootness Benefit In Post-Trulia Decision

Louisiana Municipal Police Employees’ Retirement System v. Black,  C.A. 9410-VCN (February 19, 2016)

This is an interesting decision for two reasons. First, the decision awards a mootness fee for disclosures and changes to deal protection measures in a merger gone bust. Thus, the opinion is useful precedent in the post-Trulia world, where mootness fee applications are one of the two optimal methods for adjudicating disclosure claims. More ›

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Delaware's Court of Chancery Clarifies Scope of Inspection Under Books and Records Demands

In Amalgamated Bank v. Yahoo!, Inc., C.A. No. 10774-VCL (Del. Ch. Feb. 2, 2016), Plaintiff Amalgamated Bank’s Section 220 books and records demand sought, among other things, the emails of certain Yahoo officers and directors.  Yahoo objected to the request as overly broad, but the Court found differently.  Continuing the trend from Wal-Mart Stores, Inc. v. Ind. Elec. Workers Pension Trust Fund IBEW, 95 A.3d 1264, 1271 (Del. 2014), which first permitted access beyond board materials, the Court ordered inspection of certain Yahoo director and officer documents and communications.  In addition, the Court found that the directors’ and officers’ personal email accounts were subject to inspection if they were used to conduct business.  This development signals to corporate officers and directors’ that personal emails may be discoverable in a 220 Action if the emails are essential to fulfilling a plaintiff’s proper purpose. More ›

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Court of Chancery Approves Disclosure Settlement Post-Trulia and Finds Management Projections Plainly Material

In re BTU International, Inc. Stockholders Litigation, Consol. C.A. No. 10310-CB (Del. Ch. Feb. 18, 2016)(Transcript)

As detailed in a prior post (available here), the ruling in In re Trulia, Inc. Stockholders Litigation, 2016 WL 270821 (Del. Ch. Jan. 22, 2016) changed the legal landscape for so-called disclosure settlements. Among other things, Trulia holds that disclosures must be “plainly material” to support a disclosure settlement – meaning that it “should not be a close call that the supplemental information is material as that term is defined under Delaware law.”  Exactly what disclosures fit into that category remained an open question. More ›

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Court Of Chancery Explains Inspection Rights In An LLC

RED Capital Investment L.P.  v. RED Partner LLC, C.A. 11575-VCN (February 11, 2016)

This is an interesting decision because it explains inspection rights in the LLC context under the two different standards set out in Section 18-305(a) and (b) of the LLC Act. As expected, it is better to seek inspection as a manager than as a member.  Managers have similar “unfettered” access to company books and records as corporate directors, absent restrictions in the LLC agreement.  Also notable, inspection rights may include the books and records of subsidiaries, under the right circumstances.  

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CCLD Explains Indemnification For Assumed Contractual Liabilities

Alcoa World Alumina LLC v. Glencore Ltd., C.A. 15C-08-032 EMD CCLD (February 8, 2016)

This is an important decision because it explains the specificity with which provisions indemnifying a party for liabilities under a separate contract must be stated.  In this case, Glencore, which had sold an aluminum plant to an Alcoa subsidiary pursuant to an agreement in 1995 (the “1995 Agreement”), claimed that Alcoa had agreed in the 1995 Agreement to indemnify Glencore for any liabilities arising out of an earlier sale agreement pursuant to which Glencore had purchased the plant from Lockheed in 1989 (the “1989 Agreement”).  In a separate litigation, Lockheed was claiming that Glencore had to indemnify Lockheed for certain environmental liabilities pursuant to the 1989 Agreement. More ›

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CorpCast Episode 9: 2015 Year in Review

Welcome back to CorpCast!  In this 2015 Year in Review, we discuss several important cases from the past year, starting with the tidal wave of antagonism in the Court of Chancery towards disclosure-only settlements ending with In re Trulia, Inc. Stockholder Litigation.  We then move to discuss several instances of “financial advisors behaving badly,” with a look at In re TIBCO Software Inc. Stockholders Litigation and RBC Capital Markets, LLC v. Jervis.  We’ll also take a look at opinions dealing with conflicted transactions, revisiting Corwin v. KKR Financial Holdings LLC and Delaware County Employees Retirement Fund v. Sanchez, as well as discussing In re Cornerstone Therapeutics Inc., Shareholder Litigation and In re Dole Food Co., Inc. Stockholder Litigation.  Finally, we’ll look to some contract actions, including 1 Oak Private Equity Venture Capital Limited v. Twitter, Inc. and SIGA Technologies, Inc. v. PharmAthene, Inc., and touch on the invalidation of company bylaws in In re Vaalco Energy Inc. Consolidated Stockholder Litigation.  More ›

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Morris James Partner Joseph R. Slights, III Nominated to Become Next Vice Chancellor of the Delaware Court of Chancery

Morris James LLP is pleased to announce that partner Joseph R. Slights, III has been nominated by Governor Jack Markell to become a Vice Chancellor of the Delaware Court of Chancery. The judicial nomination was announced on Monday, February 8^th.

“I am honored and grateful to have been nominated by Governor Markell to serve on the nation’s premier court for the resolution of business disputes – the Delaware Court of Chancery,” Slights stated. “If I am fortunate enough to be confirmed by the Senate, I look forward to serving the citizens and the State of Delaware as Vice Chancellor.” More ›

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Derivative Settlement With Benefit Personal to Plaintiff Rejected

In 1850, Abraham Lincoln prepared notes for a law lecture. He emphasized the importance of compromise because after litigation, "the nominal winner is often a real loser—in fees, expenses, and waste of time." Delaware law also favors the compromise and settlement of disputes, and that policy preference extends to class and derivative litigation. Settlements must be fair, however, and the courts in representative litigation have a special role to play in reviewing the give and the get to prevent abuse. In recent days, for example, practitioners have received clear guidance that a peppercorn of modest disclosure may not support a class settlement that includes a full release and dismissal of all breach of fiduciary duty claims. Similarly, as the recent case of Smollar v. Potarazu, C.A. No. 10287-VCN (Jan. 14, 2016), illustrates, even where a derivative settlement reflects real value to a Delaware entity, the Court of Chancery rarely will approve a settlement where an individual representative plaintiff receives a benefit personal to her that is not shared with the class she represents as that fact alone calls into question the fairness and reasonableness of the settlement. More ›

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Court Of Chancery Explains Section 115

Bonanno v. VTB Holdings Inc., C.A. 10681-VCN (February 8, 2016)

Section 115 of the Delaware General Corporation Law addresses forum selection provisions in corporate charters or bylaws. This decision explains how a contract may also select a forum, how to interpret such a contract and how such contractual provisions may be incorporated into other contracts.

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Court Of Chancery Explains When Disclosures Required Absent A Stockholder Vote

Doppelt v. Windstream Holdings Inc., C.A. 10629-VCN (February 5, 2016)

This is an interesting decision for two reasons. First, it explains when directors might have a duty to cause the company to make disclosures to the stockholders about transactions that do not require the stockholders’ vote.  Briefly, when a transaction not requiring a stockholders vote is so related to a transaction requiring their vote that the two matters are tied together, then the stockholders are entitled to be fully informed about both matters. More ›

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Court Of Chancery Imposes An “Incorporation Condition” On A Stockholder’s Books And Records Inspection

Amalgamated Bank v. Yahoo! Inc., C.A. 10774-VCL (February 2, 2016)

This is a precedent-setting decision in the books and records context. In it, the Court imposes an “Incorporation Condition” on the stockholder’s inspection. That is, a stockholder who establishes a credible basis to inspect corporate records for the purpose of investigating alleged wrongdoing must agree -- as a condition to the inspection -- that all the documents it inspects will be deemed incorporated by reference in any later-filed derivative complaint. More ›

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