Posts from 2016

Court Of Chancery Addresses M&A Discovery

Hamilton Partners L.P. v. Highland Capital Management L.P.,  C.A. 6547-VCN (February 2, 2016)

Discovery of financial information in M&A litigation, including appraisal actions, often involves two issues: (1) how far back before the transaction should there be discovery and (2) is post-transaction discovery permitted? This decision provides some guidance on both issues.

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How to Answer When an Activist Calls

The increasing activist stockholder demands upon boards of directors call for careful responses. The recent Delaware Court of Chancery decision In re Ebix Stockholder Litigation, C.A. No. 8526-VCN (Del. Ch. Jan. 15, 2016), provides guidance on how to respond when the activist calls. Moreover, Ebix is being overlooked by many because most of the opinion focuses on the scope of releases contained in settlements of stockholder litigation. That itself is a hot topic that is part of the increased scrutiny the Court of Chancery is now giving to disclosure-only settlements. But while Ebix's discussion of the scope of releases is important, Ebix is worth a closer review for its guidance on activism. More ›

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Court Of Chancery Explains Director Right To Information And What Communications Qualify As Corporate Books and Records

Chammas v. NavLink, Inc., C.A. 11265-VCN (February 1, 2016)

This is one of those scarce cases dealing with director access to a corporation’s books and records. After all, Delaware law provides directors with an almost unlimited right to a corporation’s records needed for them to exercise their  fiduciary duties. Hence, these cases are rare. More ›

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Court Of Chancery Explains Section 205 Jurisdiction

Knoll Capital Management LP v. Advaxis Inc., C.A. 11417-VCN (January 29, 2016)

Under the fairly new provisions of Section 205 of the DGCL, the Court may validate certain “defective corporate acts,” including “any act or transaction purportedly taken by or on behalf of the corporation that is … within the power of a corporation …, but is void or voidable due to a failure of authorization.”  More ›

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Court Of Chancery Dismisses Case For Failure To Pursue Records

Thermopylae Capital Partners LP v. Simbol, Inc., C.A. 10619-VCG (January 29, 2016)

The Court of Chancery expects a plaintiff to supply those facts necessary to state a claim in reasonable detail, particularly when those essential facts might be obtained by an inspection of an entity’s records. Here the Court dismissed a complaint for its failure to state those facts that would have been evident from a records inspection and when the absence of those facts made the complaint  too difficult to understand.

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Court Of Chancery Explains When A Fee Award Is Timely

Avaya Inc. v. Charter Communications Holding Company LLC, C.A. 10568-VCN (January 29, 2016)

Normally, the Court of Chancery does not favor fee applications before the litigation is completed. When, as here, the underlying instrument that provides for a fee award does permit such an application, the Court may grant it even when there is litigation between the same parties pending elsewhere.

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Tension Between 'Aronson' Analysis and the Standard of Review

On Monday, just after the arrival of the blizzard of 2016 in Delaware, the Court of Chancery created its own momentous event with the release of its opinion in In re EZCorp Consulting Agreement Derivative Litigation, C.A. No. 9962 (Jan. 25, 2016). Spanning 91 pages, the opinion treats its subjects with a scholarly level of analysis, worthy of review in its entirety. Publication limits do not permit a complete review of the opinion in this space, but I can focus on one of the many important aspects of the opinion: the identification of a doctrinal tension between an Aronson demand futility analysis, from Aronson v. Lewis, 473 A.2d 805 (Del. 1984), and how to determine the standard of review. More ›

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Court of Chancery Targets “Deal Tax” Litigation By Increasing its Scrutiny of “Disclosure-Only” Settlements

            M&A lawsuits and so-called “disclosure-only” settlements – where stockholder plaintiffs drop their requests to enjoin a deal and grant defendants broad releases primarily in exchange for supplemental disclosures to stockholders, followed by requests for six-figure attorneys’ fee awards – have proliferated in recent years.  In turn, these lawsuits have faced increasing scrutiny from scholars, practitioners, and members of the judiciary, who assert that these ubiquitous settlements rarely yield genuine benefits for stockholders, threaten the loss of potentially valuable claims that have not been sufficiently investigated, and only serve the interests of opportunistic plaintiffs’ counsel and defendants happy to acquire a form of deal insurance through a broad release of class action claims challenging the merger. More ›

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Court Of Chancery Applies Entire Fairness To Controller Contract

In Re EZCORP Inc. Consulting Agreement Derivative Litigation,  C.A. 9962-VCL (January 25, 2016)

This is an important and useful decision for at least two reasons. First, the Court carefully analyzes past Delaware precedent to conclude that the entire fairness test applies not just to squeeze-out mergers, but also to other transactions where a controller obtains non-ratable benefits, such as contracts with an entity owned by a controller of the company. This is important because prior case law was inconsistent on the test it applied to such contracts.

Second, the opinion has an exhaustive review of Delaware law on how to determine if a director is interested for purposes of the demand futility standard to bring a derivative suit.

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Court Of Chancery Requires Dismissal With Prejudice Of Withdrawn Derivative Suit

In Re Ezcorp Inc. Consulting Agreement Derivative Litigation, C.A. 9962-VCL (January 15, 2016)

When, after full briefing, the plaintiff decides that he cannot meet the heightened pleading rules of the recent Cornerstone case, may he just walk away without prejudice to his right to sue again later or must the suit be dismissed with prejudice not just to him but to all stockholders? More ›

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Court Explains Rigorous 'Caremark' Pleading Requirements

A recent opinion containing the report and recommendation of the magistrate judge in the U.S. District Court for the District of Delaware, In re Chemed Shareholder Derivative Litigation, C.A. No. 13-1854-LPS-CJB (D.Del. Dec. 23, 2015), well illustrates the accepted wisdom that a Caremark claim is "possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment, as in In re Caremark International Derivative Litigation, 698 A.2d 959 (Del.Ch. 1996). As the Chemed case demonstrates, it is exceptionally difficult to even plead such a claim. In recommending that dismissal be granted on Rule 23.1 grounds (with leave to amend), the court carefully analyzed Delaware law and the requisite specificity necessary for a plaintiff to plead that directors "consciously failed to act after learning about evidence of illegality [such as becoming aware of] the proverbial 'red flag.'" More ›

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Court Of Chancery Explores The Effect Of Federal Settlements On A Delaware Action And Applies Unocal To Bylaw Amendments

In re Ebix, Inc. S’holder Litig., Consol. C.A. No. 8526-VCN (Jan. 15, 2016)

This is an interesting decision for two reasons.  More ›

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Court Of Chancery Rejects Settlement Because Of Named Plaintiff Conflict

Smollar v. Potarazu, C.A. No. 10287-VCN (January 14, 2016)

This decision points out the hazard in providing a separate benefit to the named plaintiff in connection with the settlement of a derivative suit. In short, that is a bad idea and, as in this case, may cause the Court to reject even an otherwise good settlement because of concerns over the conflict of interest when the plaintiff may have agreed to a deal for his own benefit.

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Chancery Defers to Indian Corporation's Delaware Choice of Venue

In the absence of a prior-filed action in another forum, Delaware state courts will respect a plaintiff's Delaware choice of forum when faced with a forum non conveniens defense, except in the "rare case" where a defendant demonstrates "overwhelming hardship and inconvenience if required to litigate in Delaware." The Delaware Supreme Court recently clarified the legal standard for the forum non conveniens defense in Martinez v. E.I. du Pont de Nemours & Co., 86 A.3d 1102 (Del. 2014). The Supreme Court explained in Martinez that the overwhelming-hardship standard for the forum non conveniens defense is not "insurmountable," but does require that defendants demonstrate "on balance, litigation in Delaware would represent a manifest hardship to [them]." To analyze hardship and inconvenience under the forum non conveniens legal standard, Delaware state courts are guided by the factors set forth by the Delaware Supreme Court in General Foods v. Cryo-Maid, 198 A.2d 681 (Del. 1964): (1) relative ease of access to proof; (2) availability of compulsory process of witnesses; (3) the possibility of a view of the premises; (4) whether the controversy is governed by Delaware law that a Delaware state court should more properly decide; (5) whether a similar action is pending in another jurisdiction; and (6) all other practical issues that would make the trial of the case easy, expeditious, and inexpensive. More ›

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Is an Offset Allowed for Amounts Unrelated to the Claim Asserted?

The plaintiffs in Brace Industrial Contracting v. Peterson Enterprises (Del. Ch. Dec. 10, 2015) moved for partial summary judgment on the issue of whether the defendants could “self-help themselves to $3.457 million of the plaintiffs’ money as an offset against different purported unliquidated claims.”

The plaintiffs contended the defendants retained nearly $3.5 million in payments from the plaintiffs’ customers as an offset against claims the defendants asserted against the plaintiffs. The court found that it was not clear that the full claim amount was owed to the plaintiffs and that such issue should be decided following the impending trial. The court, however, did order the defendants to pay, and the plaintiffs to accept payment of, the amount the defendants conceded the plaintiffs were owed. More ›

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