Posts from 2016

Court of Chancery Explains When a Stockholder’s Right to Remove Directors May Be Limited to “For Cause” Only Removals

Section 141(k) of the Delaware General Corporation Law (DGCL) contains the default rule that a corporation’s stockholders have the right to vote to remove directors from the board “with or without cause.”  Section 141(k) contains two exceptions to the default rule where the removal of directors may be limited to “for cause” only removals: (1) where the board is “classified” under Section 141(d) (i.e., has multiple classes of directors with staggered terms of service, in contrast to the default “straight” board having a single class of directors), or (2) where the stockholders have cumulative voting rights for director elections under Section 214 (rather than the default plurality voting rights).  In accord with Court of Chancery precedent interpreting Section 141(k), Rohe v. Reliance Training Network, Inc., 2000 WL 1038190 (Del. Ch. July 21, 2000), a recent bench ruling by the Court of Chancery, In re Vaalco Energy Stockholder Litigation, C.A. No. 11775-VCL (Del. Ch. Dec. 21, 2015) (Laster, V.C.) (Transcript Opinion), invalidated a company’s charter and bylaw provisions that purported to limit the stockholders’ right to remove directors to “for cause” only removals where the company had an unclassified board consisting of a single class of directors and the stockholders had plurality voting rights for director elections. More ›

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Superior Court Explains When Arbitration Is Binding

Airbase Carpet Mart Inc. v. Aya Associates Inc., No.. 15C-03-104 VLM (December 15, 2015)

As this decision explains, you can be bound by an arbitration clause even if you do not sign a contract containing such a provision. The issue is did you agree to be bound by that contract’s terms and if you did, then you are in for all of its terms.

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Superior Court Explains Reliance Disclaimer Clauses

Pivotal Payments Direct Corp. v. Planet Payment Inc., No. 15C-02059-EMD CCLD (December 29, 2015)

A party to a contract may try to limit any future claims of fraudulent inducement by providing an anti-reliance clause in its contracts. As this decision explains, such clauses need to be carefully drafted and particularly need to address any oral statements made before the contract is signed. This decision is also useful for its coverage of the distinction between fraud and breach of contract claims based on whether the claim alleges fraudulent intent.

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Court Of Chancery Explains Arbitration Timelines

SC&A Construction Inc. v. Potter, C.A. 10528-VCG (January 6, 2016)

This decision explains the timelines for seeking to vacate an arbitration award. It illustrates that an arbitration proceeding has its own rules that the parties better understand or lose their rights.

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Morris James Elects James A. Landon and Jonathan G. Strauss as Partners

Morris James LLP is pleased to announce that James A. Landon and Jonathan G. Strauss have been elected partners effective January 1, 2016. More ›

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District Court Explains Caremark Proof Requirements In Pleading

In Re Chemed Corporation Shareholder Derivative Litigation,  No. 13-1854-LPS-CJB (December 23, 2015)

To meet the pleading requirements to state a Caremark claim it is necessary that you show either the board ignored signs of wrongdoing or at least took no steps to prevent such wrongdoing. This decision contains an excellent review of when a court will attribute knowledge of wrongdoing to a board of directors in the absence of direct proof the board was aware of those bad acts.

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District Court Explains When Suit Is Direct Or Derivative In The Alternative Entity Context

Gimaex Holding Inc. v. Spartan Motors USA Inc., No. 15-CV-00515-RGA (December 22, 2015)

Whether a claim is direct or derivative often determines if it will survive a motion to dismiss. Who would get the benefit of a recovery is one test applied to make that decision. But in the context of a partnership, that test has some weaknesses considering the wrongdoer will benefit from the recovery as a partner if the claim is cast as derivative. More ›

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