Posts from 2017

Court Of Chancery Gives Definitive Explanation On Advancement Procedures

White v. Curo Texas Holdings LLC, C.A. 12369-VCL (February 21, 2017)

Once the right to have fees advanced has been determined, the tricky issue is how to decide if the actual fees requested fall within the scope of the advancement rights. The Court of Chancery has adopted what is known as the Fitracks procedure, where the bills are subject to a meet and confer process with a set of rules to guide the outcome. This decision provides what may well be the definitive explanation of how that process is supposed to work, including how to resolve disputes at the advancement stage and what objections actually can be made to payment.

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Delaware Supreme Court Addresses Fee-Shifting Provision In Notes

Washington v. Preferred Communication Systems Inc., No. 436, 2016 (Feb. 27, 2017)

This decision addresses a fee-shifting provision in certain notes that would be triggered if any indebtedness evidenced by the notes was collected by legal action.  In exchange for modifying the notes, the noteholders had negotiated for certain warrants.  But the company failed to grant those warrants until it was forced to through a lawsuit.  The warrants in effect created a debt under the notes, which the noteholders collected through a court proceeding.  Thus, the fee-shifting provision was triggered.

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Court of Chancery Holds That A Books And Records Plaintiff Must Be A Stockholder At The Time Of Suit

Weingarten v. Monster Worldwide Inc., C.A. 12931-VCG (Feb. 27, 2017)

This decision resolved a matter of first impression: a plaintiff seeking corporate records under Section 220 of the DGCL must be a stockholder at the time he files his complaint to have standing.  Thus, when a stockholder makes a proper Section 220 demand, and a merger terminates his ownership interest in the corporation before he files his books and records action, the now-former stockholder loses standing to sue.  In short, stockholder-plaintiffs must be diligent in pursuing their record demands to avoid losing standing.

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Court of Chancery Addresses Claims Involving Distributions In The Alternative Entity Context

In re Energy Transfer Equity L.P. Unitholder Litig., Cons. C.A. No. 12197-VCG (Feb. 28, 2017), affirmed March 23, 2017

The case involves the issuance of certain convertible units offered to some, but not all, the limited partnership unitholders, and whether that offering and subsequent issuance violated provisions of the partnership agreement concerning distributions. While the Court of Chancery was unable to resolve the parties’ competing theories on summary judgment, the decision offers insight into how the Court will examine contractual distribution related claims in the alternative entity context.

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The Court Of Chancery Addresses Conflicting Forum And Arbitration Provisions In Related Contracts

Greenstar IH Rep, LLC v. Tutor Perini Corp., C.A. No. 12885-VCS (February 23, 2017)

The Court of Chancery often addresses the question of who, as between the Court and an arbitrator, should decide whether certain disputes are arbitrable. The analysis of this substantive arbitrability question is complicated where, as in this case, the parties’ relationship is governed by multiple contracts containing different choice of law, choice of forum, and dispute resolution provisions.  In short, under Willie Gary, where the relevant contract generally refers all disputes to arbitration, and incorporates a set of rules for the arbitrator to follow, the arbitrator, not the Court, will decide substantive arbitrability.  However, under McLaughlin, the Court still will not send the question of substantive arbitrability to the arbitrator where it is clear that only frivolous arguments support arbitration of a particular dispute.      

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The Court of Chancery Sends Advancement Case To Arbitration

Glazer v. Alliance Beverage Distributing Co. LLC, C.A. No. 12647-VCMR (Mar. 2, 2017)

This is another instance of the Court of Chancery addressing the overlap of advancement and the question of substantive arbitrability under Willie Gary.  Here, the Court explains that once Willie Gary’s two-part test is satisfied and non-frivilous arguments exist in favor of arbitrability, the Court must defer the question of substantive arbitrability to the arbitrator.  That the case is one involving advancement does not change the analysis.

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Court of Chancery Addresses Effect Of Carve-Outs On The Question Of Substantive Arbitrability

Redeemer Committee of the Highland Crusader Fund v. Highland Capital Management L.P., 12533-VCG (February 23, 2017)

This case involves the overlap of an advancement dispute and the question of substantive arbitrability under Willie Gary.  The two-part test of Willie Gary asks whether the parties (i) generally referred all disputes to arbitration, and (ii) referred to a set of arbitration rules that empower an arbitrator to decide arbitrability.  This decision focuses on the less clear question of what it means to generally refer all disputes to arbitration, and the effect carve-outs for certain disputes might have on this analysis.  Broadly speaking, carve-outs must be expansive in order to prevent the question of substantive arbitrability from being passed onto the arbitrator.

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Chancery Appoints Custodian to Dislodge Board Deadlock

Delaware law entrusts the management of a corporation to its board of directors. Not surprisingly, circumstances arise where a consensus among directors cannot be reached on major decisions impacting a company. In many cases, a board is composed of an odd number of directors, typically eliminating the potential for deadlock. However, where an even number of directors sit on a board, deadlocks can arise. In those situations, assuming certain statutory criteria is met, the Delaware Court of Chancery may appoint a custodian to act as a director and resolve the deadlock. More ›

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Court Of Chancery Limits Cost Recovery Following Successful Appeal

In Re: El Paso Pipeline Derivative Litigation, C.A. 7141-VCL (February 16, 2017)

This decision explains what “costs” are recoverable under Court of Chancery Rule 54 following a successful appeal. While the amounts involved normally do not merit much discussion, the cost of bond for an appeal can be significant when the court below awards a large judgment, like in this case.  As this decision points out, the circumstances surrounding the posting of the bond may determine whether or not it was a “necessary” and therefore recoverable cost.

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Court Of Chancery Explains When To Appoint Corporate Custodian

Kleinberg v. Aharon , C.A. 12719-VCL (February 13, 2017)

On the same day the Delaware Supreme Court affirmed the widely-reported TransPerfect decision, which ordered the sale of a successful company by custodian under Section 226 of the DGCL in order to break deadlock, the Court of Chancery issued this decision appointing a custodian of a Delaware corporation with limited powers to break a deadlock. The decision carefully explains the reason why a custodian should be appointed and why the custodian’s powers should be limited. In that sense, this is a “normal” custodian case not involving the very unusual circumstances the Court of Chancery had to deal with in TransPerfect.

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Court Of Chancery Explains Class Distribution Procedures

In re Dole Food Company Inc. Stockholder Litigation, C.A. 8703-VCL (February 15, 2017)

Distributing the proceeds from a class action settlement is not as easy as you might think. Tracing ownership is complicated by the use of various intermediaries such as Cede & Co. This decision explains why that is so and provides a solution to the problem.

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Delaware Supreme Court Affirms Sanctions Award

Shawe v. Elting, No. 487, 2016 (February 13, 2017)

The Supreme Court affirmed perhaps the largest award of attorney fees as a sanction for bad conduct in Delaware’s history in this very unusual decision. It is a good summary of when a Court may depart from the “American Rule.”

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Delaware Supreme Court Affirms The TransPerfect Decision

Shawe v. Elting, No. 423, 2016 (February 13, 2017)

The Supreme Court has affirmed the Court of Chancery decision that Section 226 of the DGCL permits the Court to appoint a custodian to sell a Delaware corporation when the board of directors and stockholders are deadlocked and the company is suffering as a result.

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Stockholder Merger Vote Sets High Bar for Post-Closing Claims

The Delaware Supreme Court's decision in Corwin v. KKR Financial Holdings , 125 A.3d 304 (Del. 2015), reaffirmed the power of fully-informed, uncoerced, disinterested stockholder approval to immunize M&A transactions against stockholder challenge. Under Corwin, where a noncontrolling stockholder transaction "has been approved by a fully informed, uncoerced majority of the disinterested stockholders," the business judgment rule applies irrebuttably, leaving plaintiffs with a claim for waste. Since waste requires stockholder approval of an irrational deal, a Corwin-qualifying vote will likely result in dismissal. Corwin therefore sets a high bar for plaintiffs in post-closing fiduciary duty claims challenging M&A transactions. More ›

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Court Of Chancery Explains Limitation On Fiduciary Duty Claims

CelestialRX Investments LLC v Krivulka, C.A.11733-VCG (January 31, 2017)

This decision explains how a provision in an LLC agreement waiving fiduciary duties is to be applied in the context of conflicted transactions. It is a good summary of Delaware law on that issue. 

It also has an instructive summary of the law governing contract interpretation, albeit under New York law.

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