Posts from 2020

Delaware Court of Chancery Grants Motion to Dismiss Disclosure Claims Because Hedge Fund had Sufficient Information to Consider Corporation’s Self-Tender Offer

Chatham Asset Mgmt., LLC v. Papanier, C.A. No. 2017-0088-AGB (Del. Ch. Jan. 13, 2020).

The directors of a Delaware corporation that makes a self-tender offer must disclose all material facts. A fact is material if there is a substantial likelihood that a reasonable stockholder would consider it important in deciding whether to tender. More ›

Share

Court of Chancery Finds Possibility of Actual Control and the Doctrine of Inherent Coercion Preclude Summary Judgment Based on Disinterested Stockholder Approval

The standard of review and who has the burden of proof are important issues in any trial of stockholder litigation. One instance where entire fairness is the standard of review is a merger where a controlling stockholder is on both sides of the transaction. Since the Delaware Supreme Court’s Kahn v. Lynch decision in 1994, Delaware law in that circumstance has mandated an entire fairness standard of review with the burden on the controlling stockholder and the proponents of the transaction to prove that the transaction was fair. But what happens when, after discovery, Plaintiffs fail to adduce evidence that a purported controlling stockholder in fact coerced the minority stockholders into approving the transaction? The Court of Chancery answered that question in In Re Tesla Motors, Inc. Stockholder Litigation, Cons. C.A. No. 12711-VCS (February 4, 2020), holding that disputed issues of fact remain to be resolved as to whether Elon Musk, as the owner of 22.1% of Tesla’s shares, was a controlling stockholder. The possibility that he might be a controlling stockholder invokes the potential for inherent coercion and therefore prevents summary judgment based on an informed Corwin-cleansing vote of a majority of the disinterested stockholders. More ›

Share

Chancery Denies Attempt to Use Mediation Communications to Supplement Mediation Term Sheet

Starkman v. O’Rourke, C.A. 2018-0901-KSJM (Del. Ch. Jan. 14, 2019) (ORDER).

Parties who resolve a case through a mediation conducted under Court of Chancery Rule 174 should include all material provisions in any mediation term sheet. As the Order in Starkman demonstrates, Rule 174 provides no opportunity for a party to introduce mediation communications to assert that a signed mediation agreement does not accurately reflect the parties’ discussions. More ›

Share

Delaware Supreme Court Explains That Litigants Seeking Application of Foreign Law Have Burden To Establish its Substance

Germaninvestments AG v. Allomet Corp., No. 291, 2019 (Del. Jan. 27, 2020). 

In reversing the Court of Chancery’s decision that Austrian law applied to the interpretation of whether a forum selection clause was permissive or mandatory, the Delaware Supreme Court ruled that, to the extent prior decisions were unclear on the issue, a party seeking the application of foreign law in a Delaware court has the burden not only of raising the issue of the applicability of foreign law under court rules, but also, of establishing the substance of the foreign law to be applied.    More ›

Share

Delaware Superior Court Distinguishes Between Affirmative and Negative Covenants in Earnout Dispute

Quarum v. Mitchell Int’l, Inc., C.A. No. N19C-03-087 AML CCLD (Del. Super. Jan. 21, 2020).

Under Delaware law, parties may structure covenants in an earnout agreement as affirmative (mandating action) or negative (prohibiting action). Given the important differences in the obligations these types of covenants impose, as illustrated by this decision, parties should carefully consider the contractual language in drafting. More ›

Share

Supreme Court Affirms Dismissal of Uber Derivative Action for Failure to Plead Demand Futility

Mcelrath v. Kalanick, No. 181-2019 (Del. Jan. 13, 2020). 

This case exemplifies the Delaware courts’ approach to examining demand futility. In 2016, Uber Technologies, Inc. (“Uber”) acquired Ottomotto LLC (“Otto”), a company started by a contingent of employees from Google’s autonomous vehicles group, in order for Uber to gain expertise in developing autonomous vehicles. The shareholder-plaintiff brought a claim, on behalf of Uber, against some of Uber’s directors. The plaintiff alleged that Uber’s directors ignored the risks presented by Otto’s alleged theft of Google’s intellectual property, which eventually led to Uber paying a settlement of $245 million to Google and terminating its employment agreement with Otto’s founder. More ›

Share

CCLD Finds that Statute of Limitations for Tortious Interference Claim was Tolled until Key Documents Relating to the Alleged Scheme were Released

BTIG, LLC v. Palantir Technologies, Inc., C.A. No. N19C-08-314 EMD CCLD (Del. Sup. Ct. Jan. 3, 2020).

In this decision denying a motion to dismiss, the Superior Court’s Complex Commercial Litigation Division found that the plaintiff sufficiently alleged facts to toll the statute of limitations under the “time of discovery” rule, which is also known as the doctrine of “inherently unknowable injury.” More ›

Share

Delaware Supreme Court Finds That Stockholder Failed to Satisfy Unambiguous Requirements of Advance Notice Bylaw

Blackrock Credit Allocation Income Tr., et al. v. Saba Capital Master Fund, Ltd., No. 297, 2019 (Del. Jan. 13, 2020).

The Delaware Supreme Court reversed the Court of Chancery’s decision requiring two closed-end trusts (together, the “Trusts”) to count the votes of Saba Capital Master Fund, Ltd’s (“Saba”) slate of dissident nominees at the Trusts’ respective annual meetings. The Supreme Court ruled that Saba’s nominations were ineligible because Saba had failed to respond to the Trusts’ request for supplemental information within the clear and unambiguous 5 day compliance deadline in the Trusts’ advance notice bylaws (the “Bylaws”).  More ›

Share

Chancery Further Explains the “Proper Purpose” Requirement for Section 220 Demands

Lebanon County Employees’ Retirement Fund v. AmerisourceBergen Corp., C.A. No. 2019-0527-JTL (Del. Ch. Jan. 13, 2020).

Section 220 of the Delaware General Corporation Law (“DGCL”) provides stockholders seeking information for a proper purpose with the right to inspect a corporation’s books and records. This recent decision provides additional guidance by (i) rejecting a “purpose-plus-an-end” test as inconsistent with the text of Section 220 and Delaware Supreme Court precedent; and (ii) explaining that a stockholder may have a proper purpose to investigate wrongdoing regardless of whether she can show potentially viable claims against a board of directors.  More ›

Share

Chancery Declines to Apply Corwin Where a Stockholder-Plaintiff Adequately Alleged the Existence of a “Control Group”

Garfield v. BlackRock Mortgage Ventures, LLC, C.A. No. 2018-0917-KSJM (Del. Ch. Dec. 20, 2019).

Under Delaware law, when a controlling stockholder benefits personally from the transaction in a manner not shared by minority stockholders, a stockholder vote does not trigger Corwin and restore the protections of the business judgment rule. This decision considers whether a stockholder-plaintiff sufficiently alleged a “control group” to avoid Corwin deference. More ›

Share

Chancery Rejects Challenge to Delaware as Proper Venue in Books and Records Action

Stanco v. Rallye Motors Holding, LLC, C.A. No. 2019-0751-SG (Del. Ch. Dec. 23, 2019). 

Delaware courts generally respect contractual forum selection provisions. When it comes to Delaware LLCs, however, the Delaware statute expressly precludes a non-managing member from waiving its right to a Delaware forum for proceedings involving the LLC’s internal affairs.  6 Del. C. § 18-109(d). And, in general, any waiver of rights must encompass knowledge of the right and clearly expressed intent to relinquish it. This case discusses the interplay between these rules. More ›

Share

Uber Board Was Disinterested and Independent to Assess a Pre-Suit Demand for Acquisition of Google Program

Uber Technologies’ board approved the acquisition of Google’s more mature autonomous vehicle program. The transaction was high risk and flawed from its inception, ending in embarrassment after Uber learned that key employees hired from Google had misappropriated Google’s proprietary information in the autonomous vehicle program. Uber issued $245 million in its stock to settle Google’s misappropriation claims. An Uber stockholder brought derivative claims against the Uber directors who approved the acquisition of Google’s autonomous vehicle program. More ›

Share

Chancery Dismisses Stockholder Claims that a Minority Owner was a Controlling Stockholder or that a Majority of the Board was Beholden to the Minority Owner in Approving a Merger Transaction with the Minority Owner

In re: Essendant, Inc. Stockholder Litigation, C.A. No. 2018-0789-JRS (Del. Ch. Dec. 30, 2019).

When as here a Delaware corporation’s charter contains an exculpation provision under Section 102(b)(7) of the Delaware General Corporation Law, stockholders who bring suit against directors who approve a merger transaction must allege violations of the duty of loyalty to state a non-exculpated claim. They may state such a claim if they adequately plead that a controlling stockholder breached duties for self-interested reasons, or that a majority of the board was self-interested or beholden to the buyer. They may also attempt to state a non-exculpated claim by claiming that a majority of the board acted in bad faith. To meet this bad faith standard, a plaintiff must plead facts showing that the decision to approve the transaction lacked any rationally conceivable basis associated with maximizing stockholder value. As the Court explained, allegations of mis- or non-disclosure will not suffice unless plaintiffs plead intentional misstatements or omissions based on a “factual narrative that would allow any inferential explanation of why these fiduciaries would so abandon their duties as to engage in bad faith." (emphasis in original). More ›

Share

Chancery Sustains Claims Against Board Chairman who Rolled Over Equity in Going-Private Transaction and Officers Who Crafted Misleading Disclosures

Morrison v. Berry, C.A. No. 12808-VCG (Del. Ch. Dec. 31, 2019).

Plaintiff, a former stockholder of The Fresh Market, Inc. (the “Company”), brought claims arising out Apollo’s 2016 acquisition of the Company.

Because the directors benefited from exculpation under 8 Del. C. §102(b)(7), the plaintiff was required to sufficiently plead a breach of the fiduciary duty of loyalty. The Court rejected the novel argument that activist shareholders were exerting so much pressure on the board that the directors were motivated to protect their own reputations by approving a near-term sale. The Court reasoned that the directors’ reputations would be at far greater risk if they breached their duty of loyalty by orchestrating a sham auction, and that it would be irrational for them to harm their own pecuniary interests as shareholders. The Court also reasoned that, while they could have chosen other potentially value-enhancing paths, the decision to hold an auction and solicit bids from a wide field did not suggest “bad faith.”  More ›

Share

Delaware Superior Court CCLD Disqualifies Counsel to Ensure Fairness of Litigation Process

Sun Life Assurance Company of Canada v. Wilmington Savings Fund Society, FSB, C.A. No. N18C-08-074 PRW CCLD (Del. Super. Dec. 19, 2019).

Motions to disqualify counsel rarely succeed in the Delaware courts. This decision illustrates the type of conflict that can justify disqualification based on prior representations. Plaintiff issued a life insurance policy of $6 million to an individual named Bartelstein. The policy was assigned to a trust whose beneficiary is an entity, with the moniker Ocean Gate, making Ocean Gate the policy’s ultimate beneficiary. Plaintiff filed this suit alleging the policy is void as a stranger-oriented life insurance wager on Bartelstein’s life procured for investors. The litigation gave rise to alleged conflict issues for involved counsel. More ›

Share