Posts from 2020

Chancery Finds Employment Agreement’s Forum Selection Clause Did Not Reach Fiduciary Duty Claims, But Stays Case Pending Resolution of First-Filed Texas Action

EnVen Energy Corp. v. Dunwoody, C.A. No. 2019-0579-KSJM (Del. Ch. May 28, 2020)

This case illustrates Delaware’s approach in interpreting contractual forum selection provisions and in considering whether to stay a later-filed action under the well-known McWane doctrine. More ›

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Chancery Grants Preliminary Injunction, Admonishes Defendant for Engaging in “Self-Help”

Buckeye Partners, L.P. v. GT USA Wilmington, LLC, C.A. No. 2020-0255-JTL (Del. Ch. May 20, 2020)

To obtain a preliminary injunction, a plaintiff must demonstrate (i) a reasonable probability of success on the merits, (ii) a threat of irreparable harm if an injunction is not granted, and (iii) that the balance of the equities favors the issuance of an injunction. Revlon, Inc. v. MacAndrews & Forbes Hldgs., Co., 506 A.2d 173, 179 (Del. 1986). More ›

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Even Though Evidence Supports Plaintiffs’ Fraudulent Inducement Claim, Chancery Denies Relief Where Plaintiff Never Gave Defendant Fair Notice of Claim Prior to Trial

HOMF II Investment Corp. v. Altenberg, C.A. No. 2017-0293-JTL (Del. Ch. May 19, 2020)

Due process requires that a plaintiff provide the defendant with fair notice of the plaintiff’s claims. As this recent post-trial decision shows, the failure to give fair notice can procedurally bar recovery -- even when the trial evidence establishes that the claims have substantive merit. More ›

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Delaware Superior Court CCLD Addresses Claim of Common Interest Privilege over Merger Agreement Parties’ Post-Signing, Pre-Closing Communications

The American Bottling Co. v. Repole, C.A. No. N19C-03-048 AML CCLD (Del. Super. May 12, 2020)

Delaware courts will apply the common interest doctrine when two parties, represented by counsel, exchange privileged information with one another concerning a legal matter in which they have a shared interest. To maintain the privilege, the common interest must involve predominantly legal issues, rather than a common economic interest in a commercial venture. If there is no common interest, a party who shares privileged materials with a third-party will generally waive the privilege.  More ›

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Corporate Opportunity Doctrine Waiver Does Not By Itself Also Constitute a Waiver of Default Fiduciary Duties under an LLC Agreement

77 Charters, Inc. v. Gould, C.A. No. 2019-0127-JRS (Del. Ch. May 18, 2020)

The Court of Chancery held that a waiver of the corporate opportunity doctrine did not by itself constitute a waiver of default fiduciary duties under an LLC agreement. 

Plaintiff 77 Charters, Inc. held non-preferred ownership interests in a joint venture. Defendant Jonathan Gould indirectly held similar non-preferred interests and managed the joint venture’s managing member. Subsequently, Gould indirectly purchased an owner’s preferred interests, and revised the joint venture’s waterfall repayment structure to provide a guaranteed, higher rate of return for preferred interests, at the expense of the residual, non-preferred interests, and reduced the standard of care for the Gould managing member. After 77 Charters filed a books and records demand and settled a related action, Gould sold the joint venture at a price that returned no funds to 77 Charters as a residual owner of non-preferred interests. 77 Charters filed contract and tort claims, and defendants moved to dismiss. More ›

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In New Dell Decision, Special Committee’s Narrow Mandate, Company’s Decision to Bypass Committee and Impermissible “Coercion” Prevent Dismissal Under MFW

The Delaware Supreme Court’s MFW decision provides a safe harbor for controlling stockholder buyouts that are conditioned upon approval of a special committee of independent directors and a majority-of-the-minority vote, provided, inter alia, “there is no coercion of the minority.” Kahn v. M & F Worldwide Corp. (MFW), 88 A.3d 635, 645 (Del. 2014). The Court of Chancery’s recent decision in In re Dell Tech. Inc. Class V. S’holders Litig., 2020 WL 3096748 (Del. Ch. Jun. 11, 2020), held that a redemption of minority stockholders’ shares failed to satisfy MFW due to the company’s decisions to give the special committee an impermissibly narrow mandate and then bypass it to negotiate directly with minority stockholders. The Court also found that, in light of the looming threat of undesirable alternative transaction, the company’s offer was impermissibly coercive. More ›

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Chancery Finds Stockholder Representative Did Not Control Former Stockholders’ Discoverable Material

Fortis Advisors LLC v. Allergan W.C. Holding Inc., C.A. No. 2019-0159-MTZ (Del. Ch. May 14, 2020).

Plaintiff, as representative for the former stockholders of Oculeve, Inc., sued Defendant Allergan for alleged material breaches of the Merger Agreement between Oculeve and Allergan by failing to make a necessary milestone payment to the former stockholders and for failing to use commercially reasonable and good faith efforts to achieve the milestone. During discovery, Defendant demanded documents from over fifty non-party selling stockholders without resort to third-party subpoena discovery and moved to compel after Plaintiff objected. More ›

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Chancery Offers Guidance on the Effect of Charging Orders on Contractual Obligations

GMF ELCM Fund L.P. v. ELCM HCRE GP LLC, C.A. No. 2018-0840-SG (Del. Ch. May 18, 2020)

Charging orders authorized by 6 Del. C. § 18-703 of the Delaware Limited Liability Company Act offer judgment creditors of LLC members a collection method. These orders function as a lien against the membership interest and grant the judgment creditor the right to monetary distributions that would otherwise be funneled to the member. The imposition of a charging order does not, however, afford the judgment creditor the right to obtain possession of or exercise remedies, legal or equitable, with respect to the LLC’s property. More ›

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Applying Rare Intermediate Review of Forum Non Conveniens, the Delaware Superior Court Stays a Delaware Action to Permit Filing of Claims in California

GXP Capital, LLC v. Argonaut Mfg. Servs., Inc., C.A. No. N18C-07-267 PRW CCLD (Del. Super. July 1, 2020)

When evaluating a forum non conveniens challenge, Delaware has a seldom used, intermediate framework of review. Under Gramercy Emerging Markets Fund v. Allied Irish Banks, P.L.C., 173 A.3d 1033, 1044 (Del. 2017), when a prior foreign lawsuit was filed, but is no longer pending, relief in Delaware will be granted or denied based on whichever party the Cryo-Maid factors favor under the traditional forum non conveniens framework. There is no presumption in favor of a plaintiff (such as when a Delaware action is first-filed) or in favor of a defendant (such as when a foreign action is first-filed and still pending). More ›

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Chancery Dismisses Fraud, Misrepresentation and Mistake Claims Based on Anti-Reliance Provisions

Midcap Funding X Trust v. Graebel Companies, Inc., C.A. No. 2018-0312-MTZ (Del. Ch. Apr. 30, 2020)

The Court of Chancery found on a motion to dismiss that the plaintiffs’ allegations regarding misrepresentations in contractual negotiations were irrelevant due to the contract’s anti-reliance and integration clauses, and that the plaintiffs in the action otherwise were “scouring and stretching” the contract’s plain terms.  More ›

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Superior Court Stays First-Filed Declaratory Judgment Action in Nokia Technology Dispute

Nokia Solutions v. Collison Comm., Inc., C.A. No. N19C-10-262 AML CCLD (Del. Super. Apr. 30, 2020)

Delaware law recognizes several doctrines intended to respect principles of comity and the efficient administration of justice when there is competing litigation across jurisdictions. Those doctrines are applied flexibly and have developed to avoid incentivizing races to the courthouse, as illustrated by this Delaware Superior Court decision staying a first-filed declaratory judgment action.  More ›

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Chancery Dismisses Claims that Minority Stockholders who Rolled Over Equity in a Controlling Stockholder Merger Joined a “Control Group”

Gilbert v. Perlman, C.A. No. 2018-0453-SG (Del. Ch. Apr. 29, 2020)

Delaware law imposes fiduciary duties upon controlling stockholders who use their power to control the corporate machinery. For that reason, determining who comprises a control group affects who may owe fiduciary duties. In some circumstances, where minority stockholders pool their interests to gain majority control and then bind themselves to act together to effectuate a transaction, minority stockholders may take on the duties of a controlling stockholder as members of a control group. But where an already existing controlling stockholder effectuates a cash-out merger, minority stockholders who roll over their shares and enter into a voting agreement to support the transaction will not be deemed part of a control group unless a plaintiff can plead that “the minority-holder’s participation [was] material to the controller’s scheme to exercise control of the entity, leading to the controller ceding some of its control power to the minority-holders.” More ›

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Chancery Compares Aronson and Rales Tests for Demand Futility; Finds Well-Pled Caremark Claim Showing No Good Faith Effort to Oversee Financial Reporting and Related-Party Transactions Made Demand Futile

Hughes v. Hu, C.A. No. 2019-0112-JTL (Del. Ch. Apr. 27, 2020).

Everyone from bar applicants to seasoned litigators and counsel advising boards of directors can find something of interest in Hughes v. Hu, which (i) provides a comprehensive review of how the Court of Chancery evaluates demand futility in derivative actions and (ii) discusses the type of allegations that will support a well-pled Caremark claim for failure to take affirmative steps to ensure an effective board-level monitoring reporting system is in place. More ›

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Court of Chancery Adjudicates Books and Records Request Post-Trial for Delaware LLC

Trials involving books and records requests have become more common since the Delaware Supreme Court encouraged stockholder plaintiffs to use the “tools at hand” to discover information necessary to establish demand futility prior to pursuing derivative litigation. Less common are decisions post-trial regarding inspection rights for members of a Delaware limited liability company. The recent decision in Riker v. Teucrium Trading LLC, C.A. No. 2019-0314-AGB (Del. Ch. May 12, 2020) reflects the care by which the Court of Chancery applies the applicable standard to determine whether a member has met his burden to show entitlement to documents and, if so, the scope of necessary production. The case also demonstrates that a Company’s hard-fought litigation tactics opposing document requests, which the Court ultimately validates, does not by itself provide grounds to shift attorneys’ fees, particularly where plaintiff did not substantially prevail. More ›

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Chancery Dismisses GoPro Derivative Action for Failure to Allege Directors Intentionally Made Inflated Revenue Forecasts or Failed to Exercise Appropriate Caremark Oversight

In re GoPro, Inc. S’holder Deriv. Litig., C.A. No. 2018-0784-JRS (Del. Ch. Apr. 28, 2020)

This opinion serves as a reminder that particularized allegations of non-exculpated wrongdoing are necessary to support the contention that a demand would be futile. Vice Chancellor Joseph R. Slights, III dismissed a breach of fiduciary duty derivative action for failure to allege demand futility with the detail prescribed by Chancery Court Rule 23.1. The plaintiffs, GoPro, Inc. stockholders, filed suit against officers and directors after complications with the launch of a new drone caused the company to miss its revenue forecast. The complaint alleged that pre-suit demand was futile because a majority of the board faced liability for its knowledge of, but failure to disclose, the company’s revenue shortfall and were beholden to the CEO/controlling stockholder such that they could not exercise independence. The missed revenue projections also spurred a federal securities class action suit, naming three of the same defendants, where a ruling denying a dismissal motion found that the class plaintiffs well pled that the named overlapping defendants made false or misleading statements regarding the drone. More ›

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