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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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- February 19, 2021
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Showing 148 posts from 2021.
Chancery Grants Books and Records Mismanagement Inspection Related to Rejected Financing Proposal Despite Potential Lack of Actionable Claim
Alexandria Venture Investments LLC v. Verseau Therapeutics Inc., C.A. No. 2020-0593-PAF (Del. Ch. Dec. 18, 2020)
This case highlights that the potential lack of an actionable claim generally is not a valid defense to a demand for books and records where the stockholder meets the low threshold of proving a credible basis to suspect wrongdoing. Plaintiffs sought to compel inspection of books and records of Verseau Therapeutics, Inc. (“Verseau”), pursuant to Section 220 of the Delaware General Corporation Law, to investigate whether Verseau’s directors violated their fiduciary duties by rejecting a financing proposal (made by the plaintiffs) to favor the interests of certain directors and affiliates. Verseau objected, arguing in part that plaintiffs did not have a credible basis to suspect wrongdoing because a majority of independent and disinterested Verseau directors had made all relevant decisions. More ›
Chancery Upholds Claim that CEO Breached Her Duty of Care Relating to a Misleading Proxy Statement
This case illustrates that an officer’s support for a sale of the corporation does not trigger the “entire fairness” standard where a majority of the members of the board of directors are not alleged to have been interested or lacked independence, and the plaintiff’s allegations otherwise do not support that the officer deceived the board. As also illustrated here, however, materially incomplete or inaccurate disclosures in a proxy statement may state a non-exculpated claim against officers for a breach of the duty of care. More ›
ShareSuperior Court CCLD Grants Anti-Suit Injunction
Anti-suit injunctions are an extraordinary form of relief. This decision illustrates the narrow circumstances where one may be warranted. Here, plaintiff American International Industries (“AII”) entered into an Asset Purchase Agreement (“APA”) with The Neslemur Company (“Neslemur”), in which the assets AII acquired later gave rise to third-party product liability claims against AII involving asbestos-contaminated talcum powder across the United States. AII sued Neslemur in the Delaware Superior Court for contractual indemnification under the APA. AII then sought to join Neslemur as a defendant in several pending tort actions in other jurisdictions, including California and New Jersey, seeking statutory and common law indemnification, as well as contribution. In response, Neslemur sought an anti-suit injunction in Delaware against AII to prevent AII from pursuing its indemnification claims in jurisdictions other than Delaware. More ›
ShareChancery Sustains Complaint for Breach of Fiduciary Duty against Viacom Controllers
In re Viacom Inc. Stockholders Litig., C.A. No. 2019-0948-JRS (Del. Ch. Dec. 29, 2020), as corrected (Dec. 30, 2020)
This case exemplifies that the Court of Chancery will review a transaction under the entire fairness standard where a controller receives a non-ratable benefit and the controller fails to condition the transaction on the approval of a special committee and of a majority of the disinterested minority stockholders. Plaintiffs, minority stockholders of Viacom International (“Viacom”), sued Shari Redstone, her corporate entities (together with Ms. Redstone, the “Controllers”), and Viacom directors that were allegedly loyal to Ms. Redstone. Ms. Redstone indirectly controls both Viacom and CBS Corporation (“CBS”). Among other things, the plaintiffs contended that the Controllers breached their fiduciary duties in causing the merger between Viacom and CBS on terms beneficial to the Controllers but detrimental to Viacom’s public stockholders. More ›
Chancery Declines to Order Specific Performance of $5.8 Billion Luxury Hotel Deal Scuttled by COVID-19 Changes to Hotel Business Operations
AB Stable VIII LLC v. MAPS Hotels and Resorts One LLC, C.A. No. 2020-0310-JTL (Del. Ch. Nov. 30, 2020)
Parties to a sale and purchase agreement (“SPA”) had planned to close a deal to sell fifteen luxury hotels for $5.8 billion. As the COVID-19 pandemic spread across the globe in early 2020 and battered the hotel industry, the buyer terminated the SPA. Seller sought specific performance in the Court of Chancery. After trial, the Court denied seller’s request for relief. More ›
Delaware Superior Court Applies Law-of-the-Case Doctrine and Collateral Estoppel to a Prior Chancery Proceeding
Plaintiff and defendants competed as institutional investors in the high-yield municipal bond market. Seeking to impair plaintiff’s standing in the marketplace, defendants made statements to broker-dealers critical of plaintiff. In turn, plaintiff sent defendants a cease-and-desist letter. In response, defendants sent letters to broker-dealers that suggested defendants would not participate in investments with broker-dealers who continued to do business with plaintiff. Plaintiff then filed suit in the Court of Chancery, which held that defendants had committed tortious interference with prospective business relations, but dismissed plaintiff’s defamation claim, and transferred this claim to the Superior Court. More ›
ShareChancery Dismisses Derivative Action for Failure to Plead Demand Futility Despite Unocal Enhanced Scrutiny
Gottlieb v. Duskin, C.A. No. 2019-0639-MTZ (Del. Ch. Nov. 20, 2020)
Defendants moved to dismiss a derivative action for failure to plead demand futility under Rule 23.1. The complaint alleged that the director defendants had breached their fiduciary duties by engaging in a scheme to thwart an unsolicited offer to purchase the company at a premium. In a previous ruling, the Court found that the plaintiff had adequately pled facts that triggered Unocal enhanced scrutiny. Nonetheless, the Court held that, even with the application of Unocal scrutiny, the plaintiff failed to plead facts that would establish that demand was futile. More ›
ShareChancery Finds Company Responsible for Advancing Costs of Defense to Its CEO in a Claim Brought by the Company
The Delaware Limited Liability Company Act (the “LLC Act”) allows a limited liability company (“LLC”) to provide for indemnification as to “any and all claims and demands whatsoever” against an LLC manager or officer, “[s]ubject to such standards and restrictions, if any, as are set forth in [the] limited liability company agreement.” 6 Del. C. § 18-108. The statute prescribes that the LLC agreement may indemnify any person to the fullest extent possible by contract. The only restrictions are those expressly set forth in the relevant LLC contract provisions. An LLC agreement is construed in accordance with Delaware law regarding contract interpretation. More ›
ShareChancery Dismisses Action For Plaintiffs’ Failure to Join Indispensable Parties
Under Court of Chancery Rule 12(b)(7), a defendant may move for dismissal because of a failure to join an indispensable party as described in Rule 19. Rule 19 provides that such parties include persons who, “(1) in the person’s absence complete relief cannot be accorded among those already parties, or (2) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person’s absence may (i) as a practical matter, impair or impede the person’s ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest.” If such a person exists in the controversy, the Court may join the person if feasible. If joinder is not feasible, Rule 19(b) requires the Court to “determine whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed, the absent person being thus regarded as indispensable.” Rule 19(b) offers a nonexclusive list of factors to consider when determining whether the action can proceed without the absent party’s involvement. Under Rule 12(h)(2), motions to dismiss for failure to join indispensable parties may be raised up to and including trial, and are not automatically waived as a result of not raising the argument in the first instance. More ›
ShareCourt of Chancery Denies Rule 5.1 Request to Maintain Confidential Treatment for Allegedly Defamatory Statements
Manhattan Telecommunications Corp. v. Granite Telecommunications, LLC, C.A. No. 2020-0468 JRS (Del. Ch. Nov. 19, 2020)
The Court of Chancery denied a motion for continued confidential treatment of allegedly defamatory statements detailed in the plaintiff’s complaint for, inter alia, defamation, tortious interference, and trade libel. In response to a challenge raised by an interested party, a law professor and blogger, to the confidential treatment, the plaintiff filed a motion to continue confidential treatment of the complaint and its exhibits. The interested party opposed the plaintiff’s motion and argued that he intended to use the redacted information to discuss on his blog and potentially for a law review article. More ›
Chancery Grants Leave to Move for Fees for Overly Aggressive Books and Records Defenses
Pettry v. Gilead Sciences, Inc., C.A. No. 2020-0132-KSJM (Del. Ch. Nov. 24, 2020)
This case illustrates that the Court of Chancery will not accept overly aggressive defenses to books and records actions and may grant fees to discourage such tactics. Section 220 of the Delaware General Corporation Law permits a stockholder plaintiff who has a “credible basis” to suspect wrongdoing by officers and directors to demand inspection of books and records relating to that misconduct. In this case, plaintiff-stockholders of Gilead Sciences, Inc. (“Gilead”) sought to inspect Gilead’s books and records to investigate misconduct. Gilead was subject to numerous lawsuits and government investigations arising out of alleged anticompetitive conduct, mass torts, breach of patents, and false claims relating to the development and marketing of its HIV drugs. The plaintiffs sought books and records about Gilead’s (1) anticompetitive agreements, (2) policies and procedures, (3) senior management materials, (4) communications with the government, and (5) director questionnaires. Gilead refused to produce any documents, even though the plaintiffs had a credible basis to suspect wrongdoing and the records they sought related directly to the misconduct. The Court of Chancery found that “Gilead exemplified the trend of overly aggressive litigation strategies by blocking legitimate discovery, misrepresenting the record, and taking positions for no apparent purpose other than obstructing the exercise of Plaintiffs’ statutory rights.” The Court, therefore, granted plaintiffs leave to move for fee shifting. More ›
Delaware Supreme Court Finds that Court of Chancery Had Jurisdiction To Enjoin a Collateral Attack on a Prior Arbitration Award Under the Federal Arbitration Act
Gulf LNG Energy, LLC v. ENI USA Gas Mktg., LLC, No. 22, 2020 (Del. Nov. 17, 2020)
This decision confirms that the Court of Chancery has jurisdiction to enjoin a collateral attack on a prior arbitration award. The Delaware Supreme Court also reasons that the determination of whether a second arbitration collaterally attacks a prior arbitration does not depend on the res judicata or collateral estoppel effect of claims raised or decided in the prior arbitration, but rather whether the claimant asserts irregularities in the prior arbitration or seeks to rectify the harm it suffered, which are issues subject to exclusive review under the post-award procedure in the Federal Arbitration Act (“FAA”). More ›
ShareChancery Dismisses Defendants From Action Against Their Own Wishes, Describing the Matter as an “Erewhon-like” Inversion of the Parties’ Typical Positions
Stimwave Technologies Inc. v. Laura Tyler Perryman, C.A. No. 2019-1003-SG (Del. Ch. Nov. 17, 2020)
Under Court of Chancery Rule 41(a), a Delaware plaintiff may voluntarily dismiss its own complaint without prejudice, provided that (i) the defendant has not yet filed an answer; (ii) the defendant has not yet filed a motion for summary judgment; and (iii) the defendant has not filed a motion to dismiss which has been answered by the plaintiff. In accordance with the abovementioned standards, where a defendant (1) files a motion to dismiss, and (2) the plaintiff thereafter submits an answering brief in opposition to that motion, the plaintiff may no longer voluntarily dismiss the action while that motion is pending. More ›
