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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 148 posts from 2021.
Chancery Orders Specific Performance of Deal, Despite Lack of Debt Financing, Finding that COVID-Related Business Decline Was Not an MAE and Seller’s Cost-Cutting Efforts Were Not Breaches of the “Ordinary Course” Covenant
Snow Phipps Grp., LLC v. KCake Acquisition, Inc., 2020-0282-KSJM (Del. Ch. Apr. 30, 2021)
In Snow Phipps, the Court of Chancery refused to allow a private equity buyer with pandemic-related cold feet to back out of its bargained for agreement to purchase DecoPac, a cake decorating company. In ordering specific performance, the Court found: (1) the durationally insignificant COVID-related business decline did not constitute a material adverse effect (“MAE”); (2) the seller had not violated any of its covenants to operate in the ordinary course by attempting to mitigate business losses; and (3) the condition to closing that the buyer secure debt financing was excused under the prevention doctrine, because the buyer’s actions caused the condition not to be satisfied. More ›
Chancery Declines to Enforce Forum Selection Provision Actively Hidden From Defendant During Transaction
UBEO Holdings, LLC et al. v. Drakulic, C.A. No. 2020-0669-KSJM (Del. Ch. Apr. 30, 2021)
Generally, Delaware courts will enforce the terms an executed agreement, even against a party claiming not to have read the terms before signing. This rule applies with full force to forum selection provisions in which a contracting party consents to jurisdiction in a particular forum. As this case shows, however, rare exceptions exist. More ›
Implied Covenant of Good Faith and Fair Dealing Saves Employee’s Claim for Improper Termination Under Company’s LLC Agreement
Smith v. Scott, C.A. No. 2020-0263-JRS (Del. Ch. Apr. 23, 2021)
The Delaware LLC Act provides that fiduciary duties may be expanded or limited by the provisions of an LLC agreement. If the agreement is silent, then traditional corporate fiduciary duties apply. However, if the agreement unambiguously disclaims fiduciary duties, then the only duties that exist are those specified contractually in the LLC agreement and the implied covenant of good faith and fair dealing. More ›
Chancery Shifts Attorneys’ Fees, Reasoning Perjury Is Bad Faith Per Se
Lyons Ins. Agency Inc. v. Wilson, C.A. No. 2017-0092-SG (Del. Ch. Apr. 29, 2021).
In this action, the Court of Chancery noted that it heard “perhaps the most cogent, and certainly the briefest, argument for fee shifting under the bad faith exception I have been privileged to hear: ‘perjury is bad faith.’” Plaintiff Lyons Insurance Agency Inc. (“Lyons”) sued its former employee Howard Wilson, an insurance broker, for breach of the non-compete in his employment contract. At a hearing for a preliminary injunction, Wilson testified that he needed to follow his clients to another firm because he could not entice them to stay at Lyons. Throughout the litigation, he maintained that he had not intended to rob Lyons of business. But, before a damages hearing, Wilson submitted an affidavit repudiating his earlier testimony. At the damages hearing, he testified that he conspired with the other firm to breach his employment agreement, recanting his earlier testimony. More ›
Chancery Refuses to Enforce Alleged Contractual Rights Not Obtained at the “Negotiating Table”
Obsidian Fin. Grp., LLC v. Identity Theft Guard Solutions, Inc., C.A. No: 2020-0485-JRS (Del. Ch. Apr. 22, 2021)
Delaware is “more contractarian” than many other jurisdictions. Accordingly, as this case illustrates, a court applying Delaware law will respect parties’ contractual choices and will not enforce alleged contractual rights not reflected in the plain language of the agreement. More ›
Chancery Discharges Custodian in TransPerfect Litigation, Denies Contempt Motion, and Rules on Fee Dispute
In re: TransPerfect Global, Inc., C.A. No. 9700-CB (Del. Ch. Apr. 14, 2021) Elting v. Shawe, C.A. No. 10449-CB (Del. Ch. Apr. 14, 2021)
In re: TransPerfect Global, Inc., C.A. No. 9700-CB (Del. Ch. Apr. 14, 2021) Elting v. Shawe, C.A. No. 10449-CB (Del. Ch. Apr. 14, 2021)
In re: TransPerfect Global, Inc., C.A. No. 9700-CB (Del. Ch. Apr. 30, 2021) Elting v. Shawe, C.A. No. 10449-CB (Del. Ch. Apr. 30, 2021)
After seven years of multi-jurisdictional litigation stemming from an irreconcilable deadlock among the three stockholders of a profitable company, TransPerfect Global, Inc. (“TransPerfect”), the Court of Chancery discharged the court-appointed custodian of TransPerfect and denied a motion for contempt and sanctions against TransPerfect and its owner Philip Shawe. The Court subsequently granted the custodian’s fee petitions in the amount of approximately $3.2 million. More ›
Chancery Finds Subject Matter Jurisdiction for Case Seeking Specific Performance of a Non-Disclosure Agreement
Endowment Research Grp., LLC v. Wildcat Venture Partners, LLC, C.A. No. 2019-0627-KSJM (Del. Ch. Mar. 5, 2021)
The Court of Chancery may have subject matter jurisdiction if one or more of plaintiff’s claims are equitable in nature, the plaintiff requests equitable relief or a statute confers subject matter jurisdiction. In determining whether a plaintiff seeks equitable relief, the Court looks beyond what the plaintiff nominally seeks and instead assesses whether a legal remedy is available and fully adequate. At issue here was plaintiff’s request for specific performance of a non-disclosure agreement. The Court denied a defendant’s motion to dismiss for lack of subject matter jurisdiction because, inter alia, claims for breach of confidentiality and non-disclosure agreements lend themselves to equitable remedies, the value of the confidential information would be difficult to quantify and the breach would continue indefinitely without equitable relief. The Court noted as well that the parties stipulated in the non-disclosure agreement that a breach of the agreement would cause irreparable harm, and that money damages are not an adequate remedy. The defendant failed to show that the pleaded facts plainly established that this statement was untrue.
Chancery Holds that Plaintiff Cannot Recover Cash It Mistakenly Failed to Sweep from its Former Subsidiary’s Account Prior to Closing
Deluxe Entm’t Servs. Inc. v. DLX Acquisition Corp., C.A. No. 2020-0618-MTZ (Del. Ch. Mar. 29, 2021)
Delaware adheres to the objective theory of contracts and enforces the parties’ intentions as reflected in the four corners of an agreement. This is particularly true for sophisticated parties, whom Delaware law presumes are bound by the terms they negotiated. In this case, the plaintiff and defendant entered into an agreement where the plaintiff sold all of the outstanding shares of one of its subsidiaries to the defendant. Plaintiff alleged that, prior to the sale, it failed to sweep funds from the subsidiary’s bank accounts to which it was entitled under the purchase agreement. The Court rejected that claim in granting the defendant’s motion for judgment on the pleadings, in part because the agreement required the transfer of all assets except those explicitly excluded. The disputed cash neither was explicitly excluded, nor was it identified as among the wrongfully transferred assets the agreement required to be returned under a “wrong pocket” provision. Similarly, the Court rejected a claim for breach of the implied covenant of good faith and fair dealing because the parties’ agreement included a provision regarding an unintended asset transfer that did not address the disputed cash. Plaintiff’s alternative argument seeking reformation failed as well because plaintiff failed to plead with particularity mutual or unilateral mistake.
Chancery Finds It Reasonably Conceivable that Judicial Dissolution May Be Warranted When LLC’s Deadlock Provision Failed
Seokoh, Inc. v. Lard-PT, LLC, C.A. No. 2020-0613-JRS (Del. Ch. Mar. 30, 2021)
On application from a member or manager of an LLC, the Court of Chancery may dissolve an LLC whenever it is not reasonably practicable for the LLC to carry on the business in conformity with the LLC agreement. Several factors may suggest a lack of reasonable practicability, including that the members are deadlocked at the board level, the operating agreement gives no means for navigating around the deadlock, and due to the financial conditions of the LLC, there is effectively no business to operate. In this case, the Court held that the petitioner adequately pled board deadlock and ongoing negative financial performance due to the parties’ inability to agree. In rejecting the respondent’s argument that the parties’ “I cut; you choose” deadlock procedure precluded a judicial decree of dissolution, based on the pleaded facts, the Court found that it was reasonably conceivable that the deadlock procedure had broken down irretrievably. Because the contractual procedure did not mandate a price, pricing formula, or a closing timeline and the plaintiff adequately alleged that the parties were not dealing with each other in good faith and in a commercially reasonable manner, it was reasonably conceivable that judicial dissolution might be warranted. The Court therefore denied the respondent’s motion to dismiss.
Chancery Rules Corporation Cannot Offset Wife’s Recoupment Against Husband’s Advancement Simply Because the Pair Signed a Single Undertaking
Perryman v. Stimwave Tech. Inc., C.A. 2020-0079-SG (Del. Ch. Apr. 15, 2021)
Section 145 of DGCL permits corporations to grant advancement rights to persons who may be entitled to indemnification so that they may fund covered litigation costs pending indemnification. As part of this right, the DGCL also requires these individuals to undertake to repay the corporation if the advanced expenses ultimately prove not to be indemnifiable. In this case, the Court clarifies that two individuals who are married and execute the same undertaking nonetheless retain their individual rights to advancement and separate obligations for repaying any non-indemnifiable expenses. More ›
Court of Chancery Stays Action for Violation of Rule against Claim Splitting Pending Resolution of a Duplicative Federal Action
Goureau v. Lemonis, C.A. No. 2020-0486-MTZ (Del. Ch. Mar. 30, 2021)
Delaware follows the modern “transactional” view of claim splitting, which bars a plaintiff from bringing duplicative proceedings in different courts simultaneously based on different causes of action arising from the same transaction or from a common nucleus of operative facts. The rule against claim splitting is intended to avoid burdening defendants with the defense of duplicative suits in different courts, and to prevent a plaintiff from obtaining “two bites at the apple” or a potential double recovery. A plaintiff who violates this rule may face dismissal or a stay pending resolution of the duplicative action. More ›
Chancery Confirms the Challenges in Pleading Caremark and Non-Shareholder Action Disclosure Claims
Fisher v. Sanborn, C.A. No. 2019-0631-AGB (Del. Ch. Mar. 30, 2021)
Under Court of Chancery Rule 23.1, a plaintiff attempting to bring a derivative action on behalf of a corporation faces a heightened “particularized” pleading standard. This pleading challenge is compounded when a plaintiff attempts to bring a Caremark failure of oversight claim – “possibly the most difficult theory in corporate law.” Similarly, a plaintiff alleging false or misleading disclosures not made in connection with soliciting shareholder action faces the additional pleading challenge of demonstrating that those disclosures were knowing or deliberate. More ›
Chancery Dismisses Unripe Contribution Claim but Finds That Corporate Director and Officer Adequately Pled Right to Indemnification Following Merger
Wunderlich v. B. Riley Fin., Inc. et al., C.A. No: 2020-0453-PAF (Del. Ch. Mar. 24, 2021)
Delaware corporations may provide indemnification rights to their directors and officers either through the corporation’s organizational documents or by separate agreements. This case concerned the survival and scope of these rights following a merger. More ›
Chancery Lacks Jurisdiction to Grant Injunction While Superior Court Appeal Is Pending
Vama F.Z. Co. v. WS02, Inc., C.A. No. 2020-0141-JRS (Del. Ch. Mar. 29, 2021)
This case illustrates that the Court of Chancery lacks subject matter jurisdiction to issue an injunction pending appeal of another court’s rulings, and where the plaintiff has adequate remedies at law. More ›
Superior Court Holds that a Partial Motion to Dismiss Tolls the Answering Deadline for Both Challenged and Unchallenged Claims
Unbound Partners Ltd. P’ship v. Invoy Holdings Inc., C.A. No. N20C-09-302 PRW CCLD (Del. Super. Mar. 17, 2021)
In the Delaware Superior Court, a defendant does not concede or default on, and is not required to answer, unchallenged claims in a complaint subject to a partial motion to dismiss during the pendency of the motion to dismiss. More ›
