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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 116 posts from 2022.
Chancery Upholds Claims Against Controller’s Family Member
In re Straight Path Communications Inc. Consol. Stockholder Litig., C.A. No. 2017-0486-SG (Del. Ch. Feb. 17, 2022)
This summary judgment decision arose out of a transaction involving the company Straight Path. Straight Path’s controller had sold company assets to another company controlled by his family, IDT, for an allegedly inadequate price. One of the assets was an indemnification claim against IDT, which used to be Straight Path’s parent company, for indemnification rights arising following Straight Path’s spin-off. Straight Path thereafter was sold to Verizon, eliminating derivative standing for the company’s stockholders to challenge derivatively the asset sale to IDT. Straight Path’s controller allegedly leveraged his control to wrest that indemnification claim from the company’s stockholders prior to the Verizon transaction. Stockholders brought direct claims against the family members and an affiliated trust in this action. Their claims previously survived dismissal, and in this decision their claims survived summary judgment. More ›
Chancery Upholds Claim for the Appointment of a Receiver
Zaslansky v. FZ Holdings, C.A. No. 2021-0168-KSJM (Del. Ch. Feb. 8, 2022)
This order denying a motion to dismiss addresses the circumstances in which the Court of Chancery may appoint a receiver for an allegedly insolvent corporation under 8 Del. C. § 291. In determining whether to grant a petition to appoint a receiver for an insolvent corporation, the Court must determine whether the corporation is insolvent and whether the appointment of a neutral third party is necessary to protect the insolvent corporation’s creditors or shareholders. Here, the company had negative income, the petitioners alleged that the company commingled personal debt with company debt, and that the company selectively repaid some allegedly affiliated creditors without paying others, all making it reasonably conceivable that the facts may support a receiver appointment.
Court of Chancery Dismisses Thinly-Pleaded Breach of LPA Claim and Breach of Fiduciary Duty Claim Disclaimed by LPA and Foreclosed by Corwin
Ryan v. Buckeye Partners L.P. et al., C.A. No. 2021-0432-JRS (Del. Ch. Feb. 9, 2021)
Delaware is a notice pleading jurisdiction. But, even under this forgiving standard, the Court of Chancery Rule 8 still requires that the pleadings give defendants notice of the claims asserted against them. This recent decision from the Court of Chancery found that Plaintiff’s breach of a limited partnership agreement (“LPA”) claim failed to put Defendants on notice of even what provisions were allegedly breached. The Court also held that Plaintiff’s breach of fiduciary duty claims was deficient because the LPA disclaimed traditional fiduciary duties and, in all events, the claims were foreclosed by a fully informed vote under Corwin. More ›
Chancery Stays Case So That Committee of Company May Decide Whether It Has Power to Interpret Alternate Dispute Resolution Provision of Agreement
Terrell v. Kiromic Biopharma, Inc., C. A. No. 2021-0248-MTZ (Del. Ch. Jan. 20, 2022)
When an alternative dispute resolution (“ADR”) provision is an arbitration provision, presumptively the Court may consider the scope of the provision absent “clear and unmistakable” evidence to the contrary. When an ADR provision is not an arbitration provision, however, the Court applies contract interpretation principles to determine who – as between the Court or the person or body specified in the provision – may construe its scope. More ›
Chancery Dismisses All Claims in Stockholder Challenge to Cash-Out Merger Transaction
Harcum v. Lovoi, C.A. No. 2020-0398-PAF (Del. Ch. Jan. 3, 2022)
In Harcum, the Delaware Court of Chancery dismissed all claims brought in a stockholder suit alleging fiduciary breaches in connection with the $1 billion dollar acquisition of Roan Resources Inc. by Citizen Energy Operating, LLC. The Court found that the transaction was “cleansed” pursuant to Corwin v. KKR Financial Holdings LLC, 125 A.3d 304, 312 (Del. 2015), because the plaintiff failed to adequately plead that any alleged controllers were conflicted or that the transaction was not approved by an uncoerced, fully informed stockholder vote. More ›
Chancery Curtails Discovery in Appraisal Action Instituted as a Substitute for Books and Records Demand
Wei v. Zoox, Inc, C.A. No. 2020-1036-KSJM (Del. Ch. Jan. 31, 2022)
Often, stockholders who suspect corporate wrongdoing in connection with M&A transactions demand to inspect the company’s books and records under Section 220. But if, through no fault of the stockholder, the timing of a closing makes Section 220 relief more difficult to obtain, may the stockholder use Section 262, the appraisal statute, and its broader available discovery, to accomplish the same goal? In this case, the Court concludes that the answer is a qualified yes. That is, the stockholders are entitled to discovery in the appraisal proceeding. But if it appears the proceeding is just a means to investigate a potential class action for breach of fiduciary duties, the stockholder is entitled to discovery only to the limited extent it would have been available under Section 220, and not to the broader extent typically available under Section 262.
Chancery Rejects Argument that Omitted Information Prevents Corwin Dismissal
Galindo v. Stover, C.A. No. 2021-0031-SG (Del. Ch. Jan. 26, 2022)
If a majority of fully informed, uncoerced, disinterested stockholders vote to approve a merger not involving a conflicted controlling stockholder, then under the Corwin doctrine, the business judgment rule applies because the vote cleanses any breach of duty (except a claim for waste). In this decision, the Court of Chancery returns to what it means for the stockholder vote to be “informed.” More ›
Delaware Uniform Arbitration Act Did Not Permit the Court of Chancery to Confirm or Vacate an Interim Partial Arbitration Award Because It Was Not Final
Astrum Fund I GP, LP v. Maracci, C.A. No. 2020-0919-PAF (Del. Ch. Jan. 27, 2022) Maracci v. Astrum Fund I GP, LP, C.A. No. 2021-0073-PAF (Del. Ch. Jan. 27, 2022)
A limited partnership agreement’s dispute resolution framework mandated arbitration for certain disputes but contained a Delaware forum selection provision for the resolution of damages. Limited partners initiated arbitration proceedings against the partnership and its general partner after a real estate transaction resulted in the loss of their entire investment. The arbitrator issued an interim partial award (“IPA”) after finding that the general partner had breached the agreement and breached the general partner’s duty of care. The arbitrator did not issue a final award because of the agreement’s requirement that a Delaware court determines damages. More ›
Chancery Dismisses Action for Declaratory and Injunctive Relief for Lack of Subject Matter Jurisdiction on Grounds that the Proposed Declaratory Judgments Would Provide an Adequate Remedy at Law
Qlarant, Inc. v. IP Commercialization Labs, LLC, C.A. No. 2021-0574-MTZ (Del. Ch. Jan. 25, 2022)
Pursuant to an asset purchase agreement, the plaintiff buyer purchased assets from a seller and several of its affiliates. Despite another company asserting that it owned twenty percent of the seller, the agreement represented that the seller had only two individual shareholders. The company that claimed it was a shareholder filed an action in Maryland challenging the asset purchase transaction. In turn, the plaintiff buyer filed an action in the Court of Chancery seeking declaratory judgments that the company was not a shareholder of the seller at the time of the agreement and that the asset-purchase transaction had been validly consummated. The plaintiff also asked the Court to permanently enjoin the company from asserting it was a shareholder of the seller. More ›
Chancery Rejects Challenge to Director’s Appointment and Dismisses Derivative Claims
Simons v. Brookfield Asset Mgmt., Inc., C.A. No. 2020-0841-KSJM (Del. Ch. Jan. 21, 2022)
If a derivative plaintiff does not make a pre-suit demand on the board, then under Court of Chancery Rule 23.1, the plaintiff must allege particularized facts demonstrating that demand would have been futile because a majority of the board was incapable of impartially considering a litigation demand. More ›
CCLD Finds Claims for Pre-Litigation Breaches of Covenants Restricting Speech Exempt From the “Litigation Privilege”
Feenix Payment Sys. LLC v. Blum, C.A. No. 21-05-099 EMD CCLD (Del. Super. Jan. 25, 2021)
Under Delaware law, the litigation privilege prevents potential tort liability for statements that may be actionable (e.g., as defamation) where such statements were made in connection with a legal case. This case finds that the litigation privilege is not necessarily apt, however, to claims for breach of contract based on pre-litigation breaches of non-disparagement clauses or similar covenants. More ›
After Entry of Default Judgment, Chancery Grants Leave to Amend Complaint to Add a New Claim for Reverse Veil-Piercing Against Two New Defendants
P.C. Connection, Inc. v. Synygy Ltd., C.A. No. 2020-0869-JTL (Del. Ch. Jan. 10, 2022)
After entry of a default judgment for liability, but before entry of a judgment awarding relief, the Court of Chancery granted the plaintiff leave to amend the complaint to add a new claim for reverse veil-piercing against two new entity defendants under Court of Chancery Rule 15(a). The Court found that the liberal Rule 15(a) standard regarding amendments to complaints applied – rather than the relatively stringent requirements for setting aside a judgment under Rules 59 and 60 – because the Court had only entered judgment on liability and had not yet determined the appropriate relief, and thus, the judgment was not final. More ›
Court Of Chancery Affirms Arbitration Order And Denies Motion For Preliminary Injunction Based On The Preclusive Effect Of The Order
Agspring LLC v. NGP X US Holdings L.P., C.A. No. 2019-1021-JRS (Del. Ch. Jan. 19, 2022); Agspring LLC v. NGP X US Holdings L.P., C.A. No. 2019-0567-JRS (Del. Ch. Jan. 19, 2022)
Delaware follows the rule that an arbitrator’s award is “not lightly disturbed.” Accordingly, the applicable standard of review is “one of the narrowest standards of judicial review in all American jurisprudence.” To overturn an arbitrator’s order, a court must find that the arbitrator acted in “manifest disregard” of the law. More ›
Delaware Supreme Court Permits Substitution of Bankruptcy Trustee as Plaintiff to Resolve “Procedural Conundrum”
Lenois v. Lawal, No. 33, 2021 (Del. Dec. 9, 2021)
A company’s bankruptcy filing during an appeal of a dismissal of a derivative action presents questions of who, if anyone, has the standing to pursue the company’s potential claims. As this case shows, Delaware is loathe to permit such claims to abate merely because the procedural path forward is unclear. More ›
Non-Resident Asset Managers Found Not To Be “Acting Managers” Subject To Personal Jurisdiction Under Delaware LLC Act
Dlayal Holdings, Inc. v. Gracey, C.A. 2020-1070-LWW (Del. Ch. Dec. 27, 2021)
Under 6 Del. C. § 18-109(a), serving as the manager of a Delaware LLC constitutes consent to be served through the company’s registered agent for all Delaware proceedings “involving or relating to the [company’s] business ... or a violation by the manager ... of a duty” to the company or its members. By its terms, the statute applies not only to formal managers identified in the company’s governing documents but also to acting managers – that is, persons who “participate[] materially in the management” of the company. This case clarifies what constitutes material participation under § 18-109(a). More ›
