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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 546 posts by Albert J. Carroll.
Chancery Finds LLC Managers Liable for Self-Dealing Scheme Depleting Nearly All Investment Capital
Stone & Paper Investors, LLC v. Blanch, C.A. No. 2018-0394-PAF (Del. Ch. July 30, 2021)
This post-trial opinion involves a particularly egregious set of facts. Two LLC managers were accused of breaching their contractual and fiduciary duties and of fraudulently inducing the plaintiff, Stone & Paper, to invest $3.5 million in the company, Clovis Holdings, in connection with a series of self-dealing transactions wherein the managers paid themselves large sums of money in the form of salary and purported “loans” without receiving the required approvals for interested transactions. More ›
Chancery Dismisses Claims Relating to Proposed Financing of Italian Soccer Club
Feldman v. AS Roma SPV GP, LLC, C.A. No. 2020-0314-PAF (Del. Ch. July 22, 2021)
In Feldman, plaintiffs were minority members of a Delaware limited liability company that held a controlling interest in a premier Italian soccer club. The LLC’s managing member and its controllers and associated entities sought to exit their control investment in the club. A sales process stalled during the coronavirus pandemic. The controllers called for additional capital from existing members on a pro rata basis, either through new financing or conversion of debt, in exchange for units with priority status and liquidation preferences. The controllers approved a related amendment to the LLC agreement. Due to insufficient interest from members, the controllers instead proposed a financing transaction that included member loans with certain preferences, such as premium payments in the event of the company’s sale. Eighty percent of membership interests participated in the loans. Soon after, a sale of the club was announced. More ›
Chancery Addresses Whether LLC Agreement Modified or Eliminated Fiduciary Duties
In Re Cadira Group Holdings, LLC Litigation, Consolidated C.A. No. 2018-0616-JRS (Del. Ch. July 12, 2021)
The Delaware Limited Liability Company Act provides that “the fiduciary duties of a member, manager, or other person that is a party to or bound by a limited liability company agreement may be expanded or restricted or eliminated by provisions in the limited liability company agreement.” Yet to eliminate fiduciary duties, Delaware law requires that the intent to do so must be “plain and unambiguous.” More ›
Chancery Upholds Well-Pled Claims Relating to Former Fiduciaries’ Retention of Derivative Arbitration Award
Optimiscorp v. Atkins, C.A. No. 2020-0183-MTZ (Del. Ch. July 15, 2021)
In Optimiscorp, the Court upheld claims against former directors and officers of plaintiff Optimiscorp arising out of the defendants’ failure to turn over to the company an approximately $7 million derivative arbitration award. As part of a long-standing and acrimonious legal battle between warring factions of the company’s board of directors, defendants previously had brought a lawsuit in Delaware on behalf of the company asserting that the company’s sitting directors and former outside counsel had breached their fiduciary duties and engaged in legal malpractice. Stipulating to dismissal of the Delaware complaint, the parties pursued the matter in arbitration and the arbitrator ultimately found the outside counsel liable, issued an award, and ordered the payment of attorneys’ fees and costs. The financially struggling company received notice of the award and proceeded to make strategic business decisions in expectation of receiving the funds. However, asserting that certain shareholders who were accused of wrongdoing were not entitled to a pro rata portion of the award, the defendants declined to turn the award over to the company. As a result, the company was forced to take out short-term loans with unfavorable terms and faced other negative consequences. More ›
Chancery Finds Change in Product’s Medicare Reimbursement Rate Was Not A Material Adverse Effect Excusing Buyer From Closing
Bardy Diagnostics, Inc. v. Hill-Rom, Inc. C.A. No. 2021-0175-JRS (Del. Ch. Jul. 9, 2021)
Bardy manufactures a patch that measures heart rate. Its reimbursement rate for the patch had for years been set around $365 per patch. When Hill-Rom acquired Bardy in early January 2021, the parties understood that this reimbursement rate might change, and prior to closing had built an earnout provision into their merger agreement to address this risk. The parties also included a Material Adverse Effect clause, giving Hill-Rom the ability to walk from the deal for any development that could “reasonably be expected to have a material adverse effect on … the Business of [Bardy] taken as a whole.” Yet any industry-wide change in the industries or markets in which Bardy operated, or any change in any “Health Care Law” would not constitute an MAE, unless such development had a “materially disproportionate impact on [Bardy] as compared to other similarly situated companies ….” More ›
Chancery Finds That the Standard of Review for the Conduct of a Shareholders’ Representative Turns Upon the Merger Agreement’s Language
Houseman v. Sagerman, C.A. No. 8897-VCG (Del. Ch. July 20, 2021)
A merger agreement between a subsidiary of Healthport Technologies, LLC and Universata, Inc., gave the owners of 72 percent of Universata’s stock (the “Owners”) the power to appoint a Shareholders’ Representative. Among other responsibilities, the Shareholders’ Representative was charged with “disbursing among the Shareholders the cash portion of the Purchase Price and any other payments paid to Shareholders under this Agreement.” More ›
Chancery Addresses Claims Arising Out of LLC Dispute Involving Parallel Venture
Largo Legacy Group, LLC v. Evens Charles, C.A. No. 2020-0105-MTZ (Del. Ch. June 30, 2021)
In this LLC dispute, an investor in a hotel development company alleged that the company principals breached the operating agreement and their fiduciary duties by implementing a fraudulent scheme whereby a parallel venture, that they owned and controlled, was provided with certain adjacent land and company funds in a manner that improperly advantaged the parallel venture and the principals while harming the plaintiff. The plaintiff also alleged that the defendants had breached their fiduciary and contractual duties by refusing to provide it with financial information that it was entitled to under the operating agreement. The defendants moved to dismiss. The Court of Chancery, finding, as an initial matter, that laches did not block the claims, held that while plaintiff had failed to plead its fraud claim with adequate particularity, it had properly pled both its breach of fiduciary duty claim in connection with the alleged scheme and its breach of contract claim in connection with the company’s refusal to provide certain financial information. In addition to dismissing the fraud claim, the Court also dismissed plaintiff’s duplicative breach of fiduciary duty claim relating to the withheld financial information. More ›
Clean-Up Doctrine to Adjudicate Legal Claims in Chancery May Take Precedence Over Request for Jury Trial
Firststring Research, Inc. v. JSS Medical Research Inc., C.A. No. 2020-0332-KSJM (Del. Ch. May 28, 2021)
Delaware has not merged its courts of law and equity, which may have implications for a litigant seeking a jury trial. When a counterclaim-plaintiff seeks a jury trial for a claim otherwise within the subject-matter jurisdiction of the Court of Chancery, application of the clean-up doctrine might justify retaining the counterclaims in Chancery and forgoing jury-trial rights. More ›
Superior Court Examines Choice of Law Principles For Mixed Contractual and Non-Contractual Claims
Arkray America, Inc. v. Navigator Business Solutions, Inc., C.A. No. N20C-12-012 MMJ [CCLD] (Del. Super. June 9, 2021)
Arkray, a Delaware corporation based in Minnesota, manufactures diabetes testing and management supplies. Arkray brought claims against Navigator, a provider of Enterprise Resource Planning software solutions based in Utah, and N’Ware, a provider of custom “add-on” software for warehouse management based in New Hampshire. Arkray had contracted with Navigator under a software and consulting services agreement (the “Agreement”), which provided that it “shall be governed by and construed under the laws of the State of Utah without reference to its conflicts of law principles.” Arkray contracted with N’Ware under a similar “License Agreement,” which provided that it “shall be governed by and construed in accordance with the laws of the State of Delaware, United States of America, without reference to its conflicts of laws principles.” More ›
Delaware Supreme Court Explains Delaware’s Intermediate Forum Non Conveniens Standard Under Gramercy
GXP Capital, LLC v. Argonaut Manufacturing Services, Inc. et al., Nos. 247, 2020 and 248, 2020 (Del. May, 20, 2021)
Delaware has three standards for forum non conveniens motions. The two more commonly addressed are Cryo-Maid, which favors first-filed Delaware actions, and McWane, which favors first-filed litigation pending elsewhere. The third standard, Gramercy, consists of neutrally balancing the well-established forum non conveniens factors as between a later-filed Delaware action and another available forum. This decision clarifies Gramercy in the context of a Delaware action stayed in favor of an available alternate jurisdiction where no action was yet pending. More ›
Chancery Upholds Fiduciary Duty Claims Arising Out Of Deal Involving an Alleged Control Group That Included Non-Stockholders and a Sale Process Managed By a Disinterested and Independent Special Committee
In re Pattern Energy Grp. Inc. Stockholders Litig., C.A. No. 2020-0357-MTZ (Del. Ch. May 6, 2021)
This decision mostly denying a motion to dismiss examines several important issues in post-closing M&A fiduciary duty litigation relevant to stating a claim and overcoming an otherwise claim-cleansing stockholder vote under the Corwin doctrine. These include what it takes to adequately plead the existence of a control group, a fraud-on-the-board theory, a bad faith breach of fiduciary duty by admittedly disinterested and independent directors charged with managing a sale process and overseeing potential conflicts, and claims against individual officers. Core to the plaintiff’s well-pled complaint in this action were allegations that the committee and certain officers favored a buyer preferred by a private equity fund, which, among other things, formed the company, controlled its upstream supplier, and held significant contractual consent rights. More ›
Chancery Clarifies When Related Agreements Will Be Construed Together
Murphy Marine Services of Delaware, Inc. v. GT USA Wilmington, LLC (Del. Ch. May 28, 2021)
When interpreting a contract, Delaware courts generally stick to the four corners of the agreement at issue. One exception is when a contract is part of a set of inseparable agreements. In that situation, courts may construe all the agreements together as a whole. But, as seen here, the exception may not apply if the contract at issue independently effectuates the parties’ intent and does not expressly incorporate the other. 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 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 ›
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 ›