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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.
Delaware Supreme Court Explains the Ab Initio Requirement of MFW
Flood v. Synutra Int’l, Inc., C.A. No. 101, 2018 (Del. Oct. 9, 2018)
Under Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014), commonly referred to as MFW, a controller may gain the benefit of business judgment review when it conditions a transaction—from the outset (i.e., ab initio)—on two procedural protections. Those involve approval by (i) an independent special committee and (ii) a majority of the minority stockholders. The point of the timing requirement is that the controller disables its influence from the beginning, instead of using the option as a bargaining chip when negotiating economic terms. More ›
ShareCourt of Chancery Explains Anti-Suit Injunctions
Village Green Holding LLC v. Holtzman, C.A. No. 2018-0631-TMR (Del. Ch. Oct. 5, 2018)
This decision provides an excellent summary on Delaware law concerning when the Court will enjoin litigation in another jurisdiction to enforce a contract’s forum selection clause, as the Court did in this case. It also notes a potential trap for the unwary in situations where the clause selects only a court lacking jurisdiction to hear the dispute, rendering the forum selection invalid. That may occur for Delaware forum selection clauses when the Court of Chancery is the sole selected forum but cannot hear the dispute because of its limited subject matter jurisdiction. To avoid that problem, it would be best to identify an alternative within the jurisdiction, or accept any court within the jurisdiction.
ShareDelaware District Court Explains Tolling Based on Books and Records Inspection
Norman v. Elkin, C.A. No. 06-005-LPS (D. Del. Sept. 4, 2018)
Litigation seeking to inspect a corporation’s records under Section 220 of the DGCL might toll the statute of limitations for certain claims under the right circumstances. There are important limits to this form of tolling. For example, it is not automatic and will only apply to claims that are the subject of the inspection demand. This decision does a good job of explaining these limits and the factors a court will consider in determining whether inspection-based tolling should apply. It otherwise examines and applies the law on the statute of limitations and issues of inquiry notice.
ShareCourt of Chancery Addresses Contractual Fiduciary Duties, Secondary Liability, and Banker Liability in the MLP Context
Mesirov v. Enbridge Energy Company, C.A. No. 11314-VCS (Del. Ch. Aug. 29, 2018)
This is the latest decision in a long-running saga in the master limited partnership (MLP) context involving Enbridge Energy. The Court of Chancery had previously dismissed the complaint for failure to state a claim. The Delaware Supreme Court reversed that dismissal while providing important guidance on properly construing contractual fiduciary duties in the MLP context. The defendants moved to dismiss the amended complaint on remand. This is the Court of Chancery’s decision granting in part and denying in part that motion. More ›
ShareCourt of Chancery Addresses Confidentiality in Appraisal Context and Use of Discovery to Identify New Claims
In re Appraisal of Columbia Pipeline Group, Inc., C.A. No. 12736-VCL (Del. Ch. Aug. 30, 2018)
It is common and accepted practice for parties in Court of Chancery litigation to enter into a stipulated order governing the inevitable exchange of commercially-sensitive information during the discovery process. Those orders spell out how such information may or may not be disclosed, including in court filings, while adopting the standards and procedures reflected in the Court of Chancery rule on the topic, Rule 5.1. More ›
ShareCourt of Chancery Authorizes Use of Extrinsic Evidence to Construe Preferred Stock Rights
Stock preferences are in derogation of the common law and thus strictly construed. Any rights, preferences, and limitations of preferred stock that distinguish it from common stock must be expressly and clearly stated. But, as this decision explains, that does not mean that extrinsic evidence cannot be considered to construe ambiguous provisions. The decision also affirms that stockholder rights to inspect corporate records for a proper purpose cannot be taken away by a certificate of incorporation.
ShareCourt of Chancery Enforces Redemption Rights and Addresses the Potential Effect of a Merger on Previously-Exercised Put Rights
QC Holdings Inc. v. Allconnect Inc., C.A. No. 2017-0715-JTL (Del. Ch. Aug. 28, 2018)
This decision is necessary reading for drafters of redemption rights. It involves the interpretation of a redemption rights agreement granting a stockholder the right to force the company to buy back its shares and some interplay between those put rights and the DGCL in the event of a merger. More ›
ShareCourt of Chancery Addresses Discovery Obligations Regarding Text Messages
In re Appraisal of Kate Spade Company, C.A. No. 2017-0714-AGB (Del. Ch. June 21, 2018)
The duty to collect and produce non-privileged relevant information extends beyond email to text messages and other forms of electronic communications. Standard practice in Delaware involves at least inquiring of custodians the extent to which they used text messages to engage in substantive communications on potentially relevant topics and to collect text message data when they answer affirmatively, absent an agreement to contrary between the parties. This bench ruling addresses that practice and reflects the Chancellor’s view that text messages often may be a critical source of information.
ShareCourt of Chancery Validates Cure of Defective Corporate Acts Affecting Herman Miller’s Acquisition of DWR
Charles Almond Trustee v. Glenhill Advisors LLC, C.A. No. 10477-CB (Del. Ch. Aug. 17, 2018)
Sections 204 and 205 of the DGCL permit corporations to cure and validate defective corporate acts under the right circumstances. This is another decision explaining when the Court will validate an attempted cure under Section 204. The opinion explains, among other things, that there is no set time limit to seek validation of a cure under Section 205. It further explains what sort of defective acts may be addressed in Section 205 proceedings. More ›
ShareCourt of Chancery Enforces Agreement to Use Independent Auditor
Enterprise Holdings Inc. v. Rolen Stockholder Representative LLC, C.A. No. 2017-0422-AGB (Del. Ch. June 27, 2018)
Merger agreements sometimes provide for post-merger purchase price adjustments to be made by an independent accounting firm. This is another decision, in the form of a bench ruling, where the Court of Chancery readily enforces such an agreement, albeit with some guidance to the accountant on what issues are for the accountant to decide and what issues must remain for the Court.
ShareCourt of Chancery Explains Need for Adequate Pre-Trial Expert Disclosures
Project Boat Holdings LLC v. Bass Pro Group LLC, C.A. No. 12606-VCS (Del. Ch. Aug. 10, 2018)
Court rules require pre-trial disclosures regarding testifying experts and the subjects they will opine on. Adequate disclosure is a prerequisite to admissibility. Insufficient disclosure could result in the Court disallowing or striking expert trial testimony. This decision explains the type of disclosures that are sufficient and those that are deficient, granting in part and denying in part a motion to strike.
ShareCourt of Chancery Reviews Post-Closing Payments
Fortis Advisors LLC v. Stora Enso AB, C.A. No. 12291-VCS (Del. Ch. Aug. 10, 2018)
Many merger agreements provide for additional payments after closing depending on the target’s performance. This decision examines certain language controlling the buyer’s obligations to achieve the post-closing milestones. The relevant language was subject to more than one reasonable construction, thus ambiguous, and extrinsic evidence would be necessary to resolve the dispute. Accordingly, the Court denied the buyer’s motion to dismiss.
ShareCourt of Chancery Awards Fair Value to Forced-Out LLC Member
Domain Associates LLC v. Shah, C.A. No. 12921-VCL (Del. Ch. Aug. 13, 2018)
An LLC agreement may provide what payout a departing member receives for his or her interest. It also may provide that a member may be forced to withdraw by his or her other members. This decision addresses what should happen when an LLC agreement provides for a forced withdrawal but is silent on the issue of the payout. Adopting the reasoning of a prior Delaware decision in the limited partnership context, the Court holds the forced-out member should receive the same sort of “fair value” awarded in stock appraisal cases. This is another example of how rules of law or equity may fill in gaps in LLC agreements and why such agreements must be drafted carefully.
ShareCourt of Chancery Explains Investment Bankers’ Discovery Obligations
Cumming v. Edens, C.A. No. 13007-VCS (Del. Ch. July 12, 2018)
This transcript ruling makes two important points about discovery obligations in the Court of Chancery. First, blanket form objections to document requests amount to a waiver of otherwise valid objections. Objections to scope and burden and the like need to be spelled out specifically with supporting facts. Second, investment bankers, even as third parties to a litigation, generally will not get far with objecting to requests on the basis of burden. Given their role in many transactions, they are front and center, house a lot of critically relevant information, and have been paid well enough to cover the expenses associated with production. In short, they are not your typical third party who may be given some more leeway when it comes to discovery burdens.
ShareCourt of Chancery Addresses Contract Formation
This drama arises from a dispute involving the Curran Theatre in San Francisco. The decision mostly deals with when alleged conversations are not enough to constitute an enforceable contract, exhaustively reviewing the applicable law. Basically, if you want to enforce a promise, reduce it to a writing including all essential terms. Contemporaneous evidence of a sufficiently detailed promise is a potential fallback, but conflicting testimony about vague terms is not. More ›
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