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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.
Court Of Chancery Explains Contract Interpretation Rules
iBio Inc. v. Fraunhoffer USA Inc., C.A. 10256-VCMR (July 29, 2016)
This is an excellent primer on the rules that guide the proper interpretation of a contract. While the rules it applies are taught to first year law students, they are too often forgotten by those of us long out of school.
ShareCourt Of Chancery Applies Business Judgment Rule After Majority Tender Shares
In Re Volcano Corp. Stockholder Litigation, C.A. 10485-VCMR (June 30, 2016)
In what might be one of the most important decisions this year, the Court held that the tender of their shares by a majority of the stockholders invokes an “irrebuttable” presumption that the business judgment rule applies and, as a result, the complaint generally must be dismissed. This extends the Delaware Supreme Court’s Corwin decision to the tender offer context. While the tender offer aspect of this case will get the most notice, the concept of an “irrebuttable” business judgment rule may prove to be more important. For when that form of the business judgment rule applies, only facts demonstrating waste will let a complaint survive a motion to dismiss. Of course, waste is almost impossible to successfully allege under Delaware law.
ShareCourt Of Chancery Dismisses Previously Dismissed Case
What happens when a derivative claim is filed outside of Delaware and then is dismissed by that other court? Well even if the other complaint might have stood up in Delaware, the subsequently filed Delaware case will also be dismissed when the law of the state where the case was dismissed gives preclusive affect to such a dismissal. This result again shows that Delaware is respectful of other jurisdictions and that Delaware litigation may be threatened by bad filings elsewhere.
ShareCourt of Chancery Explains How To Apply Multiple Advancement Rights
Narayanan v. Sutherland Global Holdings Inc., C.A. 11757-VCMR (July 5, 2016)
This detailed decision explains how to interpret multiple sources, such as bylaws and contracts, to determine any conditions to the right to have attorney fees advanced. Absent some provision that ties each source together, each acts as an independent right to advancement. Thus, a condition imposed by one source is not a condition to advancement under an independent source of that right.
ShareCourt Of Chancery Requires SLC Member Be A “Director”
Obeid v. Hogan, C.A. 11900-VCL (June 10, 2016)
Under the famous Zapata decision, a board of directors may take control of a derivative case, provided it meets the test set out in that opinion. But may such a board, or the managers in an LLC, delegate that authority to a non-member? This decision says that delegation is not appropriate for an LLC with a management structure similar to a corporation or in an LLC that limits the delegation authority of it member-managers.
ShareCourt Of Chancery Lets New Board Review Complaint
Normally it is the board in place at the time the derivative suit is filed that is evaluated to determine if demand is excused. However, when a plaintiff rushes to file knowing that the board is about to change so that its composition will not permit demand to be excused, the new board will be the board whose independence is considered. This prevents gun jumping.
ShareCourt Of Chancery Explains When Merger Price Not Is The Appraised Value
In Re: Appraisal of Dell Inc., C.A. 9322-VCL (May 31, 2016)
This decision explains when a price in a management lead buy out that is close to a merger price set after a shopping of a company may still not be the “fair value” required by Delaware appraisal law. Thus, it is a good review of the more-recent decisions that have accepted a merger price as fair value when that price was the product of a competitive process. In short, the facts really matter and management lead buy outs will have a hard time doing almost any deal that will be adequate to establish an appraisal value.
ShareCourt Of Chancery Enjoins Board Reduction Plan Prior To Director-Election
Pell v. Kill, C.A. 12251-VCL (May 19, 2016)
This is an excellent review of the law governing when the Court will enjoin board action that affects the ability of stockholders to elect directors. Such interference must: (1) be for a proper motive, (2) not be preclusive, and (3) have a compelling justification in the method chosen. Downsizing the board just before an election in the face of a proxy contest over one class of directors does not pass this test, even if done for a proper, unselfish purpose. The bottom line is that incumbent directors cannot determine the outcome of an election contest for the stockholders.
ShareCourt of Chancery Explains Bad Faith Test
In Re Chelsea Therapeutics International Ltd. Stockholders Litigation, C.A. 9640-VCG (May 20, 2016)
This decision deals with when the actions of directors may be considered to be in bad faith, at least when there is no self-interest involved and the directors are properly informed before taking the time to decide what to do. The short answer is that the “too stupid to be in good faith” test applies to see if their decision is in bad faith.
ShareCourt Of Chancery Closes The Door Left Open By Pyott And Applies Preclusion To Derivative Suit
In re Wal-Mart Stores Inc. Delaware Derivative Litigation, C.A. 7455-CB (May 13, 2016)
Delaware does hold that the dismissal of a derivative suit in another jurisdiction may preclude the prosecution of a similar derivative suit in Delaware. However, the Pyott decision left open the question of whether the failure of the plaintiff in the dismissed suit to have first sought production of the company’s records to strengthen the complaint might be deemed so “grossly deficient” as to warrant denying preclusion of the second suit that did seek those records. This decision answers that question by holding that the failure to seek corporate records alone is not so bad that preclusion should be denied. An appeal is sure to follow.
ShareCourt Of Chancery Explains When To Not Enjoin Arbitration
Angus v. Ajio LLC, C.A. 11895-VCG (May 13, 2016)
This is another in a line of decisions that explains when the issue of arbitrability should be sent to the arbitrator to decide. When the familiar tests are applied that favor letting the arbitrator decide that issue, only a strong argument for not sending the issue to arbitration will avoid doing so.
ShareSuperior Court Dismisses Warranty Of Accuracy Claim
This decision holds that Delaware does not recognize a claim for the implied warranty of accuracy for a report of an inspection company. Of course, that does not mean there is no breach of contract claim for inspection services. The problem in such matters is that the contract often contains a limitation of damages clause that a clever plaintiff may try to avoid, but not this time.
ShareCourt Of Chancery Enforces Nearly Ironclad Safe Harbor For Conflict Transactions Involving Alternative Entity
This is an important decision because it enforces a nearly ironclad protection against any attack on the decision of a special committee to approve a conflict transaction for a LLP and an LLC. More ›
ShareCourt Of Chancery Resolves Appraisal Voting Requirement
In re Appraisal of Dell Inc., C.A. 9322-VCL (May 11, 2106)
It is well understood that to be entitled to the appraisal of your stock you need to not vote for the merger. However, in the complex world of how shares are held by beneficiaries and depositories, it is easy to overlook the importance of this requirement. This decision provides an excellent review of how shares are held and actually voted and reveals how it is now possible in many instances to determine how a beneficial owner’s stock was actually voted. The petitioners thought they had instructed the record holder to object to the merger. They were wrong. An intermediary failed to have the vote cast against the merger due to a communication error. The result was that the Court denied the petitioners' appraisal rights.
ShareCourt Of Chancery Denies Second Chance To New Derivative Plaintiff
Binning v. Gursahaney, C.A. 10586-VCMR (May 6, 2016)
This decision illustrates the importance of putting your best foot forward in derivative litigation. Here, a different plaintiff had his complaint dismissed for failure to satisfy the demand excused rules. When this plaintiff tried to overcome that precedent with some additional allegations, he found the going too tough even if the Court did not apply stare decisis. The Court of Chancery is usually very consistent in its analysis even where different judges are involved in different but related matters. Hence, when multiple suits are filed over the same alleged grievance, attacking the weakest complaint may bear extra dividends.
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