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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 Superior Court Clarifies When The Duty Of Acting In Good Faith Applies To Enforcement Of A Guarantee
Comvest Capital II, L.P. v Selkoe, C.A. N15C-08-110 JRJ CCLD (April 26, 2016)
This is a novel decision because it deals with when a guarantor can defend against enforcement of his guarantee by claiming the company whose obligations he guaranteed was wrongly put out of business by the plaintiff who is trying to enforce the guarantee. The Court held that there was a duty to act in good faith and fairly to permit that company to first fulfill its obligation to the guaranteed party, before it could enforce the guarantee against the guarantor. Whether this defense will win, of course, remains to be seen. However, the decision is a caution that it is important to not prejudice the ability of a party who has given a guarantee to have his guarantor pay off the debt..
ShareThe Court of Chancery Declines to Disturb Company’s “Waiver” of its Forum Selection Bylaw to Settle Derivative Action in California
Many Delaware companies have adopted forum selection bylaws that prevent their stockholders from bringing internal corporate claims in courts outside of Delaware. These bylaws are a valid and effective tool for limiting duplicative stockholder litigation filed in multiple jurisdictions. The Delaware courts have authorized their use and the Delaware General Assembly validated them under Section 115 of the Delaware General Corporation Law. Numerous other courts have also enforced Delaware forum selection bylaws.
Although these bylaws specify Delaware as the exclusive forum, they often permit the company to waive its right to Delaware as the exclusive forum and consent to a different venue. While even the seminal Delaware decision on forum selection bylaws, Boilermakers 154 Retirement Fund v. Chevron, 73 A.3d 934 (Del. Ch. 2013), approved of bylaws that permitted such a waiver, to our knowledge no court has addressed whether a company may properly waive its right to Delaware as the exclusive forum under a forum selection bylaw and consent to venue elsewhere. That is, until Niedermayer v. Kriegsman, C.A. No. 11800-VCMR (Del. Ch. May 2, 2016) (Montgomery-Reeves, V.C.). More ›
ShareCourt Of Chancery Explains What Is Required To Plead Bad Faith
Brinckerhoff v. Enbridge Energy Company Inc., C.A. 11314-VCS (April 29, 2016)
This is an interesting decision for at least two reasons. First, in it the new Vice Chancellor demonstrates that he is both well-versed in Delaware business entity law and fully capable of carrying out the Court of Chancery’s tradition of well-written, comprehensive decisions. Second, the decision explains what is required to adequately allege the bad faith sufficient to overcome an LLP’s exculpatory provisions for a conflicted transaction. In general, the use of a special negotiation committee, receipt of an adequate fairness opinion and use of independent counsel are sufficient to overcome mere allegations that a transaction was approved in bad faith. There is no need to also submit the transaction to a majority vote of the entity’s owners, at least when the entity is a limited partnership and when the LLP agreement does not require such a vote.
ShareCourt Of Chancery Dismisses Derivative Complaint for Want Of Factual Support
The Joseph Penar Family Trust v. Adams, C.A. 10441-VCG (April 28, 2016)
This is an interesting decision because it illustrates what many do not understand - a complaint has to have some actual facts to support its claims, not just inferences. Thus, when a plaintiff fails to use his rights to inspect an entity’s records to get out the facts, his general allegations of wrongdoing will not be enough to sustain a complaint.
ShareDelaware Supreme Court Limits Jurisdiction Over Registered Corporations
Genuine Parts Company v. Cepec, No. 528, 2015 (April 18, 2016)
Under Delaware law, an entity doing any business in Delaware must register to do so and thereby appoint a registered agent to receive process. For years this was held to confer general jurisdiction over that entity, even for claims that did not arise out of the business it did in Delaware. This decision reverses that old law and confines jurisdiction over non-Delaware entities to claims that arise out of what they have done in Delaware. Of course, there are still exceptions to that general rule, such as when an entity expressly agrees to jurisdiction in Delaware.
ShareCourt Of Chancery Explains Limits On Discovery In Advancement Case
Harrison v. Quivus Systems LLC, C.A. 12084-VCMR (April 7, 2016)
This is an interesting bench ruling because it illustrates the limits on discovery into the reasonableness of the fees sought in an advancement case. In general, that discovery will be postponed until after the Court determines there is a right to advancement.
ShareCourt Of Chancery Explains Demand Refused Rules
Friedman v. Maffei, C.A. 11105-VCMR (April 13, 2016)
This initial formal decision by the recently-appointed Vice Chancellor shows her firm commitment to the tradition of the Court of Chancery to produce well-written, scholarly opinions. Here the decision explains that after making a demand on a board to file suit and having that demand refused, a plaintiff must do more than plead the Board was wrong to deny the demand. Instead, the complaint must plead a factual basis for the Court to find the Board’s investigation was unreasonable or the Board acted in bad faith. While there are several ways to do just that, just arguing the board’s decision was bad is not one of those ways.
ShareCourt Of Chancery Again Explains Requirements For Ratification Defense
Larkin v. O’Connor, C.A. 11338-CB (Transcript) (March 22, 2016)
This is an interesting decision because it explains the requirements for stockholder ratification of grants under a stock option plan. The stockholders have to vote not just on the plan itself, but on the actual grants for ratification of those grants to occur. Merely mentioning the actual grants in the proxy statement without having a separate vote on those grants themselves is not sufficient to constitute ratification.
ShareCourt Of Chancery Explains Advancement Rights Of Seller Representative
Hyatt v. Al Jazeera America Holdings II, LLC, C.A. 11465-VCG (March 31, 2016)
This is an interesting advancement case as it applies the usual test of whether the former directors have been sued “by reason of the fact” they were directors in the context of suit against former owners’ representative for a merger agreement escrow account. Thus, it is a helpful precedent to apply that test. The court held that advancement would be required when the acts alleged involved acts the former directors took in their capacity as directors, even if the underlying suit was against them as former owner representatives. Thus it is the acts that lead to potential liability that count, not the capacity in which you are sued.
ShareCourt Of Chancery Upholds Limits Of Disclosure Obligation
Dieckman v. Regency GP LP, C.A. 11130-CB (March 29, 2016)
This is an interesting decision in the master limited partnership context because it shows how far a limited liability agreement may go to limit member rights to disclosures even in a conflicted deal. If the partnership agreement waives fiduciary duties and also states what disclosures are due to members asked to vote on a deal, then the specified disclosures are what they get, nothing more. Here the agreement stated that the members were to receive just the merger agreement. Of course, the members still had the right to object to the merger and that at least gave them some say over the transaction.
ShareCourt Of Chancery Limits Fiduciary Claims Based On A Contract
A recurring problem in Delaware jurisprudence is whether breach of contract and fiduciary duty claims may proceed simultaneously. This decision explains when they are duplicative of one another so that the secondary claim [here the breach of fiduciary duty one] should be dismissed.
ShareCourt Of Chancery Denies Advancement Until Undertaking Executed
Wong v. USES Holding Corp., C.A. 11475-VCN (February 26, 2016)
This decision states what should be obvious — you do not get your expenses advanced until you undertake to repay them if you lose. Note the opinion also sets out the process to have advancement claims processed by a special master.
ShareCourt Of Chancery Explains Advancement Rights Of Former Director
Marino v. Patriot Rail Company LLC, C.A. 11605-VCL (February 29, 2016)
As is well known, a former director may be entitled to have his fees advanced in suits against him even after he has resigned from the board. This decision explains the history behind those rights and how they have been steadily expanded over the years. It upholds advancement for acts committed as a director but not for post-resignation acts. It also sets out yet another way in which disputes over the amounts to be advanced will be determined.
ShareCourt Of Chancery Explains When A Minority Stockholder May Have Actual Control Over A Deal
Calesa Associates, L.P. v. American Capital Ltd., C.A. 10557-VCG (February 29, 2016)
This is another in a series of decisions dealing with the allegation that a minority stockholder controlled a deal through its control of a majority of the board of directors. Its analysis of when such control is present is very helpful. It also points out that there is a Section 228 violation when stockholders are asked to sign stockholder consents without being provided with all the documents needed to understand what that consent includes.
ShareCourt Of Chancery Applies Demand Rules To Amended Complaint
Fotta v. Morgan, C.A. 8230-VCG (February 29, 2016)
In general, an amended derivative complaint does not need to show that demand is excused if it was excused for the filing of the initial complaint. However, as this decision points out, when the amended complaint alleges an independent, new derivative claim that fails to meet the “claims already in litigation” standard (which refers broadly to the acts and transactions in the original complaint), then the right to assert that new claim must be established by showing that demand was excused.
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