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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.
Entire Fairness Standard Applied to Transaction Benefitting Controllers of Controllers
Tueza v. Lindon, C.A. No. 2022-0130-SG (Del. Ch. Apr. 27, 2023)
Because controlling stockholders of Delaware corporations owe fiduciary duties to both the corporation and to its minority stockholders, the Court of Chancery will subject a transaction involving the company to entire fairness review if a controller receives a non-ratable benefit from a transaction. This case confronts a more nuanced question: Does entire fairness apply if the non-ratable benefit goes not to the controller but to a separate entity controlled by the controller's controllers? More ›
Chancery Court Again Applies Entire Fairness to Claims Challenging SPAC Transaction
Laidlaw v. GigAcquisitions2, LLC, C.A. No. 2021-0821-LWW (Del. Ch. Mar. 1, 2023)
In the aftermath of a SPAC merger, the plaintiff (a public stockholder) brought claims for breaches of fiduciary duty against the SPAC's board and sponsor, as controllers, for issuing an allegedly false and misleading proxy statement. According to the plaintiff, the proxy statement failed to disclose the net cash per share that the SPAC would contribute to the merger, which in turn misrepresented the anticipated value of post-merger shares, and that such information was material to the decisions of public stockholders whether to invest in the post-merger company or to redeem their SPAC investments. Plaintiff alleged that the sponsor and board were incentivized to minimize redemptions in order to secure returns for the sponsor, which purchased a 20% stake in the post-merger company at a nominal price. More ›
Plaintiff Overcomes Rule 23.1 In Walmart Opioids Litigation Based In Part On Over-Redacted Documents In Books And Records Productions
Ontario Provincial Council of Carpenters’ Pension Trust Fund v. Walton, C.A. No. 2021-0827-JTL (Del. Ch. Apr. 26, 2023)
To assert a derivative claim, a stockholder plaintiff must plead demand futility. The plaintiffs advanced three types of claims relating to Walmart’s distribution of opioids: a Massey Claim (i.e., affirmative law-breaking claim), a Red-Flags Claim (i.e., a species of a Caremark claim), and an Information-Systems Claim (i.e., a species of a Caremark claim). The Massey Claim asserted that Walmart’s directors and officers knew that Walmart was failing to comply with its legal obligations and made a conscious decision to prioritize profits over compliance. The Red-Flags Claim asserted that a series of red flags put Walmart’s directors and officers on notice of Walmart’s noncompliance or potential corporate trauma, but the directors and officers consciously ignored them. The Information-Systems Claim asserted that Walmart’s directors and officers knew that they had an obligation to establish a monitoring system to address a core compliance risk, but consciously failed to make a good faith effort to fulfill that obligation. More ›
Chancery Rules That Separate Accrual Periods Apply to an Information Systems Caremark Claim in Walmart Opioid Litigation
Ontario Provincial Council of Carpenters' Pension Trust Fund v. Walton, C.A. No. 2021-0827-JTL (Del. Ch. Apr. 12, 2023)
To determine the limitations period under laches, a court must determine when a claim accrued. Delaware courts have considered three different approaches to claim accrual: the discrete act approach, the separate accrual approach, and the continuing wrong approach. More ›
Chancery Relies on Unanimous Dictionary Entries To Confirm Unambiguity of Supply Agreement
Thermo Fisher Scientific PSG Corp. v. Arranta Bio MA, LLC, C.A. No. 2022-0608-NAC (Del. Ch. Apr. 4, 2023)
The plaintiff and the defendant entered into a supply agreement under which the defendant would manufacture plasmids, a central component for a variety of therapies and vaccines. The agreement included a non-compete provision that would require the defendant to pause its plasmid activities for three years if the defendant was acquired by one of the plaintiff's competitors—defined as a company deriving at least fifty percent of revenue from "biopharmaceutical" development or commercial manufacturing services. The agreement did not define the term "biopharmaceutical." Two years into the agreement, a third party acquired the defendant. The acquirer derived almost all its revenue in connection with small-molecule drugs, with almost no revenue connected to biologics. Plaintiff filed suit, alleging that the acquirer was a competitor and seeking specific performance of the non-compete provision. More ›
Chancery Finds Restrictive Covenant in Stock Purchase Agreement is Unreasonable and Unenforceable
Intertek Testing Servs. NA, Inc., C.A. No 2022-0853-LWW (Del. Ch. Mar. 16, 2023)
Delaware courts do not mechanically enforce non-competes. Instead, the non-compete must be reasonable in scope and duration and advance a legitimate economic interest of the party enforcing the covenant. More ›
Chancery Holds That Party’s Untimely Counterclaim Cannot Avoid Laches Defense By Invocation of Unclean Hands
Thomas D. Murray et al. v. Shannon Rolquin et al., C.A. No 2018-0819-KSJM (Del. Ch. Mar. 9, 2023)
In the Court of Chancery, untimely equitable claims may be time-barred by the doctrine of laches. However, a belated claimant may avoid a laches defense through a tolling theory. Here, a party attempted to excuse her delay in bringing counterclaims under a tolling theory and under a novel unclean hands theory. Post-trial, the Court was not persuaded by either theory. More ›
Chancery Declines to Modify Status Quo Order to Allow Partial Performance of Pending Settlement
In re AMC Entertainment Holdings, Inc. Stockholder Litigation, Consol. C.A. No. 2023-0215-MTZ (Del. Ch. Apr. 5, 2023)
In various contexts, upon request or stipulation, the Court of Chancery will impose status quo orders, which typically restrain corporate action pending the Court’s adjudication of disputed rights. A party seeking to modify or vacate such an order bears the burden of establishing good cause for the change. Here, following a settlement agreement between the parties, the plaintiffs sought to lift a status quo order to permit the defendant, AMC, to partially effectuate the settlement. The proposed action would alter the company’s capital structure. The litigation involved class claims, implicating Court of Chancery Rule 23, and the requirement that any class action or derivative settlement be approved by the Court following notice to the stockholders and the opportunity to object. The Court had not yet considered or approved the proposed settlement. In these circumstances, with little more than a desire for speed offered in support of the motion, the Court declined to lift the status quo order, citing the Court’s gatekeeping role in Rule 23 settlements.
Supreme Court Finds Contractually Required Board Committee Determination Under Stock Option Agreements Did Not Bar Judicial Review
Terrell v. Kiromic Biopharma Inc., No. 299, 2022 (Del. May 4, 2023)
This dispute between a company and a former director involved the meaning of a stock option agreement and option grant notice. The Court of Chancery had found that, under a contractual alternative dispute resolution provision, the dispute was to be resolved in accordance with a board committee’s interpretation of the relevant documents. The trial court stayed the action for that purpose. After the committee resolved the issue in the company’s favor, the trial court promptly dismissed the complaint for lack of subject matter jurisdiction. On appeal, the Supreme Court found no error in the trial court’s stay to allow the committee’s determination in the first instance but reversed and remanded for the trial court to review the matter before dismissing the action. The Supreme Court explained that the provision “is an expert determination, not an arbitration, and because it requires the Committee to reach legal determinations, not issue findings of fact within its area of expertise, the Court of Chancery is not required to defer to the Committee's conclusions." Thus, the trial court was required to engage in a de novo interpretation of the agreements.
Chancery Finds for Defendants in Challenge to Oracle Acquisition of NetSuite
In re Oracle Corporation Derivative Litigation, Consol. C.A. No. 2017-0337-SG (Del. Ch. May 12, 2023)
In this “vigorously litigated” matter, the Plaintiffs argued that Oracle’s founder and current officer and director, Larry Ellison, manipulated a special committee of Oracle’s board to overpay for NetSuite, another company in which Ellison was a substantial investor. Plaintiffs offered two theories to bring the transaction within the entire fairness standard of review: first, that Ellison was a controller who sat on both sides of the transaction, and second, that Ellison, on his own and with Oracle CEO Safra Catz, misled the Oracle board and special committee, and thus the transaction was a product of fraud. Post-trial, the Court of Chancery rejected both theories, applied the business judgment rule, and found for the defendants. More ›
Chancery Dismisses Oversight Claim Based on Board’s Response to Red Flags
In re McDonald's Corp. Stockholder Derivative Litig., CA No. 2021-0324-JTL (Del. Ch. March 1, 2023)
A plaintiff can plead an oversight claim against a board by alleging particularized facts to support an inference that the directors either: (1) utterly failed to implement a reporting or information system or controls or (2) consciously failed to monitor or oversee the business and, as a result, disabled themselves from being informed of problems or risks that required their attention. A "prong-two" failure to monitor Caremark claim, or "red flags" claim, requires that the plaintiff plead that the board's information system generated red flags and that the board subsequently failed to respond and address the red flags. More ›
Chancery Examines Director’s Personal Ties and Dismisses Duty of Loyalty Claim
In re Orbit/FR, Inc. S’holders Litig., C.A. No. 2018-0340-SG (Jan. 24, 2023)
This decision involved a stockholder challenge to a merger between Orbit and its controller, Microwave Vision. A certain director who served on a special committee was alleged to have breached his fiduciary duty of loyalty in approving the transaction, arising out of his alleged conflict as an employee beholden to the controller for his job. After admitting the allegation of an employment relationship was a mistake, the plaintiff shifted to alleging the director lacked independence based on his personal relationship with another director, who served on the boards of both Orbit and Microwave Vision. The two directors had been neighbors, their children were contemporaries, and they frequently went bicycling together years earlier. On a motion to dismiss, the Court of Chancery found that these "casual sharing of interests between neighbors” did not give rise to a conflict for the at-issue director and did not support a non-exculpated duty of loyalty claim against him.
Delaware Supreme Court Affirms Delaware Choice-of-Law Ruling In Dismissal of D&O Liability Insurance Coverage Dispute
Stillwater Mining Company v. National Union Fire Insurance Company of Pittsburgh, PA et al., No. 24, 2022 (Del. Jan. 12, 2023)
This decision from Delaware Supreme Court addresses choice-of-law questions for D&O insurance contract disputes and cautions litigants to remain consistent in the positions they take before the trial court. The appellant here, an insured under a tower of directors and officers’ liability insurance policies, asserted that Delaware law applied to the claims in its original complaint for coverage of its defense costs in an appraisal action. Following a decision from the Delaware Supreme Court in another matter (In re Solera Ins. Coverage Appeals), which held that an insurer is not obligated to provide coverage for appraisal actions under a similar insurance policy, the insured amended its complaint and, in so doing, argued that Montana rather than Delaware law controlled. More ›
Chancery Rules That Moving Situs of Trust to Delaware Supports Personal Jurisdiction Under the State’s Long-Arm Statute
Harris v. Harris, C.A. No. 2019-0736-JTL (Del. Ch. Jan. 12, 2023)
Three children filed suit against their mother and her associates, alleging they had seized control of a family-owned corporation and engaged in self-dealing, including via self-serving withdrawals from a family trust. Plaintiffs asserted claims for breaches of fiduciary duty, aiding and abetting those breaches, breach of a trust agreement, and tortious interference with the trust agreement. The general counsel of the company moved to dismiss the tortious interference claim against him, including for lack of personal jurisdiction. More ›
Chancery Finds Personal Jurisdiction Under Conspiracy Theory of Jurisdiction Based on Trust Domestication
Harris v. Harris, C.A. No. 2019-0736-JTL (Del. Ch. Jan. 16, 2023)
Under the conspiracy theory of personal jurisdiction, when defendants conspire to engage in tortious activities, the Delaware-directed acts of one co-conspirator can be attributed to the other conspirators for the purpose of establishing personal jurisdiction under Delaware’s Long-Arm Statute. Here, the plaintiffs alleged that the defendants acted in concert to support the domestication of a trust (specifically, a GRAT) in Delaware for purposes of a larger tortious scheme. Based on these allegations, the Court of Chancery found there was sufficient support to support personal jurisdiction under the conspiracy theory, or minimally to allow for jurisdictional discovery. But the Court also concluded that the discovery was unnecessary because there was evidence of spoliation, which allowed for a pleadings stage inference that the defendants were engaged in a conspiracy sufficient to support personal jurisdiction.