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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 Denies Motion to Dismiss Finding Primedia Argument Inapplicable
In Re Orbit/FR, Inc. Stockholders Litig., C.A. No. 2018-0340-SG (Del. Ch. January 9, 2023)
In In re Primedia, Inc. S’holders Litig., 67 A.3d 455 (Del. Ch. 2013), the Court examined whether a litigation asset being pursued derivatively was extinguished by the sale of the company to a third party that had no interest in pursuing the claim and had not valued the claim as an asset in the merger. Primedia sets forth certain stringent standards to assert a claim that the merger was unfair based on such a derivative claim. More ›
Chancery Concludes Section 18-110 of the LLC Act Does Not Permit Standalone Books and Records Claims When Company Management Is Undisputed
Cardinale v. Feingold, 2023 WL 142510 (Del. Ch. Jan. 10, 2023)
In a dispute about the manager of a limited liability company, Section 18-110 of the LLC Act grants the Court of Chancery the statutory authority to order the production of books and records “relating to the issue.” Here, the plaintiff sought a declaration that he was the sole manager of six companies and also an order directing the defendants to turn over the companies’ books and records. The defendants, who had recently resigned as managers, confirmed that the plaintiff was the companies’ sole manager and asked the Court to dismiss the remainder of the action for lack of jurisdiction. The Court agreed. Because the identity of the companies’ manager was undisputed, the Court concluded it no longer had jurisdiction under Section 18-110 to order the production of books and records.
Supreme Court Interprets an Alleged Irrevocable Proxy and Finds It Does Not Run with Shares and Bind Subsequent Owner
Daniel v. Hawkins, No. 184, 2022 (Del. Jan. 6, 2023)
Through an irrevocable proxy, the appellant held voting power for 100 shares of a partnership. The proxy had been a tool to immediately transfer the shares' voting power to the appellant, away from a beneficial owner experiencing legal troubles, to minimize the risk of tainted control harming the business pending transfer of beneficial ownership. Years later, with beneficial ownership having transferred for 75 shares, the appellee sought to purchase those shares free of the proxy. The appellant argued that the proxy was irrevocable and could not be relinquished. Appellee filed suit in the Court of Chancery, seeking a declaratory judgment that the irrevocable proxy did not apply to subsequent third-party owners. The Court of Chancery determined that the irrevocable proxy's plain language did not establish a grant of agency authority that ran with the shares. More ›
Chancery Upholds Claims Post-Merger
Harris v. Harris, C.A. No. 2019-0736-JTL (Del. Ch. Jan. 6, 2023)
Delaware law allows for two exceptions to the continuous stock ownership rule for stockholders to bring and maintain standing to assert derivative claims that predate a transaction: (1) when the transaction, which would otherwise deprive the plaintiffs of standing, is essentially a reorganization that does not affect the plaintiff’s relative ownership in the post-merger enterprise; or (2) when a plaintiff stockholder loses standing based on a merger consummated for the purpose of depriving the stockholder of the ability to bring or maintain a derivative action. Stockholders with derivative claims that predate a transaction also may assert direct claims to challenge a merger by pleading that the value of the derivative claim is material in the context of the merger, that the acquirer did not assign value or provide additional consideration for the value of the derivative claim, and that the acquirer will not assert the derivative claim. More ›
Chancery Finds Payment Condition, Non-Compete, and Non-Solicit Provisions Unenforceable
Ainslie et al. v. Cantor Fitzgerald, L.P., C.A. No. 9436-VCZ (Del. Ch. Jan. 4, 2023)
Under Delaware law, restrictive covenants generally are enforceable unless overly broad in the circumstances, and Delaware courts closely scrutinize them. Similarly, contractual conditions precedent generally are enforceable unless they result in a penalty, and Delaware courts construe ambiguous conditions narrowly to avoid forfeitures. In this decision from the Court of Chancery, a provision in a limited liability partnership agreement intended to discourage competitive activities by former partners was held unenforceable both because it was overly broad and resulted in a forfeiture.
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Chancery Denies Motion Seeking Appointment of a Receiver
Bighorn Ventures Nevada LLC v. Solis, C.A. No. 2022-1116-LWW (Del. Ch. Dec. 23, 2022)
The Court of Chancery has the discretion to appoint a custodian or receiver under Section 226(a)(2) of the DGCL when the board of directors is deadlocked, the business is suffering or is threatened with irreparable injury because of the deadlock, and the shareholders are unable to terminate the deadlock. Under Section 291, the Court has the discretion to appoint a receiver when the corporation is insolvent and special circumstances indicate some beneficial purpose will be served. More ›
Chancery Orders Stay of “Dr. J” Litigation Pending Arbitrator’s Decision on Arbitrability
Erving v. ABG Intermediate Holdings 2, LLC, C.A. No. 2021-0816-NAC (Del. Ch. Nov. 28, 2022)
Basketball legend Julius W. Erving II, also known as “Dr. J”, sold a majority interest in his trademark and other intellectual property to a brand development and marketing company. The transaction involved the creation of an LLC—in which Dr. J held a minority interest and the marketing company held a majority interest and promised to grow Dr. J’s brand. The LLC operating agreement contained a dispute resolution provision that included an exclusive arbitration clause. Several years later, Dr. J filed claims in the Court of Chancery, alleging that the defendants had wrongfully diverted funds and failed to devote reasonable efforts to grow Dr. J’s brand. Defendants moved to dismiss the action in favor of arbitration or, in the alternative, to stay the case pending an arbitrator’s decision regarding whether the dispute must be arbitrated. More ›
Chancery Permits Discovery Under the Hague Evidence Convention
In Re Cote D’Azur Estate, C.A. No. 2017-0290-JTL (Del. Ch. Dec. 12, 2022)
The Hague Evidence Convention provides an alternative method from the Federal Rules of Civil Procedure to compelling production from opposing parties across international lines. In this decision, the Court of Chancery considered a request for production under the Convention from a plaintiff-heir, seeking discovery on her late father’s former legal counsel regarding issues surrounding the family estate, established as a Delaware LLC, to control the family villa in France. Questions arose regarding the propriety of the legal advice provided to the father by counsel, and plaintiff-heir sought to compel production of discovery, while defendant-counsel refused to cooperate. More ›
Chancery Addresses Real-Party-In-Interest and Collateral Estoppel Doctrines in Section 225 Dispute
Hawk Investment Holdings Ltd. v. Stream TV Networks Inc., C.A. No. 2022-0930-JTL (Del. Ch. Nov. 29, 2022)
This Section 225 decision involved Stream TV Networks, Inc. and its secured creditor, Hawk Investment Holdings Ltd. Under certain pledge agreements securing Hawk’s loans, Stream granted Hawk the right to vote all of its common shares in subsidiary Technovative Media, Inc. following an event of default. Hawk exercised those voting rights to remove and replace Technovative’s sole director, resulting in this litigation. In this decision addressing pre-trial motions, the Court validated Hawk’s standing to pursue its Section 225 claim as a stockholder notwithstanding that had assigned certain rights to an affiliate. In doing so, the Court explained statutory standing and the real-party in-interest doctrine in the Section 225 context. The Court also applied the doctrine of collateral estoppel to resolve several issues in Hawk’s favor based on prior litigation involving Stream.
Chancery Sides With Board in Dispute Over Stockholder’s Compliance With Advanced Notice Bylaws to Nominate Directors
Jorgl v. AIM ImmunoTech, Inc., 2022-0669-LWW (Del. Ch. Oct. 28, 2022)
The Court of Chancery rejected a stockholder’s bid for a preliminary mandatory injunction directing the board of AIM ImmunoTech, Inc. to include his nominees on the ballot of potential directors. The dispute centered on whether the board had wrongfully rejected the stockholder’s nominees based upon the board’s suspicion that the stockholder had not complied with the company’s advanced notice bylaws requiring the stockholder to disclose “all arrangements or understandings” with any of his nominees. Because evidence suggested that the stockholder and his nominees may have been part of an undisclosed plan to commence a proxy contest, the stockholder could not establish at the preliminary injunction stage that the board erred as a matter of law in rejecting his nominations. The Court also concluded that the stockholder failed to establish, as a matter of law, that the board acted with an entrenchment motive in rejecting the nominations. Accordingly, the Court found that the stockholder could not meet the heavy burden necessary to obtain preliminary mandatory injunctive relief.
Chancery Dismisses Claims Against Controller and its Affiliates Based on Group Pleading and Vague, General Allegations of Claims for Breach of Fiduciary Duty
Bocock v. Innovate Corp., C.A. No. 2021-0224-PAF (Del. Ch. Oct. 28, 2022)
A holding company acquired a controlling stake in an owner/operator of low-power television stations via a stock purchase agreement. The controller then designated certain of its own affiliates’ officers and directors as officers and directors of the acquired company. More than three years later, stockholders and option holders filed a complaint alleging that the controller, its affiliates, and the officers and directors had conspired to loot the company by usurping corporate opportunities, transferring assets for insufficient consideration, and entering into agreements that drained value from the company. The claims included breach of fiduciary duty, corporate waste, aiding and abetting, conspiracy, and tortious interference. More ›
Chancery Trims Contract Claims in Post-Merger Dispute
In Re P3 Health Group Holdings, LLC, Consol. C.A. 2021-0518-JTL (Del. Ch. Oct. 31, 2022)
Plaintiff Hudson Vegas Investment SPV, LLC asserted various claims after its minority interest in Defendant P3 Health Group Holdings, LLC was wiped out in a business combination between P3 and a SPAC. The Court of Chancery has issued several decisions in the case; this one dealt with Hudson’s various claims for breach of P3’s LLC agreement. More ›
Delaware Supreme Court Overturns $700 Million Award in Master Limited Partnership Litigation
Boardwalk Pipeline Partners L.P. v. Bandera Master Fund LP, C.A. No. 2018-0372 (Del. Dec. 19, 2022)
Delaware Master Limited Partnerships (MLPs) can structure their organization to permit maximum flexibility, including eliminating fiduciary duties and limiting investor rights to the four corners of the MLP agreement. At issue in this case was whether the partnership's general partner properly exercised a call right to take the partnership private. Under the partnership agreement, the general partner could exercise this right if it received an opinion from counsel acceptable to the general partner that certain changes in regulation would have a specific effect on the business. More ›
Chancery Finds Buzzfeed and Others Not Bound by Arbitration Provisions in Employment Agreements
Buzzfeed v. Anderson, C.A. No. 2022-0357-MTZ (Del. Ch. Oct. 28, 2022)
In 2021, Buzzfeed engaged in a SPAC transaction wherein its stock was converted into stock in Buzzfeed’s post-SPAC corporate form. An IPO followed. In connection with the IPO, former employees of the pre-transaction Buzzfeed (“Old Buzzfeed”) who had received shares in the post-transaction Buzzfeed (“New Buzzfeed”), filed mass arbitrations against New Buzzfeed, certain officers and directors, and the IPO transfer agent. These former employees and New Buzzfeed shareholders alleged that, because a different class of stock was offered in the IPO than the class of stock that they held, they were unable to participate in the IPO, suffering $9 million in damages. In response, New Buzzfeed, certain officers and directors, and the IPO transfer agent sued in the Court of Chancery seeking: (1) to enjoin the arbitrations, (2) a declaration that they were not bound by arbitration provisions in employment agreements entered into with Old Buzzfeed, and (3) a declaration that the former employees were obligated to comply with a forum selection clause in New Buzzfeed’s charter and bring their claims in the Court of Chancery. The plaintiffs moved for summary judgment on their claims; the former employees moved to dismiss the complaint for lack of subject matter and personal jurisdiction. More ›
Superior Court Finds that Non-Recourse Provision Does Not Bar Fraud Claims Against Non-Seller Defendants
Amerimark Interactive LLC v. Amerimark Holdings, C.A. No. N21C-12-175 MMJ CCLD (Del. Super. Nov. 3, 2022)
This decision discusses and applies numerous rules governing fraud claims under Delaware law. For instance, an anti-reliance provision eliminates extra-contractual fraud claims while preserving intra-contractual fraud claims, and a non-recourse provision limits the entities and people against whom a claim can be brought. And, in Online HealthNow, Inv. v. CIP OCL Investments, LLC, 2021 WL 3557857 (Del. Ch. 2021), the Court of Chancery determined that a non-recourse provision did not bar claims against a non-signatory party. Here, the Superior Court applied Online HealthNow and held that fraud claims against non-seller defendants who allegedly were knowingly complicit in contractual fraud were not barred by the non-recourse and anti-reliance provisions of the agreement at issue.