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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 Upholds Claims Against Controller’s Family Member
In re Straight Path Communications Inc. Consol. Stockholder Litig., C.A. No. 2017-0486-SG (Del. Ch. Feb. 17, 2022)
This summary judgment decision arose out of a transaction involving the company Straight Path. Straight Path’s controller had sold company assets to another company controlled by his family, IDT, for an allegedly inadequate price. One of the assets was an indemnification claim against IDT, which used to be Straight Path’s parent company, for indemnification rights arising following Straight Path’s spin-off. Straight Path thereafter was sold to Verizon, eliminating derivative standing for the company’s stockholders to challenge derivatively the asset sale to IDT. Straight Path’s controller allegedly leveraged his control to wrest that indemnification claim from the company’s stockholders prior to the Verizon transaction. Stockholders brought direct claims against the family members and an affiliated trust in this action. Their claims previously survived dismissal, and in this decision their claims survived summary judgment. More ›
Chancery Upholds Claim for the Appointment of a Receiver
Zaslansky v. FZ Holdings, C.A. No. 2021-0168-KSJM (Del. Ch. Feb. 8, 2022)
This order denying a motion to dismiss addresses the circumstances in which the Court of Chancery may appoint a receiver for an allegedly insolvent corporation under 8 Del. C. § 291. In determining whether to grant a petition to appoint a receiver for an insolvent corporation, the Court must determine whether the corporation is insolvent and whether the appointment of a neutral third party is necessary to protect the insolvent corporation’s creditors or shareholders. Here, the company had negative income, the petitioners alleged that the company commingled personal debt with company debt, and that the company selectively repaid some allegedly affiliated creditors without paying others, all making it reasonably conceivable that the facts may support a receiver appointment.
Chancery Stays Case So That Committee of Company May Decide Whether It Has Power to Interpret Alternate Dispute Resolution Provision of Agreement
Terrell v. Kiromic Biopharma, Inc., C. A. No. 2021-0248-MTZ (Del. Ch. Jan. 20, 2022)
When an alternative dispute resolution (“ADR”) provision is an arbitration provision, presumptively the Court may consider the scope of the provision absent “clear and unmistakable” evidence to the contrary. When an ADR provision is not an arbitration provision, however, the Court applies contract interpretation principles to determine who – as between the Court or the person or body specified in the provision – may construe its scope. More ›
Chancery Dismisses All Claims in Stockholder Challenge to Cash-Out Merger Transaction
Harcum v. Lovoi, C.A. No. 2020-0398-PAF (Del. Ch. Jan. 3, 2022)
In Harcum, the Delaware Court of Chancery dismissed all claims brought in a stockholder suit alleging fiduciary breaches in connection with the $1 billion dollar acquisition of Roan Resources Inc. by Citizen Energy Operating, LLC. The Court found that the transaction was “cleansed” pursuant to Corwin v. KKR Financial Holdings LLC, 125 A.3d 304, 312 (Del. 2015), because the plaintiff failed to adequately plead that any alleged controllers were conflicted or that the transaction was not approved by an uncoerced, fully informed stockholder vote. More ›
Chancery Finds Lack of Personal Jurisdiction Over Delaware Corporate Officers Based on Due Process Considerations
In re Bam International, LLC v. The MSBA Group Inc., C.A. No. 2021-0181-SG (Del. Ch. Dec. 14, 2021)
Two officers of a Delaware corporation were sued for alleged tortious interference with an escrow agreement between the Delaware corporation employing the officers and the plaintiff (another Delaware corporation). The plaintiff also brought a breach of contract claims against the Delaware corporation and other entity defendants. The two officers moved to dismiss for lack of personal jurisdiction arguing that, other than their status as officers of a Delaware corporation, they had no relationship with Delaware. The officers further noted that they were not signatories to the contract at issue, which, in any event, was only connected to Delaware by choice of law and forum clauses. Plaintiff contended that the officer defendants, as fiduciaries of a Delaware entity, had implicitly consented to jurisdiction pursuant to 10 Del. C. § 3114(b). More ›
Chancery Defers Substantive Arbitrability Question to Arbitrator
Hagler v. Evolve Acquisition LLC, et al., C.A. No. 2021-0431-SG (Del. Ch. Dec. 28, 2021)
A party to a purchase agreement filed an arbitration relating to certain indemnities for alleged breaches of representations and warranties in the agreement. A few months later, another party to the purchase agreement filed an action in the Delaware Court of Chancery seeking a declaratory judgment relating to the same financial figures at issue in the arbitration and seeking an injunction (and other relief). The defendant in the Court of Chancery action moved to dismiss for lack of subject matter jurisdiction, claiming that the arbitration provision in the purchase agreement deprived the Court of jurisdiction and that any questions about arbitrability were for the arbitrator. Plaintiff argued that there was a broad equity carve-out from arbitration in the purchase agreement, which indicated that substantive arbitrability was an issue for the Court, not for the arbitrator. More ›
Chancery Finds General Partner Breached Partnership Agreement in Exercising Call Right, and Awards Limited Partners Nearly $700 Million in Damages
Bandera Master Fund LP v. Boardwalk Pipeline Partners, LP, C.A. No. 2018-0372-JTL (Del. Ch. Nov. 12, 2021)
If a partnership agreement requires an opinion of counsel as a condition precedent, such opinion must be rendered in subjective good faith under Delaware law, As Boardwalk Pipeline Partners illustrates, a court applying Delaware law may reject such an opinion as rendered in bad faith if the counsel and the requesting party involved coordinate to develop counterfactual assumptions designed to generate a desired result for the requesting party. More ›
Chancery Dismisses Breach of Fiduciary Duty Claims Involving Bio-Tech Company Developing a COVID-19 Vaccine
In re Vaxart, Inc. Stockholder Litigation, Consol. C.A. No. 2020-0767-PAF (Del. Ch. Nov. 30, 2021)
Plaintiffs challenged amendments to warrant agreements between Vaxart and its former controlling stockholder, Armistice, alleging that the board intentionally withheld information significantly affecting the company’s share price, which permitted Armistice to engage in insider trading in violation of the board’s and Armistice’s fiduciary duties. Defendants moved to dismiss for failure to state a claim and for failure to make demand on the board. The Court granted the motion in part and dismissed derivative claims against Armistice and the board, finding that plaintiffs had failed to establish that Armistice was a controller and (relatedly) that demand on the Vaxart board would be futile. More ›
Chancery Denies Books and Records Inspection Brought to Advance the Stockholder’s Interests as a Creditor
Georgia Notes 18, LLC v. Net Element, Inc., C.A. No. 2021-0246-JRS (Del. Ch. Nov. 18, 2021)
Plaintiff, a stockholder and creditor of the defendant company, demanded to inspect the company’s books and records pursuant to 8 Del. C. § 220. The company objected, arguing that the plaintiff had failed to state a proper purpose for inspection and had a primary improper purpose. The Court found in the company’s favor, determining that plaintiff sought documents for the primary improper purpose of seeking pre-litigation discovery in connection to its interests as a creditor. More ›
Chancery Dismisses Derivative Suit Involving Wayfair and Challenging Debt Issuance to Private Equity Shareholders for Failure to Make Demand
Equity-League Pension Trust Fund v. Great Hill Partners, L.P., C.A. No. 2020-0992-SG (Del. Ch. Nov. 23, 2021)
A derivative suit brought on behalf of online home goods retailer, Wayfair, challenged the issuance of $535 million in convertible debt early in the COVID-19 pandemic to certain of Wayfair’s private equity investors and their affiliates. The transaction was recommended by a transaction committee and an audit committee, and was ultimately approved by the Wayfair board. The defendants moved to dismiss under Rule 23.1 arguing that the plaintiff was required but failed to make a pre-suit demand on the Wayfair board. Plaintiff argued that demand was futile because, in addition to the four directors who were on the buy-side of the transaction and thus interested, three directors sitting on the audit committee faced a substantial likelihood of liability. Plaintiff needed to sufficiently allege that at least one of the audit committee members was conflicted to arrive at a majority of the board for demand futility purposes. Finding that plaintiff had failed to adequately plead demand futility, the Court granted the defendants’ motion to dismiss. More ›
Chancery Dismisses Time-Barred Complaint Against Zillow
Chertok v. Zillow, Inc., C.A. No. 2019-0849-LWW (Del. Ch. Oct. 18, 2021)
Plaintiffs, a former co-founder and director of NMD Interactive (“Chertok”) and an LLC that he managed, brought a breach of contract action against Zillow seeking merger consideration and dividends in connection with Zillow’s 2013 acquisition of NMD. Over the course of six years, Zillow and plaintiffs engaged in negotiations relating to payment of consideration and dividends that Zillow continued to withhold based on plaintiffs’ alleged failure to comply with conditions in the merger agreement. Relevant to the analysis in this case, starting in 2011, NMD brought litigation unrelated to the merger against Chertok in New York federal court, which concluded in 2017. More ›
Chancery Resolves Contingent Claim Security Dispute Between Altaba and Verizon in Altaba’s Judicial Dissolution Proceedings
In re Altaba, Inc., C.A. No. 2020-0413-JTL (Del. Ch. Oct. 8, 2021)
Petitioner Altaba (formerly Yahoo!) implemented a statutory dissolution process whereby the Delaware Court of Chancery was charged with overseeing the winding up of Altaba’s affairs, including resolving any disputes about the amount and form of security to set aside for contingent, conditional, or unmatured contractual claims. In connection with this process, claimant Verizon objected to the amount and form of security that Altaba agreed to set aside to satisfy Verizon’s conditional claim relating to indemnification rights associated with consumer class action lawsuits against Altaba. More ›
Chancery Denies Motion to Compel Director’s Privileged Communications Stored on Third-Party’s Email Server
In Re Dell Technologies Inc Class V Stockholders Litigation, Consol. C.A. No. 2018-0816-JTL (Del. Ch. Sept. 17, 2021) (TRANSCRIPT)
A director utilizing an email account associated with a different company for board service communications might unintentionally compromise otherwise privileged communications. Here, a member of Dell’s board of directors served on a special committee and utilized an email account associated with his former employer to communicate with the committee’s lawyers. Plaintiff moved to compel the production of otherwise privileged communications on his account, raising the question of whether the director had a reasonable expectation of privacy in his communications. More ›
Delaware Supreme Court Overrules Gentile, Resolving Tension in Legal Test To Determine Whether a Claim Is Direct or Derivative
Brookfield Asset Mgmt., Inc. v. Rosson, No. 406, 2020 (Del. Sept. 20, 2021)
Seeking to bring clarity to the issue of whether a claim is direct or derivative—a potentially outcome-determinative issue—the Delaware Supreme Court overturned its own precedent in Gentile v. Rossette, 906 A.2d 91 (Del. 2006). More ›
Chancery Addresses Indemnification Rights Following CEO’s Partial Success On Underlying Claims, Including Success Based on Technicalities
Evans v. Avande, Inc. , C. A. No. 2018-0454-LWW (Del. Ch. Sept. 23, 2021)
The departure of a company’s CEO was contentious. After his termination, the company filed an action in the Court of Chancery, alleging that the CEO had breached his duty of loyalty, sought a declaratory judgment that his removal was valid and effective, and further asserted claims for tortious interference, defamation, and conversion against the CEO. After trial, the Court concluded that the CEO had breached his duty of loyalty but that the company had failed to brief, and therefore had waived, its claims for declaratory judgment, tortious interference, defamation, and conversion. On the basis of mandatory indemnification rights in the company’s charter and bylaws, the CEO filed a complaint in the Court of Chancery seeking indemnification for his fees incurred defending against the company’s suit. More ›