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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 144 posts by Albert H. Manwaring, IV.
Chancery Sustains Claims for Improper Termination of Agreements For Cause in Connection with a Joint Venture to Develop Data Centers for Amazon
W.D.C. Holdings, LLC v. IPI Partners, LLC, C.A. No. 2020-1026-JTL (Del. Ch. June 22, 2022)
Two entities entered into a joint venture to develop data centers for Amazon. One entity managed the joint venture day to day, and the other controlled the board and had removal rights under certain circumstances. When whistleblowers raised concerns of potential kickbacks and the FBI executed a search warrant on the managing entity’s CEO, the second entity issued letters seeking to remove the CEO and corporate affiliates for cause from their roles in the joint venture and to terminate certain other agreements. The managing entity filed suit to challenge its removal and its affiliates’ removal, and the termination of the other agreements. The defendants moved to dismiss. More ›
Supreme Court Reverses Chancery Approval of Litigation Settlement for Overly Broad Release and Recommends Change to Chancery Rule 23.1
Griffith v. Stein, No. 264, 2021, C.A. No. 2017-0354 (Del. Aug. 16, 2022)
The Court of Chancery denied a non-monetary settlement for derivative claims that included allegations of excessive non-employee director compensation, siding with an objector, and awarding the objector fees. Subsequently, the parties agreed to a new settlement that included a financial benefit to the corporation. The objector then renewed his objection, arguing that the settlement improperly released future claims and that the plaintiff was not an adequate representative of the corporation’s interests. The plaintiff argued that future claims could be waived because the settlement included a compensation cap, that the released claims were covered by allegations of the complaint, and that the parties were only trying to import the Delaware standard of corporate waste into their release. The Court of Chancery approved the new settlement and did not award the objector additional attorneys’ fees. The objector appealed. More ›
Chancery Declines to Order Acquirer to Make Contingent Payments after Discontinuing Development of a Medical Product
Pavel Menn v. ConMed Corp., C.A. No. 2017-0137-KSJM (Del. Ch. June 30, 2022)
Plaintiff was a representative of stockholders who had entered into a stock purchase agreement (“SPA”), in which the defendant acquired a company engaged in developing a medical product. The SPA allocated the risk of continued development via a contingent payment structure, including milestone payments and earn-out payments. The defendant agreed to use “commercially best efforts” to maximize the payments, and to accelerate the payments to the stockholders if the defendant permanently discontinued development or sale of the product, except for certain reasons, including risk of injury to patients. After making several milestone payments, the defendant discontinued development due to concerns of the risk of injury to patients. The plaintiff demanded acceleration payments and brought claims when defendant declined to make these payments. More ›
Chancery Dismisses Claims in Favor of Arbitration in Dispute over Sale of Pittsburgh Penguins
Wildfire Productions, L.P. v. Team Lemieux LLC, C.A. No. 2021-1072-PAF (Del. Ch. June 29, 2022)
The Federal Arbitration Act and the public policy of Delaware favor the resolution of disputes through arbitration. When parties contractually agree to arbitrate their disputes, Delaware courts will enforce the terms of arbitration provisions. More ›
Chancery Dismisses Claims Seeking to Unwind Secondary Transactions that Allegedly Jeopardized Recovery for Primary Fraudulent Transfers
Burkhart v. Genworth Fin., Inc., C.A. No. 2018-0691-JRS (Del. Ch. May 10, 2022)
The plaintiffs were a putative class of policyholders and insurance agents with an interest in long-term care insurance policies written by the defendant's insurance company. Plaintiffs alleged that the company’s parent and related entities fraudulently removed assets and support from the company and impaired the company’s ability to make payments to the policyholders and agents. The plaintiffs sought to unwind the purported fraudulent transactions under Delaware’s Uniform Fraudulent Transfer Act. After failing to obtain the dismissal of the DUFTA claims, the defendants allegedly diverted assets away from the initial transferees. Plaintiffs subsequently amended their complaint to include additional DUFTA claims seeking to unwind these secondary diversions. Defendants moved to dismiss the new claims on the grounds that plaintiffs were not creditors of the transferees, and thus lacked standing, and that plaintiffs had sought improperly to unwind transactions, rather than plead a right to payment. More ›
Superior Court Classifies Cryptocurrency as a Security and Calculates Contract Damages Based on Cryptocurrency Valuation
Diamond Fortress Techs., Inc. v. Everid, Inc., C.A. No. N21C-05-048 PRW CCLD (Del. Super. Ct. Apr. 14, 2022)
Plaintiff Diamond Fortress contracted with the defendant company to provide its software to develop a trading platform for the defendant’s cryptocurrency. In exchange, the defendant agreed to pay plaintiffs in cryptocurrency at the time that defendant made its initial coin offering and at subsequent token distribution events. After the offering and events, the defendant failed, however, to make any payments to the plaintiffs. Plaintiffs filed claims against the defendant for breach of contract, and a default judgment was entered after the defendant failed to appear or respond. After finding that defendant had repudiated and breached the contract, the Court then determined how to calculate damages resulting from breach of a contract to be paid in cryptocurrency, which involved the novel issue under Delaware law of how to classify and value cryptocurrency. More ›
Delaware Supreme Court Interprets Deadline for Bringing Indemnification Claims
North American Leasing, Inc. v. NASDI Holdings, LLC, No. 192, 2020 (Del. Apr. 11, 2022)
Defendants acquired construction entities from plaintiffs and agreed to indemnify plaintiffs for any losses arising from performance and payment bonds on existing projects. Losses occurred in connection with one of the projects in 2017, and plaintiffs gave the defendants notice of indemnification claims for nearly $21 million. Defendants rejected the claims as untimely under the acquisition agreement, which they argued had a strict notice deadline of 2016. More ›
Chancery Dismisses Contract, Dissolution, and Direct Claims, But Upholds Derivative Claim for Alleged Transfer of Funds Between Medicinal Marijuana Entities
BET FRX LLC v. Myers, C.A. No. 2019-0894-KSJM (Del. Ch. Apr. 27, 2022)
A minority member of a limited liability company had invested $8 million in the LLC. The LLC owned a majority interest in an entity that held a Pennsylvania medical marijuana grower and processor license. In addition to obtaining its membership interest, the plaintiff’s investment also secured appointment rights for one of the three manager positions, rights to participate in board decisions, and a veto right over sixteen types of actions. Ultimately, the plaintiff brought a series of claims in the Court of Chancery, alleging that the other members and their principals had funneled the plaintiff’s investment into a company that they owned—an Ohio-based medical marijuana company—via intercompany loans that were not being repaid and coverage of other corporate expenses. Defendants sought to dismiss all claims. More ›
Superior Court Sustains Certain Contract Claims in Dispute over Post-Acquisition Operation of Resort and Timeshare Business
CRE Niagara Holdings, LLC v. Resorts Group, Inc., C.A. No. N20C-05-157 PRW CCLD (Del. Super. Ct. May 31, 2022)
After acquiring a resort and timeshare business in 2017, plaintiffs brought claims of fraudulent inducement, breach of contract, and declaratory judgment against the seller. The seller filed claims in federal courts and in New York state court, and then separately filed parallel claims as counterclaims and a third-party complaint in Delaware. The seller alleged that plaintiffs did not adhere to past practices in operating the business post-acquisition, that they made the acquisition to loot the business, and that, as a consequence, the seller suffered from a diminution in value of the payment streams from certain contracts. The plaintiffs moved to dismiss the seller’s counterclaims and third-party complaint. More ›
Superior Court CCLD Determines D&O Insurance Policy Does not Cover Defense Costs in Statutory Appraisal Proceeding
MPM Holdings, Inc. v. Federal Ins. Co., C.A. No. N20C-07-014 MMJ CCLD (Del. Super. Ct. Mar. 17, 2022)
In recent years, the Delaware Supreme Court has pointed out that directors and officers liability insurance might not cover defense costs in statutory appraisal proceedings. In In re Solera Insurance Coverage Appeals, 240 A.3d 1121 (Del. 2020), the Supreme Court held that an appraisal action is not a securities claim because it does not involve a violation of the law. Subsequently, the Supreme Court affirmed a Superior Court decision that an appraisal action is not based on a wrongful act, but rather is a creature of statute and neutral in nature. Jarden, LLC v. ACE American Ins. Co., 2021 WL 3280495 (Del. Super. Ct.), aff'd sub nom. Jarden LLC v. ACE American Ins. Co., 2022 WL 618962 (Del.). More ›
Chancery Finds AT&T Failed to Satisfy Entire Fairness Review in a Freeze-Out of Minority Partners in Local Spectrum Partnership
In re Cellular Telephone P’ship Litig., Coordinated C.A. No. 6885-VCL (Del. Ch. Mar. 9, 2022)
A controller that stands on both sides of a freeze-out transaction has the burden to prove that its acquisition was entirely fair to minority partners in terms of the acquisition’s process and price. The freeze-out of minority partners at an opportune time for the controller may not satisfy entire fairness review. More ›
Chancery Adjusts Deal Price to Account for Synergies and Post-Signing Change in Value in Statutory Appraisal of Investment Bank
BCIM Strategic Value Master Fund, LP v. HFF, Inc., C.A. No. 2019-0558-JTL (Del. Ch. Feb. 2, 2022)
In a statutory appraisal proceeding, Delaware courts may rely upon the deal price adjusted for net synergies as the most persuasive evidence of fair value provided the transaction process contains sufficient indicia of reliability. More ›
Delaware Uniform Arbitration Act Did Not Permit the Court of Chancery to Confirm or Vacate an Interim Partial Arbitration Award Because It Was Not Final
Astrum Fund I GP, LP v. Maracci, C.A. No. 2020-0919-PAF (Del. Ch. Jan. 27, 2022) Maracci v. Astrum Fund I GP, LP, C.A. No. 2021-0073-PAF (Del. Ch. Jan. 27, 2022)
A limited partnership agreement’s dispute resolution framework mandated arbitration for certain disputes but contained a Delaware forum selection provision for the resolution of damages. Limited partners initiated arbitration proceedings against the partnership and its general partner after a real estate transaction resulted in the loss of their entire investment. The arbitrator issued an interim partial award (“IPA”) after finding that the general partner had breached the agreement and breached the general partner’s duty of care. The arbitrator did not issue a final award because of the agreement’s requirement that a Delaware court determines damages. More ›
Chancery Dismisses Action for Declaratory and Injunctive Relief for Lack of Subject Matter Jurisdiction on Grounds that the Proposed Declaratory Judgments Would Provide an Adequate Remedy at Law
Qlarant, Inc. v. IP Commercialization Labs, LLC, C.A. No. 2021-0574-MTZ (Del. Ch. Jan. 25, 2022)
Pursuant to an asset purchase agreement, the plaintiff buyer purchased assets from a seller and several of its affiliates. Despite another company asserting that it owned twenty percent of the seller, the agreement represented that the seller had only two individual shareholders. The company that claimed it was a shareholder filed an action in Maryland challenging the asset purchase transaction. In turn, the plaintiff buyer filed an action in the Court of Chancery seeking declaratory judgments that the company was not a shareholder of the seller at the time of the agreement and that the asset-purchase transaction had been validly consummated. The plaintiff also asked the Court to permanently enjoin the company from asserting it was a shareholder of the seller. More ›
After Entry of Default Judgment, Chancery Grants Leave to Amend Complaint to Add a New Claim for Reverse Veil-Piercing Against Two New Defendants
P.C. Connection, Inc. v. Synygy Ltd., C.A. No. 2020-0869-JTL (Del. Ch. Jan. 10, 2022)
After entry of a default judgment for liability, but before entry of a judgment awarding relief, the Court of Chancery granted the plaintiff leave to amend the complaint to add a new claim for reverse veil-piercing against two new entity defendants under Court of Chancery Rule 15(a). The Court found that the liberal Rule 15(a) standard regarding amendments to complaints applied – rather than the relatively stringent requirements for setting aside a judgment under Rules 59 and 60 – because the Court had only entered judgment on liability and had not yet determined the appropriate relief, and thus, the judgment was not final. More ›