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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Morris James Blogs
Showing 26 posts by Alena Smith.
Chancery Declines to Exercise Equitable Jurisdiction in a Contract Action to Compel the Release of Funds Held in Escrow
Graciano v. Abode Healthcare, Inc., C.A. No. 2022-0728-SG (Del. Ch. Mar. 4, 2024)
The Court of Chancery declined to exercise subject matter jurisdiction in connection with a seller’s contractual rights under a purchase agreement. The plaintiff argued that his contract claim required an equitable remedy to recover funds from an escrow fund. The Court held that a declaratory judgment, together with the plaintiff’s instruction to the escrow agent, was the only judicial action required under the agreement. More ›
Chancery Finds Challenge to Stockholders Agreement Both Timely and Ripe
West Palm Beach Firefighters' Pension Fund v. Moelis & Company, C.A. No. 2023-0309-JTL (Del. Ch. Feb. 12, 2024)
Here, the Court of Chancery declined to apply equitable defenses to bar a challenge to a stockholders' agreement three years after it was disclosed and before any claims for breach of fiduciary duties arising from the agreement were asserted. The underlying dispute involved the plaintiff's challenge to governance terms of a stockholders' agreement under Section 141(a) of the Delaware General Corporation Law. The defendant company claimed that the plaintiff brought the suit both too late and too early. The defendant argued that the action was untimely because the plaintiff waited three years after the agreement was disclosed to sue. The Court explained that when analyzing timeliness, it must assume that the plaintiff’s claim is valid. If the plaintiff were proven correct and the challenged agreement held void, then equitable defenses, like laches, would not apply, as equitable defenses cannot validate a void act. Regardless, the Court found no unreasonable delay and no prejudice to the defendant, considering the facts of this case. The Court also analyzed the challenged acts as an ongoing violation, reviewed through either the continuing wrong method or the separate accrual method to determine when the violation occurred. Under both methods, the suit was timely. Further, the Court found no extraordinary circumstances that would justify applying laches. The defendant also claimed that the plaintiff should have to wait for a breach of fiduciary duty to occur before bringing the suit. The Court disagreed, reasoning that even though the plaintiff could bring a fiduciary duty claim in the future based on the conduct associated with the agreement’s challenged provisions, a facial challenge to the agreement’s legality presented a separate and ripe question of law.
Chancery Awards Attorneys’ Fees to the Prevailing Party
Malkani v. Cunningham, C.A. 2020-1004-SG (Del. Ch. Feb. 28, 2024)
In this decision involving a contractual fee-shifting provision, both parties argued that they were entitled to fee-shifting as the prevailing parties. The Court held that the prevailing party was the party who succeeded in the overall litigation. More ›
Chancery Upholds Challenge to TripAdvisor’s Conversion from a Delaware Corporation into a Nevada Entity
Palkon v. Maffei, C.A. 2023-0449-JTL (Del. Ch. Feb. 20, 2024)
This decision arose out of TripAdivor’s conversion from a Delaware corporation into a Nevada corporation. The company’s CEO and Chair had voting control and approved the conversion. The board did not condition the transaction on special committee approval or a majority of the minority stockholder vote. The plaintiff challenged the conversion on the grounds that the CEO and the board approved it to secure litigation protections for themselves under Nevada law more favorable than under Delaware law. More ›
Chancery Addresses Pleading-Stage Arguments for Dismissal in LLC Dispute
Principal Growth Strategies LLC v. AGH Parent LLC, C.A. 2019-0431-JTL (Del. Ch. January 25, 2024)
This decision provides helpful guidance to practitioners to address pleading-stage arguments for dismissal. The plaintiff asserted fiduciary claims against the controller and manager of a Delaware LLC, who allegedly engineered an asset-swap transaction at the expense of the LLC. The Court of Chancery largely denied the motions to dismiss. More ›
Applying New Rule 23.1, Chancery Establishes Leadership Structure in Fox Derivative Litigation
In re Fox Corp. Deriv. Litig., C.A. 2023-0418-JTL (Del. Ch. Dec. 29, 2023).
The newly amended Court of Chancery Rule 23.1 identifies factors for a court to consider when resolving a litigation leadership dispute. In this case, which is the first decision to apply the amended Rule, the Court of Chancery carefully balanced those factors and identified the lead plaintiff and the lead counsel. More ›
Chancery Denies Request for Mandatory Preliminary Injunction to Waive Advance Notice Bylaw and Permit Director Nominees to Stand for Election
Paragon Tech., Inc. v. Cryan, C.A. 2023-1013-LWW (Del. Ch. Nov. 30, 2023).
In Delaware, a preliminary injunction is granted “sparingly and only upon a persuasive showing that it is urgently necessary, that it will result in comparatively less harm to the adverse party, and that, in the end, it is unlikely to be shown to have been issued improvidently.” A party seeking a mandatory injunction must also show entitlement to the relief it seeks as a matter of law based on undisputed facts – akin to a summary judgment standard. In this case, “with some trepidation[,]” the Court of Chancery denied a request for preliminary mandatory injunctive relief due to factual disputes concerning whether a stockholder plaintiff complied with advance notice bylaws requiring disclosure of plans to change the corporation’s business and potential conflicts of interest. More ›
Chancery Finds that Non-Settling Defendants Waived their Right to Seek a Settlement Credit Under DUCATA
In re Mindbody Inc. S’holder Litig., Consol. C.A. 2019-0442-KSJM (Del. Ch. Nov 15, 2023)
The Delaware Uniform Contribution Among Tortfeasors Act (“DUCATA”) establishes the legal framework applicable when plaintiffs release only some joint tortfeasors through settlement. DUCATA creates a right of contribution among joint tortfeasors and specifies that an ultimate damages award against non-settling defendants can be reduced by amounts received in settlement from other joint tortfeasors. In this fiduciary duty action challenging the fairness of a merger, the Court ruled that, despite a settlement of claims against certain defendants, the non-settling defendants waived their right to seek a damages reduction. More ›
Chancery Evaluates Supplemental Disclosures to Determine the Corporate Benefit and Awards Plaintiffs a Proportional Fee
Allen v. Harvey, C.A. No. 2022-0248-MTZ (Del. Ch. Oct. 30, 2023)
Delaware cases provide guidance on the standard for evaluating the “corporate benefit” from supplemental disclosures in advance of a stockholder vote – and the fees that should be awarded to plaintiffs for prompting such disclosures. This case involved supplemental disclosures of potential sources of conflicts held by a special committee’s chair and advisors in advance of a merger vote. The Court held that such disclosures were not extraordinary, but they still warranted a proportional fee award. More ›
Chancery Finds That Books and Records Incorporated by Reference in Complaint Demonstrate the Lack of a Valid Caremark Claim
Joel Newman v. KKR Phorm Investors, L.P., et al. C.A. No. 2022-0310-NAC (Del. Ch. Aug. 31, 2023).
At the motion to dismiss stage, Delaware courts will consider the facts alleged in the complaint as well as the documents incorporated into and integral to it. Under Court of Chancery Rule 23.1, a derivative plaintiff is entitled only to reasonable inferences drawn from the facts asserted and the documents incorporated. Here, the Court reviewed the books and records incorporated by reference in the complaint and determined that the plaintiff failed to plead demand futility. More ›
Chancery Declines to Defer to the Deal Price in Appraisal Proceeding Involving a Controller Squeeze-Out Subject to MFW Protections
HBK Master Fund L.P. v. Pivotal Software Inc., C.A. No. 2020-0165-KSJM (Del. Ch. Aug. 14, 2023)
The Delaware Court of Chancery engages in an independent valuation process when determining the fair value of petitioners' stock in appraisal actions. In this case, Chancellor McCormick addresses an interesting question concerning the deal price primacy under Delaware law and ultimately rejects deference to it in controlling stockholder squeeze-out transactions subject to the MFW protections. More ›
Chancery Orders Company to Produce Books and Records in Response to Section 220 Demand and Grants Stockholder Leave to Seek Fees and Costs
Myers v Academy Securities, Inc. C.A. No. 2023-0241-BWD (Del. Ch. July 27, 2023).
Under Section 220 of the Delaware General Corporation Law ("DGCL"), stockholders are entitled to corporate books and records if they make a valid demand on the company, have a proper purpose for conducting an inspection, and establish that each category sought is essential to that purpose. In this case, a Magistrate in Chancery found that the stockholder met his burden to receive books and records for the purpose of determining the value of his shares. The Court also recommended that the stockholder be permitted to seek his attorneys' fees and costs for the books and records action. More ›
Supreme Court Affirms Court of Chancery’s Decision Directing “Long Dark” Company to Produce Books and Records to a Stockholder Free of Confidentiality Restrictions
Hauppauge Digital, Inc. v. Rivest, C.A. No. 2019-0848 (Del. July 10, 2023).
Under Delaware law, once a stockholder has established a proper purpose to inspect a corporation's books and records, the Court of Chancery has the discretion to impose limitations or conditions on the Section 220 production. In this case, the Supreme Court of Delaware agreed with the Court of Chancery's decision not to impose any limitations on the production. More ›
Chancery Finds that Buyer Breached Purchase Agreement by Denying Sellers’ Rights to Participate in a Defense
LPPAS Representative, LLC v. ATH Holding Co. LLC, C.A. 2020-0241-KSJM / Shareholder Representative Services LLC v. ATH Holding Co. LLC, C.A. No. 2020-0443-KSJM (Del. Ch. May 2, 2023)
Delaware law recognizes parties’ ability to create a contractual right for an indemnifying party to participate in the defense of a claim. In this case, the Purchase Agreement provided the Sellers with such Participation Rights in connection with third-party claims that may give rise to Sellers’ indemnification obligations. The Court determined that the Buyer breached the Purchase Agreement by not allowing the Sellers to participate in the defense of investigations. More ›
Chancery Denies Sellers’ Claim Against Buyers for Failure to Close, Finds That Sellers’ Award of “Phantom Equity” to Former Employee Breached Merger Agreement Representations
HControl Holdings LLC vs. Antin Infrastructure Partners S.A.S., C.A. 2023-0283-KSJM (Del. Ch. May 29, 2023)
In Delaware, buyers bear the burden of proving by a preponderance of the evidence their claims for breach of a merger agreement, and sellers bear the burden of proving that buyers could not exercise their termination rights because buyers were in breach of their own obligations. In this case, the Court finds for the Buyers and determines that they were entitled to terminate the deal because the Sellers breached representations in the Merger Agreement. More ›