Bryan Townsend

Corporate Opportunity Doctrine Waiver Does Not By Itself Also Constitute a Waiver of Default Fiduciary Duties under an LLC Agreement

77 Charters, Inc. v. Gould, C.A. No. 2019-0127-JRS (Del. Ch. May 18, 2020)

The Court of Chancery held that a waiver of the corporate opportunity doctrine did not by itself constitute a waiver of default fiduciary duties under an LLC agreement. 

Plaintiff 77 Charters, Inc. held non-preferred ownership interests in a joint venture. Defendant Jonathan Gould indirectly held similar non-preferred interests and managed the joint venture’s managing member. Subsequently, Gould indirectly purchased an owner’s preferred interests, and revised the joint venture’s waterfall repayment structure to provide a guaranteed, higher rate of return for preferred interests, at the expense of the residual, non-preferred interests, and reduced the standard of care for the Gould managing member. After 77 Charters filed a books and records demand and settled a related action, Gould sold the joint venture at a price that returned no funds to 77 Charters as a residual owner of non-preferred interests. 77 Charters filed contract and tort claims, and defendants moved to dismiss. More ›

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Applying Rare Intermediate Review of Forum Non Conveniens, the Delaware Superior Court Stays a Delaware Action to Permit Filing of Claims in California

GXP Capital, LLC v. Argonaut Mfg. Servs., Inc., C.A. No. N18C-07-267 PRW CCLD (Del. Super. July 1, 2020)

When evaluating a forum non conveniens challenge, Delaware has a seldom used, intermediate framework of review. Under Gramercy Emerging Markets Fund v. Allied Irish Banks, P.L.C., 173 A.3d 1033, 1044 (Del. 2017), when a prior foreign lawsuit was filed, but is no longer pending, relief in Delaware will be granted or denied based on whichever party the Cryo-Maid factors favor under the traditional forum non conveniens framework. There is no presumption in favor of a plaintiff (such as when a Delaware action is first-filed) or in favor of a defendant (such as when a foreign action is first-filed and still pending). More ›

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Delaware Superior Court Interprets Contractual Language Governing Earn-out Payment

B&C Holdings, Inc. v. Temperatsure Holdings, LLC, C.A. No. N19C-02-105 AML CCLD (Del. Super. Apr. 22, 2020).

As this decision demonstrates, Delaware courts will enforce the plain and ordinary meaning of contractual terms governing an earn-out payment, including the process by which a payment is to be calculated, noticed, and contested. More ›

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Court of Chancery Permits Targeted Jurisdictional Discovery to Seek Proof to Support Non-Frivolous Claim of Personal Jurisdiction

HM Life Ins. Co. v. Wilmington Sav. Fund Soc’y, FSB, C.A. No. 2018-0649-SG (Del. Ch. Apr. 9, 2020).

If a plaintiff has pled facts in its complaint to support a non-frivolous claim of personal jurisdiction over a defendant, the Court of Chancery may allow targeted jurisdictional discovery to seek proof that the Court has personal jurisdiction over a defendant in response to a motion to dismiss for lack of personal jurisdiction. More ›

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Chancery Shifts Attorneys’ Fees Under Bad-Faith Exception Based on False Statements in Plaintiff’s Complaint and Obstruction of Discovery

Bay Capital Finance, L.L.C. v. Barnes and Noble Education, Inc., C.A. No. 2019-0539-KSJM (Del. Ch. Mar. 30, 2020).

With some limited exceptions, the American Rule requires parties to pay their own attorneys’ fees in litigation. One exception permitting a court to shift fees is bad-faith litigation conduct. False or misleading statements by parties in their pleadings and abuse or obstruction of the discovery process are two examples of conduct that may support shifting fees. More ›

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Chancery Finds the Common Interest Doctrine Shields Communications Between a Bankruptcy Litigation Trust and its Largest Unsecured Creditor

RCS Creditor Trust v. Schorsch, C.A. No. 2017-0178-SG (Del. Ch. Mar. 20, 2020). 

The common interest doctrine shields communications with a third-party from disclosure when the common interest invoked by the party asserting the privilege is in furtherance of a joint legal strategy or objective with the third-party, and not simply for a commercial purpose. More ›

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Chancery Holds That Res Judicata Precludes Plaintiff’s Claim for Information Rights Under Merger Agreement

Fortis Advisors LLC v. Shire US Holdings, Inc., C.A. No. 2018-0933-JRS (Del. Ch. Feb. 13, 2020).

The doctrine of res judicata bars a plaintiff from splitting claims arising from a single transaction into multiple actions. As this decision illustrates, the requirement to plead all claims arising from a transaction in a lawsuit to avoid claim preclusion on res judicata grounds may include a claim for information rights arising from a merger agreement. A party with information rights should carefully evaluate those rights when bringing a claim for breach of contract, and should not assume that subsequent claims for information rights under the contract will avoid claim preclusion under the doctrine of res judicata. More ›

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Co-Founder Squeezed Out in Conversion from LLC to Corporation Adequately Pled Claims for Fraud, Breach of Fiduciary Duties, Aiding and Abetting, and Civil Conspiracy

Ogus v. SportTechie, Inc., C.A. No. 2018-0869-AGB (Del. Ch. Jan. 31, 2020). 

Simon Ogus was a co-founder of a sports-technology news company. He owned 44.5 percent of the LLC’s units, held veto power over major decisions of the company, and had employment protection based on a requirement that the company could only terminate his employment for cause. After outside investors began making large investments in the company, several officers and directors persuaded Mr. Ogus to: (1) approve a conversion of the LLC to a corporation; (2) sign a written consent of stockholders to expand the size of the board of directors; and (3) execute a shareholders agreement that gave the company the option to purchase Mr. Ogus’ shares if his employment was terminated for any reason, at fair market value, as determined in good faith by the board. One month later, the company terminated Mr. Ogus without cause and proposed to purchase his shares. Mr. Ogus brought suit, claiming that the officers and directors conspired to remove him from the company and eliminate his 44.5% interest to enrich themselves, and transfer control of the company to Oak View Group, a private equity & venture fund. Defendants moved to dismiss his suit. More ›

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Delaware Supreme Court Explains That Litigants Seeking Application of Foreign Law Have Burden To Establish its Substance

Germaninvestments AG v. Allomet Corp., No. 291, 2019 (Del. Jan. 27, 2020). 

In reversing the Court of Chancery’s decision that Austrian law applied to the interpretation of whether a forum selection clause was permissive or mandatory, the Delaware Supreme Court ruled that, to the extent prior decisions were unclear on the issue, a party seeking the application of foreign law in a Delaware court has the burden not only of raising the issue of the applicability of foreign law under court rules, but also, of establishing the substance of the foreign law to be applied.    More ›

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Delaware Superior Court Distinguishes Between Affirmative and Negative Covenants in Earnout Dispute

Quarum v. Mitchell Int’l, Inc., C.A. No. N19C-03-087 AML CCLD (Del. Super. Jan. 21, 2020).

Under Delaware law, parties may structure covenants in an earnout agreement as affirmative (mandating action) or negative (prohibiting action). Given the important differences in the obligations these types of covenants impose, as illustrated by this decision, parties should carefully consider the contractual language in drafting. More ›

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Chancery Declines to Apply Corwin Where a Stockholder-Plaintiff Adequately Alleged the Existence of a “Control Group”

Garfield v. BlackRock Mortgage Ventures, LLC, C.A. No. 2018-0917-KSJM (Del. Ch. Dec. 20, 2019).

Under Delaware law, when a controlling stockholder benefits personally from the transaction in a manner not shared by minority stockholders, a stockholder vote does not trigger Corwin and restore the protections of the business judgment rule. This decision considers whether a stockholder-plaintiff sufficiently alleged a “control group” to avoid Corwin deference. More ›

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Chancery Modifies Advancement Award, Finds Amended Claim Challenging Only Post-Separation Conduct No Longer Triggered Advancement Obligations

Carr v. Global Payment Inc., C.A. No. 2018-0565-SG (Del. Ch. Dec. 11, 2019).

Under Delaware law, an order requiring a company to advance attorneys’ fees and expenses may be modified if the claims that triggered the advancement obligation are amended to no longer do so. In this case, a company successfully amended its claims against a former director and officer to eliminate certain advancement obligations.  More ›

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Chancery Finds Proper Purpose in Books and Records Demand to Investigate Potential Wrongdoing in CBS-Viacom Merger, Orders Narrowed Inspection that Includes Electronic Documents

Bucks Cty. Employees Ret. Fund v. CBS Corp., C.A. No. 2019-0820-JRS (Del. Ch. Nov. 25, 2019).

A stockholder seeking books and records in Delaware states a proper purpose for inspection by demonstrating a credible basis to suspect that fiduciaries engaged in wrongdoing. So long as the documents sought are necessary and essential to that purpose, the Court of Chancery will order inspection. The Court generally will not, however, require a broad production of electronic documents akin to plenary discovery. More ›

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Chancery Rejects Claim that Books and Records Demand was “Pretextual,” Finds Sufficient Overlap Between Demand Letter and Plaintiff’s Purpose

Donnelly v. Keryx Biopharmaceuticals, Inc., C.A. No. 2018-0892-SG (Del. Ch. Oct. 24, 2019).

A stockholder-plaintiff seeking a corporation’s books and records must have a genuine proper purpose, and cannot rely simply on a lawyer-crafted demand letter to justify her request.  There must be alignment between a plaintiff’s books and records demand and her own stated interest in seeking books and records.  In this recent decision, the Court of Chancery considers and rejects an attempt by a defendant-corporation to argue that a books and records demand was really driven by plaintiff’s counsel, and that the plaintiff lacked any genuine proper purpose. More ›

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Court of Chancery Orders Advancement of Fees for Former Directors and Officers who Sold their Stock in a Private Transaction

Nielsen v. EBTH, Inc., C.A. No. 2019-0164-MTZ (Del. Ch. Sept. 30, 2019).

Delaware law permits advancement of fees and expenses for officers or directors who have such rights under certificates of incorporation, bylaws, or indemnification agreements.  Depending on the factual allegations of the underlying action, advancement rights can apply even for former officers and directors of a company who sold their stock in a private transaction to which the company was not a party. More ›

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