R. Eric Hacker

Chancery Excuses Demand Where General Partner and its Controller Faced Substantial Likelihood of Liability

Lipman v. GBP Capital Holdings, LLC, C.A. No. 2020-0054-SG (Del. Ch. Nov. 18, 2020)

In derivative actions, a plaintiff must either make a pre-suit demand or plead with particularity why demand should be excused. As this case shows, the facts that must be pled differ when the demand would be made upon the general partner in a limited partnership as opposed to a corporate board. More ›

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Chancery Holds California Statutory Bar to Choice-of-Forum Clauses in Employment Contracts Prevents Exercise of Personal Jurisdiction – Despite Parties’ Choice of Delaware Law and Agreement to Litigate in Delaware

Focus Fin. Partners, LLC v. Holsopple, C.A. No. 2020-0188-JTL (Del. Ch. Oct. 26, 2020).
Delaware law promotes freedom of contract, and Delaware courts enforce contractual choice-of-forum and choice-of-law provisions, including those in employment-related contracts. Recently, however, several Delaware cases have considered whether such provisions can be enforced against non-residents in the face of contrary substantive law or fundamental public policy in their home jurisdiction. In California, a statute (“Section 925”) makes choice-of-law and choice-of-forum provisions voidable by the employee if the provisions appears in an agreement signed as a condition of employment. Here, the Court addressed how to reconcile Section 925 with the parties’ agreement to resolve disputes in Delaware and to apply Delaware law. Specifically, when the defendant (a former employee who lives and works in San Francisco) was hired, he received incentive units pursuant to agreements that contained restrictive covenants and selected Delaware as the exclusive forum for disputes, and selected Delaware law as the applicable law. The plaintiff brought suit in Delaware to enforce the restrictive covenants, and the employee moved to dismiss for lack of personal jurisdiction. More ›

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Chancery Invokes Internal Affairs Doctrine to Dismiss Dispute Over Former Delaware Corporation Brought Over Two Years After Its Migration to Nevada

Sylebra Capital Partners Master Fund, LTD v. Perelman, et. al., C.A. No. 2019-0843-JRS (Del. Ch. Oct. 9, 2020)

Defendant Scientific Games Corporation (the “Company”) is a gaming and lottery company that reincorporated in Nevada from Delaware in January 2018. The Company adopted new Nevada bylaws that, among other things, require stockholders to bring claims for breaches of fiduciary duties in Nevada. Because the Company operates in the gaming industry, the bylaws also require stockholders to meet “suitability” requirements and restrictions on sale set by gaming regulators in jurisdictions where the Company operates. Approximately four months before Plaintiffs filed suit, the Company filed suit in Nevada to force Plaintiffs to comply with an investigation into their suitability as stockholders. More ›

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Superior Court Rejects Insurers’ Motions to Dismiss Coverage Dispute Based upon Ripeness and Lack of Personal Jurisdiction

Energy Transfer Equity, L.P. v. Twin City Fire Insurance Co., et al., C.A. No. N19C-11-009 EMD CCLD (Del. Super. Ct. Sept. 25, 2020)

Energy Transfer Equity, L.P. v. Twin City Fire Insurance Co., et al., C.A. No. N19C-11-009 EMD CCLD (Del. Super. Ct. Sept. 28, 2020) 

Plaintiffs-Insureds sought declaratory relief and damages for Defendants-Insurers anticipatory breach of directors’ and officers’ insurance policies. Defendant Twin City Fire Insurance Co. issued the primary policy, and the remaining Defendants issued excess coverage policies. Plaintiffs specifically sought insurance coverage related to litigation in the Court of Chancery (“Dieckman Action”), in which trial had occurred but no decision had been issued. More ›

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Superior Court Dismisses Successor-by-Merger’s Claims Where Underlying Contract Contained Anti-Assignment Clause

MTA Royalty Corp. v. Compania Minera Pangea, S.A. DE C.V., C.A. No. N19C-11-228 AML CCLD (Del.  Super. Sept. 16, 2020)

Plaintiff’s predecessor-in-interest conveyed mineral rights to Defendant. Under the agreement, Defendant owed a conditional additional $1 million at a future date. Before the payments became due, the predecessor was merged out of existence. As a result, Defendant asserted it had no obligation to pay the additional amount because the sale agreement included an anti-assignment provision that barred assignment absent Defendant’s consent, which was lacking. More ›

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Chancery Dismisses Claim for Breach of Fiduciary Duty Where Parties’ Commercial Relationship Was One of Ordinary Care

Nieves v. Insight Building Co., LLC, C.A. No. 2019-0464-SG (Del. Ch. Aug. 4, 2020)

The Court of Chancery used an unlikely vehicle — a dispute over stormwater drainage — to further explain the limits of common law fiduciary duties. Plaintiffs/Homeowners experienced drainage issues and brought several claims against their builder, as well as the developer (“Developer”) from which the builder had purchased lots. One such claim was that Developer had breached a fiduciary duty to Homeowners, even though Plaintiffs did not purchase their lots directly from Developer or otherwise have a contractual or commercial relationship with Developer. Plaintiffs/Homeowners alleged Developer “owes a common law fiduciary duty … because Plaintiffs reposed a special trust in and reliance on the judgment of the developer.” (internal citations omitted.) More ›

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Chancery Rejects Bid to Jettison USACafes and its Holding That, Absent Agreement to the Contrary, the Controllers of a Corporate General Partner Owe Fiduciary Duties

Fannin v. UMTH Land Development, L.P. (In re: United Development Funding III, L.P.), C.A. No. 12541-VCF (Del. Ch. Jul. 31, 2020).

The Court of Chancery has concluded that in certain situations, equity will, by default, impose fiduciary duties upon a corporate relationship. This decision rejects on stare decisis grounds an attempt to overturn longstanding precedent in this area. More ›

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Chancery Denies Books and Records Request From Indirect LLC Interest Holder That Assigned its Rights Prior to the Demand and the Action

SolarReserve CSP Holdings, LLC v. Tonopah Solar Energy, LLC, C.A. 2020-0064-JRS (Del. Ch. Jul. 24, 2020)
Describing the case as deja vu, the Court of Chancery dismissed Plaintiff’s second attempt to enforce alleged rights related to Defendant/Company. See SolarReserve CSP Holdings, LLC v.  Tonopah Solar Energy, LLC, C.A. 2019-0791-JRS (Del.  Ch. Mar. 18, 2020) (“SolarReserve I”). The Company was formed to develop a solar power plant in Nevada, but the plan never came to fruition. More ›

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Delaware Supreme Court Holds That Limited Partnership Agreement That Includes Certain Books and Records Language From Section 17-305 of Limited Partnership Act Does Not Automatically Incorporate Judicial Interpretations of Section 17-305

Murfrey v. WHC Ventures, LLC, App. No. 294, 2019 (Del. Supr. Jul. 13, 2020)

Drafters of alternative entity agreements frequently cite to, or quote, statutory language to describe the parties’ obligations. But, the Delaware Supreme Court has concluded that when drafters do so, the drafters should be explicit in whether they also intend to incorporate judicial interpretations of that language, too. Here, because the governing limited partnership agreements (the “Agreements”) did not include an express requirement limiting books and records rights to those “necessary and essential” to a proper purpose, the Supreme Court declined to imply one. More ›

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Court Finds LLC Manager Consent Statute Authorizes Personal Jurisdiction for Tort Claims Related to the Company, Not Just Alleged Breaches of Managers’ Duties; However, Court Dismisses Investor Defendants with Insufficient Delaware Contacts

CLP Toxicology, Inc. v. Casla Bio Holdings LLC, C.A. 2018-0783-PRW (Del. Ch. Jun. 29, 2020) & NC18C-10-332 PRW CCLD (Del. Super. Jun. 29, 2020)

In both the corporation and LLC contexts, Delaware law employs consent statutes, which authorize personal jurisdiction over officers and directors of corporations and over managers (in name or in fact) of LLCs. Despite broad language in such statutes, courts traditionally interpreted the statutes to apply to only claims related to breaches of fiduciary or statutory duties. As demonstrated here, however, the modern trend is to interpret consent statutes to apply to a broader range of claims related to the entity. More ›

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Chancery Dismisses Challenge to Top Executives’ Stock Awards in Disney-Fox Merger, Finds Plaintiff Lacks Standing to Pursue Derivative Claim

Brokerage Jamie Goldenberg Komen Rev TRU U/A 06/10/08 Jamie L Komen Trustee for the Benefit of Jamie Goldenberg Komen v. Breyer, C.A. No. 2018-0773-AGB (Del. Ch. June 26, 2020)

Following a merger that alters a stockholder’s ownership status, the stockholder may be able to challenge the entirety of the merger as a direct claim, but the stockholder will typically lack standing to challenge the individual aspects of the merger as derivative claims. The instant case, involving the Disney-Fox merger, shows the difficulties a stockholder faces in attempting to mount such a challenge. More ›

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Chancery Applies Contract’s Choice of Law to Related Fraud Claims, Declines to Dismiss Fraud Claims Where Contract Lacked Clear Anti-Reliance Language

The Anshutz Corp. v. Brown Robin Cap., LLC, 2019-0710-JRS (Del. Ch. June 11, 2020)

In dealing with what the Court of Chancery called “a version of a [commercial] dispute as old and abiding as commerce itself,” the Court provides insights useful to drafters of both pleadings and contracts. More ›

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Even Though Evidence Supports Plaintiffs’ Fraudulent Inducement Claim, Chancery Denies Relief Where Plaintiff Never Gave Defendant Fair Notice of Claim Prior to Trial

HOMF II Investment Corp. v. Altenberg, C.A. No. 2017-0293-JTL (Del. Ch. May 19, 2020)

Due process requires that a plaintiff provide the defendant with fair notice of the plaintiff’s claims. As this recent post-trial decision shows, the failure to give fair notice can procedurally bar recovery -- even when the trial evidence establishes that the claims have substantive merit. More ›

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Superior Court Stays First-Filed Declaratory Judgment Action in Nokia Technology Dispute

Nokia Solutions v. Collison Comm., Inc., C.A. No. N19C-10-262 AML CCLD (Del. Super. Apr. 30, 2020)

Delaware law recognizes several doctrines intended to respect principles of comity and the efficient administration of justice when there is competing litigation across jurisdictions. Those doctrines are applied flexibly and have developed to avoid incentivizing races to the courthouse, as illustrated by this Delaware Superior Court decision staying a first-filed declaratory judgment action.  More ›

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Chancery Compares Aronson and Rales Tests for Demand Futility; Finds Well-Pled Caremark Claim Showing No Good Faith Effort to Oversee Financial Reporting and Related-Party Transactions Made Demand Futile

Hughes v. Hu, C.A. No. 2019-0112-JTL (Del. Ch. Apr. 27, 2020).

Everyone from bar applicants to seasoned litigators and counsel advising boards of directors can find something of interest in Hughes v. Hu, which (i) provides a comprehensive review of how the Court of Chancery evaluates demand futility in derivative actions and (ii) discusses the type of allegations that will support a well-pled Caremark claim for failure to take affirmative steps to ensure an effective board-level monitoring reporting system is in place. More ›

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