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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 380 posts by K. Tyler O'Connell.
Court of Chancery Dismisses ABC Proceeding for Failure to Comply with Statute
In re Windmil Therapeutics Inc., C.A. No. 2023-1294-PAF (Del. Ch. Mar. 13, 2024)
This case dealt with the voluntary assignment for the benefit of creditors under 10 Del. C. § 7381, et seq. The ABC statute requires several actions, including the filing of an inventory, which has typically involved the assignee filing a motion for two appraisers. After the appraisal has been provided, the statute requires that the Court fix a bond. Due to the fact that these proceedings may be ex parte and lack transparency, Delaware courts have issued rulings requiring more details from assignees and establishing firm deadlines that are not present in the ABC statute. In this case, the assignee violated the statute by failing to file an inventory within 30 days of the execution of the assignment. Furthermore, the assignee sought to seek approval of a bond prior to the appointment of appraisers, and one of the appraisals was unsigned and marked as a draft. Therefore, because of these statutory violations, the Court dismissed the ABC proceeding.
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 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 ›
Court of Chancery Dismisses Aiding And Abetting Fraud Claim Against Corporate Officers And Directors On Grounds That A Corporation Cannot Conspire With Itself
Urvan v. AMMO, Inc., Consol. C.A. No. 2023-0470 PRW (Del. Ch. Feb. 27, 2024, corrected Mar. 14, 2024)
It is an axiom of Delaware law that a corporation acts through its human agents. This principle informs the causes of action available to would-be plaintiffs against a corporation and its human actors. This case follows the familiar fact pattern where, following a merger, a seller brings a variety of claims against the merged entity and its officers and directors. The plaintiff asserted an aiding and abetting fraud claim against the officers and directors of the company. The officers and directors moved to dismiss the aiding and abetting claim, arguing the intra-corporate conspiracy doctrine generally bars these types of claims because a corporation cannot conspire with itself or its agents. The exception to the general rule is when an “officer steps out of her corporate role and acts pursuant to personal motives.” Reviewing the allegations in the complaint, the Court found that the plaintiff failed to plead sufficient facts to establish that the officers and directors had acted out of their own personal motivations. The Court rejected the plaintiff’s conclusory argument that they participated in making misrepresentations in the merger agreement to hide their past wrongdoing; rather, the Court reasoned that in entering the transaction and making those representations “it seems apparent they were trying to get [the corporation] a favorable deal[.]” Thus, the Court dismissed the aiding and abetting claim.
Chancery Denies Motion to Dismiss Challenge to Microsoft-Activision Merger Where it Was Reasonably Conceivable that the Board Violated Section 251 of the DGCL
AP-Fonden v. Activision Blizzard Inc., C.A. No. 2022-1001-KSJM (Del. Ch. Feb. 29, 2024)
This case arose from a stockholder-plaintiff’s challenge to a merger whereby Microsoft acquired Activision Blizzard. Activision’s board met to approve the merger and approved a draft merger agreement. However, this draft agreement did not include (i) a disclosure letter, which was mentioned 45 times in the draft agreement; (ii) disclosure schedules, which were still being negotiated; (iii) the amount of consideration; or (iv) the surviving corporation’s certificate of incorporation. The agreement as-approved also did not address the issue of dividends that Activision would be permitted to pay while the deal was pending; when it approved the merger agreement, the board delegated the dividend issue to an ad hoc committee of the board. The full board did not review the merger agreement after this meeting, and the final version executed the next day included several changes from the draft agreement, including the dividend provision agreed to by Microsoft and the ad hoc committee. More ›
Court of Chancery Dismisses Derivative Claims Under Rule 23.1 When Plaintiff Failed to Show that Board Members Faced a Substantial Risk of Liability in Failing to Prevent Personal Use of Company Property
Conte v. Greenberg, C.A. No. 2022-0633-MTZ (Del. Ch. Feb. 2, 2024)
In examining whether a pre-suit demand upon the board of directors would be futile, the Court will examine on a director-by-director basis (i) whether the director received a material personal benefit from the alleged misconduct that is the subject of the litigation demand, (ii) whether the director faces a substantial likelihood of liability on any of the claims that would be the subject of the litigation demand, and (iii) whether the director lacks independence from someone who received a material personal benefit from the alleged misconduct that is the subject of the litigation demand or faces a substantial likelihood of liability on any of the claims that would be the subject of the litigation demand. In this case, the plaintiff alleged that the board faced a substantial risk of liability for failing to impose meaningful restrictions on certain executives’ alleged personal use of corporate airplanes, and also for issuing misleading disclosures. The Court disagreed, however, reasoning that even if directors failed to prevent the personal use of the airplane, that alone did not amount to bad faith, because the risk was contained. The Court reasoned the plaintiff’s claim related solely to the “misuse of two corporate assets by discrete individuals, as compared to a widespread operational deficiency.” Furthermore, the Court held that the directors were not at a substantial risk of liability for disclosure claims, because the proxy statement disclosed that certain executives had used the plane for personal use, and the failure to include the several details or characterizations upon which the plaintiff insisted were not material omissions in the context of the proxy statement. The Court accordingly granted the defendants’ motion to dismiss for failure to plead demand futility.
Court of Chancery Addresses Interplay of Attorney-Defendants’ Confidentiality Obligations and Discovery Duties
In re Harris FRC Corp. Merger and Appraisal Litig., C.A. No. 2019-0736-JTL (Del. Ch. February 19, 2024)
Attorney rules for professional conduct across all jurisdictions include a general obligation of confidentiality regarding client information. But what happens when the duty of confidentiality runs into an attorney's duty, as a case party, to produce discovery? This decision from the Court of Chancery provides some insight. More ›
Chancery Finds Egregious Conduct in Books and Records Action Justifying Fee-Shifting Against Corporation
PVH Polymath Venture Holdings Ltd. v. TAG Fintech Inc., C.A. No. 2023-0502-BWD (Del. Ch. Jan. 26, 2024)
Under the “bad faith” exception to the American Rule, Delaware courts will consider shifting fees when aggressive litigation strategies amount to “glaringly egregious” conduct. Here, the Court found the defendant-corporation’s extraordinary attempts to resist a stockholder’s books and records demand under 8 Del. C. § 220 (“Section 220”) warranted requiring the corporation to pay the stockholder-plaintiffs’ attorneys’ fees and expenses. More ›
Failure to Preserve Mobile Data Leads to Multiple Sanctions in the Court of Chancery
Goldstein v. Denner, C.A. No. 2020-1061-JTL (Del. Ch. Jan. 26, 2024)
As more business is conducted via personal mobile devices, modern eDiscovery practice in Delaware generally involves the preservation of custodial mobile data. The failure to preserve relevant data while under a duty to do so may lead to the Court imposing sanctions. More ›
Chancery Denies Attorneys’ Fees for Appointment of New Directors Following Assertion of Derivative Claims
In re Oracle Corp. Deriv. Litig., Consol. C.A. No. 2017-0337-SG (Del. Ch. Feb. 7, 2024)
Under the mootness rule, a stockholder plaintiff can be awarded attorneys’ fees when the plaintiff’s litigation efforts result in the defendants taking action that results in a corporate benefit. In this case, following the stockholder-plaintiffs’ assertion of derivative claims, new independent directors were appointed by the corporation to serve on a special litigation committee to investigate the merits of the litigation. Although the underlying derivative claims were rejected after trial, the plaintiffs argued that the appointment of new directors nonetheless created a corporate benefit and, in fact, resulted in Oracle’s board having at least as many independent directors as supposedly non-independent directors. The Court disagreed, however, and held that the plaintiffs were not entitled to a mootness fee. The Court reasoned that the appointment of the new directors was not a significant benefit because the board was determined to have acted properly in the transaction that gave rise to the underlying lawsuit. Furthermore, the stockholder-plaintiffs did not seek the appointment of independent directors as part of the lawsuit. Therefore, the Court denied the plaintiffs’ request for attorneys’ fees.
Chancery Excuses Condition in Stockholder Agreement When Company Caused its Non-Occurrence
Chordia v. Lee, C.A. No. 2023-0382-NAC (Del. Ch. Jan. 4, 2024)
In this case, as part of a sale of a majority interest, a stockholder agreement granted the founders the ability to designate members to the board of directors so long as at least one founder remained at the company as an officer or employee. The agreement also granted the board the ability to hire and fire executive employees, but did not allow the board to terminate non-executive employees. In addition, the stockholder’s agreement required that the company use reasonable efforts to ensure the rights in the agreement remained effective for the founders’ benefit. More ›
Plaintiffs Adequately Pled Unjust Enrichment for Materially Deficient Disclosures
Buttonwood Tree Value Partners, L.P. v. R.L. Polk & Co. Inc., C.A. No. 9250-VCG (Del. Ch. Dec. 29, 2023)
To state a claim for unjust enrichment, a plaintiff must adequately plead: (1) an enrichment; (2) an impoverishment; (3) a relation between the enrichment and impoverishment; and (4) the absence of a justification. In this Court of Chancery action, the plaintiffs claimed that the defendants were unjustly enriched because the plaintiffs were induced to tender their shares for inadequate compensation as a result of materially misleading disclosures. In response, the defendants argued that the relationship between the company’s self-tender and the benefits that the defendants received from subsequent special dividends and the sale of the company were too attenuated to plead that defendants were aware of these future developments. The Court held, however, that the plaintiffs had adequately pled their claims for unjust enrichment because defendants allegedly knew the true sale value of the company and defendants caused the company to make materially deficient disclosures to increase the defendants’ equity.
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 Wholly Generic Objections to Discovery Requests Result in Waiver and Fee-Shifting
Bocock v. Innovate Corp., C.A. No. 2021-0224-PAF (Del. Ch. Dec. 6, 2023)
In this recent letter opinion, Vice Chancellor Fioravanti considered whether the plaintiffs’ failure to provide specific objections to discovery requests in a timely manner resulted in the waiver of those objections. More ›