K. Tyler O'Connell

Delaware Choice of Law Provision in Stock Purchase Agreement Does Not Eliminate Claim for Fraud under California Securities Act

Swipe Acquisition Corp. v. Krauss, C.A. No. 2019-0509-PAF (Del. Ch. Jan. 28, 2021)

This decision concerned a motion to dismiss a claim for fraud under the California Securities Act, which the defendants argued was waived by a choice of law provision in the parties’ stock purchase agreement (“SPA”) indicating that “all claims or causes of action (whether in contract, tort or statute) that may be based upon, arise out of or relate to this Agreement or the negotiation, execution or performance of this Agreement … shall be governed by, and enforced in accordance with, the internal laws of the State of Delaware, including its statutes of limitations.” More ›

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Chancery Dismisses Stockholder’s Claim that Directors Provided Materially-Deficient Notice of their Intent to Use Equity Bonus Plan to Reward Past Performance

Pascal v. Czerwinski, C.A. No. 2020-0320-SG (Del. Ch. Dec. 16, 2020)

This decision concerned a motion to dismiss a stockholder’s direct claim that Director-Defendants breached their duties by providing a materially-deficient proxy statement advocating adoption of an equity incentive plan (“EIP”) that ultimately allowed Defendants to award themselves bonuses. As a result of the alleged deficiencies, Plaintiffs sought invalidation of the entire EIP. More ›

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Chancery Declines to Apply Stockholder Approval Requirement of DGCL § 271 to Agreement to Transfer All Assets in Lieu of Foreclosure

Stream TV Networks, Inc. v. SeeCubic, Inc., C.A. No. 2020-0310-JTL (Del. Ch. Dec. 8, 2020)

In this decision, the Delaware Court of Chancery reviews the history of requirements to approve transfers of all assets both at common law and under the Delaware General Corporation Law, and concludes that Delaware law does not require majority stockholder approval for an insolvent corporation’s transfer of assets to a secured creditor in lieu of a foreclosure. The Court thus rejected an attempt by the corporation’s founders, who owned a majority of its stock, to invalidate the corporation’s agreement in that regard.  More ›

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Chancery Analogizes to Bylaw Provisions to Conclude that Noteholder was Bound to Forum Selection Clause in Amended Note

Mack v. Rev Worldwide, Inc., C.A. No. 2019-0123-MTZ (Del. Ch. Dec. 30, 2020)

Plaintiff loaned defendant $2.5 million through six secured convertible promissory notes. Each of the notes contained an exclusive forum selection clause requiring any disputes be litigated in Texas. They also contained a “Waiver and Amendment” provision which allowed the notes to be amended or modified upon the consent of the borrower and a majority in interest of the investors in the notes. In 2019, exercising the Waiver and Amendment provision, the defendant borrower, with the consent of the majority of noteholders, consolidated the outstanding notes and amended certain provisions. The new amended note contained the same exclusive forum provision requiring that disputes be litigated in Texas, but the plaintiff noteholder nonetheless asserted default and other claims arising from the notes in the Delaware Court of Chancery. Defendant borrower moved to dismiss, and the plaintiff countered that it had not executed or otherwise consented to the terms of new amended note, including its forum selection provision. More ›

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Superior Court Dismisses Tortious Interference with Contract Claim against Corporate Officer

American Bottling Co. v. Repole, C.A. No. N19C-03-048 AML CCLD (Del. Super. Dec. 30, 2020)

This case illustrates that a Delaware court will dismiss a claim against an officer for tortious interference with a contract to which his or her company is a party unless a plaintiff can assert non-conclusory allegations that the officer acted outside the scope of his or her agency. In this case, the plaintiff and defendant-company were parties to a distribution agreement. The plaintiff brought a claim for tortious interference with contract against the CEO and chairman of the defendant-company claiming that the CEO terminated the agreement to enrich himself and his management team to the detriment of the plaintiff.  More ›

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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 Upholds Claim that CEO Breached Her Duty of Care Relating to a Misleading Proxy Statement

City of Warren General Employees’ Retirement System v. Roche, C.A. No. 2019-0740-PAF (Del. Ch. Nov. 30, 2020)

This case illustrates that an officer’s support for a sale of the corporation does not trigger the “entire fairness” standard where a majority of the members of the board of directors are not alleged to have been interested or lacked independence, and the plaintiff’s allegations otherwise do not support that the officer deceived the board. As also illustrated here, however, materially incomplete or inaccurate disclosures in a proxy statement may state a non-exculpated claim against officers for a breach of the duty of care. More ›

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Chancery Sustains Complaint for Breach of Fiduciary Duty against Viacom Controllers

In re Viacom Inc. Stockholders Litig., C.A. No. 2019-0948-JRS (Del. Ch. Dec. 29, 2020), as corrected (Dec. 30, 2020)

This case exemplifies that the Court of Chancery will review a transaction under the entire fairness standard where a controller receives a non-ratable benefit and the controller fails to condition the transaction on the approval of a special committee and of a majority of the disinterested minority stockholders. Plaintiffs, minority stockholders of Viacom International (“Viacom”), sued Shari Redstone, her corporate entities (together with Ms. Redstone, the “Controllers”), and Viacom directors that were allegedly loyal to Ms. Redstone. Ms. Redstone indirectly controls both Viacom and CBS Corporation (“CBS”). Among other things, the plaintiffs contended that the Controllers breached their fiduciary duties in causing the merger between Viacom and CBS on terms beneficial to the Controllers but detrimental to Viacom’s public stockholders.   More ›

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Chancery Declines to Order Specific Performance of $5.8 Billion Luxury Hotel Deal Scuttled by COVID-19 Changes to Hotel Business Operations

AB Stable VIII LLC v. MAPS Hotels and Resorts One LLC, C.A. No. 2020-0310-JTL (Del. Ch. Nov. 30, 2020)

Parties to a sale and purchase agreement (“SPA”) had planned to close a deal to sell fifteen luxury hotels for $5.8 billion. As the COVID-19 pandemic spread across the globe in early 2020 and battered the hotel industry, the buyer terminated the SPA. Seller sought specific performance in the Court of Chancery. After trial, the Court denied seller’s request for relief. More ›

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Chancery Dismisses Derivative Action for Failure to Plead Demand Futility Despite Unocal Enhanced Scrutiny

Gottlieb v. Duskin, C.A. No. 2019-0639-MTZ (Del. Ch. Nov. 20, 2020)

Defendants moved to dismiss a derivative action for failure to plead demand futility under Rule 23.1. The complaint alleged that the director defendants had breached their fiduciary duties by engaging in a scheme to thwart an unsolicited offer to purchase the company at a premium. In a previous ruling, the Court found that the plaintiff had adequately pled facts that triggered Unocal enhanced scrutiny. Nonetheless, the Court held that, even with the application of Unocal scrutiny, the plaintiff failed to plead facts that would establish that demand was futile.  More ›

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Chancery Finds Company Responsible for Advancing Costs of Defense to Its CEO in a Claim Brought by the Company

International Rail Partners LLC v. American Rail Partners, LLC, C.A. No. 2020-0177-PAF (Del. Ch. Nov. 24, 2020)

The Delaware Limited Liability Company Act (the “LLC Act”) allows a limited liability company (“LLC”) to provide for indemnification as to “any and all claims and demands whatsoever” against an LLC manager or officer, “[s]ubject to such standards and restrictions, if any, as are set forth in [the] limited liability company agreement.” 6 Del. C. § 18-108. The statute prescribes that the LLC agreement may indemnify any person to the fullest extent possible by contract. The only restrictions are those expressly set forth in the relevant LLC contract provisions. An LLC agreement is construed in accordance with Delaware law regarding contract interpretation. More ›

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Chancery Dismisses Action For Plaintiffs’ Failure to Join Indispensable Parties

Germaninvestments AG and Richard Herrling, individually and on behalf of AHMR GmbH v. Allomet Corporation and Yanchep LLC, C.A. No. 2018-0666-JRS (Del. Ch. Nov. 20, 2020)

Under Court of Chancery Rule 12(b)(7), a defendant may move for dismissal because of a failure to join an indispensable party as described in Rule 19. Rule 19 provides that such parties include persons who, “(1) in the person’s absence complete relief cannot be accorded among those already parties, or (2) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person’s absence may (i) as a practical matter, impair or impede the person’s ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest.” If such a person exists in the controversy, the Court may join the person if feasible. If joinder is not feasible, Rule 19(b) requires the Court to “determine whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed, the absent person being thus regarded as indispensable.” Rule 19(b) offers a nonexclusive list of factors to consider when determining whether the action can proceed without the absent party’s involvement. Under Rule 12(h)(2), motions to dismiss for failure to join indispensable parties may be raised up to and including trial, and are not automatically waived as a result of not raising the argument in the first instance. More ›

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Court of Chancery Denies Rule 5.1 Request to Maintain Confidential Treatment for Allegedly Defamatory Statements

Manhattan Telecommunications Corp. v. Granite Telecommunications, LLC, C.A. No. 2020-0468 JRS (Del. Ch. Nov. 19, 2020)
The Court of Chancery denied a motion for continued confidential treatment of allegedly defamatory statements detailed in the plaintiff’s complaint for, inter alia, defamation, tortious interference, and trade libel. In response to a challenge raised by an interested party, a law professor and blogger, to the confidential treatment, the plaintiff filed a motion to continue confidential treatment of the complaint and its exhibits. The interested party opposed the plaintiff’s motion and argued that he intended to use the redacted information to discuss on his blog and potentially for a law review article. More ›

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Chancery Grants Leave to Move for Fees for Overly Aggressive Books and Records Defenses

Pettry v. Gilead Sciences, Inc., C.A. No. 2020-0132-KSJM (Del. Ch. Nov. 24, 2020)

This case illustrates that the Court of Chancery will not accept overly aggressive defenses to books and records actions and may grant fees to discourage such tactics. Section 220 of the Delaware General Corporation Law permits a stockholder plaintiff who has a “credible basis” to suspect wrongdoing by officers and directors to demand inspection of books and records relating to that misconduct. In this case, plaintiff-stockholders of Gilead Sciences, Inc. (“Gilead”) sought to inspect Gilead’s books and records to investigate misconduct. Gilead was subject to numerous lawsuits and government investigations arising out of alleged anticompetitive conduct, mass torts, breach of patents, and false claims relating to the development and marketing of its HIV drugs. The plaintiffs sought books and records about Gilead’s (1) anticompetitive agreements, (2) policies and procedures, (3) senior management materials, (4) communications with the government, and (5) director questionnaires. Gilead refused to produce any documents, even though the plaintiffs had a credible basis to suspect wrongdoing and the records they sought related directly to the misconduct. The Court of Chancery found that “Gilead exemplified the trend of overly aggressive litigation strategies by blocking legitimate discovery, misrepresenting the record, and taking positions for no apparent purpose other than obstructing the exercise of Plaintiffs’ statutory rights.” The Court, therefore, granted plaintiffs leave to move for fee shifting.  More ›

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Delaware Supreme Court Finds that Court of Chancery Had Jurisdiction To Enjoin a Collateral Attack on a Prior Arbitration Award Under the Federal Arbitration Act

Gulf LNG Energy, LLC v. ENI USA Gas Mktg., LLC, No. 22, 2020 (Del. Nov. 17, 2020)

This decision confirms that the Court of Chancery has jurisdiction to enjoin a collateral attack on a prior arbitration award. The Delaware Supreme Court also reasons that the determination of whether a second arbitration collaterally attacks a prior arbitration does not depend on the res judicata or collateral estoppel effect of claims raised or decided in the prior arbitration, but rather whether the claimant asserts irregularities in the prior arbitration or seeks to rectify the harm it suffered, which are issues subject to exclusive review under the post-award procedure in the Federal Arbitration Act (“FAA”). More ›

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