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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.
Chancery Sustains Claims for Controlling Stockholders’ Breach of Fiduciary Duties, But Dismisses Claim to Void Transaction under DGCL Section 205
Amgine Techs. (US), Inc. v. Miller, C.A. No. 2020-0537-JRS (Del. Ch. Nov. 29, 2021)
This case involves the Court of Chancery’s consideration of various Rule 12 arguments for dismissal advanced by defendants – alleged controlling stockholders who assigned certain of the corporation’s intellectual property to another entity they owned, and who allegedly caused the corporation to enter into a stockholders’ agreement that gave them preferential terms. More ›
Chancery Dismisses Derivative Action Based On Alleged Liability Under DGCL § 174 For Stock Repurchases and Dividends
In re The Chemours Co. Deriv. Litig., C.A. 2020-0786-SG (Del. Ch. Nov. 1, 2021)
Broadly speaking, Sections 160 and 173 of the DGCL prohibit a corporation from repurchasing stock or issuing dividends if doing so would exceed the corporation’s surplus. Both Sections 160 and 173 are enforceable under Section 174, which provides that directors “under whose administration” a “willful or negligent” violation of Section 160 or 173 occurs are “jointly and severally liable” to the corporation. Here, the Court of Chancery rejected a challenge to dividend and stock repurchases premised upon directors’ alleged incorrect assessment of potential environmental liabilities. More ›
Chancery Awards $9.5 Million Mootness Fee for Reduction of Voting Control and Other Benefits
Hollywood Firefighters Pension Fund v. Malone, C.A. 220-0880-SG (Nov. 8, 2021)
A plaintiff may be entitled to a mootness fee if it shows that its action had merit and produced a corporate benefit. This case outlines the Court of Chancery’s analysis in valuing non-monetary benefits and, in turn, the appropriate mootness fee. More ›
Chancery Rules that Multiple Egregious Discovery Abuses Lead to the Ultimate Sanction
DG BF, LLC v. Ray, C.A. No. 2020-0459-MTZ (Del. Ch. Nov. 19, 2021)
Delaware courts may impose sanctions on parties that refuse to comply with court orders or neglect their own discovery obligations. Possible sanctions may include, among other things, monetary penalties, an instruction of adverse inference, or the ultimate sanction of default judgment against the offending party. These sanctions are imposed to remedy the wrongs at-issue and to deter abusive discovery conduct. More ›
Chancery Finds Former Directors Bringing Wrongful Termination Claims Were Not Entitled to all Privileged Communications During Their Board Tenures, and Shifts Some Fees for Inadequate Privilege Logs
SerVaas v. Ford Smart Mobility LLC, C.A. No. 2020-0909-LWW (Del. Ch. Nov. 9, 2021)
With limited exceptions, directors normally have “unfettered” access to corporate information. This decision indicates, however, that the same may not hold true for former directors who do not challenge their removal as directors and who seek documents for reasons unrelated to their prior board service. Here, the Court of Chancery denied a motion to compel by two former directors who challenged the termination of their employment, and who sought in discovery all of the documents the corporation withheld as a privilege from their time as directors. More ›
Chancery Rules That The Standard Of Proof For Contempt Motions Is The Preponderance Of The Evidence, Not Clear And Convincing Evidence
inTEAM Associates, LLC v. Heartland Payment Systems, LLC, C.A. No. 11523-VCF (Del. Ch. Oct. 29, 2021)
Court of Chancery Rule 70(b) empowers the Court to hold a party in contempt for, among other things, failing to obey an injunctive order. The standard of proof required to obtain a contempt order has not been uniformly applied. This recent decision applies the preponderance of the evidence standard, in contrast to certain decisions over the past decade applying the clear and convincing evidence standard. More ›
Chancery Holds Plaintiffs Adequately Pled Wrongful Refusal Where Board Did Not Correct Unauthorized Charter Amendments
Drachman v. Cukier, C.A. No. 2019-0728-LWW (Del. Ch. Oct. 29, 2021)
To survive a motion to dismiss in the demand refusal context, the plaintiff must allege facts that create a reasonable doubt that the board’s decision to deny the demand was consistent with its duty of care to act on an informed basis or that the board acted in good faith, consistent with its duty of loyalty. Where the board’s response and other circumstances give rise to a reasonable inference that directors did not care about a clear, continuing violation of law, the standard for wrongful refusal may be met. More ›
Chancery Applies Plain Language of a Merger Covenant To Dismiss Acquirer’s Untimely Indemnification Claim and Deny Sellers’ Request for Detailed Annual Reports
Supernus Pharms., Inc. v. Reich Consulting Grp., Inc., C.A. No. 2020-0217-MTZ (Del. Ch. Oct. 29, 2021)
Supernus Pharmaceuticals, Inc. acquired biotech startup Biscayne Neurotherapeutics, Inc. pursuant to a 2018 merger agreement. In 2019, Supernus submitted indemnification claim notices to Reich Consulting Group, Inc., the security holder representative for Biscayne. Subsequently, Supernus filed an indemnification action against Reich in the Court of Chancery. Following trial, plaintiff Supernus’s only remaining indemnification claim was based on a provision in the merger agreement that required Biscayne to operate in the ordinary course of business during a specific period of time (“Ordinary Course Covenant”). More ›
Presented with Documents Outside the Pleadings, Chancery Converts Motion To Dismiss to Motion for Summary Judgment and Allows Discovery
Totta v. CCSB Fin. Corp., C.A. No. 2021-0173-KSJM (Del. Ch. Oct. 20, 2021)
While the Court may take judicial notice of the contents of materials like newspaper articles, public filings and websites for certain purposes, it generally may not do so to establish the truth of their contents. Where, as here, a party relies on documents outside the pleadings, the Court may convert a motion to dismiss into a motion for summary judgment, and therefore deny the motion. More ›
Chancery Dismisses Implied Covenant Claim For Former Stockholders’ Alleged Improper Demands That Company Take Actions To Achieve Earn-out Milestones
Pacira Biosciences, Inc. v. Fortis Advisors LLC, C.A. No. 2020-0694-PAF (Del. Ch. Oct. 25, 2021)
There generally cannot be a claim under the implied covenant of good faith and fair dealing for conduct that is addressed by the plain language of an agreement. Even when a contract is silent, the Court will not use the covenant to rewrite the contract to imply contractual provisions that a party failed to obtain at the bargaining table. More ›
In Recent Facebook Decisions, Chancery Permits Demand-Futility Plaintiffs to Proceed Before Demand-Refused Plaintiff
Feuer v. Zuckerberg, C.A. No. 2019-0324-JRS & In re Facebook, Inc. Deriv. Litig., Consol. C.A. 2018-0307 (Del. Ch. Oct. 5, 2021), rearg. denied (Del. Ch. Nov. 8, 2021).
Recent decisions in the Facebook derivative litigation addressed issues of case management where competing groups of derivative plaintiffs disagree about whether making a pre-litigation demand upon the board was futile, and where disputes are raised about whether the suits should be consolidated, and which theories should proceed first. More ›
Delaware Court of Chancery Holds That Scope of Director and Officer Indemnification Under D&O Policy Is Within Exclusive Jurisdiction Of The Delaware Superior Court
Ernesto Rodriguez et al. v. Great American Insurance Company, C.A. No. 2020-0387-JRS (Del. Ch. Oct. 20, 2021)
The Court of Chancery’s subject matter jurisdiction is limited, and arises in three circumstances: (1) the complaint asserts an equitable claim; (2) the complaint seeks an equitable remedy and there is no adequate remedy at law; or (3) jurisdiction is vested in the Court of Chancery by statute. In this recent decision, the Court of Chancery held that its limited subject matter jurisdiction did not extend to determine the scope of a Delaware corporation’s directors and officers (D&O) insurance policy. More ›
Delaware Court of Chancery Dismisses Caremark Claim Arising From Marriott Cybersecurity Breach
Previously published on Business Law Today
Fire Ret. Sys. of St. Louis v. Sorenson, et al., 2021 WL 4593777 (Del. Ch. Oct. 5, 2021).
The Delaware Court of Chancery dismissed pursuant to Rule 23.1 derivative claims arising from the hack of roughly 500 million users’ personal data following Marriott’s 2016 acquisition of Starwood Hotels and Resorts – one of the largest hacks ever, an event that spawned lawsuits and governmental investigations. Among other things, the stockholder-plaintiff failed to allege with particularity facts showing that a majority of the board of directors consciously disregarded “red flags” showing alleged non-compliance data privacy norms. While “[w]ith hindsight knowledge of the extent of the data breach,” the board’s remediation plan was implemented “probably too slow.” Id. at *16. But, the court reasoned, “the difference between a flawed effort and a deliberate failure to act is one of extent and intent. A Caremark violation requires the plaintiff to demonstrate the latter.” Id. at *19. Accordingly, the court dismissed the plaintiff’s complaint.
Delaware Court of Chancery Upholds Incumbent Directors’ Decision not to Excuse Stockholders’ Non-Compliance with Advance Notice Bylaw
Previously posted on Business Law Today
Rosenbaum v. CytoDyn Inc., 2021 WL 4775410 (Del. Ch. Oct. 13, 2021)
The Delaware Court of Chancery recently upheld incumbents’ decision not to include insurgent director nominees on the ballot due to their failure to comply with an advance notice bylaw. For months, the director nominees and certain affiliated stockholders were aware of the requirements of the bylaw, which had been adopted on a clear day. On the eve of the deadline, they submitted a deficient notice that failed to disclose (i) the supporters of the nominees or their proposals, and (ii) the fact one nominee recently tried to have the corporation purchase his separate business, and that he may do so again. The court reasoned that, had the stockholders proceeded sooner, and submitted a deficient notice with “ample time” before the deadline, then directors exercising their fiduciary duties may have had to work with the dissidents to address the deficiencies. Id. at *17. As it stood, however, the incumbents’ decision to enforce the bylaw did not evince “manipulative conduct” in violation of the incumbents’ fiduciary duties. See id. at *14-17.
Chancery Finds Adversity Between Directors and Formation of Special Committee Shields Against Production of Company-Privileged Information
In re: Howard Midstream Energy Partners, LLC, C.A. No. 2021-0487-LWW (Del. Ch. Sept. 22, 2021)
Issues of corporate privilege among directors entail a fact-specific analysis when a dispute arises among them. Here, the Court of Chancery considered a motion to compel brought by former directors and officers who claimed they were “ambushed” in a corporate “coup.” Because the directors should have considered themselves adverse to the corporation, and because a special committee was formed to deal with the petitioners’ potential separation from the company, the Court denied the petitioners’ motion to compel communications between the other directors and the company withheld as privileged. More ›