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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 Applies Recent Zuckerberg Decision and Holds That Demand Was Not Excused
Genworth Fin., Inc. Consol. Deriv. Litig., C.A. No. 11901-VCS (Del. Ch. Sept. 29, 2021)
In a demand futility analysis, Delaware courts have traditionally applied the Rales and Aronson decisions. However, the Delaware Supreme Court recently adopted the Zuckerberg test. Under this new three-part test, Delaware courts ask: (1) whether the director received a material personal benefit from the alleged misconduct of the litigation demand; (2) whether the director would face a substantial likelihood of liability on any of the claims that are the subject of the litigation demand; and (3) whether the director lacks independence from someone who received a material benefit from the alleged misconduct that is the subject of the litigation demand or who would face a substantial likelihood of liability on any of the claims that are subject to the litigation demand. More ›
In Unusual Circumstances, Chancery Declines to Stay Discovery Pending Motion to Dismiss
Edward Deane, et al. v. Robert Maginn, Jr., C.A. No. 2017-0346-LWW (Del. Ch. Sept. 8, 2021)
Delaware courts often grant a motion to stay discovery pending the resolution of a potentially case-dispositive motion to dismiss. In “[t]he unique circumstances of this case,” however, the Court of Chancery denied a stay. The court focused on the parties’ responsibility to adhere to the discovery schedule to which they previously agreed. More ›
Chancery Dismisses Derivative Claims That Private Equity Sponsors Comprised A Control Group
Patel v. Duncan, C.A. No. 2020-0418-MTZ (Del. Ch. Sept. 30, 2021)
For stockholders to comprise a control group, the alleged group members must be connected in some “legally significant way – such as by contract, common ownership, agreement or another arrangement – to work together toward a shared goal.” Sheldon v. Pinto Tech. Ventures, L.P., 220 A.3d 245, 251-52 (Del. 2019). There must be “an indication of an actual agreement, although it need not be formal or written.” Id. Here, the court dismissed a claim alleging that two private equity funds comprised a control group that agreed to cause the corporation to engage in two unfair, self-interested transactions as a quid pro quo arrangement between them. Specifically, the plaintiff alleged they agreed to cause the corporation to overpay in two successive transactions in which the counterparties who benefitted unfairly were affiliates of the respective private equity funds. More ›
Delaware Court of Chancery Enjoins Arbitration, Holds It Has Subject Matter Jurisdiction to Decide Substantive Arbitrability In Face Of Competing Arbitration Provisions
AffiniPay, LLC, et al. v. West, C.A. No. 2021-0549-LWW (Del. Ch. Sept. 17, 2021)
As a general matter, Delaware courts retain jurisdiction to determine substantive arbitrability – that is, whether claims are subject to arbitration under the relevant arbitration clause. Delaware courts will defer to arbitrators’ determinations of such issues, however, where the parties’ contract reflects their “clear and unmistakable” intent to do so, a standard that may be met by, among other things, contractual language that “all disputes” are submitted to arbitration and the incorporation of official arbitration rules that empower arbitrators to decide arbitrability. Here, because the parties’ dispute implicated multiple agreements with competing and conflicting arbitration clauses assigning arbitrability to different arbitrators, the Court of Chancery retained jurisdiction to determine arbitrability. The Court granted a preliminary injunction preventing arbitration from proceeding in the arguably incorrect forum. More ›
Chancery Enforces Parties’ Merger Agreement That Barred Claims Upon Termination of the Agreement
Yatra Online, Inc. v. Ebix, Inc., C.A. No. 2020-0444-JRS (Del. Ch. Aug. 30, 2021)
Agreements frequently specify how the termination of the agreement affects the parties’ rights and obligations. This case illustrates that Delaware courts generally enforce “effect of termination” provisions in merger agreements as readily as any other contract provision. More ›
Chancery Denies Motion to Dismiss in Part Because Certain Discussions Between CEO and Acquirer Were not Disclosed in Proxy When Other Similar Communications Were
Teamsters Local 237 Additional Security Benefit Fund v. Caruso, C.A. No. 2020-0620-PAF (Del. Ch. Aug. 31, 2021)
Under Revlon, a director must focus on obtaining a transaction that provides the maximum value for stockholders in a sale of control. In addition, when directors solicit stockholder approval, they must disclose fairly and fully all material information. More ›
Delaware Superior Court Holds That Claim For Gross Negligence Against Corporate Managers Is An Equitable Claim For Breach Of Fiduciary Duty Over Which It Lacks Subject Matter Jurisdiction
Techview Investments Ltd., v. Amstar Poland Property Fund I, L.P., C.A. No. N20C-11-229 EMD CCLD (Del. Super. Ct. Aug. 31, 2021)
The court's ability to hear actions is limited by their jurisdiction – both jurisdiction over parties and jurisdiction over claims. This recent decision from the Delaware Superior Court’s Complex Commercial Litigation Division provides guidance on (1) the scope of contractually granted personal jurisdiction; and (2) subject matter jurisdiction for claims of gross negligence against corporate managers in Delaware. More ›
Chancery Dismisses Derivative Claims Alleging Insider Trading and Misleading Disclosures for Failure to Plead Demand Futility
In re Zimmer Biomet Hldgs., Inc. Deriv. Litig., C.A. No. 2019-0455-LWW (Del. Ch. Aug. 25, 2021)
Under Court of Chancery Rule 23.1, a stockholder-plaintiff may only bring a derivative suit on behalf of a company if the plaintiff (i) first makes a demand on the board to bring suit and is wrongfully refused, or (ii) adequately pleads that a demand would have been futile because the directors were incapable of impartially considering it. Here, the court granted the defendants’ motion to dismiss, because the stockholder-plaintiff failed to allege facts that a majority of the board of directors – who concededly were otherwise disinterested and independent – faced a substantial risk of personal liability. More ›
Chancery Denies Motion to Dismiss, Awaits Development of Factual Record to Rule on Laches Defense
Kim v. Coupang, LLC, C.A. No. 2020-0772-JRS (Del. Ch. Aug. 19, 2021)
If a court can rule on the affirmative defense of laches on the face of a complaint, it may grant a motion to dismiss. As this case illustrates, however, when a laches defense cannot be determined from the complaint, resolving that defense may have to await the development of the factual record. More ›
Applying Plain Contract Language, Chancery Awards $147 Million in Damages to Start-Up Company for Breach of Joint Venture Agreement
Symbiont.io, Inc. v. Ipreo Hldgs., LLC, C.A. No. 2019-0407-JTL (Del. Ch. Aug. 13, 2021)
Delaware is a pro-contractarian state. When fashioning an award for a breach of contract, a Delaware court can consider: (1) the bargained-for damages remedy; (2) whether at the time of contracting the damages from a breach would be uncertain or incapable of accurate calculation; and (3) whether the amount contractually called for would be unconscionable. More ›
Chancery Sustains Founders’ Implied Covenant Claim For “Bad Faith” Termination To Deprive Them Of Contingent Compensation, Reasoning That Contracts Cannot Be Combined And Must Be Read On Their Own Terms, But The Implied Covenant May Provide Missing Terms
Servaas v. Ford Smart Mobility LLC, C.A. No. 2020-0909-LWW (Del. Ch. Aug. 25, 2021)
Delaware common law requires that contracts be read on their own terms. Accordingly, contracts cannot be “combined” to supply missing terms. However, the implied covenant and good faith and fair dealing can, in certain circumstances, supply these missing terms. More ›
Chancery Grants Anti-Suit Injunction, Holds Non-Signatory Subsidiary is Bound by Stock Purchase Agreement’s Forum Selection Clause
Fla. Chem. Co., LLC v. Flotek Indus., Inc., C.A. No. 2021-0288-JTL (Del. Ch. Aug. 17, 2021).
Under Delaware law, a forum selection clause may be enforceable against a non-signatory if the non-signatory has a significantly close relationship to the agreement, either as an intended third-party beneficiary or under a theory of estoppel, and the claim subject to the forum selection provision arises from the non-signatory’s standing relating to the agreement. In regard to the last element, some Delaware cases have suggested what the court here called a “same agreement rule” – requiring that claims against the non-signatory arise from the same agreement that contains the forum selection provision. This case rejects the “same agreement” rule and holds a non-signatory may be bound even though its claims were not brought under the agreement containing the forum selection clause, provided that they are otherwise within the clause’s reach. More ›
Chancery Applies Rule 15(aaa), Declines to Revive Dismissed Claims under the Law of the Case Doctrine
Sciabacucchi v. Malone, C.A. No. 11418-VCG (Del. Ch. Aug. 18, 2021).
Court of Chancery Rule 15(aaa) provides that, if a plaintiff files an answering brief opposing a Rule 12(b)(6) or Rule 23.1 motion, a decision granting the motion is with prejudice unless the court “for good cause shown, shall find that dismissal with prejudice shall not be just under all the circumstances.” In this decision, the court applied that rule and the law of the case doctrine to deny a motion to amend to reassert dismissed claims. More ›
Company Did Not Breach Mandatory Redemption Provision Where Special Committee Determined Company Lacked Funds To Redeem All Preferred Shares
Cont’l Investors Fund LLC v. TradingScreen, Inc., C.A. No. 10164-VCL (Del. Ch. July 23, 2021)
A holder of preferred stock often possesses redemption rights that permit the stockholder to require a company to repurchase the stockholder’s shares. But what happens if the company determines that it lacks the funds to repurchase the stock? As illustrated in this case, a stockholder challenging the determination bears the burden of proof to show that the company’s determination was improper. More ›
Rales, Aronson and … Zuckerberg: Delaware Supreme Court Adopts Three-Part Demand Futility Standard
On September 23, 2021, the Delaware Supreme Court decided United Food and Commercial Workers Union and Participating Food Industry Employers Tri-State Pension Fund v. Zuckerberg, et al., __ A.3d __, 2021 WL 4344361 (Del. Sept. 23, 2021). In affirming the Court of Chancery’s decision, the high Court concurred with the Court-below’s articulation of a new three-part standard to assess whether a derivative plaintiff meets her pleading burden to show that a pre-suit demand upon the board would have been futile. More ›
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