Posts in Chancery

Chancery Denies Claim Arising Out of Controller’s Announced Intention to Oppose a Transaction Unfavorable to His Interests

RCS Creditor Trust v. Schorsch et al., C.A. No: 2017-0178-SG (Del. Ch. Mar. 18, 2021)
Controlling shareholders of a Delaware corporation owe fiduciaries duties, but those duties do not require controllers to sacrifice contract rights or to vote altruistically. In the Court of Chancery’s recent decision in RCS Creditor Trust v. Schorsch et al., the Court affirmed this proposition, holding that where a special committee and its review process were otherwise independent, a controlling shareholder did not breach his fiduciary duties or improperly influence the committee by sharing how he planned to vote in connection with two proposed, competing transactions. More ›

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Chancery Enjoins Prosecution of Fraudulent Inducement and Declaratory Judgment Claims Based on Exclusive Delaware Forum Provision

SPay, Inc. v. Stack Media Inc. k/n/a JLC2011, Inc., et al., CA No. 2020-0540-JRS (Del. Ch. Mar. 23, 2021)
To obtain a preliminary anti-suit injunction, a movant must show (1) a reasonable likelihood of success on the merits, (2) irreparable harm absent an injunction, and (3) the balance of hardships tips in its favor. Although the Court of Chancery does not grant anti-suit injunctions lightly, it will do so when a party to a valid and absolutely clear forum selection clause attempts to litigate covered claims outside of the parties’ chosen forum. More ›

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Court of Chancery Harmonizes Operating Agreement Governance Provisions To Resolve LLC Control Dispute

Pearl City Elevator, Inc. v. Gieseke, C.A. No. 2020-0419-JRS (Del. Ch. Mar. 23, 2021)

Under Delaware law, limited liability company agreements are interpreted like other contracts; they are read as a whole in light of the commercial context, in a manner that gives effect to and harmonizes all of their terms. In this expedited control dispute, the Court of Chancery applied those canons to consider whether certain of the plaintiff’s purchases of units from other members complied with transfer restrictions. More ›

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Chancery Finds SEC’s Filing of an Enforcement Action Did Not Trigger Redemption Right

Tetragon Fin. Grp. Ltd. v. Ripple Labs Inc., C.A. No. 2021-0007-MTZ (Del. Ch. Mar. 19, 2021)

Plaintiff Tetragon Financial Group Limited is a shareholder of Ripple Labs, Inc., a blockchain company that uses a cryptocurrency called XRP. Tetragon had a right under a Stockholders’ Agreement to require Ripple to redeem its shares if the SEC or another government agency “determine[s] on an official basis” that XRP is a security “on a current and going forward basis.” Here, Tetragon sought a declaration that the SEC’s decisions to file an enforcement action in federal District Court, and issue a Wells Notice, each triggered the redemption right. More ›

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Chancery Appoints Amicus Curaie to Provide Independent Guidance Regarding Unopposed Petition to Revive Defunct Corporation for Use as a Blank Check Entity

In re Forum Mobile, Inc., C.A. 2020-0346-JTL (Del. Ch. Mar. 18, 2021)

The Court of Chancery has the inherent authority to appoint an amicus curaie if the Court believes it would benefit from a more fulsome presentation of the issues. This case presents that situation: an unopposed petition seeking relief that, on its face, appears contrary to the Court’s prior decisions and to Delaware’s public policy. More ›

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Chancery Confirms that the Implied Covenant Imposes a “Good Faith” Component to an Agreement to Negotiate

DG BF, LLC v. Ray, C.A. No. 2020-0459-MTZ (Del. Ch. Mar. 1, 2021)

The Operating Agreement for an LLC involved in the cannabis industry provided for a five-member board of managers, with one Independent Manager appointed by a process of negotiation between two other managers (the plaintiff in the action and one of the defendants). Under the process set forth in the Operating Agreement, either side could present various candidates until there was agreement, which was supposed to happen within a 180-day period. The parties could also mutually agree to extend the deadline. More ›

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Chancery Finds Implied-in-Fact LLC Agreement

Robinson v. Darbeau, C.A. No: 2019-0853-KSJM (Del. Ch. Mar. 1, 2021)

As Robinson v. Darbeau demonstrates, Delaware law recognizes implied limited liability company agreements. Plaintiff operated a daycare as a sole proprietor and without any formally organized business entity. After Plaintiff began a personal relationship with Defendant, Defendant became involved in day-to-day activities at the daycare, invested in the business (including through the co-purchase of the property where the daycare was operated) and was held out publicly as the daycare’s co-director. Through the use of an online incorporator, and with Defendant’s assistance, Plaintiff filed a certificate of formation for a Delaware limited liability company. The certificate listed both parties as members (allegedly without Plaintiff’s knowledge) and further provided that management of the company was vested in the members. No written LLC agreement was ever executed. More ›

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Chancery Holds Prior Rulings in Appraisal and Securities Litigation Do Not Bar New Columbia Pipeline Fiduciary Duty Action

In re Columbia Pipeline Group, Inc. Merger Litigation, C.A. No. 2018-0484-JTL (Del. Ch. Mar. 1, 2021)
Certain judicial doctrines, including collateral estoppel and stare decisis, promote efficiency and finality by barring the re-litigation of factual and legal issues. For these doctrines to apply, however, there must be overlap between the parties, the claims or the legal posture. This case demonstrates that, without such overlap, courts will permit subsequent claims even when the underlying transaction has already been the subject of significant prior litigation. More ›

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Chancery Dismisses Derivative Breach of Contract Claim Against Directors for Alleged Violations of Certificate of Incorporation

Lacey v. Mota-Velasco, C.A. No. 2019-0312-SG (Del. Ch. Feb. 11, 2021)

A corporate charter represents a contractual agreement between the corporation and its stockholders. In Lacey, the Court of Chancery addressed whether a breach of contract claim for damages based on an alleged violation of a provision in the certificate of incorporation could be brought derivatively against director defendants. More ›

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Chancery Grants Inspection Demand Relying on a Short-Seller’s Report

Jacob v. Bloom Energy Corp., C.A. No. 2020-0023-JRS (Del. Ch. Feb. 25, 2021)

In a post-trial opinion in this books-and-records action pursuant to 8 Del. C. § 220, the Court of Chancery granted a stockholder’s demand to inspect the records of Bloom Energy Corporation (“Bloom”) for the purpose of investigating mismanagement and wrongdoing respecting Bloom’s alleged financial and other misstatements concerning the performance of its self-described clean, sustainable and green energy alternative. The inspection demand drew heavily from a thoroughly researched report published by a short seller, Hindenburg Research (the “Hindenburg Report”), which concluded that “Bloom’s technology is not sustainable, clean, green, or remotely profitable." The publication of the Hindenburg Report prompted Bloom to file a Form 8-K with the SEC responding to the report and in a separate filing Bloom eventually acknowledged that it had misstated its financials in some respects in prior reporting periods. More ›

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Chancery Finds After Trial That $10 Billion Unit-for-Unit Merger Was “Fair and Reasonable” Under Partnership Agreement

Dieckman v. Regency GP LP, C.A. No. 11130-CB (Del. Ch. Feb. 15, 2021)

This matter concerned limited partners’ challenge under the governing limited partnership agreement to an acquisition of the partnership by another entity controlled by the partnership’s ultimate owner. A member of a conflicts committee, which had approved the $10 billion unit-for-unit controlling unitholder merger, also served the board of another company ultimately controlled by the same owner, contrary to the terms of the partnership agreement. After considering this issue, the Court of Chancery nevertheless held after a five-day trial that the merger was “fair and reasonable to the Partnership” under a contractual safe harbor, and that the plaintiffs failed to prove damages. More ›

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Chancery Grants Access to Facebook Board Emails in Books and Records Action

Employees’ Retirement System of Rhode Island v. Facebook, Inc., C.A. No. 2020-0085-JRS (Del. Ch. Feb. 10, 2021)

In this opinion, the Court of Chancery confirms that it will grant access to emails in a books and records action where the corporation’s board minutes and other materials are insufficient for the plaintiff’s purposes. Here, a stockholder of Facebook, Inc. requested books and records to investigate Facebook’s $5 billion settlement with the Federal Trade Commission for the unauthorized sale of customer information to Cambridge Analytica and other data breaches. The plaintiff sought to investigate whether Facebook overpaid in its settlement to shield its chief executive Mark Zuckerberg from personal liability.  More ›

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Chancery Holds That a Deadlock Warranting Dissolution Can Be Genuine Even If the Circumstances Giving Rise to the Deadlock Were Contrived

Mehra v. Teller, C.A. No. 2019-0812-KSJM (Del. Ch. Jan. 29, 2021)

In a dispute over the validity of the dissolution of a limited liability company, the Court of Chancery held in a post-trial opinion that a deadlock between LLC managers was genuine and deserving of legal effect, even though the circumstances giving rise to the deadlock were contrived. More ›

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Chancery Sustains Claims Against CBS Fiduciaries Concerning CBS-Viacom Merger, While Questioning the Viability of “Holder” Claims Under Delaware Law

In re CBS Corp. S’holder Class & Deriv. Litig., C.A. No. 2020-0111-JRS (Del. Ch. Jan. 27, 2021)

This decision is one of several by the Delaware Court of Chancery arising out of efforts to merge CBS Corporation and Viacom by the companies’ controlling stockholder—National Amusements, Inc., controlled by Shari Redstone. Recently, in In re Viacom Inc. Stockholders Litigation, 2020 WL 7711128 (Del. Ch. Dec. 29, 2020), the Court upheld claims by the Viacom stockholders against Viacom fiduciaries arising out of the CBS-Viacom merger. This decision is the flipside of that same coin, with the Court upholding claims by the CBS stockholders against CBS fiduciaries, including special transaction committee members, arising out of the same merger. More ›

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Chancery Applies Forum Non Conveniens Analysis to Grant Partial Stay of Dispute Between LLCs and Former Manager

AG Resource Holdings, LLC v. Thomas Badford Terral, C.A. No. 2020-0850-JRS (Feb. 10, 2021)

In AG Resource, the Court of Chancery was tasked with determining whether it or a Louisiana state court should resolve similar claims filed at nearly the same time in each forum. Affording neither suit first-filed status, the Court applied a forum non conveniens analysis using the Cryo-Maid factors and split the claims, finding that Louisiana had a greater interest in resolving claims relating to provisions in an employment agreement, but Delaware had a greater interest in resolving a claim implicating the internal affairs of a Delaware LLC. More ›

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