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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 396 posts in Chancery.
Chancery Dismisses First-Filed Action Involving Delaware Choice of Law and Forum Selection Clause for Forum Non Conveniens
Focus Fin. Partners, LLC v. Holsopple, C.A. No. 2020-0188-JTL (Del. Ch. Nov. 2, 2020)
Defendant moved on forum non conveniens grounds to dismiss an action brought by a recent hire’s former employer to enforce various provisions in an employment agreement, including restrictive covenants. The plaintiff had filed suit in Delaware five days prior to the former employee and his new employer filing suit in California for declarations that the restrictive covenants were invalid and unenforceable under California law. More ›
ShareChancery Upholds Claim that CEO Breached Her Duty of Care Relating to a Misleading Proxy Statement
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 ›
ShareChancery 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 ›
Chancery Grants Books and Records Mismanagement Inspection Related to Rejected Financing Proposal Despite Potential Lack of Actionable Claim
Alexandria Venture Investments LLC v. Verseau Therapeutics Inc., C.A. No. 2020-0593-PAF (Del. Ch. Dec. 18, 2020)
This case highlights that the potential lack of an actionable claim generally is not a valid defense to a demand for books and records where the stockholder meets the low threshold of proving a credible basis to suspect wrongdoing. Plaintiffs sought to compel inspection of books and records of Verseau Therapeutics, Inc. (“Verseau”), pursuant to Section 220 of the Delaware General Corporation Law, to investigate whether Verseau’s directors violated their fiduciary duties by rejecting a financing proposal (made by the plaintiffs) to favor the interests of certain directors and affiliates. Verseau objected, arguing in part that plaintiffs did not have a credible basis to suspect wrongdoing because a majority of independent and disinterested Verseau directors had made all relevant decisions. More ›
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 ›
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 ›
ShareChancery Finds Company Responsible for Advancing Costs of Defense to Its CEO in a Claim Brought by the Company
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 ›
ShareChancery Dismisses Action For Plaintiffs’ Failure to Join Indispensable Parties
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 ›
ShareCourt 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 ›
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 ›
Chancery Dismisses Defendants From Action Against Their Own Wishes, Describing the Matter as an “Erewhon-like” Inversion of the Parties’ Typical Positions
Stimwave Technologies Inc. v. Laura Tyler Perryman, C.A. No. 2019-1003-SG (Del. Ch. Nov. 17, 2020)
Under Court of Chancery Rule 41(a), a Delaware plaintiff may voluntarily dismiss its own complaint without prejudice, provided that (i) the defendant has not yet filed an answer; (ii) the defendant has not yet filed a motion for summary judgment; and (iii) the defendant has not filed a motion to dismiss which has been answered by the plaintiff. In accordance with the abovementioned standards, where a defendant (1) files a motion to dismiss, and (2) the plaintiff thereafter submits an answering brief in opposition to that motion, the plaintiff may no longer voluntarily dismiss the action while that motion is pending. More ›
Chancery Dismisses Section 220 Complaint on Jurisdictional Grounds, Finding That Plaintiffs Filed Seven Hours Prematurely
MaD Investors GRMD, LLC, et al. v. GR Cos., Inc., C.A. No. 2020-0589-MTZ (Del. Ch. Oct. 28, 2020)
At 5:03 p.m., on the fifth day after serving a Section 220 demand (the “Demand”) on GR Companies, Inc. (the “Company”), MaD Investors GRMD, LLC and MaD Investors GRPA, LLC (together, “Plaintiffs”), filed a complaint to compel inspection of books and records pursuant to 8 Del. C. § 220 (the “Complaint”). The Company filed a motion to dismiss, asserting that Plaintiffs had filed the Complaint prematurely. Plaintiffs filed a cross-motion for leave to amend the Complaint (the “Leave Motion”). More ›
Chancery Sustains CEO’s Contract Claims in WeWork Litigation
In re WeWork Litig., Consol. C.A. No. 2020-0258-AGB (Del. Ch. Oct. 30, 2020).
A company facing a liquidity crisis (the shared working space company, WeWork), its outgoing CEO (Adam Nuemann), and two related SoftBank investment entities that collectively owned more than forty percent of the company’s equity entered into a Master Transaction Agreement (“MTA”). The MTA was designed to provide funding to the company, facilitate the CEO’s exit, and provide liquidity to minority stockholders. The MTA required a specific sequence of transactions from the entities: (1) equity financing; (2) stock purchase via a tender offer; and (3) debt financing after the closing of the tender offer. The tender offer’s closing was subject to certain conditions, which the parties to the MTA were required to use their reasonable best efforts to meet. More ›
Chancery Holds California Statutory Bar to Choice-of-Forum Clauses in Employment Contracts Prevents Exercise of Personal Jurisdiction – Despite Parties’ Choice of Delaware Law and Agreement to Litigate in Delaware
Focus Fin. Partners, LLC v. Holsopple, C.A. No. 2020-0188-JTL (Del. Ch. Oct. 26, 2020).
Delaware law promotes freedom of contract, and Delaware courts enforce contractual choice-of-forum and choice-of-law provisions, including those in employment-related contracts. Recently, however, several Delaware cases have considered whether such provisions can be enforced against non-residents in the face of contrary substantive law or fundamental public policy in their home jurisdiction. In California, a statute (“Section 925”) makes choice-of-law and choice-of-forum provisions voidable by the employee if the provisions appears in an agreement signed as a condition of employment. Here, the Court addressed how to reconcile Section 925 with the parties’ agreement to resolve disputes in Delaware and to apply Delaware law. Specifically, when the defendant (a former employee who lives and works in San Francisco) was hired, he received incentive units pursuant to agreements that contained restrictive covenants and selected Delaware as the exclusive forum for disputes, and selected Delaware law as the applicable law. The plaintiff brought suit in Delaware to enforce the restrictive covenants, and the employee moved to dismiss for lack of personal jurisdiction. More ›
Chancery Addresses Fiduciary Duty Claims Related To Financial Statements Created For Merger
In re Baker Hughes Inc. Merger Litigation, C.A. No. 2019-0638 AGB (Del. Ch. Oct. 27, 2020).
This decision arose out of a merger involving Baker Hughes and the oil and gas segment of General Electric (GE). Stockholders of Baker Hughes brought post-closing breach of fiduciary duty claims against certain officers of Baker Hughes and aiding and abetting claims against GE, with the allegations focused on certain financial statements provided by GE in connection with the merger. GE did not maintain separate statements for its oil and gas business line in the ordinary course. The parties accounted for this by having GE prepare unaudited financial statements for that business line and conditioning closing obligations on GE providing audited financial statements that did not differ materially in an adverse manner. More ›
