Posts tagged Case Summaries

Court of Chancery Gives Arbitration Award Finality

Country Life Homes Inc. v. Shaffer, C.A. No. 2288-S (Del. Ch. January 31, 2007).

It is sometimes asked if an arbitration award really has the finality of res judicata. This decision holds that the first arbitration award in a dispute is a final award that bars any later arbitration award by another tribunal.  The Court did permit the party opposing the first award to contest the jurisdiction of that arbitrator. When that challenge failed, so did that party's case. More ›

Share

District Court Grants One Motion for Summary Judgment, Denies Other Motion

Creedon Controls, Inc. v. Banc One Bldg. Corp., 2007 WL 149002 (D.Del. Jan. 22, 2007)

In this opinion, the District Court granted one co-defendant’s motion for summary judgment while denying the other’s. Defendant Banc One was involved in construction of two data centers, and contracted with Defendant Forest to coordinate all electrical power and data connections work on the project. Forest then contracted with Plaintiff as an electrical subcontractor on the project. Plaintiff later filed suit against both defendants, alleging that their inefficiency and improper behavior resulted in significant delays and cost increases.  Banc One moved for summary judgment as to Banc One because it had no contractual relationship with Plaintiff and no agency relationship with Forest could be established, and therefore it was not liable for damages to Plaintiff. Forest moved for partial summary judgment, arguing that its contract with Plaintiff expressly precluded damages for delay, and that it was merely an agent of Banc One and therefore could not be held liable for damages. The court granted Banc One’s motion, finding that there was no contractual relationship with Plaintiff and no jury could reasonably find that Forest served as Banc One’s agent. The court denied Forest’s motion, however, finding that there were genuine issues of material fact as to how the alleged delays arose and whether the contract provision precluding delay damages was enforceable. More ›

Share

Court of Chancery Enforces Non-Compete Agreement

Hough Associates Inc. v. Hall, C.A. No. 2385-N (Del. Ch. January 17, 2007).

While it is common for the courts to enforce non-compete agreements against the signatories to those agreements, it is less common for third parties to get dragged into the enforcement as well. Here, when a non-party to the agreement knew of its terms, actively assisted in the violation of the agreement and would itself have profited from that violation, the Court of Chancery had little pause in holding the agreement should be enforced against that third party.

Share

District Court Grants Motion for Judgment on the Pleadings

Magten Asset Mgmt. Corp. v. Paul Hastings Janofsky & Walker LLP, No. 04-1256-JJF (D.Del. Jan. 12, 2007)

In this opinion, the District Court of Delaware found that both Montana’s substantive fraudulent transfer law and Plaintiff’s inability to establish standing warranted granting Defendant’s motion for judgment on the pleadings. Plaintiff, a creditor of a Montana limited liability company by virtue of an indenture agreement, sued Defendant, alleging that Defendant assisted the LLC in transferring assets to its parent corporation in order to defraud the LLC’s creditors. Defendant moved for judgment on the pleadings, arguing that as a non-transferee of the assets, it could not be held liable for any alleged fraudulent transfer under Montana’s fraudulent transfer act, and that as a creditor of the LLC, Plaintiff did not have standing to bring its derivative claims against Defendant on behalf of the LLC. The court agreed with Defendant, and granted the motion for judgment on the pleadings. More ›

Share

Court of Chancery Finds Waste Claim Valid

Sample v. Morgan, C.A. No. 1214-N (Del. Ch. January 23, 2007).

It is a rare case where the Court of Chancery finds grounds for a claim of waste. The standard to be met is very strict. This is such a case. Here the Inside Directors caused their corporation to issue  them rights for 200,000 shares for the grand total of $200, all while knowing that the shares had a value of over $5 per share if not more. To make matters worse, the Inside Directors tried to implement this scheme by asking the stockholders to approve it through seriously misleading disclosures and then used a conflicted process to have the actual issuance of the shares approved at the board level. It is hard to see how they could have done a worse job in trying to secure their option rights.

The decision notes that even informed stockholder approval of an option plan does not give management a blank check to issue options under any circumstances. There still must be an informed process that takes due care in the decision to actually issue the options. More ›

Share

Court of Chancery Limits Fee Request In Section 225 Case

FGC Holdings Limited v. Teltronics, C.A. No. 883-N (Del. Ch. Jan. 22, 2007).

In this precedent setting decision, the Court of Chancery held that a party prevailing in a Section 225 proceeding to compel his recognition as a director was not entitled to his attorney fees as a matter of right. The Court noted that no prior decision had dealt with the circumstance where the plaintiff seeking fees in a Section 225 case was not already a director at the time the suit was filed. In that situation, the Court held that Section 145 indemnification of fees did not apply because Section 145  requires the party seeking indemnification to be or have been a "director". That the plaintiff won recognition of his right to be a director did not make him a director automatically for purposes of indemnification under Section 145.

This case involves some odd facts that may distinguish it from other Section 225 litigation. Here, the corporation was limited to five directors by its charter and had five sitting directors when the plaintiff was elected by the preferred stockholder. Perhaps for that reason the Court concluded that his election alone was not enough to make him a director. More ›

Share

District Court Denies Motion to Transfer

Rimmax Wheels LLC v. RC Components, 2007 WL 81829 (D.Del. Jan. 9, 2007)

In this order denying Defendant’s motion to transfer venue, the District Court reviewed the applicable standards and guidelines employed to evaluate motions to transfer. Plaintiff, a Delaware limited liability company holding patents for motorcycle rims, sued Defendant, a Kentucky corporation engaged in the manufacturing of motorcycle rims, for breach of contract, fraud, and intentional interference with contractual relations. Defendant moved for transfer of venue to the Western District of Kentucky, contending that it was the locale of the parties’ contractual negotiations, Defendant’s business, and two essential witnesses who refused to appear in Delaware to testify. After reviewing the standards developed by the U.S. Supreme Court, Third Circuit Court of Appeals, and District Court of Delaware, the court denied Defendant’s motion to transfer, finding that Delaware had a substantial connection to the case. More ›

Share

Court of Chancery Denies Reformation

Psilos Group Partners, L.P. v. Towerbrook Investors L.P., C.A. No. 1479-N (Del. Ch. January 17, 2007).

When the terms of a contract do not quite cover what one party, in retrospect, wished was included, there is a great temptation to argue the court should rewrite the deal to include what the disappointed party wants. Naturally, the courts reject such attempts, as in this case, when the other party to the contract objects to its rights being altered after the fact. This case illustrates this scenario. The court's method of analysis included not just reviewing the contract terms, but understanding the economics behind the deal. These facts show that the "reformation" the plaintiff sought would not have been agreed to had the parties thought about it when the contract was signed. That is important in denying the claim to change the contract terms, absent fraud or mistake. More ›

Share

Court of Chancery Clarifies Pleading Rules

Cypress Associates LLC v. Sunnyside Cogeneration Associates Project C.A. No. 1607-N (Del. Ch. January 17, 2007).

It is often plead that a party to a contract has acted unreasonably in withholding consent if the contract requires for the other party to take certain action. This decision holds that such a pleading, even as an affirmative defense where vagueness is a tradition, must state facts that support the claim. The opinion is also enlightening in applying long settled corporate law principles that a party to a contract has the right to act in its own self-interest in exercising its contractual rights. More ›

Share

Court of Chancery Limits Tortious Interference Claims

Tenneco Automotive Inc. v. El Paso Corporation, C.A. No. 18810-NC (Del. Ch. January 8, 2007).

When all else fails, claims of tortious interference with contact and fraudulent inducement seem to be the last resort to remedy a seeming inequity in how a contract has worked out. This case is an example of a plaintiff with a wrong in search of a remedy and having a hard time finding one.

The Court again limits the scope of a claim for tortious interference with contract by holding that a defendant cannot be charged with interfering with its own contract. Hence, the claims against that defendant were dismissed. More ›

Share

Court of Chancery Denies Fee Split Request

In Re William Lyon Homes Shareholders Litigation, C.A. No. 2015-N (Del. Ch. December 21, 2006).

When there are two competing class or derivative actions, there may arise a conflict between them. This is particularly so when one is settled and the settlement will affect the right to proceed in the other litigation. That conflict may generate a fight among plaintiff's counsel over the fees to be awarded by the Court in the settlement. That is what occurred here.

Such fee split cases are governed by the rules set out in In re Infinity Broad. Corp. Shareholders Litigation, 802 A2d 285 (Del. 2002). In effect, this requires the Court to allocate the fees among the claimants based on the Court's views of their respective contributions to the settlement.

The plaintiff in a related California case that sought some of the fees to be awarded ended up with nothing for failure to justify their claim.

On December 21, 2007, the Delaware Supreme Court reversed, in part, the Court of Chancery decision. The Supreme Court held that there was enough in the record to support a presumption that the plainitff in the California case had contributed to a price rise that benefited the class and remanded for further proceedings .

Share

Court of Chancery Finds Directors Liable for Inaction

ATR-Kim Eng Financial Corp. v. Araneta, C.A. No. 489-N (Del. Ch. December 21, 2006).

Commentators sometimes wonder when director inattention will ever be so bad so as to warrant finding directors liable in the absence of self-dealing. This was just such a case. Briefly, the board consisted of a majority owner who picked a relative and an employee to constitute the other members of the board of directors. The Court concluded that the two non-controlling directors basically did nothing to carry out their duties to the entity and just accepted at face value everything they were told by the controlling stockholder. As a result, the Court found all the directors liable when the controlling stockholder looted the entity.

The decision is particularly interesting in that it may be an extension of the Delaware Caremark decision to no longer require a "red flag' to hold directors liable for failure to oversee the corporate entity's operations. That extension would apply when there was especially bad conduct and an utter failure by the board to meet or in any way supervise the management of the entity. More ›

Share

Superior Court Denies Motion to Vacate Confessed Judgment

PNC Bank v. Sills, 2006 WL 3587247 (Del. Super. Ct. Nov. 30, 2006)

In this opinion denying Defendants’ motion to vacate confessed judgment against them, the Superior Court examined whether the Defendants had satisfied any of the considerations relevant to whether an entry of confessed judgment should be vacated. Defendants guaranteed a loan that Plaintiff made to a Delaware limited liability company for a boat. Plaintiff recorded a mortgage on the boat, and upon the limited liability company’s default, initiated proceedings in Superior Court to confess judgment against Defendants. After Defendants failed to appear to object to the entry of judgments, the Court issued final judgments against them. The mortgaged boat was then sold at a court approved judicial sale for less than the outstanding loan balance, and Plaintiff initiated proceedings to execute upon the confessed judgment to recover the deficiency. Defendants filed an objection to execution and the motion to vacate the confession of judgment under Superior Court Rule 60(b). The Court found that Defendants had received proper notice of the confessed judgment, had no meritorious defense to the confessed judgment, and did not use reasonable diligence in filing the motion to vacate. The motion was therefore denied. More ›

Share

Stay In Voting Case Denied By Court of Chancery

B.F. Rich Co., Inc. v. Gray, C.A. No. 1896-N (Del. Ch. December 15, 2006).

After losing a  case involving the right to vote shares that were a controlling block, the loser sought  a stay to permit an appeal to the Delaware Supreme Court. The Court of Chancery denied the stay after applying the usual standards for such stays. The decision is interesting because the Court was faced with a change in control of the Delaware entity as a result of its decision and the obvious impact that might have on corporate affairs was carefully considered by the Court. More ›

Share

Court of Chancery Denies Cancellation of Guaranty

Union Oil Company of California v. Mobil Pipeline Company, C.A. No. 19395-N (Del. Ch. December 15, 2006).

In this fact intensive decision the Court of Chancery reviewed the Delaware law on contract construction and remedies. It upheld the general rule that the unilateral mistake of one party to a contract that is not known by the other party will not justify the cancellation of the contract on the basis of that mistake.

Share