Posts tagged Case Summaries

Superior Court Rejects Counterclaim of Exclusive Distributorship Contract, Awards Contract Damages to Plaintiff

Tulstar Prods., Inc. v. Ionsep Corp., 2006 WL 3604782 (Del. Super. Ct. Dec. 7, 2006)

In this breach of contract case, the Superior Court evaluated Defendant’s counterclaim that it had an exclusive distributorship contract with Plaintiff that was breached, thus entitling it to offset the amount of that contract from any amount owed to Plaintiff. Plaintiff, a chemical distributor, sued Defendant, a chemical process developer, alleging that Defendant owed almost $175,000 in past due invoices for orders of Plaintiff’s product. Defendant counterclaimed that Plaintiff owed Defendant $250,000 under the alleged exclusive distributorship contract. After reviewing the testimony and evidence produced at trial, the Superior Court found that there was inadequate support for a finding that the parties had agreed to an exclusive distributorship contract, and therefore awarded Plaintiff its claimed damages for the past due invoices, and dismissed Defendant’s counterclaim with prejudice. More ›

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Superior Court Finds Breach Based on Actual and Apparent Authority, Invalidates Liquidated Damages Clause

Tropical Nursing, Inc. v. Accord Health Serv., Inc., 2006 WL 3604783 (Del.Super. Ct. Dec. 7, 2006).

In this breach of contract case, the Superior Court found that Defendant became contractually bound to Plaintiff based on actual and apparent authority it granted to both its permanent and temporary employees, and subsequently breached those contracts. Plaintiff was a provider of temporary nursing staff, and supplied temporary nurses to Defendant’s healthcare facility. Plaintiff’s contract claim was based on the terms provided for on the back of the temporary nurses’ timecards, which stated that Defendant would not interfere with the temporary nurse’s contractual relationship with Plaintiff, and if it did so Defendant would immediately pay a “work release payment”. Plaintiff alleged that Defendant breached these contracts with respect to 14 former employees of Plaintiff’s that Defendant had hired. Defendant argued that the nursing supervisors who signed the timecards did not have the authority to contractually bind Defendant to their terms. The Court found that Defendant had in fact given the supervisors actual and apparent authority to bind Defendant to the terms of the timecards, and Defendant was therefore in breach when it did not honor those terms. More ›

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Superior Court Invalidates Liquidated Damages Clause

Tropical Nursing, Inc. v. Ingleside Homes, Inc., 2006 WL 3579075 (Del. Super. Ct. Dec. 11, 2006).

In this opinion granting Defendant’s motion for summary judgment, the Superior Court evaluated the liquidated damages provision contained in Defendant’s contract with Plaintiff. Plaintiff had a non-exclusive agreement with Defendant to provide temporary nursing employment services to Defendant on an “as needed” basis. Timecards that the temporary nurses were required to have signed by Defendant contained a clause that restricted Defendant’s ability to hire the nurses, and provided for a “work release payment” in the event that Defendant breached that was equivalent to 500 times the hourly billing rate for the employee. Defendant sought a ruling from the court that the provision was an unenforceable penalty clause. The Superior Court found that the provision did not meet the standards for an enforceable liquidated damages clause, and therefore granted Defendant’s motion for summary judgment.  More ›

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Court of Chancery Limits Noncompete Agreement

Edix  Media Group Inc. v. Mahani, C.A. No. 2186-N (Del. Ch. December 12, 2006).

This decision is noteworthy for its careful analysis of what relief is appropriate for a breach of an agreement not to compete. The Court distinguished between the broader duties owed by employees from those more limited duties owed by independent contractors. The relief awarded was the product of a very specific analysis that tailored that relief to the harm proved to have been inflicted.

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Federal Court Grants Renewal of Motion To Demonstrate Jurisdiction

Remote Solutions Co., Ltd. v. FGH Liquidating Corp., Civil Action No. 06-004-KAJ, 2006 WL 3498657 (D. Del. Dec. 5, 2006).

Plaintiff filed a Motion for Reconsideration and to Amend the Court’s earlier Memorandum Order in which it denied the plaintiff’s motion to vacate or modify an arbitration award for failing to demonstrate a proper basis for subject matter jurisdiction. The plaintiff now sought to have the Court amend its order so it could cure the jurisdictional defect. The Court granted the motion to the extent that the plaintiff could renew its prior motion to vacate or modify the arbitration award by demonstrating proper subject matter jurisdiction.

The Court also permitted the motion to relate back to the date of the original filing. It further permitted the defendant to move independently for confirmation of the arbitration award regardless of the course of action chosen by plaintiff.

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Court of Chancery Upholds Arbitration For Tobacco Case

State of Delaware v. Philip Morris USA, Inc. C.A. No. 2088-N (December 12, 2006).

By this decision Delaware joins the vast majority of other states in ordering arbitration over the disputes arising out of the State's agreement with tobacco companies.

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Court of Chancery Grants Limited Inspection Rights

Shamrock Activist Value Fund LP v. iPass Inc., C.A. No. 2462-N (Del. Ch. December 12, 2006).

When seeking to inspect corporate records, the stockholder needs to have a reasonable purpose for doing so. If the stated purpose is to investigate wrongdoing, there must be a real basis to suspect wrongdoing or the demand will be denied. Here the demand was at least partially deficient because allegations of improper conduct seemed to be little more than that the company had not met its predicted financial results. The plaintiff escaped dismissal of its suit on narrow grounds that there were also allegations of a failure to carry out a plan that was more definite than just a prediction,  something closer to a promise that was broken.

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Federal Court Excludes Expert Testimony Dealing With The Law Of The Case

Cantor v. Perelman, Civil Action No. 97-586-KAJ, 2006 WL 3462596 (D. Del. Nov. 30, 2006).

Plaintiff and defendants filed motions to exclude the testimony and reports of several experts. The Court granted the motions to exclude the entire proposed testimony of one expert from both parties. The motions were denied with respect to all other experts in all other respects.

This action originates from a plan of reorganization in bankruptcy litigation involving Marvel Entertainment Group, Inc. (“Marvel”) and the Trustees of the MAFCO Litigation Trust (“Trust”) created as part of the Reorganization Plan. The Trust was created to pursue breach of fiduciary duty and unjust enrichment claims against defendants comprising Perelman, a controlling stockholder and chairman of Marvel, and other directors of the Marvel companies. The instant opinion is connected to the issue of three tranches of notes (“Notes”) issued in 1993 and 1994 by Marvel, raising $553.5 million by using Marvel stock as collateral. Plaintiffs alleged that the defendants breached their fiduciary duties by using Marvel resources to sell the Notes and including restrictions on the issue of debt or dilution of Perelman’s shareholding in those Notes.

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Court of Chancery Finds Limit On Advancement Rights

Majkowski v. American Imaging Management Services LLC, C.A. No. 1797-N (Del. Ch. December 6, 2006).

The right to have attorneys fees paid in advance of the final result in litigation is illustrated by this recent decision. The Court held that an agreement to "hold harmless" does not give the right to advancement of legal fees. Instead, "hold harmless" language only confers the right to be indemnified at the end of the litigation. More ›

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Court of Chancery Limits Appraisal Demands

Konfirst v. Willow CSN Incorporated, C.A. No. 1737-N (Del. Ch. December 12, 2006).

Delaware law has long held that to qualify for appraisal rights after a merger, a stockholder must follow the statutory rules carefully. Here, many stockholders filed their demand for appraisal too late and the Court barred their claims for failure to file on time. Other stockholders failed to have their demands signed by all the record owners, another fatal defect.

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Superior Court Rejects Breach of Contract and Apparent Authority Claims, Grants Summary Judgment

Pisano v. Delaware Solid Waste Auth., C.A. No. 05-C-03-132-FSS (Del. Super. Nov. 30, 2006).

 

In this opinion granting Defendant’s motion for summary judgment, the Superior Court rejected Plaintiff’s argument that Defendant had breached an alleged contract with Plaintiff to sell used waste-processing equipment, and found that Plaintiff’s argument that Defendant granted apparent authority to a third party to sell the equipment unconditionally lacked merit. Plaintiff alleged that he had entered into an unconditional contract with a third party serving as Defendant’s agent to acquire the equipment for $150,000, and that Defendant breached that contract when it later sold some of the equipment to another party. Defendant argued that it did not have a contractual relationship with Plaintiff, and that Plaintiff’s argument that the third party had authority to act on Defendant’s behalf was clearly unfounded. The Superior Court concluded that even viewing the facts in a light most favorable to Plaintiff, there was no basis for a jury to determine that Defendant had breached any contract with Plaintiff or had given the third party authority to act on Defendant’s behalf.

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Court of Chancery Resolves Conflict With SEC Rule

Esopus Creek Value LP v. Hauf, C.A. No. 2487-N (Del. Ch. November 29, 2006).

Delaware law requires an annual stockholder meeting. The SEC rules prohibit calling a stockholder meeting when the company is delinquent in its SEC filings. In this case and in its decision in Newcastle Partners LP v. Vesta Insurance Group, Inc., 887 A.2d 975 (Del. Ch. 2005), aff'd., 906 A.2d 807 (Del. Ch. 2005) the Delaware Court of Chancery has resolved this apparent conflict. Here, the Court held that a stockholder meeting should go forward with adequate disclosures to the stockholders entitled to vote on the proposed sale of substantially all of the company's assets. The Court ordered the company to apply to the SEC for an exemption from the rules prohibiting the calling of a meeting. More ›

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Federal Court Denies Motion For Reconsideration

Pell v. E.I. DuPont de Nemours & Co. Inc., Civil Action No. 02-21 KAJ, 2006 WL 3391375 (D. Del. Nov. 22, 2006).

Plaintiffs filed a Motion for Reconsideration and/or Alteration in Judgment pursuant to Fed.R.Civ.P. 59(e). The Court had earlier found for plaintiffs under an equitable estoppel theory of relief involving misrepresentation but had denied the plaintiffs’ request for restitution for unduly low pension payments made to him. Plaintiffs now sought to have the Court reconsider its earlier holding that the defendants did not owe them compensation for unduly low pension payments because - allegedly - the Court had viewed the governing ERISA provision – Section 502(a)(3) - more restrictively that the Supreme Court did in Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002).

The Court denied the motion because there were no grounds presented for reconsideration. Specifically, the Court noted that the motion failed because the plaintiffs did not demonstrate: (1) an intervening change in the controlling law; (2) that new evidence was available; or (3) that there was clear error of law or fact present on the record or to avoid causing manifest injustice. Here, plaintiffs sought to implicate the “clear error of law or fact” provision but did not discharge the high burden required to prevail on such a motion. Accordingly, the Court denied the motion.

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Court of Chancery Rejects Inadequate Settlement

In Re SS&C Technologies, Inc. Shareholders Litigation, C.A. No. 1525-N (Del. Ch. November 29, 2006).

The Court of Chancery for over 30 years has cautioned against reaching a settlement of a class or derivative case and closing the transaction that was the subject of the litigation without having first secured court approval of the settlement. The concern is that the closing may make the court's approval a moot question. Here, the settlement involved additional disclosures in connection with the stockholder vote and payment of attorney fees, but the Court was not asked to approve the settlement before the transaction closed. After the fact, the Court declined to approve the settlement. 

There is no clear solution to the problems presented when there is a need to close a deal before a hearing may be scheduled, with the usual 45 days notice to the class. At a minimum, the Court should be notified of the settlement and probably should be asked for leave to close the deal before the settlement hearing occurs. This is particularly true when the settlement does not involve any post-closing relief, such as future corporate governance provisions. More ›

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Court of Chancery Approves Awards Large Fees!

A few recent articles have questioned the willingness of the Court of Chancery to award adequate fees in class and derivative litigation. These articles focus on one or two instances where fee requests were not met with full approval. This anecdotal approach is misleading. After all, it would be a sign of a failing system if every fee request were given blanket approval regardless of its merits.

Two more recent decisions by the Court of Chancery show it is fully responsive to appropriate fee requests and is willing to award large fees when appropriate. In the McKesson/HBOC litigation, Chancellor Chandler  awarded the plaintiff's attorneys $10 Million for their years of hard work on behalf of McKesson in a derivative suit. More recently, Vice Chancellor Strine in the Hollinger case awarded plaintiff's counsel $2,500,000 in fees for his work in a case where the actual litigation work was fairly brief, but the results were outstanding.

Both of these cases were what are known as Caremark cases alleging that the Board had failed to perform its oversight duty to avoid accounting and other problems. That type of case is fairly characterized as among the most difficult to prove, given the high standard to establish liability.  Thus, when the plaintiffs won a good settlement, their attorneys were rewarded, fairly and even generously.

In short, bring a good case, fight hard, achieve a decent result and the Court of Chancery will reward your effort. That is all we should expect.

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