Posts tagged Case Summaries

Court of Chancery Dissolves LLC that is Deadlocked and was Arguably Formed as Part of Scheme to Deceive Investors

In re: Silver Leaf, LLC, C.A. No. 20611, 2005 WL 2045691 (Del. Ch. Aug. 18, 2005). Plaintiff and the defendants formed Silver Leaf, LLC ("Silver Leaf") to market a new vending machine that was to produce French fries. In connection with the formation of the entity, the parties signed a stock purchase agreement and a sales and marketing agreement with Tasty Fries, which owned the manufacturing rights to the vending machines. After the relationship between the parties deteriorated, Tasty Fries terminated the sales and marketing agreement over a dispute related to the stock purchase agreement. More › Share

Court of Chancery Holds that Purchasers of Small Business Failed to Prove that Sellers Defrauded Them

Homan v. Turoczy, C.A. No. 19220, 2005 WL 2000756 (Del. Ch. Aug. 12, 2005). Plaintiffs bought a small printing and copying business from defendants, who ran the business successfully for 19 years. However, plaintiffs were not so successful. A year after the sale they filed for bankruptcy, closed down the business, and liquidated the company's assets. In their complaint, plaintiffs alleged that the defendants and their agent fraudulently misrepresented the condition of the business and thus sought rescission of the sales agreement. The court held that by waiting over a year before suing, the plaintiffs forfeited any right to seek actual rescission. As a result, the court's opinion after trial only considered whether plaintiffs were entitled to an award of damages for fraud. More › Share

Court of Chancery Refuses to Dismiss Claims for Tortious Interference, Unfair Trade Practices, and Fraudulent Misrepresentation in Connection with Sale of Business

Griffin Corp. Services v. Jacobs, C.A. No. 396-N, 2005 WL 2000775 (Del. Ch. Aug. 11, 2005). Counterclaim plaintiffs Jacobs, Dobrzynski, Stewart, and Stewart Management Company ("SMC") asserted that Griffin Corporate Services ("Griffin") and other counterclaim defendants interfered with their existing contract and prospective business relationships and engaged in common law and statutory unfair trade practices. They also asserted that Griffin breached its confidentiality agreement with SMC and made misrepresentations to SMC. The counterclaim defendants moved to dismiss. More › Share

Federal Court Dismisses "Covered Class Action" Involving Covered Securities" Action That Did Not Trigger The Delaware Carve-Out Under SLUSA

Golub v. Hilb, Rogal & Hobbs Co., 379 F.Supp.2d 639 (D.Del. 2005). Ninety-Nine shareholders represented by members of Hobb Group, L.L.C., and Hobbs IRA Corporation ("Sellers") entered into an agreement with defendant to sell its outstanding membership interest units for $270,000,000. Sellers alleged that the defendant company had not disclosed information that it knew before the closing. The defendant company moved to dismiss the Complaint. The Court granted the motion because the Complaint did not fall into the Delaware carve-out and therefore required dismissal. More › Share

Superior Court Finds that Both Parties to a Contract Must Contractually State an Intention to Benefit a Third Party to Create a Third Party Beneficiary

Street Search Partners, L.P. v. Ricon Int'l, L.L.C., C.A. No. 04C-09-156 PLA, 2005 WL 1953094 (Del. Super. Ct. Aug. 1, 2005). The plaintiff brought a breach of contract action against two defendants on the theory that the plaintiff was a third party beneficiary to the contract between the defendants. One of the defendants moved to dismiss the suit for failure to state a claim. The court determined that one defendant subjectively intended for the plaintiff to benefit from the contract. However, the court determined that the other contracting party did not intend to benefit the plaintiff. Furthermore, there was no evidence from the contract that the parties intended for the plaintiff to be a beneficiary. Consequently, the court dismissed the plaintiff's claims that were based on it being a third party beneficiary to the contract. More › Share

Superior Court Refuses to Dismiss Delaware Action, But Stays Delaware Action in Favor of Michigan Action

Royal Indem. Co. v. General Motors Corp., C.A. No. 05C-01-223 RRC, 2005 WL 1952933 (Del. Super. Ct. July 26, 2005). Royal Indemnity Company ("Royal") sought a declaratory judgment to determine whether it had an obligation to General Motors ("GM") in relation to insurance purchased by GM over the course of several decades from Royal. GM filed a motion to dismiss on forum non conveniens grounds, and the Court denied the motion to dismiss. More › Share

Court of Chancery Dismisses Consumer's Fiduciary Duty Claim Against Online Brokerage, Stating that the Scope and Existence of any Duty is Governed by Their Contract

Weil v. Morgan Stanley DW Inc., 877 A.2d 1024 (Del. Ch. 2005). Plaintiff consumer brought an action on behalf of himself and others similarly situated alleging that defendant Morgan Stanley breached its fiduciary duties and that HarrisDirect, the buyer of its online brokerage business, aided and abetted in the breach. The two defendants moved to dismiss under Rule 12(b)(6) for failure to state a claim. More › Share

Court of Chancery Holds that Private Securities Litigation Reform Act and Securities Litigation Uniform Standards Act do not Preempt Books and Records Action

Romero v. Career Educ. Corp., C.A. No. 793-N, 2005 WL 1798042 (Del. Ch. July 19, 2005). Plaintiff shareholder brought an action against Career Education Corporation ("CEC"), a Delaware corporation, seeking to compel inspection of certain books and records. CEC moved to dismiss the complaint or to stay. More › Share

Court of Chancery Holds Fund to be Beneficial Owner Even When it Holds a Net Short Position or Purchases Shorted Shares from its Other Accounts

Deephaven Risk ARB Trading Ltd. v. UnitedGlobalCom, Inc., C.A. No. 379-N, 2005 WL 1713067 (Del. Ch. July 13, 2005). Plaintiff Deephaven Risk ARB Trading Ltd. ("Deephaven"), an investment fund, sought to compel inspection of defendant UnitedGlobalCom's ("UGC") books and records to investigate possible wrongdoing in connection with a rights offering. In response, UGC moved to dismiss the complaint, challenging Deephaven's status as a beneficial owner and the purpose for its demand. The court denied UGC's motion. More › Share

Federal Court Decides Start and End Dates Of Class Certification Are The Registration Statement Date And The Date Typicality Of Claims End

Shockley v. Adams Golf, Inc., No. Civ.A. 99-371-KAJ, 2005 WL 3654346 (D.Del. June 27, 2005). This is a securities class action. The background to this case is provided in In re Adams Golf, Inc. Securities Litigation, 176 F.Supp.2d 216, 219-22 (D.Del. 2001), aff'd in part, rev 'd in part, 381 F.3d 267, 270-72 (3d Cir. 2004). In the present opinion, the Court resolved two remaining issues related to class certification. Pursuant to oral arguments on plaintiff's motion for class certification on May 17, 2005, the Court granted the motion but reserved its decision as to both: the appropriate time period applicable for defining the class of securities holders bringing an action under Section 11 of the Securities Act of 1933, 15 U.S.C. § 77l(a)(2); and the "nature of a subclass with respect to any liability under section 12(a)(2)" of the Securities Act of 1933, "including the appropriate time period for defining the subclass." The Court held that July 10, 1998, the date when the Registration Statement became effective was the start date of the class. Similarly, October 22, 1998, signifying the last date when the class had typical claims was the end-date for the class. More › Share

Court of Chancery Grants Preliminary Injunction Against Majority Stockholder Seeking to Purchase Additional Shares for a Penny Each in an Attempt to Convert Some of its Debt to Equity

Flight Options Int'l, Inc. v. Flight Options, LLC, C.A. No. 1459-N, 2005 WL 2335353 (Del. Ch. July 11, 2005). Plaintiff Flight Options International, Inc. ("FOI") sought a preliminary injunction against defendant Flight Options LLC ("the Company"), a Delaware limited liability company. More › Share

Court of Chancery Holds that Unitholders in Private Equity Fund Can Inspect Books and Records After Fund Loses 75% of Value

Forsythe v. CIBC Employee Private Equity Fund, C.A. No. 657-N, 2005 WL 1653963 (Del. Ch. July 7, 2005). Plaintiffs Forsythe and Tesche, who were unitholders in a Delaware limited partnership, brought an action to inspect the books and records. At the close of trial, two issues remained for post-trial briefing: (1) whether the plaintiffs stated a proper purpose; and (2) whether plaintiffs had a right to demand inspection of documents held or under the control of an entity other than the general partner. More › Share

Court of Chancery Denies Request for Permanent Injunction Against Shareholder Seeking to Challenge Merger-After Merger is Consummated

Examen, Inc. v. VantagePoint Venture Partners 1996, C.A. No. 1142-N, 2005 WL 1653959 (Del. Ch. July 7, 2005). Johnson v. VantagePoint Venture Partners 1996, C.A. No. 1260-N, 2005 WL 1653959 (Del. Ch. July 7, 2005). This case arose out of an earlier dispute in which VantagePoint Venture Partners ("VantagePoint"), an investor holding the majority of a series of preferred stock in Examen, Inc. ("Examen"), a Delaware corporation, sought to veto a merger between Examen and a Delaware subsidiary of Reed Elsevier Inc. VantagePoint argued for a determination that under California law the holders of the series of preferred stock issued by Examen had a right to a class vote in the merger. But the Court of Chancery held that California law did not apply and that all of the stockholders were permitted to vote on the proposed merger. More › Share

Court of Chancery Denies Preliminary Injunction to Business Partner Who Alleges Breach of Confidentiality and Misappropriation of Trade Secrets

Nutzz.com v. Vertrue Inc., C.A. No. 1231-N, 2005 WL 1653974 (Del. Ch. July 6, 2005). Plaintiff Nutzz.com ("Nutzz") sought a preliminary injunction against defendant Vertrue Inc. ("Vertrue"), a company with which Nutzz contracted to develop an online membership program for NASCAR fans. After Vertrue terminated the agreement (claiming that Nutzz missed deadlines and promotion requirements), it sent an email to 1,200 Nutzz members advertising Vertrue's own membership program as an upgrade. Nutzz claimed that Vertrue's actions constituted a breach of their confidentiality agreement and a misappropriation of trade secrets. More › Share

Court of Chancery Refuses to Pierce Corporate Veil or Impose Successor Liability to Enable a Former Employee to Recover Judgment

Mason v. Network of Wilmington, Inc., C.A. No. 19434-NC, 2005 WL 1653954 (Del. Ch. July 1, 2005). Plaintiff won an employment discrimination suit against Network Personnel, Inc. ("Personnel"), a Delaware corporation solely owned by defendant Barry Schlecker ("Schlecker"). But plaintiff was unable to collect on the judgment, so she sought to recover from Schlecker personally by piercing the corporate veil and recovering from his new company, Network of Wilmington ("Network"), under a theory of successor liability. The parties filed cross-motions for summary judgment. More › Share