Posts tagged Case Summaries

Superior Court Dismisses Negligent Misrepresentation Claim Because Contract Barred Reliance On Extra-Contractual Representations

Transched Sys. Ltd. v. Versyss Transit Solutions, LLC, 2008 WL 948307 (Del. Super. Apr. 2, 2008)

This case illustrates Delaware’s objective theory of contract interpretation and underscores the importance of certain standard contractual provisions. 

The plaintiff purchased software from the defendants and argued that it incurred significant losses due to material misrepresentations, including, for example, the extent of completion of the software.  The defendants argued that the material misrepresentation claim was barred by the plain language of the contract, namely the exclusive remedy clause, integration clause, and disclaimer of extra-contractual representations. 

The contract stated that indemnification was the exclusive remedy “in respect of any breach of or default under this Agreement . . . .”  The integration clause stated that the written agreement was the entire agreement.  And, the reps and warranties clause stated that the seller was making no representation or warranty in respect of any of its assets.  The court held that the thrust of these three provisions was unambiguous: “no representations made outside of the four corners of the Agreement are to be given consideration by the parties in interpreting the terms.”  That is, the provisions precluded the plaintiff’s argument that it justifiably relied on the extra-contractual claims made by the defendants.

Accordingly, the Superior Court dismissed the plaintiff’s negligent misrepresentation claim.   

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Court of Chancery Upholds Right To Nominate Directors

Levitt Corp. v. Office Depot, Inc., C.A. No. 3622-VCN (Del. Ch. April 14, 2008)

This is a case of bylaws gone bad. While the obvious intent of the company's advance notice bylaw was to obtain notice of what directors a dissident slate might want to nominate, the language of the bylaws was fatally deficient. Thus, this decision gives a good drafting lesson .

The bylaw required advanced notice of an intent to bring a matter before the annual meeting. However, the bylaw made an exception for any matter the company itself had noticed for the meeting. When the company, as always, noticed the meeting would include the election of directors, the court held that included the nomination of directors as part of the matters to be considered. Thus, the court held that the intent to nominate a dissident slate need not be noticed again by the dissidents in accordance with the advance notice bylaw provisions.

The way to avoid this mistake is to make it clear in the bylaws that the intent to nominate a slate different than that proposed by the company is subject to a reasonable advance notice provision in the bylaws. In short, state the rules of the game clearly.

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Court of Chancery Explains Causation Rules for Attorney Fee Award

Helaba Invest Kapitalanlagegesellschaft v. Fialkow, C.A. No. 2683-VCL (Del. Ch. April 11, 2008)

Attorneys who cause a benefit for stockholders are entitled to be awarded. However, the benefit must be caused by the litigation they filed and not just happen to follow the institution of litigation. This gets tricky to determine sometimes as the plaintiff's attorneys insert themselves into the process of negotiating a higher merger price and then claim credit for it. Who gets that credit is the question.

That issue will be decided based on a record that includes the views of the participants in the merger discussions. Hence, that needs to be kept in mind and the record made at the time the events occur. 

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Court of Chancery Finds Duty To Speak

Corporate Property Associates 14 Inc. v. CHR Holding Corp., C.A. No. 3231-VCS (Del. C. April 10, 2008)

In this case of first impression, the Court of Chancery held that a corporation had a duty to a warrant holder to truthfully answer its inquiries about corporate plans. This is significant because normally there is no fiduciary duty running to warrant holders and no duty to keep them informed. Here, however, finding that when asked about a matter that implicated the warrant holders' financial interest, there was a duty to answer a question truthfully.

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Delaware Bankruptcy Court Applies Caremark to Officers

Miller v. McDonald, C.A. 07-51350 (Bankr. Del. April 9, 2008)

In a case of apparent fist impression, a bankruptcy court in Delaware has held that Caremark duties apply to corporate officers as well as directors. Thus, corporate officers also have the duty to exercise reasonable care in oversight of corporate operations in their area of responsibility. This is hardly a surprise. However, given that the officer involved in this case was considered the company's general counsel, this decision has some far-reaching implications.

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Court of Chancery Confirms Limits of Inspection Litigation

TravelCenters of America LLC v. Brog, C.A. 3516-CC (Del. Ch. March 31, 2008)

This decision confirms that for limited liability companies the rule applies from corporate law that a suit for inspection of books and records is a limited case that may not also include other claims such as breach of fiduciary duty.

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Court of Chancery Limits Advancement Rights Upon Bylaw Amendment

Schoon v. Troy, C.A. 2362-VCL (Del. Ch. March 28, 2008)

Directors who rely on advancement rights under a corporate bylaw need to be aware that those rights may be lost if the bylaw is amended. Delaware law, as this decision notes, permits elimination of advancement rights in a bylaw at least up to the moment those rights "vest" by the filling of a suit that entitled the director to advancement.

This decision is also interesting for its discussion of the Levy case that held when a director has his fees paid for by a third party, he may lose his right to seek advancement from the corporation. This decision limits Levy to cases where the third party is obligated to pay the fees.

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Court of Chancey Holds Only Compulsory Counterclaims Warrant Advancement

Reinhard  & Kreinberg v. The Dow Chemical Co., C.A. 3003-CC (Del. Ch. March 28, 2008)

Corporate bylaws sometimes provide advancement rights in litigation filed by a director, but that is rare. However, when a director is sued, the question remains if he has advancement rights in that circumstance, and whether he may get those rights to cover a counterclaim in the absence of a bylaw right to do so when bringing litigation. This decision holds that if the counterclaim is compulsory under the rules of procedure, advancement is possible.

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Court of Chancery Upholds Proxy Power

In Re IAC/Interactivecorp, C.A. 3486-VCL (Del. Ch. March 28, 2008)

In this widely reported decision, the Court of Chancery applied well established principles of contract construction to determine when a proxy would be upheld. Once again, the Court rejected an attempt to modify the contract language to imply a duty of good faith and fair dealing, or a fiduciary duty that would override the rights given in the contract.

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Supreme Court Affirms PHLX Settlement

In The Matter Of The Philadelphia Stock Exchange Inc., Del. Sup., C.A. 613/615, 2007 (Del. March 27, 2008)

This comprehensive decision explains Delaware law on the settlement of a class action when the proceeds of a settlement will involve buyers, sellers, and holders of stock in a Delaware corporation. This allocation problem is a difficult one and the Supreme Court held that allocation issues may be resolved in a separate hearing after the settlement with the defendants is approved.

The opinion is also important in explaining the scope of a release that the court will approve in connection with a settlement. There is often a tension between the interests of the defendants who ask for the broadest release possible and the interests of other litigants who want the release limited. Here, for example, objectors to the settlement had a federal case pending that arose out of the same core facts involved in this settlement. The Delaware Supreme Court permitted the release to include a claim arising out of those core facts even if it might affect the federal litigation.

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Superior Court Denies Motion to Dismiss or Stay First-Filed Delaware Action

Certain Underwriters at Lloyds Severally Subscribing Policy Number DP359504 v. Tyson, 2008 WL 660485 (Del. Super. March 7, 2008)

This case is an insurance coverage dispute between Tyson Foods, Inc., and certain of its underwriters over damages caused by Hurricane Katrina.  The underwriters filed two declaratory judgment actions in Delaware seeking denial of coverage.  Two weeks later Tyson filed an action in Mississippi.  Tyson then moved to dismiss or stay the Delaware action.

The Superior Court found that the underwriters’ Delaware action was first filed.  The court then applied the Cryo-Maid factors to determine if the Delaware action should nonetheless be dismissed or stayed on forum non conveniens grounds.  The court considered (1) whether Delaware law governs the case; (2) the relative ease of access to proof; (3) the availability of compulsory process for witnesses; (4) the possibility of a view of the premises; (5) the pendency or nonpendency of a similar action or actions in another jurisdiction; and (6) all other practical considerations that would affect the trial.    More ›

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Abbott Labs Sued by States Under Sherman Act

State of Florida, et al. v. Abbott Laboratories et al., Del. District Court 1:08-CV-00155 (filed March 18, 2008).

A group of eighteen states and the District of Columbia filed a complaint in Delaware District Court against Abbot Laboratories, Fournier Industrie et Sante and Laboratoires Fournier S.A. under the Sherman Act, alleging an unlawful monopolization of the fenofibrate market.  Defendants allegedly feared that competition from generic manufacturers would reduce profits from their TriCor product, a drug which regulates triglyceride and cholesterol levels.  The complaint can be viewed here.

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SLC Formed After Demand Excused is Not "Too Late"

In re infoUSA, Inc. Shareholders Litigation, Consol. C.A. No. 1956-CC (March 17, 2008).

A special litigation committee was formed by the board of infoUSA, Inc. at the end of December, after a motion to dismiss derivative litigation had been denied and after a finding had been made by the Court of Chancery that demand was excused.   The SLC moved to stay the ongoing derivative litigation in January, seeking a period of 150 days in which it could investigate the substance of the claims in the action.  The plaintiffs opposed such a stay, asserting that the SLC was formed "too late" and should not be allowed to derail the ongoing litigation.

The Court of Chancery rejected this position:  "The fact that I have already determined that demand is excused demonstrates why the board must act by means of a special committee; it does not in any way explain why it cannot act through an SLC."  Consequently, the requested stay was granted.  The Court also rejected as premature any challenge to the independence of the SLC, finding it serves the purposes of judicial economy to do so after the SLC issues its report.  The letter opinion can be viewed here.

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Court of Chancery Explains Bylaw on Proxy Solicitation

JANA Master Fund, Inc.v. CNET Networks, Inc., C.A. 3447-CC (Del. Ch. March 13, 2008) 

This is a useful decision on the proper interpretation of a bylaw that governs stockholder proxy proposals in light of SEC Rule 14a-8.  The Court held that the bylaw only applied to stockholder requests to have a proposal included in the company's proxy materials under rule 14a-8.  In that way the Court again emphasized that Delaware interprets bylaws so as to increase the ability of stockholders to vote.

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Court of Chancery Explains Options Cases

Weiss v. Swanson, C.A. No. 2828-VCL (Del Ch. March 7, 2008)

In the latest of the Chancery decisions on complaints challenging the grant of options, the Court has explained what it takes to state a derivative complaint that excuses demand on the Board. Briefly, the Court here focused on what was disclosed to the stockholders when they were asked to approve option plans or elect directors who had received option grants. First, full disclosure is required, particularly of practices that are likely to lead to increasing the value of the options, such as the bullet-dodging alleged in this case.

Second, the fact that a majority of the board received the options also made them interested enough to excuse demand.

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