Posts tagged Directors

Court of Chancery Rejects Limit on Advancement Rights

Wendell Brown v. LiveOps, Inc., C.A. No. 1991-N, 2006 WL 1667652 (Del. Ch. June 12, 2006). In another rejection of artificial limits on the right to advancement, the Court of Chancery has rejected the argument that there is no right to advancement of legal fees to defend a suit that seeks recovery for post termination conduct. More › Share

Court of Chancery Upholds Drag Along Rights

Minnesota Invco of RSA #7, Inc. v. Midwest Wireless Holdings LLC, C.A. No. 1887-N, 2006 WL 1596675 (Del. Ch. June 7, 2006). In this case, the Court of Chancery was required to interpret complex agreements between the members of a Delaware limited liability company. The Court held that the defendant holding company had the right to "drag along" holders of a minority interest in an operating subsidiary of the holding company in connection with the sale of the holding company. More ›

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Superior Court Grants AT&T Corp. Leave to Appeal Interlocutory Order Granting Summary Judgment

AT&T Corp. v. Clarendon America Ins. Co., C.A. No. 04C-11-167(JRJ), 2006 WL 1360934 (Del. Super. Ct. May 18, 2006). On April 25, 2006, the Superior Court granted summary judgment in favor of multiple defendants. The plaintiff, AT&T, moved to certify an appeal pursuant to Rule 42, and the Superior Court granted AT&T leave to file and interlocutory appeal. On May 31, 2006, the Delaware Supreme Court accepted the interlocutory appeal as well. More › Share

Court of Chancery Finds Merger Between Controlling Stockholder and Subsidiary Unfair

Gesoff v. IIC Indus. Inc., C.A. No. 19473, 2006 WL 1458218 (Del. Ch. May 18, 2006). Plaintiff filed a class action, claiming a merger was the subject of unfair dealing and produced an unfair price. Another plaintiff filed a statutory appraisal claim based on the same merger. More › Share

Court of Chancery Grants In Part Motion To Dismiss Class and Derivative Complaint

Khanna v. McMinn, C.A. No. 20545-NC, 2006 WL 1388749 (Del. Ch. May 9, 2006). Defendants moved to dismiss class and derivative complaint under Court of Chancery Rules 23.1 and 12(b)(6). Defendants also moved to disqualify the plaintiffs, to strike portions of the complaint and for continued sealing of the complaint. More › Share

Court of Chancery Finds Remedy for Breach of Fiduciary Duty Identical to Appraisal Award

Delaware Open MRI Radiology Associates, P.A. v. Kessler, C.A. No. 275-N, 2006 WL 1215096 (Apr. 26, 2006). This case was described by Vice Chancellor Strine as "another progeny of one of our law's hybrid varietals: the combined appraisal and entire fairness action." The court was tasked with determining whether the share price in a squeeze-out merger was fair, and, if not, what the extent of the underpayment to the minority shareholders was. The court found that the merger price was unfair, and finding no difference between the award the petitioners/plaintiffs would receive in appraisal or in equity, the court awarded an amount equivalent to petitioners' pro rata share of the company's appraisal value on the date of the merger. More ›

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Superior Court Grants Summary Judgment to Insurers, Finding that Certain of AT & T's D & O Policies Do Not Cover Claims in Underlying Litigation

AT&T Corp. v. Clarendon America Ins. Co., C.A. No. 04C-11-167 (JRJ), 2006 WL 1382268 (Del. Super. Ct. April 25, 2006). This was an insurance coverage case involving Directors and Officers and Company ("D & O") liability policies purchased by plaintiff AT & T Corp. ("AT & T") and At Home Corp. ("At Home") from various primary and excess insurers. AT & T sought coverage, including indemnity, payment of defense fees, costs, and settlements or judgments, relating to several underlying shareholders suits brought against AT & T and certain officers and directors of AT & T and At Home. The defendants brought motions for partial summary judgment, alleging that AT & T's clams fell outside the scope of coverage under the D & O policies. Ultimately, the court granted the defendants' motions. More ›

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Court of Chancery Awards $4.8 Million, Plus Interest, to Minority Shareholders for Damages Suffered from Director Defendants' Breach of the Fiduciary Duty of Loyalty

Oliver v. Boston University, C.A. No. 16570-NC, 2006 WL 1064169 (Del. Ch. Apr. 14, 2006). Defendant Boston University ("BU") was the controlling shareholder of Seragen, a financially troubled biotechnology company. Plaintiffs, a group of former minority stockholders of Seragen's common stock, challenged certain transactions before Seragen was merged and the process by which the merger proceeds were divvied up. The plaintiffs contended that the BU defendants breached their fiduciary duties to Seragen's common shareholders by approving various financial transactions, which were not fair to the common shareholder as a matter of price and process. The Court of Chancery awarded damages in excess of $4.8 million plus interest for breaches of the fiduciary duty of loyalty. More ›

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Court of Chancery Permits Derivative Action to Proceed Because Alleged Facts Created Reasonable Doubt that Directors were Disinterested and Independent

Feldman v. Cutaia, C.A. No. 1656-N, 2006 WL 920420 (Del. Ch. Apr. 5, 2006). This action involved a series of transactions in which the Telx defendant directors allegedly granted themselves a significant equity stake in the company for little or no consideration. Plaintiff alleged that these transactions significantly diluted his equity position. This action also involved a self tender-offer by the company for $5 million worth of its securities. Defendant argued that plaintiff did not make a demand on the Telx board before proceeding with the derivative action and that the complaint did not plead with particularity facts that created a reasonable doubt as to the ability of the Telx board to independently consider such a demand. The Court of Chancery denied the defendants' motion to dismiss and permitted the plaintiff to proceed with his derivative suit. More ›

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Court of Chancery Interprets Indemnification Provisions as Not Permitting Indemnification by Re-Organized Company While Permitting Indemnification by Pre-Organized Company

Levy v. Hayes Lemmerz International Inc., C.A. No. 1395-N, 2006 WL 985361 (Del. Ch. Apr. 5, 2006). The plaintiffs in this case sought indemnification for a settlement of claims against them for $27.5 million, paying $7.2 million out of their own pockets. The plaintiffs were former outside directors of a public company engaged in the automobile supply trade who were sued by both stockholders and bondholders of that company for various statutory violations and breaches of fiduciary duty when the company was forced to reveal that some of its financial statements contained materially misleading information. The corporation that the plaintiffs served ("Old Hayes") entered Chapter 11 bankruptcy and emerged as the operating subsidiary of a new entity ("New Hayes"). When the plaintiffs sought indemnification for the settlement under the old corporation's bylaws, their individual indemnification plans, and the bankruptcy reorganization plan, both Old Hayes and New Hayes refused. The Court of Chancery dismissed the plaintiffs' claims as to New Hayes, which the court found as a matter of law had no obligation to indemnify its predecessors' former directors and officers; however, the court denied the motion to dismiss as to the old company because the directors had a right to proceed with their claim for indemnification against Old Hayes. More ›

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District Court Denies Defendants' Motions to Dismiss Derivative Action for Failure to Comply with Demand Requirement and Lack of Subject Matter Jurisdiction and Denies Plaintiff's Motion for Summary Judgment.

Seinfeld v. Barrett, C.A. No. 05-298-JJF, 2006 WL 890909 (D. Del. Mar. 31, 2006). Plaintiff filed a derivative action against defendants, alleging that they violated Section 14(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 14a-8 and breached their fiduciary duties under Delaware law by making false and misleading statements in connection with a proxy statement issued by the defendants in March 2005. Plaintiff moved for summary judgment, and defendants moved to dismiss for lack of subject matter jurisdiction and for failure to comply with Rule 23.1. More › Share

Court of Chancery Awards Attorneys' Fees Only for Work Devoted to Meritorious Claims

In re Triarc Companies, Inc. S'holders Litig., C.A. No. 16700, 2006 WL 903338 (Del. Ch. Mar. 29, 2006). After the voluntary dismissal of a class action, plaintiffs petitioned the Court of Chancery for attorneys' fees and expenses. The court found that plaintiffs' counsel was entitled to fees for the preparation of the amended complaint and litigation efforts undertaken before the action that caused the voluntary dismissal. Plaintiffs' counsel was not entitled to fees for their work in connection with the original complaint nor for their work performed after the claims in the amended complaint were mooted. More ›

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Court of Chancery Dismisses Complaint Because a Creditor Erroneously Asserted Derivative Claims as Direct in the Hope of Escaping Bankruptcy Court Jurisdiction

Big Lot Stores, Inc. v. Bain Capital Fund VII, LLC, C.A. No. 1081-N, 2006 WL 846121 (Del. Ch. Mar. 28, 2006). In 2000, in a sponsored management buyout, a corporation sold a subsidiary business that operated a chain of toy stores (KB Toys) in exchange for $257.1 million in cash and a $45 million note due in 2010. In 2002, the new owners refinanced the business and distributed approximately $120 million to the buyout sponsor, affiliates, two officers and directors of the subsidiary that invested in the buyout, and others. In 2004, the KB Toys filed for Chapter 11 bankruptcy. Plaintiff Big Lots, Inc, an unsecured creditor and holder of the $45 million note, brought this action asserting direct claims of breach of fiduciary duties, fraud, and civil conspiracy. The plaintiff sought recovery for the amount due on the note and restitution for alleged unjust enrichment. The Court of Chancery dismissed the complaint namely because the claims were derivative in nature, not direct, and thus belong to the bankruptcy estate. More ›

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Court of Chancery Finds Breach of Oral Contract Regarding Executive Compensation and Breach of Fiduciary Duty for Failure of Such Compensation to Satisfy Entire Fairness Test

Carlson v. Hallinan, C.A. Nos. 19808, 19466, 2006 WL 771722 (Del. Ch. Mar. 21, 2006). This case involved a direct and derivative action arising out of a dispute between two men engaged in the business of making short term, unsecured loans. Plaintiffs asserted direct claims for breach of contract and derivative claims for breach of fiduciary duties. Specifically, plaintiffs alleged that defendant Hallinan breached an oral contract with plaintiffs by paying himself and another defendant executive compensation. Plaintiffs also asserted that the defendants breached fiduciary duties they owed nominal defendant CR Services Corp. by paying themselves an excessive amount of executive compensation. The Court of Chancery found, among other things, that Hallinan breached the oral contract with plaintiffs and defendants committed multiple breaches of their fiduciary duties to CR because they failed to meet the entire fairness standard regarding their compensation. More ›

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Court of Chancery Dismisses Derivative Action for Failure to Establish Demand Futility

Highland Legacy Ltd. v. Singer, C.A. No. 1566-N, 2006 WL 741939 (Del. Ch. Mar. 17, 2006). A large shareholder brought a derivative action alleging that the directors committed corporate waste by approving exorbitant fees to unqualified financial advisers. The defendants moved to dismiss the complaint under Court of Chancery Rule 23.1 for failure to allege with particularity facts establishing demand futility. The court's review of the complaint revealed that plaintiff did not allege with particularity facts from which the court could reasonably conclude that the majority of the directors were disabled from impartially considering a demand. The court therefore granted defendants' motion to dismiss under Rule 23.1. More ›

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