Posts tagged Fiduciary Duty

Court of Chancery Applies Limitations Statute

Smith v. McGee, C.A. No. 2101-S (Del. Ch. October 16, 2006). In this decision, the Court of Chancery discusses the application of Delaware's three year statute of limitations to claims for breach of fiduciary duty. The Court applied the statute to bar claims that arose three years before the suit was filed and declined to apply the potential saving rules such as when a claim is hidden from the plaintiff. Share

Court of Chancery Holds 5 Days Is Too Short For Merger Announcement

Berger v. Intelident Solutions Inc., C.A. No. 1527-N (Del. Ch. October 12, 2006). Under Delaware law, when a stockholder files suit over a merger she may be limited to appraisal rights when her concern is only over the price to be paid. It is often difficult to decide when a complaint is limited to the price and does not also deal with unfair dealing claims that are appropriate for class litigation. Here, the Court held that a complaint that alleged only 5 days notice of a merger and the right to seek appraisal did properly allege unfair dealing and could proceed as a class claim. Share

Court of Chancery Interprets No Shop Clause

Energy Partners Ltd. v. Stone Energy Corporation, C.A. No. 2402-N (Del. Ch. October 11, 2006). The Court of Chancery may be called upon to decide the scope of a board of director's duties in appropriate cases. Here, the Court interpreted a common merger agreement provision that limited the board's options in considering third party bids while the merger was pending. The Court held the provision permitted contact with the new bidder. More › Share

Court of Chancery Interprets Common Merger Clause

ATS, Inc. v. Bachmann, C.A. No. 2374-N (Del. Ch. October 11, 2006). Delaware corporations frequently ask the Court of Chancery to decide if a proposed course of action is appropriate, particularly when the board of directors' fiduciary duties are implicated. In this decision the Court focused primarily on when the Court may provide that guidance and when the matter is not ripe for judicial action. The Court has rejected becoming involved in hypothetical issues not framed by a real world transaction, but more of a "what if" set of questions. Here, the Court accepted one question for its review and rejected others, thereby illustrating how it will deal with those situations. More › Share

Court of Chancery Limits Creditor Fiduciary Duty Claims

North American Catholic Educational Programming Foundation, Inc. v. Gheewalla, C.A. No. 1456-N (Del. Ch. September 1, 2006). This is another in a series of Court of Chancery decisions that limit the claims that creditors may make based on the theory the directors owe the creditors a duty when their corporation is insolvent or in the vicinity of insolvency. Ever since the famous footnote in Credit Lyonnais Bank Nederland, N.V. v. Pathe Communications Corp., 1991 WL 277613 (Del. Ch. Dec. 30, 1991), creditors have argued that directors should owe them a fiduciary duty to take their interests into account when the creditors are the residual interest holders in a corporation that is insolvent or nearly so. A series of recent decisions have limited those creditor arguments. See e.g. Production Resources Group, L.L.C. v. NCT Group, Inc., 863 A.2d 772 (Del. Ch. 2004) [holding most creditor claims must be brought as derivative claims]. This new decision further limits creditor claims by holding that creditors may not bring a direct claim for breach of fiduciary duty based on the theory the entity is in the vicinity of insolvency. Further, the decision holds that for clearly insolvent companies, only creditors whose claims are beyond fair dispute may claim the directors owe them a duty. More › Share

Delaware Supreme Court Affirms Chancery Court Ruling that Preferred Stock Was Properly Issued

Benihana of Tokyo, Inc. v. Benihana, Inc., No. 36, 2006, 2006 WL 2465412 (Del. Aug. 24, 2006). The Delaware Supreme Court affirmed post-trial ruling by Court of Chancery that $20 million issuance of preferred stock to a third-party holding company was authorized by the corporate charter and that the directors acted properly in approving that transaction. More › Share

Court of Chancery Interprets Charter For Preferred Stock

Blue Chip Capital Fund II Limited Partnership v. Tuberger, C.A. No. 1611-N (Del. Ch. August 22, 2006). The Court of Chancery frequently is called upon to interpret a corporate certificate of incorporation. In this decision, the Court held that a certificate provision permitting a corporation to withhold a reserve for contingent liabilities in connection with calculating the liquidation preference for preferred shareholders did not automatically authorize the board to hold back the highest possible amount, even if doing so was unreasonable based on objective factors. The Court also held that the authority granted by 8 Del C. §281 to hold back a reserve for continent liabilities did not authorize the board to do so under the charter. Instead, the terms of the certificate need be interpreted on its own terms. More › Share

Court of Chancery Awards Both Appraisal And Equitable Relief

In re PNB Holding Co. Shareholders Litigation, C.A. No. 28-N (Del. Ch. August 18, 2006). As it has several times in recent years, the Court of Chancery has decided a case combining appraisal rights and a class claim for inequitable treatment in a merger. The Court held that when directors get together to freeze out the other stockholders the entire fairness test applies even when they do not own a majority of the stock. This follows because the interests of those directors in remaining shareholders differs from the other shareholders who will be frozen out. Absent some insulating procedure such a majority of the minority vote, the directors then have the burden of proving the merger was entirely fair. More › Share

Court of Chancery Rejects Deepening Insolvency Theory

Trenwick America Litigation Trust v. Ernst & Young LLP, C.A. No. 1571-N, 2006 WL 2333201 (Del. Ch. Aug. 10, 2006). The Delaware courts have struggled for the last fifteen years over the scope of the duties of directors to creditors when their company is in the vicinity of insolvency. In two landmark decisions, the first in 2004, and just recently, the Court of Chancery sought to define the limits of that duty. Indeed, in this decision the Court rejected the very idea that there is a duty to avoid taking risks that may have the effect of deepening the insolvency of a Delaware corporation, at least in most circumstances. More › Share

Court of Chancery Sustains Complaint Attacking Settlement

Kosseff v. Ciocia, C.A. No. 188-N, 2006 WL 2337593 (Del. Ch. Aug. 3, 2006). In this decision, the Court dealt with a complaint attacking the transaction implemented to settle a proxy contest. The proxy contest was settled by an agreement that put the dissidents on the board and had the CEO resign. However, the CEO was given the right to buy certain lucrative businesses of the company, a right he later exercised. The complaint alleged that this deal was improvident. After reviewing the complaint, the Master declined to grant a motion to dismiss. More › Share

Court of Chancery Upholds Advance Notice Bylaw

Acciptier Life Sciences Fund L.P. v. Helfer, C.A. No. 2057-N, 2006 WL 2252376 (Del. Ch. Aug. 2, 2006). The Court of Chancery has upheld the use of a press release to announce a stockholder meeting date and to trigger the provisions of a ten day advance notice bylaw. The plaintiff's employees read the press release, which mostly focused on financial results, but they neglected to notice it also announced the annual meeting date. Thus, the plaintiff failed to get the names of its nominees to the company in the time required by a bylaw provision triggered by the notice of meeting. More › Share

Court of Chancery Clarifies Right To Buy Control

Abraham v. Emerson Radio Corp. C.A. No. 1845-N, 2006 WL 1879205 (Del. Ch. July 5, 2006). This decision makes it clear that a controlling stockholder may sell control without fear of liability for the actions of the buyer after the transaction closes, with few exceptions. While it has long been the rule that a stockholder may deal with its shares as it sees fit, case law recognized that a controlling stockholder has a fiduciary duty to its company and the minority owners by virtue of the controller's ability to control what the company does. How that duty applied in the sale of control context is the question addressed in this case. More › Share

Court of Chancery Upholds Complaint Against AIG Entities

Teachers' Retirement System of Louisiana v. Aidinoff, C.A. No. 20106, 2006 WL 1725572 (Del. Ch. June 21, 2006). In this decision the Court of Chancery extensively discusses the legal theories under which the plainitff may seek a recovery from two of the entities alleged to have helped the AIG Chairman profit at the expense of AIG. In effect, the Court held that if as alleged these entities were set up to profit by doing what AIG might have done for itself, then their profits are subject to recovery under several theories such as the imposition of a constructive trust. The opinion is a good source of legal theory for recovery in such cases. Share

Court of Chancery Appoints Receiver To Remedy Breach of Duty

Kevin McGovern, et. al. v. General Holding, Inc., et. al., C.A. No. 1296-N (Del. Ch. June 2, 2006). In this action to recover for the diversion of partnership property, the Court of Chancery fashioned a unique remedy by ordering that the partnership be sold by a receiver so as to realize the special value of its technology. More › Share

Court of Chancery Orders Parties to Modify Release Language in Settlement Agreement

Unisuper Ltd. v. News Corp., C.A. No. 1699-N, 2006 WL 1550809 (Del. Ch. May 31, 2006) News Corporation shareholder objected to settlement, arguing the release was overly broad. More › Share