Delaware Business Litigation Report

Delaware Uniform Arbitration Act Did Not Permit the Court of Chancery to Confirm or Vacate an Interim Partial Arbitration Award Because It Was Not Final

Astrum Fund I GP, LP v. Maracci, C.A. No. 2020-0919-PAF (Del. Ch. Jan. 27, 2022) Maracci v. Astrum Fund I GP, LP, C.A. No. 2021-0073-PAF (Del. Ch. Jan. 27, 2022)
A limited partnership agreement’s dispute resolution framework mandated arbitration for certain disputes but contained a Delaware forum selection provision for the resolution of damages. Limited partners initiated arbitration proceedings against the partnership and its general partner after a real estate transaction resulted in the loss of their entire investment. The arbitrator issued an interim partial award (“IPA”) after finding that the general partner had breached the agreement and breached the general partner’s duty of care. The arbitrator did not issue a final award because of the agreement’s requirement that a Delaware court determines damages. More ›

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Chancery Dismisses Action for Declaratory and Injunctive Relief for Lack of Subject Matter Jurisdiction on Grounds that the Proposed Declaratory Judgments Would Provide an Adequate Remedy at Law

Qlarant, Inc. v. IP Commercialization Labs, LLC, C.A. No. 2021-0574-MTZ (Del. Ch. Jan. 25, 2022)
Pursuant to an asset purchase agreement, the plaintiff buyer purchased assets from a seller and several of its affiliates. Despite another company asserting that it owned twenty percent of the seller, the agreement represented that the seller had only two individual shareholders. The company that claimed it was a shareholder filed an action in Maryland challenging the asset purchase transaction. In turn, the plaintiff buyer filed an action in the Court of Chancery seeking declaratory judgments that the company was not a shareholder of the seller at the time of the agreement and that the asset-purchase transaction had been validly consummated. The plaintiff also asked the Court to permanently enjoin the company from asserting it was a shareholder of the seller. More ›

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Chancery Rejects Challenge to Director’s Appointment and Dismisses Derivative Claims

Simons v. Brookfield Asset Mgmt., Inc., C.A. No. 2020-0841-KSJM (Del. Ch. Jan. 21, 2022)
If a derivative plaintiff does not make a pre-suit demand on the board, then under Court of Chancery Rule 23.1, the plaintiff must allege particularized facts demonstrating that demand would have been futile because a majority of the board was incapable of impartially considering a litigation demand.  More ›

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CCLD Finds Claims for Pre-Litigation Breaches of Covenants Restricting Speech Exempt From the “Litigation Privilege”

Feenix Payment Sys. LLC v. Blum, C.A. No. 21-05-099 EMD CCLD (Del. Super. Jan. 25, 2021)
Under Delaware law, the litigation privilege prevents potential tort liability for statements that may be actionable (e.g., as defamation) where such statements were made in connection with a legal case. This case finds that the litigation privilege is not necessarily apt, however, to claims for breach of contract based on pre-litigation breaches of non-disparagement clauses or similar covenants. More ›

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After Entry of Default Judgment, Chancery Grants Leave to Amend Complaint to Add a New Claim for Reverse Veil-Piercing Against Two New Defendants

P.C. Connection, Inc. v. Synygy Ltd., C.A. No. 2020-0869-JTL (Del. Ch. Jan. 10, 2022)
After entry of a default judgment for liability, but before entry of a judgment awarding relief, the Court of Chancery granted the plaintiff leave to amend the complaint to add a new claim for reverse veil-piercing against two new entity defendants under Court of Chancery Rule 15(a). The Court found that the liberal Rule 15(a) standard regarding amendments to complaints applied – rather than the relatively stringent requirements for setting aside a judgment under Rules 59 and 60 – because the Court had only entered judgment on liability and had not yet determined the appropriate relief, and thus, the judgment was not final. More ›

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Court Of Chancery Affirms Arbitration Order And Denies Motion For Preliminary Injunction Based On The Preclusive Effect Of The Order

Agspring LLC v. NGP X US Holdings L.P., C.A. No. 2019-1021-JRS (Del. Ch. Jan. 19, 2022); Agspring LLC v. NGP X US Holdings L.P., C.A. No. 2019-0567-JRS (Del. Ch. Jan. 19, 2022)
Delaware follows the rule that an arbitrator’s award is “not lightly disturbed.” Accordingly, the applicable standard of review is “one of the narrowest standards of judicial review in all American jurisprudence.” To overturn an arbitrator’s order, a court must find that the arbitrator acted in “manifest disregard” of the law.  More ›

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Delaware Supreme Court Permits Substitution of Bankruptcy Trustee as Plaintiff to Resolve “Procedural Conundrum”

Lenois v. Lawal, No. 33, 2021 (Del. Dec. 9, 2021)
A company’s bankruptcy filing during an appeal of a dismissal of a derivative action presents questions of who, if anyone, has the standing to pursue the company’s potential claims. As this case shows, Delaware is loathe to permit such claims to abate merely because the procedural path forward is unclear. More ›

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Non-Resident Asset Managers Found Not To Be “Acting Managers” Subject To Personal Jurisdiction Under Delaware LLC Act

Dlayal Holdings, Inc. v. Gracey, C.A. 2020-1070-LWW (Del. Ch. Dec. 27, 2021)
Under 6 Del. C. § 18-109(a), serving as the manager of a Delaware LLC constitutes consent to be served through the company’s registered agent for all Delaware proceedings “involving or relating to the [company’s] business ... or a violation by the manager ... of a duty” to the company or its members. By its terms, the statute applies not only to formal managers identified in the company’s governing documents but also to acting managers – that is, persons who “participate[] materially in the management” of the company. This case clarifies what constitutes material participation under § 18-109(a). More ›

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Chancery Dismisses Complaint Against LLC Directors Based on Specific Terms of the Operating Agreement and Laches

Erisman v. Zaitsev, C.A. No. 2020-0903-JRS (Del. Ch. Dec. 29, 2021)
Under Delaware law, parties to limited liability company agreements have the freedom to alter or eliminate fiduciary duties, and to eliminate liability for breaches of contractual and fiduciary duties. Here, the Court of Chancery dismissed LLC members’ complaint because, among other reasons, the Operating Agreement (i) replaced default common law fiduciary duties with a contractual standard that limited director liability to claims in which directors did not rely on the terms of the Operating Agreement in good faith; and (ii) it further provided that the directors were not liable for money damages unless they failed to act in good faith, engaged in intentional misconduct or a knowing violation of the law, derived an improper personal benefit, or breached their duty of loyalty to the company. More ›

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Chancery Dismisses Derivative Action Arising from $1.2 Billion Stock Sale Based on Plaintiffs’ Failure to Plead Demand Futility

In re Kraft Heinz Co. Deriv. Litig., Cons. C.A. No. 2019-0587-LWW (Del. Ch. Dec. 15, 2021)
The Court of Chancery dismissed an insider-trading action on the grounds that plaintiffs failed to plead that a majority of a company’s board was not disinterested or independent. By way of background, an investment firm held 24 percent of a publicly-traded Delaware company and rights to three seats on an eleven-member board. At an August 2018 meeting, the board received information that the company likely would miss annual financial targets. Four days later, the investment firm sold nearly a third of its stake, for more than $1.2 billion. The stock sale occurred after the investment firm provided the company with a statement that the firm was not in possession of any material, nonpublic information, and after the company’s board approved lifting insider restrictions that permitted the firm to sell the shares. Three months later, the company disclosed disappointing financial results, and the stock price dropped significantly. More ›

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Chancery Issues Preliminary Injunction To Bar Arbitration on the Grounds that no Agreement was Formed

Hologram, Inc. v. Caplan, C.A. No. 2021-0736-KSJM (Del. Ch. Dec. 14, 2021)
The Court of Chancery issued a preliminary injunction barring arbitration because the parties had never reached an agreement that included arbitration. By way of background, two former high-school classmates agreed in principle to begin a company. One would own ninety percent of the shares and serve as president and CEO, and the other would own ten percent of the shares in exchange for providing ideas and business opportunities. The president sent paperwork to his former classmate via email, including a restricted stock purchase agreement that proposed a vesting period for shares, required specific terms for acceptance, and included an arbitration provision. The former classmate responded with a request to change the shares to non-vesting. Over the ensuing months, the two could not agree on final terms, and the specific terms of acceptance (including in-person execution and payment) were never met. Nearly eight years later, as the company raised a $65 million Series B investment, the former classmate suddenly reached out to inquire about his ownership status. He subsequently filed a private arbitration demand against the company in Illinois. The company responded by filing a Delaware action seeking a declaration that the arbitration was improper because no agreement had been reached between the parties in connection with the claims made by the former classmate. The company moved for a preliminary injunction to prevent the continuation of the Illinois arbitration. More ›

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Chancery Finds Lack of Personal Jurisdiction Over Delaware Corporate Officers Based on Due Process Considerations

In re Bam International, LLC v. The MSBA Group Inc., C.A. No. 2021-0181-SG (Del. Ch. Dec. 14, 2021)
Two officers of a Delaware corporation were sued for alleged tortious interference with an escrow agreement between the Delaware corporation employing the officers and the plaintiff (another Delaware corporation). The plaintiff also brought a breach of contract claims against the Delaware corporation and other entity defendants. The two officers moved to dismiss for lack of personal jurisdiction arguing that, other than their status as officers of a Delaware corporation, they had no relationship with Delaware. The officers further noted that they were not signatories to the contract at issue, which, in any event, was only connected to Delaware by choice of law and forum clauses. Plaintiff contended that the officer defendants, as fiduciaries of a Delaware entity, had implicitly consented to jurisdiction pursuant to 10 Del. C. § 3114(b). More ›

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Chancery Defers Substantive Arbitrability Question to Arbitrator

Hagler v. Evolve Acquisition LLC, et al., C.A. No. 2021-0431-SG (Del. Ch. Dec. 28, 2021)
A party to a purchase agreement filed an arbitration relating to certain indemnities for alleged breaches of representations and warranties in the agreement. A few months later, another party to the purchase agreement filed an action in the Delaware Court of Chancery seeking a declaratory judgment relating to the same financial figures at issue in the arbitration and seeking an injunction (and other relief). The defendant in the Court of Chancery action moved to dismiss for lack of subject matter jurisdiction, claiming that the arbitration provision in the purchase agreement deprived the Court of jurisdiction and that any questions about arbitrability were for the arbitrator. Plaintiff argued that there was a broad equity carve-out from arbitration in the purchase agreement, which indicated that substantive arbitrability was an issue for the Court, not for the arbitrator. More ›

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Court of Chancery Holds That Exclusive Remedy Provisions Alone Are Not Enough To Bar Fraud Claims Based On Extra-Contractual Statements

Fortis Advisors LLC v. Johnson & Johnson, C.A. No. 2020-0881-LLW(Del. Ch. Dec. 13, 2021)
Delaware public policy respects freedom of contract, but it is also intolerant of fraud. These dueling policy aims are often pitted against one another in the context of complex commercial transactions, where the contracting parties agree to allocate risk – including limitations on the information relied on in entering the transaction. Delaware courts have struck a balance: contractual disclaimers of reliance are permitted, but they must be express and limited to the other party’s extra-contractual statements. Here, the Court of Chancery considered whether an exclusive remedies provision was alone sufficient to disclaim reliance on extra-contractual statements. More ›

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Chancery Revived a Dismissed Claim after Discovery Revealed a Desire for Liquidity that Resulted in a Divergent Interest in M&A Sale Process

In re Mindbody, Inc., S’holder Litig., Cons. C.A. No. 2019-0442-KSJM (Del. Ch. Dec. 9, 2021)
A desire for liquidity can result in a divergent interest sufficient to plead fiduciary duty claims against a defendant protected by an exculpatory charter provision. More ›

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