Delaware Business Litigation Report

Delaware Superior Court Holds That Claim For Gross Negligence Against Corporate Managers Is An Equitable Claim For Breach Of Fiduciary Duty Over Which It Lacks Subject Matter Jurisdiction

Techview Investments Ltd., v. Amstar Poland Property Fund I, L.P., C.A. No. N20C-11-229 EMD CCLD (Del. Super. Ct. Aug. 31, 2021)
The court's ability to hear actions is limited by their jurisdiction – both jurisdiction over parties and jurisdiction over claims.  This recent decision from the Delaware Superior Court’s Complex Commercial Litigation Division provides guidance on (1) the scope of contractually granted personal jurisdiction; and (2) subject matter jurisdiction for claims of gross negligence against corporate managers in Delaware. More ›

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Chancery Rejects Inadequate Disclosure Contentions and Grants Corwin Dismissal

Kihm v. Mott, C.A. No. 2020-0938-MTZ (Del. Ch. Aug. 31, 2021)
Under the Corwin doctrine, a fully informed and uncoerced approval of a board decision by the corporation’s disinterested stockholders can downgrade an otherwise heightened standard of review to deferential business judgment review and result in prompt dismissal of post-closing M&A litigation not involving a conflicted controlling stockholder. Kihm involved a merger breach of fiduciary duty challenge and an attempt to avoid Corwin cleansing based on alleged deficient disclosures in the target board’s recommendation statement to the stockholders. More ›

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Chancery Dismisses Derivative Claims Alleging Insider Trading and Misleading Disclosures for Failure to Plead Demand Futility

In re Zimmer Biomet Hldgs., Inc. Deriv. Litig., C.A. No. 2019-0455-LWW (Del. Ch. Aug. 25, 2021)
Under Court of Chancery Rule 23.1, a stockholder-plaintiff may only bring a derivative suit on behalf of a company if the plaintiff (i) first makes a demand on the board to bring suit and is wrongfully refused, or (ii) adequately pleads that a demand would have been futile because the directors were incapable of impartially considering it. Here, the court granted the defendants’ motion to dismiss, because the stockholder-plaintiff failed to allege facts that a majority of the board of directors – who concededly were otherwise disinterested and independent – faced a substantial risk of personal liability. More ›

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Chancery Denies Motion to Dismiss, Awaits Development of Factual Record to Rule on Laches Defense

Kim v. Coupang, LLC, C.A. No. 2020-0772-JRS (Del. Ch. Aug. 19, 2021)
If a court can rule on the affirmative defense of laches on the face of a complaint, it may grant a motion to dismiss.  As this case illustrates, however, when a laches defense cannot be determined from the complaint, resolving that defense may have to await the development of the factual record. More ›

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Chancery Declines to Dismiss Narrow Claims Relating to Entity’s Dissolution In Favor of Pending Related Action

Hawkins v. Daniel, C.A. No. 2021-0453-JTL (Del. Ch. Aug. 24, 2021)
The Delaware courts utilize several doctrines to address motions to dismiss or stay in favor of related litigation, including McWane and Cryo-Maid, all of which turn on legal and practical considerations and the court’s discretion.  This decision illustrates the application of the well-established Cryo-Maid factors to a Delaware action alleging narrow claims related to an entity’s winding-up process where the parties were engaged in long-pending litigation elsewhere.  More ›

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Applying Plain Contract Language, Chancery Awards $147 Million in Damages to Start-Up Company for Breach of Joint Venture Agreement

Symbiont.io, Inc. v. Ipreo Hldgs., LLC, C.A. No. 2019-0407-JTL (Del. Ch. Aug. 13, 2021)
Delaware is a pro-contractarian state.  When fashioning an award for a breach of contract, a Delaware court can consider: (1) the bargained-for damages remedy; (2) whether at the time of contracting the damages from a breach would be uncertain or incapable of accurate calculation; and (3) whether the amount contractually called for would be unconscionable. More ›

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Chancery Sustains Founders’ Implied Covenant Claim For “Bad Faith” Termination To Deprive Them Of Contingent Compensation, Reasoning That Contracts Cannot Be Combined And Must Be Read On Their Own Terms, But The Implied Covenant May Provide Missing Terms

Servaas v. Ford Smart Mobility LLC, C.A. No. 2020-0909-LWW (Del. Ch. Aug. 25, 2021)
Delaware common law requires that contracts be read on their own terms.  Accordingly, contracts cannot be “combined” to supply missing terms.  However, the implied covenant and good faith and fair dealing can, in certain circumstances, supply these missing terms.  More ›

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Chancery Grants Anti-Suit Injunction, Holds Non-Signatory Subsidiary is Bound by Stock Purchase Agreement’s Forum Selection Clause

Fla. Chem. Co., LLC v. Flotek Indus., Inc., C.A. No. 2021-0288-JTL (Del. Ch. Aug. 17, 2021).
Under Delaware law, a forum selection clause may be enforceable against a non-signatory if the non-signatory has a significantly close relationship to the agreement, either as an intended third-party beneficiary or under a theory of estoppel, and the claim subject to the forum selection provision arises from the non-signatory’s standing relating to the agreement. In regard to the last element, some Delaware cases have suggested what the court here called a “same agreement rule” – requiring that claims against the non-signatory arise from the same agreement that contains the forum selection provision. This case rejects the “same agreement” rule and holds a non-signatory may be bound even though its claims were not brought under the agreement containing the forum selection clause, provided that they are otherwise within the clause’s reach. More ›

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Chancery Addresses Viability of Contractual Fraud Claims Allegedly Barred by Agreement’s Terms

Online Healthnow, Inc. v. CIP OCL Investments, LLC, C.A. No. 2020-0654-JRS (Del. Ch. Aug. 12, 2021)
Online Healthnow concerns “contractual fraud claims,” meaning a statement made in the agreement itself that is known to be false by the party making the statement and on which the counterparty relies to its detriment. Under a prior Court of Chancery decision in ABRY Partners V, L.P. v. F&W Acquisition LLC, 891 A.2d 1032 (Del. Ch. 2006), a seller cannot contractually eliminate its liability for engaging in knowing contractual fraud through provisions regarding anti-reliance and knowledge, and cannot rely on contractual caps for indemnity to limit the recovery for contractual fraud. This decision addressed the sellers’ unsuccessful attempt to limit the reach of ABRY Partners based on the relevant agreement’s survival clause purporting to terminate the challenged contractual representations at closing and the combination of anti-reliance and non-recourse provisions involving certain defendants. More ›

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Chancery Applies Rule 15(aaa), Declines to Revive Dismissed Claims under the Law of the Case Doctrine

Sciabacucchi v. Malone, C.A. No. 11418-VCG (Del. Ch. Aug. 18, 2021).
Court of Chancery Rule 15(aaa) provides that, if a plaintiff files an answering brief opposing a Rule 12(b)(6) or Rule 23.1 motion, a decision granting the motion is with prejudice unless the court “for good cause shown, shall find that dismissal with prejudice shall not be just under all the circumstances.” In this decision, the court applied that rule and the law of the case doctrine to deny a motion to amend to reassert dismissed claims. More ›

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Chancery Explains Standards of Review for Receiver Determinations and Shifts Fees and Expenses in Dissolution

In re Dissolution of Jeffco Management, LLC, C.A. No. 2018-0027-PAF (Del. Ch. Aug. 16, 2021)
When the Court of Chancery appoints a receiver to effectuate a company’s dissolution, certain determinations are subject to de novo review and others are given a more deferential review depending on the nature of each determination. Here, the court appointed a receiver to effectuate the relevant LLC’s dissolution based on a deadlock between the two members. Upon review of the record, the receiver found that one of the members had a negative capital account balance and decided to distribute the company’s assets in-kind to the other member with a positive capital account balance. The member with the negative account balance challenged that decision based on various objections.  More ›

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Chancery Addresses Common Interest and Privilege Log Issues in Matter Involving Special Discovery Master

Buttonwood Tree Value Partner, L.P. v. R.L. Polk & Co., Inc., et al., C.A. No. 9250-VCG (Del Ch. Jul. 30, 2021)
With increasing frequency, the Court of Chancery is appointing Special Discovery Masters and Discovery Facilitators as discovery issues continue becoming more complex and time-intensive. With those appointments also comes the opportunity for litigants to challenge the findings of those Special Masters and Facilitators and force the Court’s de novo review. This is just such a case. More ›

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Company Did Not Breach Mandatory Redemption Provision Where Special Committee Determined Company Lacked Funds To Redeem All Preferred Shares

Cont’l Investors Fund LLC v. TradingScreen, Inc., C.A. No. 10164-VCL (Del. Ch. July 23, 2021)
A holder of preferred stock often possesses redemption rights that permit the stockholder to require a company to repurchase the stockholder’s shares. But what happens if the company determines that it lacks the funds to repurchase the stock? As illustrated in this case, a stockholder challenging the determination bears the burden of proof to show that the company’s determination was improper. More ›

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Rales, Aronson and … Zuckerberg: Delaware Supreme Court Adopts Three-Part Demand Futility Standard

On September 23, 2021, the Delaware Supreme Court decided United Food and Commercial Workers Union and Participating Food Industry Employers Tri-State Pension Fund v. Zuckerberg, et al., __ A.3d __, 2021 WL 4344361 (Del. Sept. 23, 2021). In affirming the Court of Chancery’s decision, the high Court concurred with the Court-below’s articulation of a new three-part standard to assess whether a derivative plaintiff meets her pleading burden to show that a pre-suit demand upon the board would have been futile. More ›

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Chancery Permits Service By Email Upon Singaporean Defendants

Skye Mineral Investors, LLC v. DXS Capital (U.S.) Ltd., C.A. No. 2018-0059-JRS (Del. Ch. Jul. 15, 2021).
Delaware’s long-arm statute permits service of process on a foreign defendant by personal service, by mail with signed return receipt, by means authorized by the foreign jurisdiction where service is to occur, or “[a]s directed by a court.” 10 Del. C. § 3104(d). In this decision, the Court of Chancery confirms that each of the grounds is an independent basis for effecting service, and alternative methods of service are appropriate so long as they are “reasonably calculated to give actual notice.” More ›

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