Delaware Business Litigation Report

Chancery Invokes Internal Affairs Doctrine to Dismiss Dispute Over Former Delaware Corporation Brought Over Two Years After Its Migration to Nevada

Sylebra Capital Partners Master Fund, LTD v. Perelman, et. al., C.A. No. 2019-0843-JRS (Del. Ch. Oct. 9, 2020)

Defendant Scientific Games Corporation (the “Company”) is a gaming and lottery company that reincorporated in Nevada from Delaware in January 2018. The Company adopted new Nevada bylaws that, among other things, require stockholders to bring claims for breaches of fiduciary duties in Nevada. Because the Company operates in the gaming industry, the bylaws also require stockholders to meet “suitability” requirements and restrictions on sale set by gaming regulators in jurisdictions where the Company operates. Approximately four months before Plaintiffs filed suit, the Company filed suit in Nevada to force Plaintiffs to comply with an investigation into their suitability as stockholders. More ›

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High Court Affirms Deal Price Was Reliable Indicator of Fair Value Despite Flawed Process

Brigade Leveraged Capital Structures Fund Ltd. v. Stillwater Mining Co., C.A. No. 427, 2019 (Del. Oct. 12, 2020)

This case illustrates that, notwithstanding a flawed process for the sale of a company, the deal price may still provide a reliable indicator of the fair value of shares in an appraisal action. Petitioners had contended that the Court of Chancery abused its discretion in upholding a rushed sale process and in failing to make an upward adjustment to the deal price based on an increase in the company’s value post-signing. More ›

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Chancery Rebukes Party for “Distracting” and “Detrimental” Rule 11 Arguments

POSCO Energy Co., Ltd. v. FuelCell Energy, Inc., C.A. No. 2020-0713-MTZ (Del. Ch. Oct. 22, 2020)

Under Court of Chancery Rule 15, a Delaware plaintiff may request leave from the Court to amend or supplement a complaint. Leave to grant such motions is “liberally granted, unless, in a narrowly construed exception, there is inexcusable delay and prejudice to the defendant.” This opinion involves an unsuccessful opposition to a motion to amend based, in part, on the argument that the original pleading violated Rule 11.   More ›

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Superior Court Rejects Insurers’ Motions to Dismiss Coverage Dispute Based upon Ripeness and Lack of Personal Jurisdiction

Energy Transfer Equity, L.P. v. Twin City Fire Insurance Co., et al., C.A. No. N19C-11-009 EMD CCLD (Del. Super. Ct. Sept. 25, 2020)

Energy Transfer Equity, L.P. v. Twin City Fire Insurance Co., et al., C.A. No. N19C-11-009 EMD CCLD (Del. Super. Ct. Sept. 28, 2020) 

Plaintiffs-Insureds sought declaratory relief and damages for Defendants-Insurers anticipatory breach of directors’ and officers’ insurance policies. Defendant Twin City Fire Insurance Co. issued the primary policy, and the remaining Defendants issued excess coverage policies. Plaintiffs specifically sought insurance coverage related to litigation in the Court of Chancery (“Dieckman Action”), in which trial had occurred but no decision had been issued. More ›

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Chancery Rejects Conspiracy Jurisdiction Over Foreign Defendant

Lacey v. Mota-Velasco, C.A. No. 2019-312-SG (Del. Ch. Oct. 6, 2020)

Under Istituto Bancario, a foreign defendant alleged to be part of a conspiracy may be subject to personal jurisdiction in Delaware, but only if the plaintiff alleges, among other requirements, and consistent with the Delaware long-arm statute and due process, an act in Delaware in furtherance of the conspiracy. Conspiracy jurisdiction is not an independent basis of jurisdiction but rather provides a framework by which the Delaware courts evaluate whether there are sufficient minimum contacts to justify the exercise of personal jurisdiction.  More ›

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Chancery Finds Warrant Issuance Triggered Stockholder Preemption Rights

L-5 Healthcare Partners, LLC v. Alphatec Holdings, Inc., C.A. No. 2019-0412-KSJM (Del. Ch. Oct. 12, 2020)

Pursuant to a share purchase agreement, a plaintiff stockholder had preemption rights that entitled the stockholder to participate on a pro-rata basis if the defendant company issued common stock equivalents to a third-party buyer. Defendant issued warrants convertible into common stock to a nonparty. In consideration of plaintiff’s preemption rights, defendant made a proposal for plaintiff to provide the company with a loan in exchange for acquiring warrants, based on a blended version of the prices and other terms of the issuance to the nonparty. The proposal was, however, subject to approval by defendant’s board and the nonparty, and contingent upon defendant drawing down on the loan provided by plaintiff. Plaintiff filed suit in the Delaware Court of Chancery, seeking to enforce its preemption rights, and moved for partial judgment on the pleadings. More ›

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Chancery Applies Contractual Shortening of Limitations Period for Breaches of Representations, Finds it Inapt to Fraud Claims and Enforces Clear Anti-Reliance Clause

Pilot Air Freight, LLC v. Manna Freight Systems, Inc., C.A. No. 2019-0992-JRS (Del. Ch. Sept. 18, 2020)

In a familiar fact pattern, an acquirer of a business brought suit against sellers claiming, inter alia, that the representations and warranties in the asset purchase agreement were untrue and, indeed, fraudulent when made. The sellers moved to dismiss on the basis of a provision they claimed shortened the limitations period for breaches of representations and warranties and an anti-reliance clause they claimed eliminated any potential claims for misrepresentations or omissions outside of the written agreement. More ›

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Superior Court Dismisses Successor-by-Merger’s Claims Where Underlying Contract Contained Anti-Assignment Clause

MTA Royalty Corp. v. Compania Minera Pangea, S.A. DE C.V., C.A. No. N19C-11-228 AML CCLD (Del.  Super. Sept. 16, 2020)

Plaintiff’s predecessor-in-interest conveyed mineral rights to Defendant. Under the agreement, Defendant owed a conditional additional $1 million at a future date. Before the payments became due, the predecessor was merged out of existence. As a result, Defendant asserted it had no obligation to pay the additional amount because the sale agreement included an anti-assignment provision that barred assignment absent Defendant’s consent, which was lacking. More ›

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Litigation Partners Discuss Recent Developments in Delaware Corporate Law

Corporate Litigation Partners Lewis A. Lazarus and Tyler O'Connell will address emerging issues in Delaware corporate law based on recent Delaware case law at the Delaware State Bar Association's November 12, 2020 seminar on Delaware Corporate Law. The Corporate Law Section of the DSBA is sponsoring the seminar.  Lewis and Tyler accompany Justice Gary F. Traynor of the Supreme Court of Delaware along with other distinguished Delaware litigators. Lewis will moderate the panel. More ›

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Chancery Addresses Contract and Fraud Claims Relating to M&A Post-Closing Price Adjustments

Roma Landmark Theaters, LLC v. Cohen Exhibition Co., LLC, C.A. No. 2019-0585-PAF (Del. Ch. Sept. 30, 2020)

In Roma Landmark Theaters, the parties’ purchase agreement contained a framework for post-closing price adjustments and set forth the pre-closing duties of the buyer (but not the sellers) relating to certain calculations and financial information. The agreement included a dispute mechanism, which provided for an independent accounting firm to make a binding determination as to the distribution of escrowed funds in connection with a dispute over post-closing price adjustments. The accounting firm decided the dispute largely in sellers’ favor. Sellers then filed suit in the Court of Chancery to confirm the accounting firm’s decision, and require buyer to release the escrowed funds. Buyer filed counterclaims, alleging that the sellers committed financial disclosure misrepresentations amounting to fraud and bad faith. More ›

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Chancery Confirms that, Without More, Threat of Proxy Contest from Activist Investor is Insufficient to Render Director Defendants Conflicted in Sale Transaction

Rudd v. Brown, C.A. No. 2019-0775 MTZ (Del. Ch. Sept. 11, 2020)

The Court of Chancery recently confirmed that the threat of a proxy contest from an activist investor alone was insufficient to render director defendants conflicted in a post-closing challenge to a sale of the company. Here, an activist investor that acquired a significant stake in the corporation expressed dissatisfaction with the board of directors for not exploring a potential sale of the company. Thereafter, the company announced that it would explore strategic alternatives. The company then entered into a cooperation agreement permitting the investor to appoint three members of the nine member board in exchange for not mounting a proxy fight. The strategic process resulted in a sale to a financial acquirer. The plaintiff then brought suit against the company’s board of directors and an officer alleging that that board’s acceptance of an inadequate offer was motivated by self-interest to avoid a proxy contest. More ›

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Chancery Discusses Standards for Reasonable Fees in Making Fee Award for “Bad Faith” Litigation

Carlos Eduardo Lorefice Lynch v. R. Angel Gonzalez Gonzalez, C.A. No. 2019-0356-MTZ (Del. Ch. Sep. 18, 2020)

Under the American Rule, parties to lawsuits in Delaware generally are responsible for paying their own attorneys’ fees and costs incurred in the litigation. Parties can petition Delaware courts, however, to shift the fees when such a party can prove that its opponent pursued its claims in “bad faith.”  More ›

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Court of Chancery Dismisses Claim of Aiding and Abetting Against a Minority Stockholder

A claim for aiding and abetting a breach of fiduciary duty fails if a plaintiff cannot allege an underlying breach. In that circumstance there is no breach to aid and abet. Where a plaintiff sufficiently alleges a breach, however, it still also must allege, in non-conclusory terms, facts sufficient to show knowing participation in the alleged breach to state a claim for aiding and abetting. In Jacobs v. Meghi, C. A. No. 2019-1022-MTZ (Del. Ch. Oct. 8, 2020), the Court of Chancery parsed the allegations of plaintiff’s complaint to conclude that it had failed to allege “specific facts supporting an inference of knowing participation in a breach” (Id. at 1) and dismissed plaintiff’s complaint against the alleged aider and abettor. As explained below, the Court also denied plaintiff’s claim for unjust enrichment.   More ›

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CCLD Finds Insurer’s Advancement Obligation Triggered Prior to Final Non-Appealable Damages Judgment

Ferrellgas Partners L.P v. Zurich American Insurance Company, C.A. No. N19C-05-275 MMJ CCLD (Del. Super. Aug. 20, 2020)

The Superior Court of Delaware, Complex Commercial Litigation Division recently expanded on its advancement jurisprudence regarding litigation fees and costs due under director and officer insurance policies. The insured brought a declaratory judgment action against two insurers in a tower of coverage. Judge Mary M. Johnston declared, on summary judgment, that the insured was entitled to advancement of reasonable attorneys’ fees and costs from one of the insurers. More ›

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Chancery Awards No Damages to Either Party After the Break-Up of the Anthem/Cigna Merger

In re Anthem-Cigna Merger Litigation, C.A. No. 2017-0114- JTL (Del. Ch. August 31, 2020)

This action arose out of a failed merger transaction involving the second and third largest health insurers in the United States, Anthem, Inc. and Cigna Corporation (“the Merger”). The parties had entered into a merger agreement on July 23, 2015 (“Merger Agreement”). Either party could terminate if the transaction did not close by January 31, 2017, a date later extended to April 30, 2017. The parties each agreed to covenants to cooperate and to use their best efforts to accomplish the Merger (“Efforts Covenants”). Specifically, they agreed to take all reasonable steps to consummate the Merger (the “Reasonable Best Efforts Covenant”) and to take “any and all actions” necessary to avoid impediments to the Merger from government entities (the “Regulatory Efforts Covenant”). The parties authorized Anthem to take the lead in working with government entities to facilitate the Merger, but the parties were required to cooperate to obtain regulatory approval (the “Regulatory Cooperation Covenant”). The parties’ obligations to close the Merger were subject to the condition that no governmental entity or court had acted to enjoin the consummation of the Merger (the “No Injunction Condition”).  More ›

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