Delaware Business Litigation Report

Superior Court Reinforces Established Delaware Insurance Coverage Law that Settlement of a Claim for Less than Policy Limits Attaches to Excess Policies

Pfizer, Inc. v. U.S. Specialty Insurance Company, C.A. No. N18C-01-310 PRW CCLD (Del. Super. Aug. 28, 2020)
On cross-motions for summary judgment in a director and officer insurance coverage dispute, the Superior Court of Delaware, Complex Commercial Litigation Division, reaffirmed the Delaware principle, also known as a the Stargatt Rule, that a settlement of a policy between an insured and an insurer for less than the policy limit amounts to satisfaction of such policy. Thus, excess policies attach irrespective of whether the insured collected the full amount of the primary policies.  More ›

Share

Chancery Upholds Class Claims Alleging Breaches of Fiduciary Duty in Alleged Controlling Stockholder’s Tender Offer

In re Coty Inc. Stockholder Litigation, C.A. No. 2019-0336-AGB (Del. Ch. Aug. 17, 2020)  

JAB Holding Company S.à.r.l. and its affiliates (together “JAB”) completed a partial tender offer (the “Tender Offer”) for shares of Coty Inc. (“Coty”) on April 25, 2019, increasing its ownership stake from 40% to 60% of the outstanding Coty shares. At the time of the Tender Offer, Coty had a nine-member board of directors – four directors affiliated with JAB (the “JAB Directors”) and five individual directors (the “Individual Directors”). Pierre Laubies, the CEO of Coty, was one of the Individual Directors. Although Laubies was the only Individual Director with a management position at Coty, he, like all of the Individual Directors, had professional ties to JAB and its officers, with Laubies having formerly served as CEO of a JAB affiliate.  More ›

Share

Alleged Third-Party Beneficiary’s Contract and Alternate Unjust Enrichment Claims Survive Dismissal at the Pleadings Stage Based on Ambiguous Contract Language

CHS/Cmty. Health Sys., Inc. v. Steward Health Care Sys. LLC, C.A. No. 2019-0165-JRS (Del. Ch. Aug. 21, 2020)

A claim for unjust enrichment will not lie where there is a contract that governs the relationship between parties. Both types of claims may survive a motion to dismiss, however, if there exists a contractual ambiguity that prevents the Court of Chancery from interpreting the meaning of contract at the pleadings stage. More ›

Share

Chancery Addresses Statutes of Limitations Issues Arising Out Employment-Related Claims

Weik, Nitsche & Dougherty, LLC, v. Pratcher, C.A. No. 2018-0803-MTZ (Del. Ch. Aug. 26, 2020)

Following an employment dispute between former employers and employees of a Delaware limited liability company, the employers (“Plaintiffs”) filed an action in the Delaware Court of Chancery seeking rescission of a contract recently executed by the parties. The contract at issue governed the percentage of fees to which the employees (“Defendants”) were entitled for any business the employees originated for the LLC. According to Plaintiffs, Defendants breached the contract by engaging in “self-marketing campaigns” through which Defendants failed to recognize any affiliation with the LLC and which caused a disparity in the amount of fees each party believed Defendants were entitled to.  In a series of counterclaims, Defendants argued that Plaintiffs owed Defendants certain sums of money pursuant to the contractual relationship. Defendants asserted that Plaintiffs owed those sums based on the Defendants’ “expectancy in the contracts” which were lost after Plaintiffs purportedly breached the contract and forced Defendants to “resign and lose their expected profits from [the contract].” More ›

Share

Chancery Provides Guidance on Agency and Joint Venture Theories of Vicarious Liability

Otto Candies, LLC v. KPMG, LLP, C.A. No. 2018-0435-MTZ (Del. Ch. Aug. 21, 2020)

The Court of Chancery dismissed a complaint filed by creditors and former business affiliates of a defunct Latin American offshore oil service company for failing to establish, under agency or joint venture theories, a basis for finding KPMG US vicariously liable for audits performed by KPMG Mexico.  More ›

Share

Chancery Dismisses Claim for Breach of Fiduciary Duty Where Parties’ Commercial Relationship Was One of Ordinary Care

Nieves v. Insight Building Co., LLC, C.A. No. 2019-0464-SG (Del. Ch. Aug. 4, 2020)

The Court of Chancery used an unlikely vehicle — a dispute over stormwater drainage — to further explain the limits of common law fiduciary duties. Plaintiffs/Homeowners experienced drainage issues and brought several claims against their builder, as well as the developer (“Developer”) from which the builder had purchased lots. One such claim was that Developer had breached a fiduciary duty to Homeowners, even though Plaintiffs did not purchase their lots directly from Developer or otherwise have a contractual or commercial relationship with Developer. Plaintiffs/Homeowners alleged Developer “owes a common law fiduciary duty … because Plaintiffs reposed a special trust in and reliance on the judgment of the developer.” (internal citations omitted.) More ›

Share

Chancery Holds That Management Does Not Have Unilateral Authority to Preclude a Director From Obtaining the Company’s Privileged Information

In Re WeWork Litig., Consol. C.A. No. 2020-0258-AGB (Del. Ch. Aug. 21, 2020)

In October 2019, The We Company’s (the “Company”) board of directors established a special committee (the “Special Committee”) to evaluate a potential transaction wherein SoftBank, the controlling shareholder, would acquire majority economic ownership and voting control of the Company. When SoftBank terminated the transaction, the Special Committee filed this action on behalf of the Company alleging that they had breached their contractual obligations to use reasonable best efforts to purchase $3 billion of the Company’s stock in a tender offer. More ›

Share

Chancery Holds Statutory Rights to Inspect Books and Records of a Delaware Corporation are Subject to the Internal Affairs Doctrine and Governed Exclusively by Delaware Law

JUUL Labs, Inc. v. Grove, C.A. No. 2020-0005-JTL (Del. Ch. Aug. 13, 2020)

Stockholder inspection rights are a core matter of the governance of a corporation. This decision holds that, pursuant to the internal affairs doctrine, inspection rights for a stockholder of a Delaware corporation are governed exclusively by Delaware law, not by laws of other jurisdictions, regardless of where a company’s principal place of business is located. More ›

Share

Chancery Rules Failure to Disclose “Intrinsic Value” Precludes Corwin Defense – But Does Not Necessarily Suggest a Breach of the Duty of Loyalty

In In re USG Corp. S’holder Litig., 2020 WL 5126671 (Del. Ch. Aug. 31, 2020), the Court of Chancery granted the director-defendants’ motions to dismiss post-closing money damages claims arising out of the sale of USG Corporation (“USG”) for less than what USG’s directors allegedly thought was its intrinsic value. Although the failure to disclose such “intrinsic value” prevented dismissal under Corwin v. KKR Financial Holdings, LLC, 125 A.3d 304 (Del. 2015), Vice Chancellor Sam Glasscock III held that, in the circumstances, that omission and the directors’ approval of the sale did not suffice to plead a breach of the directors’ fiduciary duty of loyalty.  More ›

Share

Chancery Dismisses Caremark Claims Against Metlife Board

In re Metlife Inc. Derivative Litigation, Consol. C.A. No. 2019-0452-SG (Del. Ch. Aug. 17, 2020)

Shareholders seeking relief for alleged harm to a Delaware corporation must comply with Delaware’s pre-suit demand requirement by either making a demand on the board of directors to take action respecting the potential claims, or initiating suit themselves and adequately pleading facts excusing pre-suit demand as futile. More ›

Share

Delaware Supreme Court Affirms Decision Declining to Order Stockholder Meeting Under Section 211 of the DGCL

Spanakos v. Pate, C.A. No. 532, 2019 (Del. July 31, 2020)
The Court of Chancery may summarily order a stockholder meeting to be held to elect directors of a Delaware corporation, if one has not been held for more than thirteen months. 8 Del. C. § 211. The rule’s purpose is to ameliorate situations in which a Delaware corporation’s normal democratic functions are impaired, for example, if “by reason of death or resignation or other cause, a corporation should have no directors in office ….” 8 Del. C. § 223. The stockholder meeting to elect directors is a cornerstone of Delaware corporate law, and “stockholders’ entitlement to such a meeting is paramount.” Newcastle P’rs, L.P. v. Vesta Ins. Gp., Inc., 887 A.2d 975, 979 (Del. Ch. 2005).  More ›

Share

Chancery Denies Sellers’ Request for Dismissal, Finding That Fraud Claims Were Timely Filed and Properly Pled

Agspring Holdco, LLC v. NGP X US Holdings, L.P., C.A. No. 2019-0567-AGB (Del. Ch. July 30, 2020)

This opinion concerns a buyer’s attempt to plead fraud in connection the acquisition of a business. The Court denied in the main the defendants’ motion to dismiss the fraud claims brought in connection with private equity firm American Infrastructure Partners’ (the “Buyer”) $300 million acquisition of Agspring LLC (the “Company”), which was then almost entirely owned by NGP X US Holdings, LLP (“NGP”), another private equity firm.  More ›

Share

CCLD Applies Anti-Reliance Provisions, Dismisses Buyer’s Fraud Claims

Infomedia Group, Inc. v. Orange Health Solutions Inc., C.A. No. N19C-10-212 AML CCLD (Del. Super. Ct. July 31, 2020)

This case is a strong reminder that Delaware will enforce anti-reliance clauses to bar claims for fraud where sophisticated parties voluntarily agree to the anti-reliance clauses. Here, plaintiff Infomedia Group, Inc., d/b/a Carenet Health Services entered into an asset purchase agreement (the “Purchase Agreement”) with defendant Orange Health Solutions, Inc. (“Citra”).  More ›

Share

Chancery Determines Validity of LLC Ownership Following Fraud and Deceit in Cross-Border Control Dispute

Lynch v. Gonzalez, C.A. No. 2019-0356-MTZ (Del. Ch. July 31, 2020)

Disputes over control of a Delaware limited liability company can turn on rigorous fact-finding efforts by the Court of Chancery where issues of witness credibility may be paramount. As this decision illustrates, the Court will not permit trickery or misrepresentations to prevail in a control dispute, nor will it apply the doctrine of unclean hands to permit an undeserved windfall or countenance a fraudulent scheme. More ›

Share

Chancery Rejects Bid to Jettison USACafes and its Holding That, Absent Agreement to the Contrary, the Controllers of a Corporate General Partner Owe Fiduciary Duties

Fannin v. UMTH Land Development, L.P. (In re: United Development Funding III, L.P.), C.A. No. 12541-VCF (Del. Ch. Jul. 31, 2020).

The Court of Chancery has concluded that in certain situations, equity will, by default, impose fiduciary duties upon a corporate relationship. This decision rejects on stare decisis grounds an attempt to overturn longstanding precedent in this area. More ›

Share