Delaware Business Litigation Report

CCLD Addresses Ripeness Doctrine and the “Stranger Rule” in Tortious Interference Claims, Partially Dismisses Claims for Breach of Corporate-Owned Group Variable Life Insurance Policies

Athene Life and Annuity Co., et al. v. Am. Gen. Life Ins. Co., et al., C.A. No. N 19C-10-055 PRW CCLD (Del. Super. May 18, 2020)

Policy holders (the “Plaintiffs”) brought a suit against American General Life Insurance, Co. (“American General”) for breach of corporate-owned group variable life insurance policies (the “Policies”) and against certain related entities managing the Policies, ZC Resource Investment Trust (“ZCRIT”) and ZC Resource LLC (“ZC Resource”) (together with ZCRIT, “ZC Defendants”) (together with ZCRIT and American General, “Defendants”) for tortious interference with contract. When the Defendants moved to dismiss, the Delaware Superior Court’s Complex Commercial Litigation Division (“CCLD”) granted the motion in part on ripeness grounds and denied it in part. More ›

Share

Chancery Declines to Follow Transcript Ruling, Finds Plaintiff is Entitled to Advancement of Fees Incurred in Underlying Action Pre-Undertaking

Day v. Diligence, Inc., C.A. No. 2020-0076-SG (Del. Ch. May 7, 2020)

By letter ruling, the Court of Chancery held that plaintiff, a director and former officer of the entity defendant, (“Plaintiff”), was entitled to the advancement of attorneys’ fees incurred prior to Plaintiff’s submission of an undertaking. Defendant, Diligence, Inc. (“Defendant”), argued that a recent Transcript Ruling in the Court of Chancery, Salomon v. Kroenk Sports & Entertainment, LLC, C.A. No. 2019-0858-JTL (Del. Ch. Feb. 26, 2020), supported the proposition that advancement rights do not ripen prior to the provision of an undertaking, and therefore, Plaintiff was not entitled to the advancement of pre-undertaking fees. The Court found that Defendant’s interpretation of Salomon was “not persuasive as a matter of doctrine or the Delaware General Corporation Law,” noting that neither the language of nor the policy behind Section 145(e) of the DGCL “limit advancement to sums incurred post-undertaking.” Moreover, the Court noted that Transcript Rulings, as a general matter, have no precedential value and “at most” offer “persuasive authority." For these reasons, the Court ruled for the Plaintiff and denied Defendant’s objection to the advancement of Plaintiff’s fees.

Share

Delaware Supreme Court Reverses Chancery in Dispute Involving Dueling Transfer Restrictions

Borealis Power Holdings Inc. v. Hunt Strategic Utility, LLC, No. 68, 2020 (Del. May 22, 2020)

The Delaware Supreme Court, reviewing the purportedly conflicting provisions of two agreements de novo, reversed the judgment of the Court of Chancery regarding which of the transfer restrictions in the agreements applied to a proposed sale of shares. The Court’s opinion provides important guidance on the interpretation and construction of contractual restrictions on transfer. More ›

Share

Chancery Finds Employment Agreement’s Forum Selection Clause Did Not Reach Fiduciary Duty Claims, But Stays Case Pending Resolution of First-Filed Texas Action

EnVen Energy Corp. v. Dunwoody, C.A. No. 2019-0579-KSJM (Del. Ch. May 28, 2020)

This case illustrates Delaware’s approach in interpreting contractual forum selection provisions and in considering whether to stay a later-filed action under the well-known McWane doctrine. More ›

Share

Chancery Grants Preliminary Injunction, Admonishes Defendant for Engaging in “Self-Help”

Buckeye Partners, L.P. v. GT USA Wilmington, LLC, C.A. No. 2020-0255-JTL (Del. Ch. May 20, 2020)

To obtain a preliminary injunction, a plaintiff must demonstrate (i) a reasonable probability of success on the merits, (ii) a threat of irreparable harm if an injunction is not granted, and (iii) that the balance of the equities favors the issuance of an injunction. Revlon, Inc. v. MacAndrews & Forbes Hldgs., Co., 506 A.2d 173, 179 (Del. 1986). More ›

Share

Even Though Evidence Supports Plaintiffs’ Fraudulent Inducement Claim, Chancery Denies Relief Where Plaintiff Never Gave Defendant Fair Notice of Claim Prior to Trial

HOMF II Investment Corp. v. Altenberg, C.A. No. 2017-0293-JTL (Del. Ch. May 19, 2020)

Due process requires that a plaintiff provide the defendant with fair notice of the plaintiff’s claims. As this recent post-trial decision shows, the failure to give fair notice can procedurally bar recovery -- even when the trial evidence establishes that the claims have substantive merit. More ›

Share

Delaware Superior Court CCLD Addresses Claim of Common Interest Privilege over Merger Agreement Parties’ Post-Signing, Pre-Closing Communications

The American Bottling Co. v. Repole, C.A. No. N19C-03-048 AML CCLD (Del. Super. May 12, 2020)

Delaware courts will apply the common interest doctrine when two parties, represented by counsel, exchange privileged information with one another concerning a legal matter in which they have a shared interest. To maintain the privilege, the common interest must involve predominantly legal issues, rather than a common economic interest in a commercial venture. If there is no common interest, a party who shares privileged materials with a third-party will generally waive the privilege.  More ›

Share

Corporate Opportunity Doctrine Waiver Does Not By Itself Also Constitute a Waiver of Default Fiduciary Duties under an LLC Agreement

77 Charters, Inc. v. Gould, C.A. No. 2019-0127-JRS (Del. Ch. May 18, 2020)

The Court of Chancery held that a waiver of the corporate opportunity doctrine did not by itself constitute a waiver of default fiduciary duties under an LLC agreement. 

Plaintiff 77 Charters, Inc. held non-preferred ownership interests in a joint venture. Defendant Jonathan Gould indirectly held similar non-preferred interests and managed the joint venture’s managing member. Subsequently, Gould indirectly purchased an owner’s preferred interests, and revised the joint venture’s waterfall repayment structure to provide a guaranteed, higher rate of return for preferred interests, at the expense of the residual, non-preferred interests, and reduced the standard of care for the Gould managing member. After 77 Charters filed a books and records demand and settled a related action, Gould sold the joint venture at a price that returned no funds to 77 Charters as a residual owner of non-preferred interests. 77 Charters filed contract and tort claims, and defendants moved to dismiss. More ›

Share

In New Dell Decision, Special Committee’s Narrow Mandate, Company’s Decision to Bypass Committee and Impermissible “Coercion” Prevent Dismissal Under MFW

The Delaware Supreme Court’s MFW decision provides a safe harbor for controlling stockholder buyouts that are conditioned upon approval of a special committee of independent directors and a majority-of-the-minority vote, provided, inter alia, “there is no coercion of the minority.” Kahn v. M & F Worldwide Corp. (MFW), 88 A.3d 635, 645 (Del. 2014). The Court of Chancery’s recent decision in In re Dell Tech. Inc. Class V. S’holders Litig., 2020 WL 3096748 (Del. Ch. Jun. 11, 2020), held that a redemption of minority stockholders’ shares failed to satisfy MFW due to the company’s decisions to give the special committee an impermissibly narrow mandate and then bypass it to negotiate directly with minority stockholders. The Court also found that, in light of the looming threat of undesirable alternative transaction, the company’s offer was impermissibly coercive. More ›

Share

Chancery Finds Stockholder Representative Did Not Control Former Stockholders’ Discoverable Material

Fortis Advisors LLC v. Allergan W.C. Holding Inc., C.A. No. 2019-0159-MTZ (Del. Ch. May 14, 2020).

Plaintiff, as representative for the former stockholders of Oculeve, Inc., sued Defendant Allergan for alleged material breaches of the Merger Agreement between Oculeve and Allergan by failing to make a necessary milestone payment to the former stockholders and for failing to use commercially reasonable and good faith efforts to achieve the milestone. During discovery, Defendant demanded documents from over fifty non-party selling stockholders without resort to third-party subpoena discovery and moved to compel after Plaintiff objected. More ›

Share

Chancery Offers Guidance on the Effect of Charging Orders on Contractual Obligations

GMF ELCM Fund L.P. v. ELCM HCRE GP LLC, C.A. No. 2018-0840-SG (Del. Ch. May 18, 2020)

Charging orders authorized by 6 Del. C. § 18-703 of the Delaware Limited Liability Company Act offer judgment creditors of LLC members a collection method. These orders function as a lien against the membership interest and grant the judgment creditor the right to monetary distributions that would otherwise be funneled to the member. The imposition of a charging order does not, however, afford the judgment creditor the right to obtain possession of or exercise remedies, legal or equitable, with respect to the LLC’s property. More ›

Share

Applying Rare Intermediate Review of Forum Non Conveniens, the Delaware Superior Court Stays a Delaware Action to Permit Filing of Claims in California

GXP Capital, LLC v. Argonaut Mfg. Servs., Inc., C.A. No. N18C-07-267 PRW CCLD (Del. Super. July 1, 2020)

When evaluating a forum non conveniens challenge, Delaware has a seldom used, intermediate framework of review. Under Gramercy Emerging Markets Fund v. Allied Irish Banks, P.L.C., 173 A.3d 1033, 1044 (Del. 2017), when a prior foreign lawsuit was filed, but is no longer pending, relief in Delaware will be granted or denied based on whichever party the Cryo-Maid factors favor under the traditional forum non conveniens framework. There is no presumption in favor of a plaintiff (such as when a Delaware action is first-filed) or in favor of a defendant (such as when a foreign action is first-filed and still pending). More ›

Share

Chancery Dismisses Fraud, Misrepresentation and Mistake Claims Based on Anti-Reliance Provisions

Midcap Funding X Trust v. Graebel Companies, Inc., C.A. No. 2018-0312-MTZ (Del. Ch. Apr. 30, 2020)

The Court of Chancery found on a motion to dismiss that the plaintiffs’ allegations regarding misrepresentations in contractual negotiations were irrelevant due to the contract’s anti-reliance and integration clauses, and that the plaintiffs in the action otherwise were “scouring and stretching” the contract’s plain terms.  More ›

Share

Superior Court Stays First-Filed Declaratory Judgment Action in Nokia Technology Dispute

Nokia Solutions v. Collison Comm., Inc., C.A. No. N19C-10-262 AML CCLD (Del. Super. Apr. 30, 2020)

Delaware law recognizes several doctrines intended to respect principles of comity and the efficient administration of justice when there is competing litigation across jurisdictions. Those doctrines are applied flexibly and have developed to avoid incentivizing races to the courthouse, as illustrated by this Delaware Superior Court decision staying a first-filed declaratory judgment action.  More ›

Share

Chancery Dismisses Claims that Minority Stockholders who Rolled Over Equity in a Controlling Stockholder Merger Joined a “Control Group”

Gilbert v. Perlman, C.A. No. 2018-0453-SG (Del. Ch. Apr. 29, 2020)

Delaware law imposes fiduciary duties upon controlling stockholders who use their power to control the corporate machinery. For that reason, determining who comprises a control group affects who may owe fiduciary duties. In some circumstances, where minority stockholders pool their interests to gain majority control and then bind themselves to act together to effectuate a transaction, minority stockholders may take on the duties of a controlling stockholder as members of a control group. But where an already existing controlling stockholder effectuates a cash-out merger, minority stockholders who roll over their shares and enter into a voting agreement to support the transaction will not be deemed part of a control group unless a plaintiff can plead that “the minority-holder’s participation [was] material to the controller’s scheme to exercise control of the entity, leading to the controller ceding some of its control power to the minority-holders.” More ›

Share