Delaware Business Litigation Report

Court of Chancery Clarifies Nature of Dilution Claims in Charter-Liberty Broadband Equity Issuance and Allows Derivative Challenge to Proceed

Sciabacucchi v. Liberty Broadband Corporation, C.A. No. 11418-VCG (Del. Ch. July 26, 2018)

This is the second notable decision arising out of litigation involving Charter Communication’s equity issuance to its largest stockholder, Liberty Broadband, in connection with other transactions. More ›

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Court of Chancery Addresses Scope and Effect of Anti-Reliance Clauses

Chyronhego Corporation v. Wight, C.A. No. 2017-0548-SG (Del. Ch. July 31, 2018)

One of the more often litigated questions in Delaware is whether an integration or anti-reliance clause in an agreement bars claims for fraud based on alleged misrepresentations outside of those in the contract itself. This decision harmonizes the extensive case law on that subject. It also is useful in deciding when the actual representations in the agreement are sufficient to support a claim of fraud.

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Court of Chancery Outlines Proof Sufficient for Books and Records Inspection and Permits Inspection of Emails

Mudrick Capital Management LP v. Globalstar Inc., C.A. No. 2018-0351-TMR (Del. Ch. July 30, 2018)

This decision reflects a good example of how summary books and records actions often proceed in the Court of Chancery: the parties typically work to narrow the issues for trial; the defendant often moots less objectionable records requests, many times in the weeks or days leading to trial; and the plaintiff often narrows disputed requests shortly before trial.  Here, the parties did all the above.  The petitioner thereafter carefully marshaled its evidence and showed why it should be permitted to inspect emails and other materials that are sometimes off limits in books and records actions. As the Court put it regarding email inspection, the petitioner established that “(1) the produced documents do not allow it to adequately address the stated purposes, and (2) the produced documents also suggest that other documents exist, including emails, that address the crux of the stated purposes and are unavailable from another source.”

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Court of Chancery Finds Deal Price, Not Pre-Merger Market Price, Is Fair Value in Appraisal

In re Appraisal of Solera Holdings Inc., C.A. No. 12080-CB (Del. Ch. July 30, 2018)  

This appraisal decision can be added to long list of decisions finding the deal price is the “best evidence” of the subject company’s fair value.  That list should continue to grow since the Delaware Supreme Court heavily endorsed applying market efficiency principles in appraisal actions twice over the past year, in Dell and DFC.  Important to Court’s finding here was an adequate deal process. More ›

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So You Think You Know Delaware Law?

We all sometimes believe we know more than what we really do understand. Despite scholarly warnings about that tendency, it continues to mislead us. Now that same error is threatening the legal profession.

In the spring 2018 edition of ABA’s Journal of the Section of Litigation, Robert E. Shapiro writes “What’s So Special About a New Jersey Lawyer, Anyway.” Shapiro argues that there is no need to consult with a lawyer admitted in a jurisdiction other than your own when advising on a transaction governed by that foreign jurisdiction’s law. He claims: “Time was that a Delaware specialist was necessary to tell you about Delaware law. Now you can educate yourself. All Delaware law is no more than a few mouse clicks away on the internet.” More ›

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Delaware District Court Stays Twitter Derivative Case Pending Securities Action

In re Twitter Inc. Shareholder Derivative Litigation, C.A. No. 18-62-VAC-MPT (D. Del. July 23, 2018)

Several Court of Chancery decisions discuss the appropriateness of staying a derivative action pending a related securities laws action.  Doing so relieves a company from the tension of having to defend against allegations of wrongdoing carried out by its directors or officers while at the same time a stockholder is seeking to prove those same claims against its directors and officers on its behalf.  A stay also has the advantage of allowing the existence and size of any damages to be firmly established.  This is another decision to add to that line of authority.

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Court of Chancery Explains When Market and Deal Price Are Not Fair Value In Appraisals

Blueblade Capital Opportunities LLC v. Norcraft Cos. Inc., C.A. No. 11184-VCS (Del. Ch. July 27, 2018)

This is an important appraisal decision because it examines, post-Dell and DFC, when the market price and deal price of the stock being appraised may not represent fair value.  That might occur when, as here, there is a lack of evidence supporting the market’s efficiency for the subject corporation and the deal has process flaws.  In such a scenario, the traditional valuation methodology of a discounted cash flow analysis—a battle of the experts—is likely to control.  The deal price, however, still has value as a reality check on this analysis.  The decision also is noteworthy for the petitioner’s use of expert testimony to show the flaws in the post-announcement market check. More ›

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Court of Chancery Explains MFW Requirements

Olenik v. Lodzinski, C.A. No. 2017-0414-JRS (Del. Ch. July 20, 2018)

Transactions between a Delaware company and its controlling stockholder usually are subject to rigorous entire fairness review.  But, under the MFW decision, even a merger with a controller may gain the benefit of deferential business judgment review.  The MFW requirements include that the controller must condition the procession of the transaction ab initio on approval by a special committee. More ›

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Court of Chancery Holds That Notice and an Opportunity To Be Heard Are Not Prerequisites to Dismissing an LLC Manager “For Cause”

A&J Capital, Inc. v. Law Office of Krug, C.A. No. 22018-0240-JRS (Del. Ch. July 18, 2018)

This decision holds that, absent contrary language in an LLC operating agreement, members do not need to provide notice and an opportunity to respond before dismissing a manager “for cause.” Note that the law governing when a corporate director can be dismissed “for cause” may require notice and an opportunity to contest the allegations against him. More ›

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Court of Chancery Explains Burden Needed to Support Inspection for Suspected Wrongdoing

Barnes v. Sprouts Farmers Market Inc., C.A. No. 2017-0735-MTZ (Del. Ch. July 18, 2018)

An investor seeking books and records for the purpose of investigating wrongdoing or mismanagement must establish a “credible basis” from which to infer such conduct may have occurred. This Master in Chancery report well demonstrates how the Court of Chancery analyzes a books and records demand for such a purpose. The decision discusses several important principles. First, the credible basis standard is very low, requiring only some evidence to suggest misconduct. Second, proving a credible basis is not the same thing as proving actual misconduct. Thus, as the other side of that same coin, the Court generally will not consider defenses that go to the merits of whether wrongdoing actually occurred. Third, the Court will analyze the action before it and not necessarily be influenced by a decision in another court regarding similar allegations.

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High Court Again Denies 'Corwin' Deference Due to Material Omissions Concerning Sale Process

Earlier this year, the Delaware Supreme Court held that Corwin deference was not warranted where a recommendation statement to stockholders disclosed that a founder and board chairman abstained from recommending in favor of an M&A transaction, but omitted certain facts evident from meeting minutes, such as his disappointment with the company’s management and the transaction price, and his view that it was not the right time to sell. See Appel v. Berkman, 180 A.3d 1055 (Del. 2018).   More ›

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Court Of Chancery Stays Control Dispute Involving Kentucky Retirement Systems In Favor of Kentucky Plenary Action

In Re Bay Hills Emerging Partners I L.P., C.A. No. 2018-0234-JRS (Del. Ch. July 2, 2018) 

This decision deals with the oft encountered problem of a race to different courthouses by counterparties.  What makes this decision readworthy is the context: a summary control dispute involving a Delaware alternative entity, one invested in by a Kentucky state agency (Kentucky Retirement Systems).  While the Court of Chancery may choose to not stay its hand in favor of even an earlier-filed plenary action in the control dispute context, that is by no means a blanket rule.  This is an instance where the Court of Chancery cited its inherent discretionary authority to issue a stay sua sponte in the interests of comity and the orderly and efficient administration of justice.  Among the factors supporting the Court’s decision to stay its hand in favor of a contemporaneously-filed plenary action involving the same parties and issues in Kentucky state court were Kentucky consent-to-forum and choice of law clauses in the parties’ contract.

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Court of Chancery Denies Director Access to Records in the Redstone-CBS Corp. Dispute

In re CBS Corporation, C.A. No. 2018-0342-AGB (Del. Ch. July 13, 2018)

It is well settled that members of the board of directors are entitled to essentially unfettered access to the corporation’s records to carry out their fiduciary duties.  But, as this decision illustrates, it could be a different story when it comes to privileged matters.  While directors generally are entitled to privileged records as well, should sufficient adversity exist between the director and the corporation on one or more issues, access may be denied for those issues.  This decision arising out of the highly-publicized power struggle at CBS involving the Redstone family and a proposed Viacom deal reviews and applies the precedent in this area to find the corporation properly withheld certain categories of records.

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Court of Chancery Explains Difference Between Experts and Arbitrators Under Delaware Law

Penton Business Media Holdings LLC v. Informa PLC, C.A. No. 2017-0847-JTL (Del. Ch. July 9, 2018)

This decision explains the difference between agreeing to have a dispute decided by an expert rather than an arbitrator.  The distinction is important because it may determine what the third-party adjudicator can review before reaching a decision, what questions it may address, and what role a court might play.  For example, an expert may be confined to reviewing only a selected set of documents without resort to extrinsic types of evidence.  That might not be what one party expected or desires.  But it is a possible result under Delaware law, where the distinction is recognized, unlike in some other jurisdictions.  In short, it is best to be specific about the exact type of adjudicator you want in your contract’s alternative dispute resolution provisions if your contract is governed by Delaware law.

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Court Of Chancery Upholds Contract Claim Based On The Standard Of Conduct In An Agreement

Wenske v. Blue Bell Creameries Inc., C.A. 2017-0699-JRS (July 6, 2018)

When the parties to a LLP agree on the standard of conduct the general partner should follow, its failure to live up to that standard is a breach of the parties’ agreement. Here the parties agreed the general partner would use industry practices in managing the business and when it failed to monitor the business to ensure those practices were followed, it was liable to the limited partners for the damages that resulted. The use of a somewhat vague standard of how the business should be conducted is therefore risky.

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