Delaware Business Litigation Report

Delaware District Court Finds Duty to Defend Under Homeowner’s Insurance Policy

Liberty Ins. Corp. v. Korn, Civ. No. 15-332-LPS (D. Del. Sept. 27, 2016)

The backdrop to this decision is an interesting and unfortunate one involving a divorce, allegations of illegal obscene material possessed by the former husband, followed by a civil lawsuit between the former spouses after the former husband was acquitted.  Under the facts of this case, the Court finds the homeowner insurance provider has a duty to defend the former wife given the allegations of intentional and negligent conduct in her providing a harddrive and statements to the authorities about her former husband, which allegedly led to his physical injury.

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Delaware District Court Finds That Controlling Stockholder Claim Falls Outside Of Forum Selection Bylaw

Anderson v. GTCR, LLC, C.A. No. 16-10-LPS (D. Del. Sept. 29, 2016)

Forum selection bylaws are a powerful tool for companies to avoid the burdens of multi-forum litigation.  But those bylaws only cover the claims falling within their terms.  Where, as here, the bylaw only covers fiduciary duty claims against officers and directors, the bylaw will not be enforced for a fiduciary duty claim against a controlling stockholder.

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Delaware District Court Examines An Officer’s Fiduciary Duties When Projecting Revenues

Palmer v. Reali, Civ. No. 15-994-SLR (D. Del. Sept. 29, 2016)

Revenue projections are an inexact science, but they should have some basis in fact.  Where they are alleged to be without a basis in reality, and indeed contrary to reality, a court may, as here, find that an officer’s fiduciary duties are implicated.

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Court Of Chancery Holds Revlon Does Not Apply In Dissolution

The Huff Energy Fund L.P. v. Gershen, C.A. 11116-VCS (September 29, 2016)

This decision holds that Revlon duties are not implicated by a decision to liquidate a company. Hence, the Court will not scrutinize whether the board sought to get the best possible deal for company assets. The decision is also helpful in reminding us that a stockholders’ agreement is not necessarily binding on the company’s board of directors who have not signed the agreement in their personal capacity.

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Court Of Chancery Holds Release Is Binding On A Non-Signatory

Geier v. Mozido LLC, C.A. 10931-VCS (September 29, 2016)

It may surprise many of us to know that a party who does not sign a general release may still be bound by its terms. Yet, that is what this decision holds under this case’s facts, which involved New York law and a release signed by the non-signatory’s affiliates. When the release binds those for whom the releasing party is authorized to act, carve out for those other parties is needed to avoid this result.

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Court Of Chancery Upholds Indemnification Rights Not Expressly Subject To Arbitration

Jiampietro v. The Goldman Sachs Group Inc., C.A. 12601-VCL (Transcript, August 11, 2016)

Many employment agreements require that any dispute be arbitrated. But when the dispute is over the employee’s right to indemnification under bylaws or statute, then the arbitration clause better expressly cover that claimed right or otherwise the non-contractual right remains for a court to decide.

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Superior Court Interprets New Jurisdiction Statute

JCM Innovation Corp. v. FL Acquisition Holdings Inc., C.A. N15C-10-255-EMD-CCLD (September 30, 2016)

Delaware recently amended Section 111 of the DGCL to confer jurisdiction on the Court of Chancery over certain actions arising out of asset sales. The intent was not to divest Superior Court of jurisdiction when the dispute was not really over how to interpret a sale or merger agreement’s terms, an area of Chancery expertise, but more of a straightforward asset sale. This decision explains that distinction.

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Court Of Chancery Awards Fee In Mootness Case

Frechter v. Cryo-Cell International Inc., C.A. 11915-VCG (October 7, 2016)

Now that disclosure-only settlements seem almost a thing of the past, so-called “mootness” fee awards or settlements may become more common. These occur when the corporation moots the claim by doing what the plaintiff says should be done, such as removing an invalid bylaw that tries to shift attorney fees.  However, attorney fees for such cases may not be as large as some might expect. This decision shows how the fee applications will be considered, with particular stress on the benefit resulting from the litigation.

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Do Funders Deserve Benefit Fees?

The business of third-party funding of litigation is said to be rapidly growing. Typically, the entity putting up the money (a funder) signs a contract with a plaintiff to pay the costs of a lawsuit in return for a percentage of any recovery. While once thought to be impermissibly champerty, this practice is now widely recognized as permitted so long as the plaintiff retains control of the litigation. But in a recent twist on the business of funding, a Delaware court has denied a funder any fees. The decision raises a caution that funders should note. More ›

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Court Of Chancery Explains When To Expedite Disclosure Claims

Nguyen v. Barrett, C.A. 11511-VCG (September 28, 2016)

This decision is helpful in clarifying that claims alleging disclosure violations in a proxy statement need to be pressed before a merger closes. After the merger, those claims are for damages and all the hurdles for such a claim, such as the director exculpation provisions in most charters, will usually defeat the claim absent bad faith.

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Court of Chancery Explains When Contract Bars Tort Claims and Arbitration

Flores v. Strauss Water Ltd., C.A. 11141-VCS (September 22, 2016)

This is a great decision on when the provisions of a contract bar tort claims of fraud and tortious interference. Briefly, when the contract speaks to an issue (e.g., expressly permitting certain acts, or imposing no duty to act), a party may not assert a tort claim that would deny the other party the benefit of its bargain. Further, when the contract between two parties selects a judicial forum for dispute resolution, arbitration is not part of the deal even if provided in a collateral contract involving one of those parties, at least not where there are no grounds for binding the non-signatory to the arbitration clause.

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Pleading Tortious Interference With Prospective Business Relations Claim

The Delaware Court of Chancery's recent decision in Chapter 7 Trustee Constantino Flores v. Strauss Water, C.A. No. 11141-VCS (Del. Ch. Sept. 22), covers many familiar aspects of Delaware law, such as the importance of contracts under Delaware law and enforcing contracts as written and not how a plaintiff wishes it might have been written. The opinion also addresses ground less traveled—how to plead properly a claim for tortious interference with prospective business relations. This article focuses on the distinction the Delaware Court of Chancery drew between the tortious interference claim that survived the motion to dismiss and the one that did not. More ›

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Court Of Chancery Rejects Fee Application From Litigation Funder

Judy v. Preferred Communication Systems, Inc., C.A. 4662-VCL (September 19, 2016)

This is a decision worth reading because it so well tells an interesting story. But its legal significance may well be that it holds a litigation funding firm is not entitled to an attorney fee award at least when it does not have a written agreement with a plaintiff entitling it to fees. Hence, if you are going to fund litigation, get the deal in writing. Of course, the decision has other important holdings, all set out in a good review of existing law on when fees may be awarded absent a contract.

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Del. Forum Non Conveniens Doctrine Doesn't Depend on Adequate Alternative Forum

Corporations sued in Delaware and subject to jurisdiction here sometimes employ the doctrine of forum non conveniens (FNC) to seek dismissal of the litigation if defending here would create an overwhelming hardship. In a recent decision from Delaware's Superior Court, Judge Vivian L. Medinilla provided important guidance about the doctrine and affirmed that in the final analysis it remains a defendant-centric test, as in Hupan v. Alliance One International, Del. Super. C.A. No. N12C-02-171 VLM (Aug. 25). The FNC doctrine recognizes the substantial weight given to a plaintiff's choice of forum by permitting a defendant to displace the Delaware forum only upon demonstrating "overwhelming hardship" if forced to litigate here. When a defendant can demonstrate such hardship, however, Hupan makes clear that dismissal is appropriate even if the plaintiff is not assured of an alternative forum to bring its claims. AsHupan illustrates, the doctrine has particular relevance to suits brought by foreign plaintiffs seeking recovery for harm incurred in foreign lands, governed by foreign law and requiring extensive use of foreign language More ›

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Court Relies on DCF Valuation to Appraise Private Company

In an appraisal proceeding under Section 262 of the Delaware General Corporation Law, the Delaware Court of Chancery determines the "fair value" of a company's "shares exclusive of any element arising from the accomplishment or expectation of the merger." In determining fair value of a company's shares, the court values the company as a "going concern" based on the "operative reality" existing as of the date of the merger. The court has "significant discretion to use the valuation methods it deems appropriate, including the parties' proposed valuation frameworks, or one of the court's own making." Both the petitioner and the respondent share the burden of proof in an appraisal proceeding to establish fair value of a company's shares by a preponderance of the evidence. More ›

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