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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.

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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.

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 ›

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 ›

Company's Position Taken in Bankruptcy Voids Noncompete Obligations

The Delaware Court of Chancery's decision in Hipcricket v. mGage, C.A. No. 11135-CB, (Del. Ch. July 15, 2016), highlights the importance of coordinating the positions taken in different legal proceedings. The plaintiff in Hipcricket appeared to have a binding and enforceable noncompete agreement prohibiting its former vice president of sales (the defendant) from engaging in any post-employment solicitation of the plaintiff's customers and employees. That defendant breached the agreement shortly after leaving his employment with the plaintiff seemed clear. The plaintiff proved at trial that the defendant joined one of the plaintiff's competitors and "immediately" began soliciting the plaintiff's largest clients, including certain of his former accounts. Despite this showing, the plaintiff did not prevail on its breach of contract claim. Instead, the court found that the plaintiff had materially breached the agreement by rejecting, in its Chapter 11 bankruptcy proceeding, the defendant's claim for unpaid commissions and other amounts plainly due under the agreement. The court ruled that the plaintiff could not "'have its cake and eat it too'" by enforcing an agreement it had materially breached through the position it took in bankruptcy court. More ›

Court Of Chancery Denies Inspection When The Board Has An Obvious Defense To A Claim Of Wrongdoing

Beatrice Corwin Living Irrevocable Trust v. Pfizer, C.A. 10425-JL (Del. Ch. Aug. 31, 2016, corrected Sept. 1, 2016)

In general, the bar is low for exercising inspection rights to investigate claims of wrongdoing.  Plaintiffs need provide only some evidence to suggest a credible basis from which the Court can infer possible mismanagement or wrongdoing.  But as this decision holds, when there is an obvious defense to the claim, such as the board’s reliance on an audit firm for a complicated accounting issue, inspection may be denied.

Court Of Chancery Explains When Prior Dismissal Does Not Preclude Another Derivative Case

In Re Duke Energy Corp. Derivative Litigation, C.A. 7705-VCG (Del. Ch. Aug. 31, 2016)

This is an important decision because it explains when a prior dismissal of a derivative complaint does not preclude a second complaint alleging a wrong close to that alleged in the dismissed case. More ›

Court Of Chancery Again Explains Scope Of The Corwin Doctrine

Posted In Fiduciary Duty

Larkin v Shah, C.A. 10918-VCS (August 25, 2016)

This is one of two recent Court of Chancery decisions explaining that the Corwin case really does mean that there is an “irrebuttable business judgment rule” that bars challenges to a merger approved by a majority of the fully-informed, disinterested and uncoerced stockholders, in the absence of the deal involving a controlling stockholder who suffers from a conflict in the merger.   More ›

Court of Chancery Denies Director Full Inspection Rights

Bizzari v. Suburban Waste Services Inc., C. A. No. 10709-JL (Del. Ch. Aug. 30, 2016)

This is an almost unprecedented decision to limit the inspection rights of a corporate director. Directors generally have “essentially unfettered” access to the corporate records to fulfill their fiduciary roles.  Here, given the director’s improper motive to use the records to compete with or harm the corporation, the result is entirely justified under the bizarre set of facts.

Advancement Rights of Present and Future Officers Under LLC Agreement

Advancement and indemnification rights are vital in attracting the best and brightest individuals to serve as managers of Delaware entities. Those rights are meant to provide managers of Delaware entities comfort when accepting positions that often lead to being named in litigation. In the limited liability company context, a manager's advancement and indemnification rights are often derived from the entity's operating agreement. And seeing as Delaware courts strive to enforce the express terms of an agreement, advancement and indemnification provisions must be drafted with precision. As discussed below, contractual limitations and qualifications on advancement and indemnification rights will be interpreted in a way that gives meaning to all terms in the agreement. More ›

Court Of Chancery Explains Inspection Rights For A Statutory Trust

Grand Acquisition LLC v. Passco Indian Springs DST, C.A. 12003-VCMR (Del. Ch. Aug. 26, 2016, revised Sept. 7, 2016)

This is the first decision examining the right to inspect the records of a Delaware Statutory Trust. Applying settled law from decisions in the LLP and LLC context regarding whether to read statutory and contractual inspection rights as separate and independent, the Court held that a contractual right to inspection is not subject to the conditions in the trust statute (Section 3819) unless the Trust language says so.  The Court also held that defending against the inspection on the grounds of an improper purpose requires proof of probable harm to the trust if the Court allowed the inspection.

Best Lawyers® 2017 Recognizes 20 Morris James Attorneys

Twenty Morris James attorneys in twenty-six practice areas were selected by their peers for inclusion in The Best Lawyers in America 2017 edition. Morris James also has been recognized in four new practice areas, Personal Injury Litigation – Defendants, Arbitration, Corporate Governance Law and Mediation.  The Best Lawyers® list is based on an extensive survey involving detailed evaluations of leading lawyers by their peers. More ›

Three Morris James Attorneys Named “Lawyer of the Year” by Best Lawyers®

Morris James LLP is pleased to announce that three of its partners were named Best Lawyers® 2017 “Lawyer of the Year” in their respective practices. The attorneys so recognized were Lewis H. Lazarus for Corporate Law Governance, Edward M. McNally for Litigation - Real Estate, and former partner and now Vice Chancellor Joseph R. Slights III for Mediation. More ›

Court of Chancery Explains Tolling Law In Fiduciary Duty Case

Posted In Fiduciary Duty

AM General Holdings LLC v. The Renco Group, C.A. 7639-VCS (August 22, 2016)

In addition to explaining the seldom-used doctrines of mutual, running accounts and continuing wrongs as exceptions to the running of the statute of limitations, this decision is important for its review of when a claim of breach of duty may be tolled. A plaintiff cannot simply stand by without using means available to her to monitor her investment and then claim her case was tolled.  While it is still possible to show a claim was inherently unknowable or that the plaintiff justifiably relied on a fiduciary to not seek information, the more sophisticated the plaintiff the less those exceptions to the running of the statute of limitations will apply.

Court: Derivative Claims Allowed to Be Asserted as Part of Merger Attack

It is well-settled under Delaware law that in a merger a stockholder loses standing to assert a purely derivative claim. That claim passes instead to the acquiring company. As an asset of a Delaware company, derivative claims should be valued in a merger transaction. Directors of a selling company, however, who fail to value derivative claims and who also bargain for their extinguishment following the merger are at risk of being found to have breached their fiduciary duty.

The Court of Chancery's recent decision in In re Riverstone National Stockholder Litigation, C.A. No. 9796-VCG (Del. Ch. July 28), instructs that a complaint asserting that directors, who faced personal liability on known derivative claims, both attributed no value to the derivative claims and bargained in a merger transaction that the buyer would not assert them, is sufficient to avoid dismissal based on the general rule of post-merger loss of standing, if the stockholder pleads the claims as part of a direct attack on the merger. More ›

Court Of Chancery Dismisses Merger Litigation Under The Corwin Doctrine

Posted In Fiduciary Duty

City of Miami General Employees and Sanitation Employees Retirement Trust v. Comstock, C.A. 9980-CB (August 24, 2016)

This decision applies the Corwin doctrine to dismiss a suit attacking a merger that received stockholder approval. It explains that approval by a fully-informed, uncoerced majority of disinterested and independent stockholders invokes the business judgment rule standard of review – leaving waste as the only grounds to attack the transaction. Interestingly, the decision still examined whether the plaintiffs had alleged a basis for entire fairness review.  Here, those allegations concerned whether a majority of the directors were either self-interested in the transaction or were manipulated by improper conduct.