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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Morris James Blogs
In a self-interested transaction between a company and its controlling stockholder, the operative standard of judicial review under Delaware law is the most rigorous: entire fairness standard of review. To obtain the least rigorous, business judgment standard of review, and reduce the risk of a minority stockholder challenge in a merger transaction between a company and its controlling stockholder, parties may condition the controlling stockholder merger on approval by: (1) a board committee composed of disinterested and independent directors and (2) the affirmative vote of a majority of the minority or unaffiliated stockholders (In re MFW Shareholders Litigation, 67 A.3d 496 (Del. Ch. 2013), aff'd sub nom., Kahn v. M&F Worldwide, 88 A.3d 635 (Del. 2014)). Similarly, parties may employ either one of these safeguards to shift the burden of proof to the plaintiff under the entire fairness standard of review (Emerald Partners v. Berlin, 787 A.2d 85, 98-99 (Del. 2001)). Moreover, a well-functioning special committee advised by its own independent financial and legal advisers, and/or an affirmative vote of a majority of the minority or unaffiliated stockholders makes a stronger case to support a finding of fair dealing or process, which in turn influences the fair price inquiry to satisfy entire fairness review. More ›
This is another example of when a conflict of interest may expose an investment banker to liability. More ›
This is a great case for an explanation of how a court should go about interpreting an ambiguous contract. It explains how extrinsic evidence is used and the role of the good faith negotiator principle.
There has been some debate about the effect of an approval by a majority of a company’s stockholders of a transaction with an unrelated third party - does that invoke the Business Judgment Rule? The question arose over different interpretations of two Supreme Court decisions in the Gantler and other KKR cases. This decision settles the debate by firmly holding that majority stockholder approval does invoke the BJR standard of review at least when the stockholders are fully informed.
Deciding if a director is sufficiently tied to a controller so as to be disqualified from passing on a transaction independently is an important decision because it may determine if a derivative suit meets the demand excuse test. More ›
This interesting decision both explains the conspiracy theory of jurisdiction and upholds an equitable contribution claim by the company required to advance fees to a director to have the director’s companies contribute toward those fees. This occurs when the second company has benefited by the conduct of the director acting for it.
There is no question that, in a books-and-records action, the scope of discovery is limited and such discovery is not an appropriate means of obtaining the same books and records sought in the action. In Chammas v. NavLink (Del. Ch. Aug. 27, 2015), however, the Delaware Court of Chancery rejected an argument that discovery should be limited to whether the plaintiffs had a proper purpose for the books and records demanded. Rather, the court held that it was appropriate for the company to produce discovery related to the affirmative defenses it asserted in the action. More ›
This an excellent review of the scope of a waiver of the attorney client privilege and it harmonizes conflicting prior decisions. It also is a good outline of what must be in a redaction log.
It is often said that when a majority stockholder issues more stock to himself at an unfair price that is a direct claim and not derivative. But as this decision points out, that is a little too simplistic. More ›
Aiding and abetting claims are often filed against those who have worked with a fiduciary that is breaching his fiduciary duty. This decision explains the requirements for such a claim, particularly the need to show the defendant is aware of the fiduciary’s breach of duty. The opinion is also a good primer on tortious interference law.
This decision has been widely reported as signaling the Court of Chancery’s intention to cut back on the wave of suits filed over almost every merger. More ›
Corporations are operated by humans, at least until the rise of Skynet (infamous as a primary antagonist in the Terminator movie franchise). As humans are prone to err, corporate acts may also be executed in error. In 2014, Delaware's legislature amended its General Corporation Law to include new Sections 204 and 205 that provide Delaware corporations the ability to cure certain defective corporate acts. Among other things, the new sections allow the Court of Chancery to determine the validity of any corporate act or transaction and any stock, rights or options to acquire stock. To date, only a handful of cases have generated written decisions concerning Sections 204 and 205. The Court of Chancery's Aug. 31 decision in In re Certisign Holding, C.A. No. 9989-VCN (Aug. 31, 2015), is one of the select cases dealing with the new sections. More ›
A principal difference between alternative entities and corporations under Delaware law is the ability in the former to modify or eliminate fiduciary duties. A Delaware court is required by statute to give effect to the principle of freedom of contract in interpreting limited liability company or master limited partnership agreements. When properly drafted, agreements modifying or eliminating fiduciary duties in alternative entities have real-world consequences particularly in conflict-of-interest transactions. A transaction with a controlling party that may not pass muster when challenged by equity holders in the corporate setting may be dismissed at the pleading stage when investors attacking the transaction must overcome the contractual standards in an alternative entity agreement. The recent case of In re Kinder Morgan Corporate Reorganization Litigation, Cons. C. A. No. 10093-VCL (August 20, 2015), illustrates this principle and reaffirms that Delaware courts will enforce alternative entity agreements as written. More ›
This decision explains that an advancement agreement that covers a former director for claims “related to the fact” he was a director has the same meaning as the more typical provision providing for advancement for claim arising “by reason of the fact” he was a director. More ›
This decision is an excellent primer for what must be plead to state a claim under various sections of the federal securities laws. The pleadings rules to establish a claim well enough to avoid a motion to dismiss are complicated and are well explored here. The opinion also has a good section on establishing jurisdiction over foreign defendants.