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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Morris James Blogs
The Delaware Supreme Court overturned its long-standing precedent in Sternberg v. O'Neill, 550 A.2d 1105 (Del. 1988), and ruled that a foreign corporation's registration to do business in Delaware and related appointment of a registered agent for the acceptance of service of process did not subject the corporation to general jurisdiction in Delaware, in Genuine Parts v. Cepec, No. 528, 2015 (Del. Supr. April 18, 2016). Examining more recent U.S. Supreme Court jurisprudence undermining the rationale of the 1988 Sternberg decision, the Delaware Supreme Court concluded that compliance with Delaware's registration statutes could no longer be interpreted as a broad consent to personal jurisdiction in any cause of action, however unrelated to the foreign corporation's activities in Delaware. Thus, unless a foreign corporation has its principal place of business in Delaware or has operations here that are so substantial, continuous and systematic as to render the corporation "at home" here, Delaware cannot exercise general jurisdiction over the foreign corporation. Rather, personal jurisdiction will depend upon the presence of specific jurisdiction and a showing that the claim arose from the foreign corporation's activities in Delaware. More ›
To determine the applicable standard of review in a stockholder challenge to a corporate transaction, a plaintiff may rebut the business judgment rule by pleading facts that support a reasonable inference that "a controlling stockholder stands on both sides of a transaction, or at least half of the directors who approved the transaction were not disinterested or independent." If the business judgment rule is rebutted, the most rigorous standard of review, entire fairness, which examines fair dealing and fair price in a transaction, is applicable. A stockholder is deemed a "controlling stockholder," owing fiduciary duties to other stockholders, "if it owns a majority interest in [the corporation] or exercised actual control over the board at the time of the transaction." More ›
Under Delaware law, an entity doing any business in Delaware must register to do so and thereby appoint a registered agent to receive process. For years this was held to confer general jurisdiction over that entity, even for claims that did not arise out of the business it did in Delaware. This decision reverses that old law and confines jurisdiction over non-Delaware entities to claims that arise out of what they have done in Delaware. Of course, there are still exceptions to that general rule, such as when an entity expressly agrees to jurisdiction in Delaware.
Many non-Delaware lawyers will, at some point in their careers, find themselves practicing in a Delaware court after being admitted pro hac vice. For those that do, it is important to note that the Delaware courts take e-discovery seriously and have a sophisticated understanding of it. The body of e-discovery law in Delaware continues to grow, tackling issues as broad as document collection and as narrow as records review and privilege logging. This article serves as a primer on conducting e-discovery in the Delaware courts. More ›
Harrison v. Quivus Systems LLC, C.A. 12084-VCMR (April 7, 2016)
This is an interesting bench ruling because it illustrates the limits on discovery into the reasonableness of the fees sought in an advancement case. In general, that discovery will be postponed until after the Court determines there is a right to advancement.
This initial formal decision by the recently-appointed Vice Chancellor shows her firm commitment to the tradition of the Court of Chancery to produce well-written, scholarly opinions. Here the decision explains that after making a demand on a board to file suit and having that demand refused, a plaintiff must do more than plead the Board was wrong to deny the demand. Instead, the complaint must plead a factual basis for the Court to find the Board’s investigation was unreasonable or the Board acted in bad faith. While there are several ways to do just that, just arguing the board’s decision was bad is not one of those ways.
Defendants are often faced with complaints that assert multiple causes of action arising from the same set of facts and circumstances. A prime example of such a complaint is presented in CIM Urban Lending v. Cantor Commercial Real Estate Sponsor, L.P. C.A. No. 11060-VCN (Del. Ch. Feb. 26, 2016). In an effort to recover for a general partner's alleged improper payments to an affiliate, the plaintiffs in CIM asserted claims for breach of contract, breach of fiduciary duty, aiding and abetting breach of fiduciary duty and unjust enrichment. On the defendant's motion to dismiss, the court found that only the breach of contract claim could stand. The remaining claims, including for breach of fiduciary duty, were dismissed as duplicative of the core claim for breach of the limited partnership agreement. More ›
The Delaware courts regularly address contract claims arising out of merger agreements. Among other recurring issues are whether and how the parties limited claims based on alleged misrepresentations or omissions, whether a party can state a claim for breach of the implied covenant of good faith and fair dealing, and the nature of the remedies available in the event of breach. The recent case of Haney v. Blackhawk Network Holdings, C.A. No. 10851-VCN (Del. Ch. Feb. 26, 2016), addresses each of these issues and provides guidance to transactional and litigation attorneys concerned about minimizing litigation risk. More ›
In Sandys v. Pincus, C.A. No. 9512-CB, (Del. Ch. Feb. 29, 2016), the Delaware Court of Chancery considered the uncommon scenario of analyzing whether a demand made upon Zynga Inc.'s board of directors pursuant to Rule 23.1 would have been futile when the actions being challenged occurred at a time when Zynga's board was composed of several different directors. While a majority of the Zynga directors had not turned over between the time of the challenged actions and the time the litigation, enough of the interested directors were replaced in that period so that, at the time the derivative litigation was initiated, the Zynga board was populated by a majority of disinterested and independent directors. In considering whether demand on the Zynga board should be excused, the court analyzed this novel issue when determining what test should apply. More ›
Larkin v. O’Connor, C.A. 11338-CB (Transcript) (March 22, 2016)
This is an interesting decision because it explains the requirements for stockholder ratification of grants under a stock option plan. The stockholders have to vote not just on the plan itself, but on the actual grants for ratification of those grants to occur. Merely mentioning the actual grants in the proxy statement without having a separate vote on those grants themselves is not sufficient to constitute ratification.
This is an interesting advancement case as it applies the usual test of whether the former directors have been sued “by reason of the fact” they were directors in the context of suit against former owners’ representative for a merger agreement escrow account. Thus, it is a helpful precedent to apply that test. The court held that advancement would be required when the acts alleged involved acts the former directors took in their capacity as directors, even if the underlying suit was against them as former owner representatives. Thus it is the acts that lead to potential liability that count, not the capacity in which you are sued.
CorpCast Episode 11: Better Know a Judge: Vice Chancellor Joseph R. Slights, III of the Delaware Court of Chancery
On this episode of CorpCast, we continue our “Better Know a Judge” series with an interview of the newest member of the Delaware Court of Chancery, Joseph R. Slights, III. Joe discusses why he took a pay cut while his children are in college, his background, some advice for young lawyers, as well as what he’s looking forward to and dreading when he gets on the bench.
Love what you hear? Go to our podcast tab for archived episodes and be sure to follow @DECorpCast for the latest updates. If you have questions or comments, you can reach us at CorpCast@morrisjames.com. Thank you for listening! More ›
This is an interesting decision in the master limited partnership context because it shows how far a limited liability agreement may go to limit member rights to disclosures even in a conflicted deal. If the partnership agreement waives fiduciary duties and also states what disclosures are due to members asked to vote on a deal, then the specified disclosures are what they get, nothing more. Here the agreement stated that the members were to receive just the merger agreement. Of course, the members still had the right to object to the merger and that at least gave them some say over the transaction.
Are "disclosure only" claims now at an end in Delaware? Following the Delaware Court of Chancery's Jan. 22 decision in In re Trulia, 129 A.3d 884 (Del. Ch. 2016), various commentators have concluded Trulia "likely spells the end of disclosure-only settlements in Delaware." But as Monty Python famously said, "I am not dead yet," and the same may be true of claims attacking a corporate transaction for want of adequate disclosures. More ›
On today’s episode of CorpCast, we are joined by our colleagues Ian McCauley and Laura Readinger. Ian and Laura’s practice focuses on eDiscovery, and this episode covers Delaware developments on the subject over the past 16 months.
We cover global issues such as the role of Delaware counsel in discovery, and the Court of Chancery’s growing concern regarding the conduct of counsel throughout discovery. We also take a look at defensible document collection, preservation of text messages, and production of personal email. Finally, we discuss very narrow topics that the Court has tackled, including production of metadata and document review. More ›