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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Morris James Blogs
This decision is an excellent explanation of the “bootstrapping doctrine” that seems to often befuddle litigants. Briefly, a plaintiff cannot “bootstrap” a breach of contract claim into a fraud claim except in certain limited circumstances that this decision explains. For example, misrepresentations made to induce a contract may form the basis for a fraud calm.
When is a corporate employee responsible for tortious conduct in that capacity? This decision answers that question in a very helpful way. For example, mere nonfeasance is not enough to impose liability on a corporate actor.
In this decision, the Court of Chancery declines to enforce an agreement to negotiate, applying Maryland law. The agreement set the rules of the road for any negotiations taking place between the parties, nothing more.
A material adverse change or effect clause permits a party to avoid its contractual obligations under certain circumstances. Delaware courts have addressed so-called “MAC” clauses in the merger agreement context on a number of occasions. Under that precedent, the party claiming a MAC has a high burden of proof and the alleged adverse change to a company’s business must be unexpected, serious, and extend over a significant period of time. A short-term hiccup is not a MAC. This decision is notable because it largely extends this law to the commercial contract context.
This decision explains the difference between a defendant’s right of setoff and recoupment. The key difference is that the right of setoff arises out of an independent transaction, while recoupment must be based on the same facts that support the main claim. Another difference concerns the statute of limitations. Setoff is subject to a three-year statute of limitations, while time-barred claims can be considered for recoupment when they arise out of the same factually-related transaction as the plaintiff’s claim.
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.
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.
This is an excellent primer on the rules that guide the proper interpretation of a contract. While the rules it applies are taught to first year law students, they are too often forgotten by those of us long out of school.
This decision holds that Delaware does not recognize a claim for the implied warranty of accuracy for a report of an inspection company. Of course, that does not mean there is no breach of contract claim for inspection services. The problem in such matters is that the contract often contains a limitation of damages clause that a clever plaintiff may try to avoid, but not this time.
Delaware Superior Court Clarifies When The Duty Of Acting In Good Faith Applies To Enforcement Of A Guarantee
This is a novel decision because it deals with when a guarantor can defend against enforcement of his guarantee by claiming the company whose obligations he guaranteed was wrongly put out of business by the plaintiff who is trying to enforce the guarantee. The Court held that there was a duty to act in good faith and fairly to permit that company to first fulfill its obligation to the guaranteed party, before it could enforce the guarantee against the guarantor. Whether this defense will win, of course, remains to be seen. However, the decision is a caution that it is important to not prejudice the ability of a party who has given a guarantee to have his guarantor pay off the debt..
A recurring problem in Delaware jurisprudence is whether breach of contract and fiduciary duty claims may proceed simultaneously. This decision explains when they are duplicative of one another so that the secondary claim [here the breach of fiduciary duty one] should be dismissed.
This is an important decision because it explains the specificity with which provisions indemnifying a party for liabilities under a separate contract must be stated. In this case, Glencore, which had sold an aluminum plant to an Alcoa subsidiary pursuant to an agreement in 1995 (the “1995 Agreement”), claimed that Alcoa had agreed in the 1995 Agreement to indemnify Glencore for any liabilities arising out of an earlier sale agreement pursuant to which Glencore had purchased the plant from Lockheed in 1989 (the “1989 Agreement”). In a separate litigation, Lockheed was claiming that Glencore had to indemnify Lockheed for certain environmental liabilities pursuant to the 1989 Agreement. More ›
A party to a contract may try to limit any future claims of fraudulent inducement by providing an anti-reliance clause in its contracts. As this decision explains, such clauses need to be carefully drafted and particularly need to address any oral statements made before the contract is signed. This decision is also useful for its coverage of the distinction between fraud and breach of contract claims based on whether the claim alleges fraudulent intent.
Not infrequently, the parties to a complicated contract include a contractual provision on how to resolve any later disputes. For example, it is common to agree to use an accounting firm to resolve accounting disputes, such as what is due under a payout formula. But what is the scope of review of such a determination? More ›
This is a potentially significant decision because it interprets a change in control clause to include a change in beneficial ownership of an entity's securities. Hence, not only actual changes in ownership may trigger such clauses and drafters need to be aware of this point.