Posts tagged Business Torts

Court of Chancery Holds Accountant Liable for Insider Trading

Deloitte LLP v. Flanagan, C.A. 4125-VCN (December 29, 2009)

This decision holds a partner in an accounting firm liable for trading on the nonpublic information that he received in connection with his work at his firm. The Court upheld several theories of liability in what appears to be a case of first impression in Delaware. Thus, this decision paves the way for enforcing the duty to not misuse insider information apart from the Federal Securities laws.

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Court of Chancery Resolves How to Treat Preemption Issue

Petroplast Petrofisa Plasticos S.A. v. Ameron International Corp., C.A. 4304-CC (October 28, 2009)

When does the Uniform Trade Secrets Act preempt claims arising out of the misuse of documents based on other legal theories such as  conversion? While not answering that question definitively, this decision does go a long way to clarifying how to decide that issue at the pleading stage.

Briefly, it holds that, if the alternative legal theory may be applied after trial because the documents in dispute are found not to be trade secrets under the Trade Secret Act definition, the case should go forward on alternative theories of recovery. This let the Court decide the case on the evidence and not some preliminary assessment based on the pleadings alone.

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Court of Chancery Upholds Forum for Trade Secret Litigation

LeCroy Corporation v. Hallberg, C.A. 4328-VCP (October 7, 2009).

This decision is another example of why Delaware is more frequently chosen to litigate trade secret or unfair competition disputes. For, while the defendant had no ties to Delaware other than its incorporation here, the Court declined to dismiss the litigation on venue grounds. Instead, the Court promptly dealt with the dispute, entering a status quo order, and resolving the venue dispute to get on with the case.

Moreover, it is widely thought that Delaware law is more favorable to protecting trade secrets than other jurisdictions. Delaware, for example, recognizes that it is inevitable that a former employee will use a valuable trade secret in competition with her old employer even if the secret is held only in her head. Other states are not so favorable.

Here, the defendant was dismissed for want of jurisdiction over the non-resident individual. Whether that result would have been the same had her employment contract contained a forum selection and consent to jurisdiction clause for Delaware remains to be seen.

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Court of Chancery Enforces Non-Compete Agreement

Concord Steel Inc. v. Wilmington Steel Processing Co. Inc., C.A. 3369-VCP ( September 30, 2009).

This is another in a line of decisions enforcing agreements not to compete. What is striking about this case is the apparent utter disbelief of the defendants that the agreement would actually be enforced. Defendants in these cases seem to think that, if they are not actually engaged in the exact same business as the other party to their agreement not to compete, the Court will say there is "no harm, no foul." Wrong!

Agreements not to compete may cover not just exactly the same business but any line of work that may be a substitute for a business' normal work. In any case, it is the language of the agreement that counts, and this decision illustrates that point.

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Court of Chancery Examines IP Claims

Sinomab Bioscience Limited v. Immunomedics, Inc., C.A. 2471-VCS (June 16, 2009)

In this rare case for the Court of Chancery, the Court determines the scope of noncompetition employment agreements. What is particularly interesting is the way the Court analyzed the testimony of the key witness to determine if he was telling the truth. This illustrates the critical role of circumstantial evidence in witness credibility and why it is so often a mistake to think that such evidence is not important or irrelevant to the real issues. Often that seemingly small point can make all the difference.

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Court of Chancery Delineates Employee Duties in Case of First Impression

Triton Construction Company Inc v. Eastern Shore Electrical Services Inc., C.A. 32390-VCP (May 18, 2009)

While it is well known that directors and officers have fiduciary duties, what about employees who are neither a director nor an officer?  This decision addresses that issue.  While the decision goes into a detailed analysis, in general, even a non-essential employee may have a fiduciary duty to her employer as an agent of the employer.  That duty then would require the employee to disclose certain conflicts of interest and to not compete with her employer.

This decision also has an excellent discussion of how to calculate lost profits in a business tort case.

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Court of Chancery Explains Scope of Exculpation Clause

Addy v. Piedmonte, C.A. 3571-VCP (Del. Ch. March 18, 2009)

It is now common to include a clause in contracts asserting that a buyer has not relied on anything she was told and instead has only relied on her own investigation and the promises contained in her written contract. Sellers then seek to defeat fraud claims by arguing that the buyer is barred from showing reliance on anything not exactly in the contract between the parties. Courts do enforce these provisions as they have a legitimate place in private ordering.

Here, the Court explains the limits of these exculpation clauses. Even sophisticated parties dealing with a purely commercial matter with the time to investigate may be able to state a claim for fraud despite such an exculpation clause. Briefly, it depends on how bad the lying seems to the court. This case reeks of a scheme to defraud an investor, and the Court was concerned that it would further the scheme if it dismissed the claim because of the exculpation clause. Note, however, that the plaintiff still has to prove he relied on what he claims was a false statement in the face of language in the contract that he was not relying on matters outside the contract itself. Somehow it seems, if he got past the motion to dismiss, he has a good shot at prevailing.

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Court of Chancery Refuses To Dismiss Business Tort Case

Agilent Technologies, Inc. v. Kirkland, C.A. 3512-VCS (Del. Ch. Jan. 20,  2009)

 

This decision is interesting because it illustrates what a party to litigation can or cannot say about the case. The failure to adhere to the rules results in a business tort claim for unfair practices, etc. Here is the rule in a nutshell: You can say that there is a suit on file but you cannot say that you are sure to win and put the other side out of business. After all, that is for the Court to decide.

 

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Court of Chancery Sanctions Counsel

Postorivo v. AG Paintball Holdings Inc., C.A. 2991-VCP (Del. Ch. Aug. 20, 2008)

This decision carefully reviews the rules that attorneys must follow in Delaware when dealing with possibly privileged documents belonging to another party or in interviewing former employees of an opposing party. Counsel must take care to preserve a possible privilege even if she thinks it is waived or not properly asserted. Further, what has become know as a Monsanto statement must be given to former employees of an opposing party before they are interviewed.

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Court of Chancery Explains Tortious Interference Claim

Excite LLC v. Soni, C.A. 2476-CC (Del. Ch. Aug. 1, 2008)

In this decision, the Court explains in detail what is needed to plead a claim for tortious interference with a business relationship. The opinion is particularly helpful in tackling the difficult issue of when a director may be considered to have interfered in a contract with his own corporation.

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District Court Denies Motion to Dismiss, Allows Duty of Care, Loyalty and Fraud Claims to Proceed

Ad Hoc Comm. of Equity Holders of Tectonic Network, Inc. v. Wolford, 2008 WL 212 7464 (D. Del. May 21, 2008)

The District Court recently allowed claims for breach of the duties of care and loyalty against former directors and officers of Tectonic Network, Inc. (the “Company”) to go forward, rejecting Defendants’ jurisdiction, standing and insufficient claim arguments. Plaintiff, an Ad Hoc Committee of Equity Holders in the Company, sued Defendants for purportedly improper conduct in connection with the acquisition of three businesses and the resulting sale of one of the Company’s subsidiaries. Plaintiff alleged that Defendant Officers (Officer #1 and Officer #2) committed fraud related to the Company’s actions, and all Defendants breached their fiduciary duties. Specifically, Plaintiff alleged that the Defendants breached their fiduciary duties in recommending and/or approving the acquisition of the three businesses, all of which Officer #1 had a majority interest in. Plaintiff also alleged that the Defendant Officers committed fraud in making material misrepresentations to the board regarding the profitability of the acquired businesses and the prospective profitability of a future business plan that resulted in the sale of the Company’s subsidiary. Subsequent to acquisitions and sales, the Company’s financial picture worsened, and it filed for voluntary Chapter 11 bankruptcy. The Bankruptcy Court lifted the stay to allow Plaintiff to press its claims outside of the bankruptcy proceedings. More ›

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Superior Court Dismisses Negligent Misrepresentation Claim Because Contract Barred Reliance On Extra-Contractual Representations

Transched Sys. Ltd. v. Versyss Transit Solutions, LLC, 2008 WL 948307 (Del. Super. Apr. 2, 2008)

This case illustrates Delaware’s objective theory of contract interpretation and underscores the importance of certain standard contractual provisions. 

The plaintiff purchased software from the defendants and argued that it incurred significant losses due to material misrepresentations, including, for example, the extent of completion of the software.  The defendants argued that the material misrepresentation claim was barred by the plain language of the contract, namely the exclusive remedy clause, integration clause, and disclaimer of extra-contractual representations. 

The contract stated that indemnification was the exclusive remedy “in respect of any breach of or default under this Agreement . . . .”  The integration clause stated that the written agreement was the entire agreement.  And, the reps and warranties clause stated that the seller was making no representation or warranty in respect of any of its assets.  The court held that the thrust of these three provisions was unambiguous: “no representations made outside of the four corners of the Agreement are to be given consideration by the parties in interpreting the terms.”  That is, the provisions precluded the plaintiff’s argument that it justifiably relied on the extra-contractual claims made by the defendants.

Accordingly, the Superior Court dismissed the plaintiff’s negligent misrepresentation claim.   

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Abbott Labs Sued by States Under Sherman Act

State of Florida, et al. v. Abbott Laboratories et al., Del. District Court 1:08-CV-00155 (filed March 18, 2008).

A group of eighteen states and the District of Columbia filed a complaint in Delaware District Court against Abbot Laboratories, Fournier Industrie et Sante and Laboratoires Fournier S.A. under the Sherman Act, alleging an unlawful monopolization of the fenofibrate market.  Defendants allegedly feared that competition from generic manufacturers would reduce profits from their TriCor product, a drug which regulates triglyceride and cholesterol levels.  The complaint can be viewed here.

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District Court Grants Summary Judgment on Consumer Fraud, Breach Claims

Millett v. Truelink, Inc., 2008 WL 345937 (D.Del. Feb. 7, 2008)

In this opinion the District Court granted the provider of a credit report monitoring service summary judgment on claims that it violated state consumer protection provisions and contractual obligations. Plaintiffs, who were spouses, had purchased a subscription to Defendant’s service, and alleged that Defendant failed to alert them to activity that resulted from theft of the husband’s social security number. Plaintiffs alleged that Defendant had violated Kansas’ Consumer Protection Act (“KCPA”) as well as breached the Credit Monitoring Member Agreement (“Member Agreement”) that Plaintiffs entered into when purchasing the service. Plaintiffs moved for class certification and summary judgment on their KCPA claims, and Defendant moved for summary judgment on the KCPA and several breach of contract claims. The Court found that neither the activity nor the advertising and marketing activities of Defendant were in violation of the KCPA provisions on unconscionable acts and practices, and Defendant was not in breach of the Member Agreement.  More ›

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District Court Finds That Participation in Delaware Merger Confers Jurisdiction, Denies Motion to Dismiss

G & G LLC v. White, 2008 WL 205150 (D. Del. Jan. 25, 2008)

In this opinion declining to dismiss for lack of personal jurisdiction, the District Court found that it had personal jurisdiction over both the directors/officers of a Delaware corporation and over a foreign corporation that invested in a Delaware corporation. Plaintiff was a Virginia limited liability company that loaned $2.5 million to a Utah corporation. Plaintiff was granted a security interest in the Utah corporation’s assets, and perfected that interest by filing the required financing statements in Utah. However, the Utah corporation subsequently was merged with and into a Delaware corporation. Plaintiff asserted that this was done at the insistence of various defendants that were seeking to invest in the Utah corporation after Plaintiff informed them that it would not agree to subordinate its security interest to theirs. Plaintiff posited that the investor defendants thereafter controlled the Utah corporation and the Delaware corporation it was merged into, and fraudulently concealed the merger to prevent Plaintiff from perfecting its security interest upon the merger, while at the same time perfecting their own in Delaware. Plaintiff pointed to numerous instances where the Utah corporation, the Delaware corporation, their counsel, the directors/officers of the Delaware corporation (who were appointed by the investor defendants), and the investor defendants failed to notify Plaintiff of the merger and/or made misrepresentations regarding the continuing status of the corporation as a Utah corporation. Taking the allegations as true, the Court found that the actions of the investor defendants and the directors they appointed was sufficient to confer specific jurisdiction over them.  More ›

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