About This Blog

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

Morris James Blogs

Links

Court Of Chancery Applies Entire Fairness To Controller Contract

In Re EZCORP Inc. Consulting Agreement Derivative Litigation,  C.A. 9962-VCL (January 25, 2016)

This is an important and useful decision for at least two reasons. First, the Court carefully analyzes past Delaware precedent to conclude that the entire fairness test applies not just to squeeze-out mergers, but also to other transactions where a controller obtains non-ratable benefits, such as contracts with an entity owned by a controller of the company. This is important because prior case law was inconsistent on the test it applied to such contracts.

Second, the opinion has an exhaustive review of Delaware law on how to determine if a director is interested for purposes of the demand futility standard to bring a derivative suit.

Court Of Chancery Requires Dismissal With Prejudice Of Withdrawn Derivative Suit

In Re Ezcorp Inc. Consulting Agreement Derivative Litigation, C.A. 9962-VCL (January 15, 2016)

When, after full briefing, the plaintiff decides that he cannot meet the heightened pleading rules of the recent Cornerstone case, may he just walk away without prejudice to his right to sue again later or must the suit be dismissed with prejudice not just to him but to all stockholders? More ›

Court Of Chancery Rejects Settlement Because Of Named Plaintiff Conflict

Smollar v. Potarazu, C.A. No. 10287-VCN (January 14, 2016)

This decision points out the hazard in providing a separate benefit to the named plaintiff in connection with the settlement of a derivative suit. In short, that is a bad idea and, as in this case, may cause the Court to reject even an otherwise good settlement because of concerns over the conflict of interest when the plaintiff may have agreed to a deal for his own benefit.

District Court Explains Caremark Proof Requirements In Pleading

In Re Chemed Corporation Shareholder Derivative Litigation,  No. 13-1854-LPS-CJB (December 23, 2015)

To meet the pleading requirements to state a Caremark claim it is necessary that you show either the board ignored signs of wrongdoing or at least took no steps to prevent such wrongdoing. This decision contains an excellent review of when a court will attribute knowledge of wrongdoing to a board of directors in the absence of direct proof the board was aware of those bad acts.

District Court Explains When Suit Is Direct Or Derivative In The Alternative Entity Context

Gimaex Holding Inc. v. Spartan Motors USA Inc., No. 15-CV-00515-RGA (December 22, 2015)

Whether a claim is direct or derivative often determines if it will survive a motion to dismiss. Who would get the benefit of a recovery is one test applied to make that decision. But in the context of a partnership, that test has some weaknesses considering the wrongdoer will benefit from the recovery as a partner if the claim is cast as derivative. More ›

Delaware Supreme Court Explains How To Do The Director Interest Test

Delaware Country Employees Retirement Fund v. Sanchez, No. 702, 2014 (October 2, 2015)

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 ›

Court Of Chancery Explains When A Dilution Claim Is Direct

Caspian Select Credit Master Fund Ltd. v. Gohl, C.A. 10244-VCN (September 28, 2015)

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 ›

Court Of Chancery Grants Stay Of Derivative Case

In Re Duke Energy Corporation Coal Ash Derivative Litigation,  C.A. 9682- VCN (August 31, 2015)

A stay of derivative litigation is hard to get even when there is another case pending elsewhere. But when, as here, the other litigation may expose the company to significant liability, a stay of the derivative action against the directors is easier to win in order to avoid the problems of simultaneously litigating both proceedings.

Court Of Chancery Denies Standing After Spin-Off

In re Abbvie Inc. Stockholder Derivative Litigation, C.A. No. 9983-VCG (July 21, 2015)

After a spin–off of a subsidiary, there is a question as to whether the subsidiary’s stockholders have standing to bring a derivative suit on behalf of the subsidiary for past wrongs against the subsidiary committed by the parent’s directors.  More ›

Court Of Chancery Explains That The Existence Of A Controlling Stockholder Does Not Determine Demand Is Excused

Teamsters Union 25 Health Services & Insurance Plan v. Baiera,  C.A.  No. 9503-CB (July 13, 2015)

A transaction with a controlling stockholder that is the subject of a derivative complaint still requires that a majority of the directors be interested before demand is excused. More ›

Court Of Chancery Explores Risk Management Duties

In re General Motors Company Derivative Litigation, C.A. 9627-VCG (June 26, 2015)

This decision involves the currently hot topic of the extent of a board of directors’ duty to properly assess corporate risks and act to prevent loss. More ›

Court Of Chancery Explains Claims Available To LLC Members

CMS Investment Holdings LLC v. Castle, C.A. No. 9468-VCP (June 23, 2015)

This is an interesting decision because it explains what direct claims are available to investors in an LLC. More ›

Court of Chancery Upholds Right To Secondary Offering

In Re Molycorp Inc. Shareholder Derivative Litigation, C.A. 7282-VCN  (May 27, 2015)

When investors bargain for the right to have their stock sold in a secondary offering after the company goes public, fiduciary duties normally do not operate to restrict that right. More ›

Court Of Chancery Awards Major Fee

In re Activision Blizzard Inc. Stockholder Litigation, C.A. 8885-VCL (May 20, 2015, revised May 21, 2015)

This decision will be remembered for the very large fee it awarded to some very entrepreneurial lawyers who risked their all to win a big case. More ›