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

Morris James Blogs


Court Of Chancery Explains The Continuing Wrong Doctrine

Posted In Fiduciary Duty

REDUS Peninsula Millsboro LLC v. Mayer, C.A. No. 8835-VCN (July 13, 2015)

It is settled law that a cause of action accrues when the wrong is committed, not when its effects continue to be felt in the future. But as this decision makes clear, that is not always the case. When additional wrongdoing adds to the injury, the action accrues with each wrongful act.

Court Of Chancery Declines To Second Guess On Compensation

Posted In Fiduciary Duty

Friedman v. Dolan, C.A. No. 9425-VCP (June 30, 2015)

This is another in the line of decisions that goes back at least as far as the Disney case where the Delaware Court of Chancery declines to upset the compensation awarded to officers and directors.  More ›

Court Of Chancery Explains Nontransactional Damage Claims

Posted In Fiduciary Duty

OTK Associates LLC v. Friedman, C.A. 8447-VCL (February 5, 2014)

This interesting decision deals with 3 aspects of fiduciary litigation in Delaware. First, under the Supreme Court's CERBCO decision, even if a transaction is called off, a fiduciary who proposed the invalid deal may be held liable for the company's expenses. This happens so rarely that it is not clear how to apply CERBCO.  Well, this decision explains how it applies. The decision also explains when demand is not excused before filing an amended complaint when the composition of the board has changed since the original complaint was filed. Briefly, the Court looks to see if the new complaint is really a new claim and if it is, then the new board's independence is tested to see if demand is excused.   Finally, the decision explains when a forum selection clause is not enforceable to remove the court's power to decide a breach of fiduciary duty claim.  When the forum selection clause deals with the parties' contract claims, it does not preclude a Delaware court from dealing with fiduciary duty claims.

Court Of Chancery Explains Stock Option Complaint Rules

Posted In Fiduciary Duty

Pfeiffer v. Leedle, C.A. 7831-VCP (November 8, 2013)

It is sometime thought that it is enough to state a claim for a complaint to just allege that the directors violated the terms of a stock option plan. Not so.  As this opinion points out, the complaint must also contain factual allegations that the directors knowingly violated the terms of the plan. A simple negligent violation is not enough to state a claim. Thus, if the terms of the plan are sufficiently ambiguous that the directors may have believed their actions conformed to the plan's requirements, the directors are not liable for a breach.

Court Of Chancery Explains Pleading Rules For Fiduciary Duty Claim

Posted In Fiduciary Duty

AM General Holdings LLC v. The Renco Group Inc., C.A. 7639-VCN (October 31, 2013)

This is another example of how the Court of Chancery treats breach of fiduciary duty claims that are duplicative of breach of contract claims. When the 2 claims overlap, the Court will dismiss the breach of fiduciary duty claim.  Of course, what constitutes such an overlap is not always easy to determine. This decision illustrates that process.

Court Of Chancery Upholds Complaint of Insider Abuse

Posted In Fiduciary Duty

TVI Corporation v. Gallagher, C.A. 7798-VCP (October 28, 2013)

If you are looking for a case that lists almost every abuse a controlling group of stockholders can make, this is it.  The decision also sets out the right scope of review and what are reasonable inferences sufficient to warrant upholding a variety of claims as well.

Court Of Chancery Permits Creeping Takeover

Posted In Fiduciary Duty

In re Sirius XM Shareholder Litigation, C.A. 7800-CS (September 27, 2013)

This is an interesting decision because it discusses the duties, or lack thereof, a large stockholder who is buying more stock on the open market to take control.  Here the stockholder had a contract that it entered into when it loaned a lot of money to the company that limited the company's ability to adopt a poison pill or otherwise prevent such stock purchases.  Yet even absent that contract, the court indicated that there is no fiduciary duty to offer a "fair" price when buying stock on the open market and no duty of a board to act to prevent those purchases.

Court Of Chancery Explains A Fiduciary's Duty To Selling Stockholders

Posted In Fiduciary Duty

In Re Wayport Inc. Litigation, C.A. 4167-VCL (May 1, 2013)

When does a corporate fiduciary owe a special disclosure duty to a minority stockholder whose stock he purchases?  There are several approaches to this question and this decision fully reviews them all.  Ultimately the Court adopted the so-called "special circumstances" rule that requires disclosure when the buying fiduciary knows of material facts not known to the seller.  Note that in this context what is "material" is a higher bar to pass than in a more common disclosure case.

The decision is also useful for its review of the equitable fraud and common law fraud rules,  particularly after a duty to disclose arises because of a past disclosure.

Court Of Chancery Rejects Special Rights For Minority Stockholders

Posted In Fiduciary Duty

Blaustein v. Lord Baltimore Capital Corporation, C.A. 6685-VCN  (April 30, 2013)

This decision affirms the long held law that Delaware does not recognize the "abuse of minority stockholders" theory whereby there is a duty to treat minority stockholders in such a way as to give them benefits that are not provided by contract or the law, such as dividends.

Court Of Chancery Permits Suit For Trustee To Proceed

Posted In Fiduciary Duty

Zutrau v. Jansing, C.A. 7457-VCP (March 18, 2013)

This decision permits a suit to proceed that seeks the appointment of a trustee for a solvent corporation based on allegations of breach of fiduciary duty.  That may be particularly unusual for prior decisions have required that there be a prior adjudication of a serious breach of duty before an action seeking a trustee might be filed. Perhaps here the gross breaches of duty alleged were enough to convince the Court to let the action go to trial.